Tuesday, July 9, 2013

Student Loan Rates are Shockingly--Almost Fradulently--Inaccurate: Comments on Education Sector's Recent Report

Earlier this month, Education Sector, a nonprofit higher-education policy group, issued a report calling for better information on student loan default rates.  Written by Andrew Gillen, the report

points out that the U.S. Department of Education only measures default rates over the first three years of the loan-repayment period and does not break down data by various sub-populations.

DOE's three-year student-loan default rate masks an ugly reality--millions are in default

I have a couple of comments about the Education Sector report. First, it is very late in the day to call attention to the fact that DOE's reports on student-loan defaults are woefully inadequate.  I called attention to that problem more than 15 years ago in an edited book on student loans.  Nevertheless, I am glad Mr. Gillen highlighted this problem again.

Second, Mr. Gillen's report, although useful and professionally prepared, understates the deficiencies in DOE reports on student loan defaults. In my opinion, DOE's reports are so inadequate as to border on fraudulent misrepresentation.

As The Education Sector report explains:
[DOE] considers a loan to be in default if the borrower is more than 270 days behind on payments. The default rate is the percentage of a school's borrowers who enter repayment during a fiscal year and default within three years. . . Only subsidized and unsubsidized Stafford loans are included in the default rate calculation. The default rate calculation ignores Parent Plus, Grad Plus, and Perkins Loans.

So--first off, a borrower must be delinquent on a student loan for nine months to even be counted as a defaulter.  In reality, DOE is only measuring defaulters during the first two years and 3 months of the repayment period, not three years, since anyone who defaults within 270 days of the end of the measuring period is not counted as a defaulter. 

Second, and more importantly, DOE's default rate does not include people who received economic hardship deferments during the measurement period--people who are exempted from making their loan payments due to dire economic circumstances like unemployment. We know some for-profit institutions encourage their students to obtain economic hardship deferments as a way of keeping institutional default rates down. 

DOE does not report on how many people are receiving economic hardship deferments, how long those deferments typically last, or how many people who get a deferment ever begin making their loan payments. 

And that is no small matter. I have written about the Hedlund bankruptcy case, in which a man received a series of economic hardship deferments on his student loans over a period of many years and was never in default. About 20 years after taking out his loans, he filed for bankruptcy.  Although he had been excused from making payments by his economic hardship deferments, his loan size had nearly doubled due the fact that  interest had accrued over the years.

The Hedlund case  is an indication that there may be a lot of people who are on long-term economic hardship deferments who are not making loan payments and whose total indebtedness is growing.  Without knowing that number, we really can't say what the true student-loan default rate is.

DOE's anemic student-loan default rate also does not include people who are making monthly payments under income-based repayment plans. About 1.2 million people are making student-loan payments under IBR plans, and many are making payments that aren't large enough to pay down the balance of their debt.  In fact, some are seeing the amount of their debt grow because their payments don't cover accruing interest on their loans.

In my opinion, people who have economic hardship deferments that last more than three years and people in IBR plans whose loan payments are so small that their debt is actually growing are in default.  Not technically, of course--but the reality is that many of these people--probably most of them--will never pay back their student loans.

So what's the true student-loan default rate?  DOE says it is 13 percent over the first three years of the loan repayment period.  But measured over the life time of the loan repayment period, it is much higher.  It's probably at least 35 percent, maybe higher.

That Tired Old Metaphor: Rearranging the Deck Chairs on the Titanic

I've used this tired old metaphor before, but forgive me for repeating it. Education policy makers are not dealing with the enormity of the student loan crisis; they are rearraning the deck chairs on the Titanic.

Not long ago, the Bill and Melinda Gates Foundation awarded grants to 16 higher education policy groups, which were charged with making recommendations for improving the student-loan program.  Entitled Reimagining Aid Design and Deliver (RADD), the project elicited 16 reports and a wide variety of recommendations. I did not read all 16 reports word for word, but I did read the executive summaries. I don't think any of the 16 reports mentioned the fact that DOE's student-loan default rate masks the reality of how many former students have defaulted on their loans.

In my opinion, most of the higher education advocacy groups, think tanks and professional organizations--organizations like the American Council on Education, the National Association of Student Financial Aid Administrators, and the Association of Public and Land-Grant Universities---are pretending that the status quo for the federal student loan program  is both acceptable and sustainable--we just need to tweak it a bit.

Friends, the status quo of the student loan program is not acceptable and it's not sustainable.  Student loan indebtedness totals $1 trillion; and it grows bigger every day. It's time to face the fact that this well-meaning program has ruined the lives of millions of college borrowers and that a big percentage of this trillion dollar debt is never going to be paid back.


