The Student Debt Crisis? What Student Debt Crisis? The Brookings Institution Issues A Report Stating That The Problem of Student Debt Has Been Exaggerated

The Brookings Institutopn issued a report a few days ago suggesting that worries about a looming student-loan crisis may not be justified.  The report, entitled "Is a Student Loan Crisis on the Horizon?,"  makes these major points:

• Roughly a quarter of the increase in overall student debt can be attributed to the fact that more people are obtaining graduate degrees.
• Increases in average lifetime earnings have more than kept up with increasing student-debt loads.
• Average monthly student-loan payments have stayed the same or gone down a bit, due in part to longer loan-repayment periods.

In short, the Brookings Institution concludes: "[T]ypical borrowers are no worse off now than they were a generation ago."

The Brookings Report was widely reported in the media, including newspaper pieces in the New York Times and Slate.  The Times quoted one of the Brookings authors as saying, "The evidence does not support the notion that student loan debt is dragging down the economy." The Times article also pointed out that more than half of student-loan debtors owe less than $10,000; and more than three quarters of borrowers owe less than $20,000.

Without quarreling with any of the Brookings report's findings, I will just point out a few indicators that show a much less rosy picture:

First, as several newspaper articles have recently pointed, about one in five college graduates under the age of 35 now live with their parents--a percentage that has grown in recent years. Undoubtedly, student-loan debt is partially responsible for the growing number of college-educated young people who still live with Mom and Dad.

Second, the student-loan default rate is going up, more than doubling over the course of just a few years.  According to the Department of Education's most recent report (issued in October 2013), about 15 percent of student-loan borrowers default within three years of beginning the repayment phase of their loans. For students who attended for-profit institutions, the rate is about 21 percent.

And, as I have pointed out, for-profit colleges have been successful in hiding their default rates by encouraging their former students to sign up for economic hardship deferments that keep borrowers from being counted as defaulters even though they are not making their student-loan payments.

In fact, according to a recent report by the Consumer Financial Protection Bureau, we now have about 7 million people who have defaulted on their loans and another 15 million borrowers in the repayment phase who have obtained some sort of deferment that allow them not to make payments.

It is true, that millions of people owe only modest amounts on their student loans, and millions of college-loan borrowers are managing to make their monthly loan payments without difficulty.

But to say that monthly payments have not gone up overall because more people are taking 20 or 25 years to pay off their loans instead of 10 years is somewhat disingenuous.  People who are forced into long-term repayment plans because they can't afford to pay off their loans over 10 years will be paying a lot more in interest on their loans and many of them will not be making payments large enough to cover accumulated interest. 

Furthermore, even if most people are not burdened by their college loans, those 7 million defaulters have suffered a financial catastrophe.  Their credit ratings have been ruined, they are subject to wage garnishments, and they are saddled with debt that most of them cannot discharge in bankruptcy.  For these people--the student loan program has been a disaster.

In short, I think the Brookings Institution is wrong to suggest that a student loan crisis is not on the horizon.  On the contrary, the crisis is already here.

References

Beth Akers & Matthew M. Chingos. Is a Student Loan Crisis on the Horizon? Brookings Institution, June 2014. http://www.brookings.edu/~/media/research/files/reports/2014/06/24%20student%20loan%20crisis%20akers%20chingos/is%20a%20student%20loan%20crisis%20on%20the%20horizon.pdf

David Leonhardt. The Reality of Student Debt is Different From the Cliches. New York Times, June 24, 2014. Available at: http://www.nytimes.com/2014/06/24/upshot/the-reality-of-student-debt-is-different-from-the-cliches.html?_r=0

Jordan Weissmann. Are We Overreacting to Student Debt? Slate, June 24, 2014. Available at: http://www.slate.com/articles/business/moneybox/2014/06/brookings_institution_student_debt_crisis_have_we_all_overreacted.html

Nonsense from Adam Davidson in the New York Times Magazine About the Wisdom of Young Adults Living With Their Parents

Adam Davidson wrote an essay in the Magazine section of the New York Times about young adults who still live with their parents. The percentage of young people who live with Mom an and Dad has been going up--the figure is now 20 percent.  And--according to Davidson-- about 60 percent receive some financial assistance from their parents, much higher than in the past.