Andrew Gillen. In Debt and In the Dark: It's Time for Better Information on Student Loan Defaults. Education Sector, July 2013. Accessible at: http://www.educationsector.org/publications/debt-and-dark-it%E2%80%99s-time-better-information-student-loan-defaults

Richard Fossey (1998).  The dizzying growth of the federal student loan program: When will vertigo set in?  In R. Fossey & M. Bateman (Eds.), Condemning students to debt: College loans and public policy.  New York: Teachers College Press.

Richard Fossey & Mark Bateman, M. (Eds.) (1998). Condemning students to debt: College loans and public policy.  New York: Teachers College Press. 

National Assocation of Student Financial Aid Administrators (2013). Policy Themes in RADD Reports: A Summary Matrix. Accessible at: http://www.nasfaa.org/radd-event/


Thursday, July 4, 2013

Emigrate! To Avoid Becoming Sharecroppers, Some Young People Will Leave the United States to Escape Student Loan Debt

Last Sunday’s Times contained an article by Felix Marquardt, a French writer who urged French young people to leave France to find better economic opportunities in other countries. France has become a “decrepit, overcentralized gerontocracy,” Marquardt argued, and “French youths should pack their bags and go find better opportunities elsewhere in the world . . .”

At this very moment, young people all over the world are emigrating from their home countries in search of a better life. Eastern Europeans, Asians, and Africans are particularly prone to emigrate. But the notion that young people in 21stcentury France should emigrate for economic reasons seems incredible. Indeed, according to Marquardt, he and two colleagues sparked a national uproar when they first proposed emigration for French young people in a newspaper article last year.

State Highway Officials Moving Sharecroppers
Photo credit: Arthur Rothstein, 1939

How about young Americans? Should they consider leaving the United States to begin new lives in other countries? Yes, the time has come for the nation’s young people to seriously explore emigration--especially if they are burdened by crushing student-loan debt.

Americans have amassed more than $1 trillion in student-loan indebtedness. Currently, more than 37 million people are burdened by student loans, including several hundred thousand elderly people. Nearly 6 million borrowers are behind on their loans or in default, and that doesn’t include people who received economic hardship deferments and are not making their loan payments.

Thanks to congressional legislation and heartless bankruptcy courts, this debt is almost impossible to discharge in bankruptcy. And thanks to a Supreme Court decision, the government can garnish loan defaulters’ Social Security checks to collect unpaid student loans.

Student-loan debt is not a big problem for people who hold good jobs and can comfortably make their loan payments. But young people are having a hard time finding good jobs. Sixteen percent of young people in the 18 to 29 age bracket are unemployed (Deruy, 2013), and that doesn’t include young people who are holding down low-wage jobs because they cannot find jobs suitable for their skills and training. About half of the nation’s college graduates hold jobs that do not require a college education and many of these graduates are working in low-paying jobs in the restaurant and service industry.

Thus, for Americans who are burdened with massive student loans and declining economic opportunities, emigration to another country is a reasonable option. Marquardt suggested that nations with growing economies such as China, Brazil, Turkey, India and Indonesia might be good places to emigrate.

Income Based Repayment Programs Turn Student-Loan Debtors Into Sharecroppers

President Obama knows that the federal student loan program is a huge problem for young Americans (and some not so young). In 2012, his administration introduced a modified IBR called a “Pay as You Earn” plan, which allows student-loan debtors to pay back their loans over a 20 year period based on a percentage of their income (U.S. Department of Education, 2012). At the end of the 20-year repayment period, any unpaid loan balance will be forgiven.

There are lots of problems with IBR initiatives--including the Obama administration’s “Pay As You Earn” plan. First of all, under current IRS regulations, loan debt that is forgiven is counted as taxable income. Thus, theoretically, at least, some people who conscientiously make their monthly loan payments for 20 years based on their income could face a huge tax bill when the repayment period comes to an end.

Second, an income-based repayment program removes a student’s incentive to avoid borrowing more money for college than is needed. Students who know their loan payments will be based on their income and not the amount they borrowed will have little reason to limit the total amount of their loans.

Some of these problems can be addressed through legislation or modified program design. For example, the IRS can amend its regulations to eliminate the tax consequences of forgiven student loans; and an IRP program can surely be designed to keep students from borrowing extravagantly.