Davidson cites Jeffrey Jensen Arnett, a psychologist at Clark University, who coined the phrase "emerging adulthood." According to Arnett, the trend of young people moving back home with their parents is a "rational response to a radically different, confusing postindustrial economy."

For people who graduated from college with a high level of debt and no clear notion of their ultimate vocational goal, it makes sense to move back home with Mom and Dad until they figure things out; at least that's Arnett's reasoning. Davidson cites Arnett saying that "it's the people most actively involved in the struggle, the ones who at times seem totally lost, who are most likely to find their way."

Arnett also cites statistics showing that young people are remarkably optimistic.  According to a poll he conducted, 77 percent of young people still believe they will be better off than their parents!  Thus, in spite of a poor economy, a shortage of good jobs, and (for many) crushing student-loan debt, a lot of young people think things will eventually work out.

Personally, I think this line of reasoning is a lot of horse patootie (a phrase I borrowed from blogger Kathy Schiffer). Adam Davidson and Jeffrey Jensen Arnett can afford to be sanguine about the nation's economic malaise because they have good jobs.  Davidson is writing for the Times and Arnett is a professor and probably tenured.

But young people with college degrees who are forced to live with their parents due to poor job prospects and high levels of student-loan debt are in a scary position. They can't marry, have children, buy a home, or start their careers; in a very real sense they are merely trying to stay afloat financially--they are in survival mode.

I would have liked Davidson's article a lot more if it had displayed a spark of anger about a national economy that is eating the nation's young and about a rapacious higher-education industry that is impoverishing millions of young people with student-loan debt without giving them the skills they need to get well-paying jobs.

And I would have liked the article a lot more if Davidson had had some suggestions for reforming the nation's financial policies and the federal student loan program so that fewer people in their 20s have to live with their parents.  In short--the Davidson article is a puff piece published by a newspaper that pretends to care about people's suffering but is firmly dedicated to the economic status quo. After all, some body's got to buy those expensive watches that the Times Magazine advertises week after week.

References

Adam Davidson. "Hi, Mom. I'm Home!" New York Times Magazine, June 21, 2014, Magazine section, p. 22.

Senators Lamar Alexander and Michel Bennet Propose a Simpler FAFSA form: What a Good Idea!

"Everything should be made as simple as possible," Albert Einstein observed, "but not simpler."  And indeed, simplicity, is a great virtue.  How many of us have struggled with a problem we thought was complicated, only to have an "ah ha" moment when we realized our problem was not as complicated as we first believed.

"Everything should be made as simple as possible, but not simpler."

Senator Lamar and Senator Bennet Have A Good Idea for Streamlining Federal Student Aid Applications

Senator Lamar Alexander of Tennessee and Senator Michael Bennet of Colorado have struck a blow for simplicity in the federal student aid program, a program that is entirely too complicated.   As they explained in an op ed essay in the New York Times earlier this week, the two senators have introduced a bill to reduce the complexity of the standardized federal student aid form, which every college student must fill out to qualify for federal student aid.

Currently, this form, commonly called the FAFSA form, has 108  questions and is 10 pages long. With its attached instructions, the entire form is 82 pages long!

Senators Lamar and Bennet propose to throw this form out, which is so complicated and time-consuming that many students simply forgo applying for federal student aid. 

They want to substitute a form that only has two questions:  What is your family size? What was your household income two years ago?

Senators Lamar and Bennet's proposed legislation would also reduce the number of federal student loan programs to three: one program for undergraduates, another for graduate students, and a third for parents who borrow money to pay for their children's college education .  And, perhaps most importantly, they propose just two repayment options: the standard 10-year repayment plan and an income-based repayment plan.  

Lamar and Bennet's op ed essay did not provide any details about what their income-based repayment plan would look like.  Would it be a variation of President Obama's Pay As You Earn plan, requiring borrowers to pay 10 percent of their discretionary income over 20 years or would it would be a less generous variation?  But the simplicity of having a single income-based repayment plan will reduce the confusion many college-loan borrowers experience when they try to convert their 10-year repayment plans to long-term income-basde repayment plans.

Senators Lamar and Bennet acknowledged the input they got for their reform proposals from Susan Dynarski and Judith Scott-Clayton. Ms. Dynarski is co-author of a provocative Brookings Institution study that recommends payroll deductions as the most efficient way for students to make their loan payments if they are enrolled in income-based repayment plans. (I discussed this proposal in my last blog posting.)

Efficiency-Driven Reforms Are Good But Radical Reforms of the Federal Student Loan Program Are Necessary
Senator Lamar and Senator Bennet have made sensible proposals for improving the way the Federal Student Loan Program Operates. And Susan Dynarski and the Brookings Institution have also made reasonable proposals for collecting student-loan payments from borrowers who participate in income-based repayment programs.  

Without a doubt, these proposals will help make the federal student aid program operate more efficiently. But they won't help bring the federal student loan program under control.  These proposals do nothing to stop the runaway cost of higher education. They do nothing to address the abuses in the for-profit college industry, and they do nothing the ease the strain on millions of student-loan debtors who are already in default. 

We won't be getting serious about addressing the student loan crisis until we amend the bankruptcy laws to allow worthy college-loan debtors to obtain bankruptcy relief, publicize the real student-loan default rate, and rein in the for-profit colleges.  Unless we do these things, other reform proposals will do nothing more than put a band-aid on a gaping wound. 

References

Lamar Alexaner & Michael Bennet. An Answer on a Postcard. New York Times, June 19, 2014, p.  A25.

If You Have a Student Loan, You Should Read Susan Dynarski's Proposal for Having Student Loan Payments Automatically Deducted From Debtors' Pay Checks

Susan Dynarski

If you took out a federal student loan to attend college, you should read Susan Dynarski's op ed essay in last Sunday's New York Times entitled "Finding Shock Absorbers for Student Debt."  Ms. Dynarski explains why two proposals for assisting overburdened student-loan debtors will not be very effective.  And she makes her own proposal for deducting borrowers' monthly student-loan payments directly from borrowers' pay checks.

Reducing Interest Rates on College Loans Won't Give Borrowers Much Relief

Recently, Senator Elizabeth Warren introduced legislation to significantly lower  interest rates on student loans, legislation that President Obama supported. Warren's bill would have covered the cost of lower interest rates by raising taxes on the wealthy. Not surprisingly, Republicans opposed the bill, and it did not get enough votes to move forward.

Ms. Dynarski points out that even a large cut to student-loan interest rates won't have much impact on individual students' monthly loan payments.  Borrowers with $30,000 in student loans (which is the average amount that college graduates owe when they finish their studies) would only see a $44 reduction in their monthly loan payments  if the interest rate on their loans was reduced from 6.5 percent to 3.5 percent--which  is a big reduction.

Thus the recent hype about Senator Elizabeth's failed attempt to pass legislation to reduce interest rate on student loans is a tempest in a teapot.  Even if Senator Warren's bill had bee adopted into law, it would not have given the mass of student-loan debtors much relief.

President Obama's Pay As You Earn Plan Is Too Cumbersome to Give Borrowers Much Relief

Dynarski also pointed out that the President Obama's Pay As You Earn program, whereby students make student-loan payments based on a percentage of their income, is so cumbersome that a high percentage of borrowers haven't applied for it even though they are behind on their loans or in default. One problem with Pay As You Earn is that the program does not respond quickly enough to borrowers who lose their jobs. A student-loan borrower's monthly loan payments are based on the borrower's previous year's income, so a borrower who is thrown out of work in mid-year would have to wait many months before seeing a reduction in the size of  monthly loan payments.

Dynarksi and the Brookings Institution Propose Automatic Student-Loan Payroll Deductions

Dynarksi proposes an automatic income-based loan repayment program, whereby employers would simply deduct the appropriate college-loan payment from borrowers' paychecks just like they make deductions for federal income tax, Social Security contributions and health insurance.  The borrower's monthly payment would fluctuate as income goes or up or down; and a borrower who is unemployed would pay nothing during the period of unemployment.

Dynarski's plan is a little more complicated than I've explained but not much.  The proposal is set out in detail in a paper released recently by the Brookings Institution, which recommended that an automatic income-based repayment program be the default option for students who take out federal student loans.

Dynarksi's automatic income-based loan repayment plan has many attractive features. First of all, if fully implemented, it would completely eliminate all student-loan defaults.  Any student-loan borrower who is employed would see a payroll deduction for student loans on every paycheck.

Second, an automatic paycheck deduction plan would virtually eliminate the need for loan collection agencies.  The IRS (or perhaps the Department of Education) would in essence by a giant federal student-loan collection agency.