In my mind, however, the chief evil of income-based repayment programs is that they require students to pay a portion of their income to student loan agencies for the majority of their working lives. In essence, an income-based repayment plan turns student-loan debtors into sharecroppers--people forced to fork over a portion of their income to the government for 20 years in return for the privilege of going to college.

Indeed, IBRs are identical to the economic model of the sharecropper system that prevailed in the South during the early 20th century. Sharecroppers paid a percentage of their crop to wealthy landowners in return for permission to work someone else’s land (Woodward, 1951).

Eventually, the rural sharecropper system collapsed, and hundreds of thousands of Southern sharecroppers abandoned farming and immigrated to California during the 1930s. John Steinbeck memorialized this tragedy in his great novel, The Grapes of Wrath.

Higher Education Insiders Endorse the Sharecropper Option

One might think the American higher education community could come up with a more creative proposal for addressing the student-loan crisis than income-based repayment plans. Unfortunately, a number of higher education policy groups have endorsed IBRs.

Recently, the Bill and Melinda Gates Foundation awarded more than $3 million to various higher education advocacy groups to make recommendations for improving our nation’s financial aid program for college students. Titled “Reimagining Aid Design and Delivery”(RADD), the project produced 16 reports from such groups as the National Association of Student Financial Aid Administrators (NASFAA), Education Trust, the Association of Public and Land Grant Universities, and the Institute for Higher Education Policy.

Incredibly, not one of these 16 reports recommended significant bankruptcy relief for student-loan debtors or legislation barring the garnishment of Social Security benefits from elderly people who default on their student loans. (Commendably, two of the 16 reports recommended legislation that would allow private loans to be discharged in bankruptcy.)

Even more incredibly, eight of the reports--fully half--recommended that college students be automatically enrolled in income-based repayment plans when they take out student loans. That’s right--half of the organizations responding to the Bill and Melinda Gates Foundation’s RADD project recommended putting all student-loan participants in a giant sharecropper program.

The specifics varied somewhat, but eight of the so-called RADD reports recommended some variation of an income-based repayment program as the default option for all student-loan debtors. All these proposals would require students who participate in the federal student loan program to make monthly payments based on a percentage of their income for a long period of time--at least 20 years.

For Some Overburdened Student Loan Debtors, Emigration Will Be Preferable to an IBP

The cost of a college education goes ever upward. The cost of attending an elite private university--tuition, feels, and living expenses--is approaching a quarter million dollars. Higher education leaders may think we can continue on this catastrophic spiral by forcing students to borrow more and more money and pay it back over an expanding period of time. In essence, they think America’s young people will consent to be sharecroppers.

I think they are wrong. Increasingly, we will see bright and talented young people forego expensive colleges altogether rather obligate themselves to 20-year repayment plans. I also think we will see some of the nation’s brightest young people immigrate to other countries where they perceive better economic opportunities than are available to them in the United States.

Marquardt described France as a country run by a “decrepit, overcentralized gerontocracy.” I see the United States as a plutocracy--a nation governed by the wealthy for the benefit of the wealthy. Exhibit A, in my opinion, is America’s prestigious universities, with their overpaid executives and obscene tuition prices. They say they offer financial aid to deserving applicants who are poor--but their main goal is to preserve the status quo for the rich.

Just as Europeans immigrated to the United States to escape plutocratic government, perpetual wars, military conscription, and lack of economic opportunities, American young people will soon be emigrating to other countries where they see brighter economic futures for themselves. And when that happens, America’s higher education community will bear a large part of the blame.


Burd, Stephen, et. al (2013, January29). Rebalancing Resources and Incentives in Federal Student Aid. New America Foundation. Accessible at: http://newamerica.net/publications/policy/rebalancing_resources_and_incentives_in_federal_student_aid#ACCOUNTABILITY,%20TRANSPARENCY,%20and%20REFORM

Durey, Emily (2013, May 3. April Jobs Report Paints A Bad Picture for Young Adults. ABC News. Accessible at http://abcnews.go.com/ABC_Univision/News/april-jobs-report-makes-clear-young-adults-struggle/story?id=19101235#.UdXM3DubP6c

Education Trust (2013). Doing Away With Debt: Using Existing Resources to Ensure College Affordability for Low and Middle-Income Families. Accessible at: http://www.edtrust.org/sites/edtrust.org/files/Doing_Away_With_Debt_1.pdf

Institute for College Access and Success. (2013 February). Aligning the Means and Ends: How to Improve Federal Student Aid and Increase College Access and Success. Accessible at: http://www.ticas.org/files/pub//TICAS_RADD_Executive_Summary.pdf

Marquardt, Felix (2013, June 30). The Best Hope for France’s Young? Get Out. New York Times, Sunday Review Section, p. 4.

National Association of Student Financial Aid Administrators. (2013, March 14). Policy Themes in RADD Reports: A Summary Matrix. Accessible at: http://www.nasfaa.org/EntrancePDF.aspx?id=13701

National Association of Student Financial Aid Administrators (2013). Reimagining Financial Aid to Improve Student Access and Outcomes. Accessible at: http://www.nasfaa.org/radd-event/

Rothstein, Arthur (1939). State Highway Officials Moving Sharecroppers, January 1939. A Photo Dossier on Sharecropping. Accessible at http://www.english.illinois.edu/maps/poets/a_f/brown/photos.htm

United States Department of Education (2012, December 21). Education Department Launches 'Pay As You Earn' Student Loan Repayment Plan. Accessible at: http://www.ed.gov/news/press-releases/education-department-launches-pay-you-earn-student-loan-repayment-plan

Woodward, C. Vann. Origins of the New South: 1877-1913. Baton Rouge, LA: Louisiana State Univsersity Press, 1951.

Friday, June 28, 2013

Warning: Don't Enroll in an Elite College if You Are Poor

The U.S. Department of Education has a so-called "College Affordability and Transparency Center." I'll bet you didn't know that.

 Of course, DOE isn't completely transparent.  It won't tell you the true student-loan default rate, for example.  But you didn't want to know that anyway, did you?

DOE's center recently posted its so-called  "hall of shame,"  a list of the country's most expensive colleges.  In 2012, the most expensive private nonprofit college was Columbia University, where it costs $45,000 a year to attend.

Interestingly, DOE's "hall of shame" list posts two prices for each institution--the college's list price and its net price, which is lower.That's right--colleges are just like car dealers.  They have a sticker price for suckers and a lower price for favored clients.

Who are the colleges' favored clients?  Athletes, people with high SAT scores, offspring of alumni and minorities.

Oh, yes--and poor people.  The elite colleges say they want a "socioeconomically diverse" student body and they often offer financial aid to poor students, which the colleges call the "socioeconomically disadvantaged."

This is how it works at Columbia University, as explained by Robert Hornsby, Columbia University's Vice President for media relations.  "As a result of our full-need financial aid program," Hornsby said, "Columbia has continued to attract among the most socioeconomically diverse student bodies among peer institutions. The university takes pride in its continued commitment to ensuring that students can attend Columbia regardless of their family's financial circumstances."

Don't you wish you could sling bull around like Mr. Hornsby? Well, you can learn to talk like that if you get a degree from Columbia and it will only cost you about a quarter of a million bucks (including living expenses).

And if you are poor it will cost you less to attend Columbia, because you will be eligible to participate in Columbia's "full-need financial aid program." Sounds great doesn't it?

Unfortunately, poor people who attend elite colleges don't always fare well.  For example, let's look at Angelica Gonzales, a young Hispanic woman who was featured in a recent New York Times story.  Angelica was from a low-income family in Galveston, Texas, but she was admitted to Emory University in Atlanta--the Harvard of the South.  Because of  her family's income status, she was eligible to participate in Emory's financial aid program, which was supposed to cover most of her costs.

What a great opportunity!

Unfortunately, things did not work out well for Angelica.  Because of miscommunication with the university, Angelica wound up borrowing $40,000 for her first year at Emory. Later, Emory miscalculated her family's income, making her ineligible to participate in a grant program for families making less than $50,000 a year. As the Times reporter described the error, "Emory repeatedly inflated her family’s income without telling her."

Angelica wound up borrowing $60,000 to attend Emory.  Worse--she was unable to complete her degree and dropped out of college. At the time the Times story was published, Angelica was back in Galveston making $8.50 an hour working at a Galveston furniture store. And she is burdened with $60,000 in student-loan debt.

Emory's Lynn Zimmerman
photo credit: Emory Univ.
Did Emory try to make things right for Angelica? According to the Times, Emory refused to recalculate Angelica's student aid in spite of its error. Lynn Zimmerman, a senior Emory administrator, put part of the blame for the mistake on Angelica, saying she should have advocated for itself.  (Let's hope Emory later reconsidered.)

I don't know how Angelica feels about her Emory experience; she may have no regrets.  But in my opinion, Angelica would have been better off if she had never heard of Emory.

Angelica Gonzales' story may be unusual, but I don't think so. I think a lot of low-income kids get lured into attending elite colleges thinking this will be their ticket to a better life.   Often the financial aid does not cover all costs, and they are forced to borrow heavily.  And often the support networks are not in place to make sure low-income students are successful when they enter the rarefied world of the elite private college.