Long-Term Automatic Payroll Deductions for College-Loan Borrowers Is a Sharecropper Plan

What's the downside?

As I've said before, income-based student-loan repayment plans  do nothing to stop the spiraling cost of higher education. Putting millions of students on income-based repayment plans might actually reduce the incentive for colleges an universities to get their costs under control.

Second, and far more ominously, in my opinion, putting students on long-term income-based repayment plans, whereby college-loan payments are automatically deducted from borrowers' paychecks over a period of 20 or 25 years, essentially transforms all young people who borrow money to attend college into a class of sharecroppers who fork over a percentage of their income over the majority of their working lives simply for the privilege of getting a college education.

And this is why I don't like the Dynarski/Brookings Institution proposal.  But my best guess is that something like what Dynarksi and the Brookings Institution have proposed will eventually become the default option for most people who pursue postsecondary education.


References

Susan Dynarski. Finding Shock Absorbers for Student Debt. New York Times, June 15, 2014, Sunday Review Section, p. 8.

Why Humiliate Yourself To Get into an Ivy League College? The Search for a Richer Life

Years ago I had a professor at the University of Texas who hung his college diploma in the guest bathroom of his home--right above the toilet.  As I recall he was a Harvard graduate.

I remember being offended by the gesture, intended I suppose to be ironic. If I had the opportunity to go to Harvard or any Ivy League university, I told myself, I would hang my diploma in a place of honor.

Years later I obtained a doctorate degree from Harvard, one of the stupidest things I ever did. For years I hung my diploma in my office, but today it hangs in a back hallway of my home.  I didn't put my Harvard diploma in an obscure place to be ironic.  I just came to realize how meaningless my Harvard degree really is.

Yesterday, Frank Bruni had an op ed piece in the New York Times about people humiliating themselves in their college admissions essays in order to stand out and perhaps improve their chances of being accepted at an elite college.  One young woman, Bruni wrote, confessed in her essay that she had once urinated on herself rather than interrupt an intellectually stimulating conversation with a teacher. Another young man revealed his disappointment with size of his genitals. Other students enroll in college-application camps, which can cost up to $14,000, where they are taught how to polish their college admissions essays to make them more appealing to Ivy League admissions officers.

Why do young people turn themselves inside out to get into an elite American university--Harvard, Yale, Dartmouth, Brown, Duke, Columbia, etc. I suppose they believe that these institutions hold the key that unlocks the golden door. If only I can get a degree from Harvard, these people tell themselves, I will have a richer life.

But I think many people who hanker to go to an elite college will be disappointed if they actually enroll. For the most part, these institutions are intellectually vapid, surreptitiously  racist, and pathetically provincial in their outlook on the world. They are openly contemptuous of American culture and traditional American values.  The people who run these cesspools of privilege think they embrace diverse philosophies and points of view, yet they harass traditional Christian student groups.  The professors and administrators of these intellectual ghettos think they are guardians of truth and beauty, yet they scorn the very notion that there are universal truths. Indeed, a great many people who inhabit our elitist universities seek nothing more from life than money, power, and public recognition.

If only I could get into Harvard!

Moreover, our elite institutions are not producing people who can analyze and solve problems, as evidenced by the way the Obama administration is running the country. Almost everyone connected withe the present  administration in Washington has a degree from an elite British or American university, and yet it is evident to nearly everyone that these folks do not know what they are doing.

And of course, all these prestigious colleges and universities are outrageously expensive. It will cost you around sixty grand a year to hang out with a bunch of nincompoops.

I was ruminating on Bruni's essay yesterday morning when I walked into my parish church to attend Mass. I saw four nuns of the Missionaries of Charity sitting in the back of the church--sisters of Mother Teresa's order. They are quite distinctive in their white veils with the blue stripes--veils that always remind me of my grandmother's tea towels.

As I looked at these nuns I realized that there is a great gulf between a humiliating life and a life lived in humility. Some people are willing to humiliate themselves in order to get into Harvard or Yale. Others are humble enough to give their lives to God.

And I wondered, as I turned to genuflect before the tabernacle, who has the richer life--the people who dedicate their lives to God or the people who get a degree from Harvard?

References

Frank Bruni. Naked Confessions of the College Bound. New York Times, June 15, 2015, Sunday Review Section, p. 3.