If things don't work out for these low-income students--if for some reason they don't complete their degree or they complete their degree and don't get a good job--they are in real trouble if they took out student loans.

And if a student runs into financial trouble, do you think that elite college is going to be around to help? I don't think so.

In my opinion, most young people who come from low-income or modest-income families would be better off going to a state university or even a community college rather than borrowing a lot of money to attend a fancy East Coast university or a joint like Emory. 

Let's face it, you don't have to attend an elite private college to get a good education.  You can get one for a lot less money closer to home.


Jason DeParle (2012, December 22). For Poor, Leap to College Often Ends in a Hard Fall. New York Times, p. 1.  Accessible at: http://www.nytimes.com/2012/12/23/education/poor-students-struggle-as-class-plays-a-greater-role-in-success.html?pagewanted=all&_r=0

Libby Nelson (2013, June 28). Education Department releases annual tuition pricing lists. Inside Higher Education

Note: All quotes in this essay came from the Times article cited above or the above-cited article in Inside Higher Education.

Wednesday, June 26, 2013

Young People Hopelessly Mired in Heavy Student Loan Debt: It’s Not Their Fault

Jennifer Silva wrote an excellent essay for the Sunday Times about the alienation and isolation of working-class young people “who are trying to figure out what it means to be an adult in a world of disappearing jobs, soaring education costs and shrinking social support networks.” Many of these young people are in dead-end jobs and a lot of them have college-loan debts for educational experiences that did not open the door to a middle-class income.

Photo credit: USA Today
As Silva pointed out, the economic hardships these people have suffered is well documented. What society as a whole fails to realize, however, are the so-called “hidden injuries” these young people have endured.  “Increasingly disconnected from institutions of work, family and community, they grow up learning that counting on others will only hurt them in the end,” Silva wrote. Many feel betrayed by the institutions in their lives--“colleges, the health care system, employers or government.”

One of Silva’s observations struck me as particularly poignant--the fact that many young people who have failed to achieve economic self-sufficiency blame themselves. “[T]hese young men and women don’t want your pity--and they don’t expect a handout,” Silva wrote. “They are quick to blame themselves for the milestones they have not yet (and may never) achieve.”

This tendency for young people to blame themselves for their economic misfortunes seems particularly prominent among young people who borrowed money to attend college and were then unable to pay off their loans. “It was my fault,” many of them say, “that I borrowed too much money, chose the wrong major, or dropped out of college without finishing.”

This tendency toward self blame was illustrated in a New York Times story about Cortney Munna, a woman who took out nearly $100,000 in loans to obtain an interdisciplinary degree in religious and women’s studies at New York University. At the time the article was published, Cortney had been out of college nearly five years and was making $22 an hour.

As the New York Times author put it, Cortney longed for a do-over of the previous decade of her life. “I don’t want to spend the rest of my life slaving away to pay for an education I got for four years and would happily give back,” she said. “It feels wrong to me.”

Later, Cortney apparently regretted that statement--taking full responsibility for her predicament. In an essay published in the Times, this is what Cortney said:
First and foremost, I openly acknowledge my responsibility for my current situation, as well as the naïveté in my estimation of the return on investment of a “high quality” education and a liberal arts degree. My only explanation is that once I was in school, I didn’t think much about tuition beyond filling out the paperwork, and I did what I always had done: focused on my education. 
I accept that this was negligent on my part, but unfortunately, I was too young to know better. I also willingly admit that I am responsible for repaying the money I borrowed. I have been doing this, to the best of my ability, over the course of the last five years and have every intention of continuing to do so. The one part of this process that I regret is being quoted as saying I would happily give back my degree. That’s an emotionally charged statement that only comes out during moments of my most intense frustration.
Personally, I am sorry Cortney recanted her original statement about happily giving back her degree.  That statement--in my opinion--accurately implied that part of the blame for her predicament should be attributed to other parties--including Citibank, who loaned her $40,000 after she was already heavily indebted. As the Times writer observed, “[W]hat was Citi thinking, handing over $40,000 to an undergraduate who had already amassed debt well into the five figures?”

Unfortunately, I think many former college students who are hopelessly indebted by their student loans are like Cortney--they primarily blame themselves. And that attitude has allowed the status quo to continue to the benefit of the wrong parties, including the banks, the universities, and overpaid university executives.

I was heartened for awhile by the Occupy Wall Street movement, hoping that this protest movement might take fire and ignite change.  But the Occupy protesters were put down in short order by brutal police tactics.  At UC Davis, for example, campus police officers assaulted the Occupy protesters with pepper spray.

Returning to the recent essay by Jennifer Silva, this is the point I wish to make. Silva is right that many young people who were badly treated by the new economy and by higher education are blaming themselves for their predicament. In my opinion, these people are victims who should be assigning a majority of the blame to other parties.

It is true that the federal student loan program has helped millions of young people obtain a college education.  But it has also ruined the lives millions more.

Currently, Americans are burdened by more than a trillion dollars in student-loan indebtedness.  Congress refuses to amend the bankruptcy laws to provide relief for the people who deserve relief.  It refuses to rein in the for-profit universities, which have the highest student-loan default rates. Universities--both public and private--have feasted off the student loan program, and their executives are making obscene amounts of money.  Private banks have their noses at the trough, recklessly loaning money to students at high interest rates.

In short--a lot of parties are at fault for our current predicament. Personally, I hope overstressed student-loan debtors stop blaming themselves and get angry at the people who created this mess.


Ron Lieber. (2010, May 28). Placing the Blame as Students Are Buried in Debt. New York Times. Accessible at: http://www.nytimes.com/2010/05/29/your-money/student-loans/29money.html?pagewanted=all

Cortney Munna. (2010, June 1). More on Cortney Munna’s Student Loan Tale. New York Times. Accessible at: http://bucks.blogs.nytimes.com/2010/06/01/more-on-cortney-munnas-student-loan-saga/

Jennifer Silva. Young and Isolated. New York Times, Sunday Review Section, p. 7.

Wednesday, June 19, 2013

The Eye of the Needle: NYU Loans Money to Fat Cats to Buy Second Homes

Remember when college and university leaders bragged that American higher education is the envy of the world? I think Derek Bok, president emeritus of Harvard, said that.
John Sexton, President of NYU
Photo credit: nymag.com

You don't hear that boast much any more. People would laugh in your face now if you said American higher education is the best in the world. Americans know that a college education costs too much and that it becoming more and more questionable regarding whether anyone learns anything from sitting in 30 or 40 college classes.

Part of our disillusionment with American higher education stems from the way its leaders behave. The Times published a story yesterday about New York University's loans to its president, John Sexton, and other so called university "stars." NYU pays Sexton a salary of nearly $1.5 million, it guaranteed him retirement benefits of $800,000 per year, and he is due to receive a "length of service" bonus in 2015 of $2.5 million. That's not enough to keep Sexton happy?

Apparently not. According to the Times, NYU loaned Sexton $1million for the purchase of a summer home on Fire Island. This is one of about 100 loans NYU has made to faculty and administrators, including a loan to the former law school dean for a 65-acre estate in Connecticut. Some of these loans are forgiven, essentially making them cash gifts.

Sexton, exhibiting the brazenness one might expect from someone with his compensation package, said home loans to NYU faculty help keep tuition down. "Faculty housing loans on which interest is paid and appreciation is enjoyed by the university actually produce additional revenue," he said. "They're probably the best-performing part of our portfolio, so as to reduce the amount of tuition that we require."

What a load of bull. According to a Huffington Post story, NYU's 2010 graduates had amassed a
student-debt load of nearly two thirds of a billion dollars, the highest in the nation with the exception of students graduating from a few for-profit institutions. And the cost of obtaining a degree, including tuition, housing and other expenses is about $280,000.

University trustees all over the United States claim that obscene compensation packages are necessary to attract top talent. But when they say this, they are basically admitting that our top university executives are motivated by greed.

I need $800 K and a car allowance
I don't buy it. I don't believe colleges, universities, banks, and corporations have to pay their people ridiculous amounts of money in order to obtain good executive leaders. Can you imagine the Catholic Church being run that way? Picture St. Francis saying this to the Pope: "Yes, I can organize a world-wide religious order for you full of pious monks who have sworn a vow of poverty, but I will need 800 K, a summer home in Tuscany, and a car allowance."

What was it Jesus said? "[I] it is easier for a camel to go through the eye of a needle than for a rich man to enter the kingdom of God." But of course John Sexton isn't thinking about the Kingdom of God. He's going to Fire Island, not Heaven.

In our postmodern society, a meaningful life is now measured by wealth, power, and recognition. Even President Obama is probably plotting his next gig. He's been editor of the Harvard Law Review and President of the United States; he's even won the Nobel Peace Price. But that's in the past. To have a well rounded life, Obama will have to become president of a prestigious university--Harvard, Yale, or the University of Chicago.