We Don't Need No Stinkin' College Rating System: President Obama's Plan to Rate Colleges on Value Faces Congressional Opposition

President Obama is determined to impose some sort of college rating system on the nation's higher education institutions, even though the higher education community opposes it. And President Obama is also getting blow back from Congress.

Republican Representative Bob Goodlatte of Virginia and Democrat Representative Michael Capuano of Massachusetts introduced a resolution in the House of Representatives opposing Obama's college rating proposal. The resolution states in part:

[T]he Administration's proposal to rate postsecondary institutions through an oversimplified Federal rating system that is not supported by postsecondary institutions, statute, or by the House of Representatives, will lead to less choice, diversity, and innovation, and should be rejected. 

Senator Lamar Alexander has also stated his opposition to the college-rating plan in a speech on the floor of the U.S. Senate. Senator Alexander expressed skepticism that the Department of Education can come up with a reliable and workable rating plan.

I don't know whether Representatives Goodlatte and Capuano are right to conclude that a college-rating system will lead to less diversity and fewer choices in higher education.  But I do think the plan will have no beneficial impact on the spiraling cost of attending college and will add yet another level of bureaucracy to universities that are already bloated with too many administrators.

Don't form a committee on snakes.
Photo credit: NBC News

In my mind, the Department of Education's focus on a college-rating system is a diversion from the urgent task of reforming the federal student loan program.  As Ross Perot once observed, if you see a snake, kill it. Don't form a committee on snakes.

My prediction is this:  President Obama's college-rating proposal is going nowhere.

References

Michael Stratford. Obama defends college rating system amid growing backlash from Capitol Hill. Inside Higher Ed, June 11, 2014.

House Resolution Strongly supporting the quality and value of diversity and innovation in the Nation's higher education institutions and strongly disagreeing with the President's proposal to create and administer a Postsecondary Institution Rating System. [Introduced by Reps. Goodlatte and Capuano on June 10, 2014]

Is Senator Elizabeth Warren a Paper Tiger? Her Bill to Lower Interest Rates Was a Non-Starter

A lot of people think Senator Elizabeth Warren is a fierce advocate for college-loan debtors, a feisty bulldog who strives mightily to get some relief for the millions of young Americans who are burdened with crushing student loans. I once thought so myself.

But I've become skeptical.  So far,Warren's basic thrust has been to advocate for lower interest rates on federal student loans. Lower interest rates will give college-loan borrowers some relief, of course; but lower interest rates will do nothing to stop the spiraling cost of higher education--which has forced students to borrow more and more money every year in order to attend college. 

And lowering interest rates will do nothing to clean up the fraud and abuse in the for-profit college industry--a problem that Warren says little about.

Earlier this week, Warren's bill to lower student-loan interest rates failed in the U.S. Senate, killed by the Republicans.  The bill never had a chance of passing because it included a provision to raise taxes on the wealthy--something Republicans would never vote for.

And of course Warren knew that. Basically the bill was a cynical attempt to paint the Democratic Party as the friend of indebted college students while embarrassing the Republicans by portraying them as hardhearted protectors of the rich.

All fine theater of course, but did anything get accomplished? No--not a damn thing.

I realize of course that getting real student-loan reforms through Congress will be difficult. The for-profit industry and its lobbyists are very powerful; and the for-profits make strategic contributions to key legislators like Speaker of the House John Boehner.

But Warren could render real service simply by publicizing just how bad the student-loan mess is.  She should demand, for example, that the Department of Education release information about the true default rate--not the watered-down rate that it publishes every October.

In addition, she could team up with outgoing Senator Tom Harkin and publicize how the for--profit colleges are exploiting low-income and minority students.

She could advocate for a reform of the Bankruptcy Code so that millions of insolvent student-loan debtors could discharge their loans in the bankruptcy courts.

But no--she is content to sponsor legislation that she knows will go nowhere simply to embarrass the Republicans.

I suspect that Senator Warren's core constituency in Massachusetts--all those corpulent, self-satisfied and arrogant colleges like Harvard, Boston University, Brandeis, etc. etc.--are quite happy to see their senator engage in sound and fury regarding the student loan program. They know Senator Warren's bombast will never lead to any legislation that would threaten their interests.

So just keep yakking, Elizabeth; go right on yakking.

References

Julie Hirschfield Davis. In School Speech, Obama Deplores Blocking of Student Debt Bill. New York Times, June 12, 2014, p. A20.