It is time for Americans--Catholic Americans, at least--to say no to this model of a successful life. It is time to say we will not live our lives in search of wealth and power. We won't send our children to college and universities led by buffoons like John Sexton, and we won't take out student loans to finance the extravagant lifestyles of a bunch of clowns.

It is time to look at different models for living--models provided by people like Dorothy Day, who dedicated her life to the poor, and St. Katharine Drexel, who gave all her wealth away in service to Native Americans and African Americans.

It will be hard to turn our backs on postmodernism. Our colleges and universities preach it, the New York Times and the New Yorker preach it, and our politicians preach it. The Times and the New Yorker murmur liberal platitudes but their pages are crammed with advertisements for luxury goods. They know what their readers really want--a Rolex watch.

In my view, only the Catholic Church--that battered, sin-riddled and seriously flawed institution--can restore our nation to sanity. We were not meant to live in the materialistic and power-mad world we created. God meant for us to care for our families, to ease the suffering of the disadvantaged, and to lead modest and wholesome lives. Unless we turn away from postmodern insanity and return to our Mother Church, I believe our society is lost.


Ben Hallman, NYU's 'Toxic' Expansion Prioritizes Marketing Over Debt-Saddled Students, Professors Day, Huff Post Business, June 17, 2013. Accessible at: http://www.huffingtonpost.com/2013/06/17/nyu-expansion-student-debt_n_3437097.html

Ariel Kaminer & Alain Delaqueriere, N.Y.U. Gives Stars Loans for Summer Homes, New York Times, June 18, 2013, p. A1.

Monday, June 17, 2013

The Panhandler on Siegen Lane: The Student Loan Crisis and Reflections on Dorothy Day

Dorothy Day
I took the Siegen Lane exit off of Interstate 10 a few days ago and saw a panhandler standing at the end of the exit ramp. He was holding a sign that read: "Hungry, Need Food, Please Help."

He was young, clean, and apparently well fed. As I watched from my car, I saw him take a long, luxuriant drag from his cigarette.

I couldn't help but smile and think of my late mother. My mother hated panhandlers, and she especially hated panhandlers who smoke.

There are plenty of jobs available, she would say. That Siegen Lane panhandler could be working at McDonald's instead of standing on the street begging for money. And a smoking panhandler, she would point out, obviously has money for cigarettes--money he should be spending on food.

My mother was especially infuriated by panhandlers who promised to work for food. She often threatened to call their bluff by offering them a job raking leaves or some other menial chore. She didn't think anyone would accept her offer.

No--in my Mom's view--actually working is anathema to a panhandler. Panhandlers would rather loaf around on a street corner waiting for a handout than rake leaves for a meal.

I disagree with my mother. In my opinion, anyone who stands on street corner on a hot Louisiana day is working--there's nothing easy about that.

Moreover, I discovered through experience that most panhandlers will thank me graciously if I give them a couple of bucks, and many said "God bless you." In my opinion, two bucks for a sincere "God bless you" is a fair transaction.

How about those smoking panhandlers? Should we boycott them?

Dorothy Day would say no. I recall reading that Dorothy once gave a homeless woman an expensive ring that had been donated to the Catholic Worker, and she was criticized for it. People said the homeless woman would pawn the ring and spend the money on drink--that it would have been better for Dorothy to have sold the ring and used the proceeds to pay the woman's rent.

The woman can sell the ring herself, Dorothy replied, and use the money however she likes. She might pay the rent or she might decide to spend the money on a Caribbean vacation! That would be her choice.

If we insist on categorizing the needy into the deserving and the undeserving, we will wind up helping no one. Congress doesn't want to help overstressed student-loan debtors because some of them borrowed too much money to attend college and some made poor choices in choosing their majors--art history instead of business, for example.

I say, so what? Millions of former college students are burdened by crushing student loans they will never pay back. Why not provide them some assistance instead of stewing over whether or not they deserve help?

I confess, I don't always follow my own advice. I don't help every panhandler who approaches me. I definitely don't like being accosted at night by a panhandler in the Walgreen's parking lot. But that guy standing on a hot street corner waiting for a motorist to roll down the car window and give him fifty cents--I say let's help him out a bit.

And so--when I saw that clean, young, and apparently well fed panhandler standing at the roadside on Siegen Lane, I gave him two dollars.

I admit, however, that my mother's spirit came welling up within me as I handed over the money. "Those cigarettes,"I chided, "will kill you."

Saturday, June 8, 2013

Let's face reality: The federal student loan program is not a problem; it is a catastrophe.

We reached those last days when we could endure neither our vices nor their remedies.
                                                                                    Titus Livy, on the decline of Rome
If Congress does not act, interest rates for the federal student loan program will rise to 6.8percent in July of this year. 
Last week, three Republican senators published an op ed essay in the New York Times suggesting what they think is a better way for setting student loan rates than the current system.  Senators Lamar Alexander, Tom Coburn and Richard Burr proposed that student-loan interest rates be set at the fluctuating 10-year Treasury rate plus 3 percent.
Keeping interest rates low for student loans is obviously a good thing for students. But let's face it, the student loan program is a catastrophe, and low interest rates for student loans won't fix this enormous problem.
First of all, although the federal government has never revealed the true default rate on student loans, evidence from many sources shows that it quite high. For students who attend for-profit institutions, the default rate over the lifetime of the repayment period is probably 40 to 50 percent.  Lowering interest rates is not likely to shrink the default rates--especially in the for-profit sector.
Second, income-based repayment plans, which are being pushed as a way to ease the burden on overstressed student-loan debtors, are making the default problem worse.  Lowering default rates will provide some marginal relief to former students in IBRPs, but it won't solve their underlying problem, which is that they borrowed more money than they can pay back.

Under an IBRP, students pay back their loans over a long period of time--20 to 25 years--based on a percentage of their income.  Any unpaid amount at the end of the repayment period is forgiven.
This may sound like a great idea, but this is the harsh reality:  A lot of student-loan debtors who participate in IBRPs, probably a majority of them, will never pay back their total loan obligations even if they make every loan payment on time.

Why? Because under an IBRP, the monthly loan payment will not be enough to cover accruing interest for many student-loan debtors. Thus, their debt will continue to grow even if they faithfully make their monthly payments.
A recent New York Times story illustrates this problem. The Times reported on a veterinary school graduate who borrowed $300,000 to attend a for-profit veterinary school in the Caribbean.  She obtained a job as a veterinarian--which is a good thing, and she is paying back her loans under an income-based repayment plan.
Unfortunately, her loan payments are not enough to pay back the accruing interest on her loans.  The New York Times estimated that the total amount of her debt will grow to $600,000 by the time her loan repayment obligations end even if she makes every payment on time!
Back when I was practicing law, my senior law partner told me I should admit my mistakes as soon as I realized I had made an error.  The longer I went without acknowledging my mistakes, my partner stressed, the bigger my problems would become. 
Over the years, I have found my former law partner's observation to be true 100 percent of the time.  The whole premise of the federal student loan program is flawed.  Over time it has grown into a $100 billion a year industry that has benefited colleges and universities but has hurt a lot of students. Total outstanding indebtedness is now over $1 trillion--making student loan debt the second biggest consumer-debt sector in  the American economy after home mortgages.
Fixing this mess won't be easy, and it will be painful.  But if we don't take drastic action, the federal student loan program (and the accompanying private student loan industry) will destroy American higher education. Indeed, it has already seriously undermined legal education.
What must we do? 
First, we must allow overstressed student-loan debtors reasonable access to the bankruptcy courts.  Let's face facts: most defaulting student-loan debtors are never going to pay back their loans, even if they are denied bankruptcy relief.  It would be far better both for debtors and the national economy if these unfortunate people were permitted to clear their debts in bankruptcy and go on with their lives.
Second, we must stop allowing for-profit colleges and universities to participate in the student loan program.  Even if all for-profit institutions were acting in good faith--and some of them are not--the default rate in this sector is simply too high to justify for-profit participation in the student loan program.
Furthermore, the U.S. has plenty of non-profit and public institutions to serve the needs of postsecondary students. In my opinion, postsecondary students would have plenty of good options for obtaining a college degree even if the University of Phoenix, Kaplan University and Capella University did not exist.
Finally, every college and university in the United States must be obligated to freeze tuition and fees at the current level as a condition of participating in the federal student loan program: and they must be further obligated to freeze salaries and benefits of their top executives.
President Obama, Congress, and the higher-education industry want to tinker with the student-loan problem, which is growing bigger every day. But lowering interest rates and encouraging students to go into income-based repayment programs will not fix this problem.  The solutions must be drastic, and they must be painful.


Lamar Alexander, Tom Coburn and Richard Burr. Playing Politics With Student Debt. New York Times, June 5, 2013, p. A21.

David Segal, High Debt and Falling Demand Trap Vets. New York Times, February 23, 2013, p. A1.