Wednesday, November 25, 2015

Going out of Business Sale!! Prices Slashed!! Everything Must Go!! Colleges that heavily discount student tuition are teetering on the brink of closure

According to a survey conducted by the National Association of College and University Business Officers, private colleges discounted their tuition prices for first year students by an average of 48 percent in 2014. Think of it: on average, a private college now charges only about half its tuition sticker price to its freshman class.

And the discount rate is going up. Inside Higher Ed reported that the discount rate has risen 20 percent in just seven years: from 39 percent in 2007 to 48 percent last year.

Moreover, at many schools, nearly everyone gets a discount. As explained by Inside Higher Ed, 69 percent of the colleges surveyed by NACUBO offered discounts to 90 percent or more of their students last year.

As many experts have pointed out, heavily discounting tuition rates is not sustainable. In fact, heavy discount rates are a sure sign that a college is in trouble. Sweetbriar College, for example, which closed (and then reopened) last year, was discounting its tuition price by 62 percent, but still couldn't attract enough students to keep its doors open.

 NACUBO's survey determined that almost 10 percent of private colleges discounted their tuition prices by an astounding 60 percent, surely a bad sign for all the colleges that discount at that level. “If your discount rate is at 60 percent, that's a very dangerous warning sign,” observed David Breneman, former Dean of the University of Virginia's school of education (as quoted in Inside Higher Ed).  “If you were any other business of any other sort [you wouldn’t] think you were in a very good position.”

What does this mean for higher education in general? At least three things:

1) First, a liberal arts education at a non-elite private college is not worth what colleges have been charging, and everyone knows it.

2) Second, heavy discounts are destroying colleges' credibility.  When 90 percent of students are getting a discount and when discount rates average nearly 50 percent, everyone know that colleges have posted deceptive sticker prices for their tuition. They've become like Texas fireworks peddlers: "Buy 1 and get 6 free!"

3) Third, a lot of small, nondescript private colleges will close in the coming years. A Moody's report on colleges' financial viability predicted that college closures will triple by 2015, which would mean about 15 colleges will close that year. But surely that figure is too conservative.

Personally, I think we will see many private liberal arts schools closing in the coming years. The economics of getting a liberal arts degree from an obscure private college just don't make sense anymore. In fact, if it weren't for the federal student loan program, which is propping up the private-college sector, half of them would be closed already.

Image result for "fireworks stand" images
Discounting college tuition prices: Buy 1, Get 6 free!

References

Kelly Woodhouse. (2015, November 25). Discount Much? Inside Higher Ed. Accessible at: https://www.insidehighered.com/news/2015/11/25/what-it-might-mean-when-colleges-discount-rate-tops-60-percent?utm_source=Inside+Higher+Ed&utm_campaign=389f6fe14e-DNU20151125&utm_medium=email&utm_term=0_1fcbc04421-389f6fe14e-198565653


Thursday, November 19, 2015

Dade Medical College is closing and its former CEO is charged with making illegal campaign contributions: All its former students should have their federal student loans forgiven

Dade Medical College, a Florida for-profit institution that trains medical professionals, is closing. Its former CEO, Ernesto Perez, is a high-school dropout and former rock musician who at one time made a salary of $431,000 a year; and the college collected $100 million in federal student aid money over a three-year period.

DMC students, however, didn't do so well. According to the Miami Herald, DMC's  Hollywood (Florida) campus had a pass rate of only 13 percent on the 2014 Florida nurses' exam.

And DMC surely benefited from strategic political contributions. David Halperin, writing for Huffington Post article, wrote:
Perez and his wife have given at least $100,000 to political candidates and PACs, with recipients including Barack Obama, Mitt Romney, Senators Marco Rubio (R-FL), Bill Nelson (D-FL), Harry Reid (D-NV), and Robert Menendez (D-NJ), Reps. Debbie Wasserman Schultz (D-FL) and Joe Garcia (D-FL) . . . .
Miami Herald writer Fred Grimm reported that Perez and his associates made $750,000 in political contributions. And a couple of Florida state legislators were actually on DMC's payroll. Indeed, Perez was recently charged with making illegal campaign contributions

What is going to happen to DMC's 2000 students, most of whom took out student loans to finance their studies? The U.S.  Department of Education has a program in place whereby students can have their federal loans forgiven if their institution closes before they complete their studies. There is also a loan forgiveness program for students who were defrauded by the educational institution they attended.

But these programs are cumbersome. Only a small fraction of  Corinthian Colleges' former students have obtained relief from their student loans, even though Corinthian recently filed for bankruptcy and is being investigated by several states' attorneys general for misrepresentations and other improprieties. Corinthian has 350,000 former students, but as of September only about 3,000 of them have had their student loans forgiven.

It is probably true that some people actually benefited from attending Ernesto Perez's medical college. After all, a small percentage of DMC students who took the nursing exam actually passed it.

But surely most DMC students have a good argument that their student loans should be forgiven. So why should DMC students have to file individual claims to have their loan obligations wiped out?

Given what we know about this tawdry institution, it does not seem fair to require all of DMC's former students to go through an elaborate administrative process in order to have  their student loans forgiven.  No--DOE should wipe the slate clean for everyone who took out a federal student loan to attend Dade Medical College.

Image result for ernesto perez dade medical college
Ernesto Perez in court
photo credit: Al Diaz, Miami Herald

References

Francisco Alvarado. Dade Medical College Has Powerful Friends but Struggling Students.  Broward/Palm Beach  New Times, August 29, 2013.  Accessible at: http://www.browardpalmbeach.com/2013-08-29/news/dade-medical-college-has-powerful-friends-but-struggling-students/

Patricia Born & Jay Weaver. Homestead mayor's ties to downtown redeveloper probed. Miami Herald, June 8, 2013. Accessible at: http://www.miamiherald.com/2013/06/08/v-fullstory/3441091/homestead-mayors-ties-to-downtown.html


Read more here: http://www.miamiherald.com/2013/06/08/v-fullstory/3441091/homestead-mayors-ties-to-downtown.html#storylink=cpy
Dade Medical College.  Ernesto Perez to be Honored at SFBJ CEO Awards. 2013. Accessible at: http://www.dademedical.edu/rightnow/ernestoperezbehonoredsfbjceoawards

Kelly Field, "U.S. Has Forgiven Loans of More Than 3,000 Ex-Corinthian Students, Chronicle of Higher Education, September 3, 2015. Accessible at: http://chronicle.com/article/US-Has-Forgiven-Loans-of/232855/?cid=pm&utm_source=pm&utm_medium=en

Fred Grimm. Before his fall, Ernesto Perez bought himself lots of friends. Miami  Herald, November 4, 2015. Accessible at: http://www.miamiherald.com/news/local/news-columns-blogs/fred-grimm/article42988848.html

Read more here: http://www.miamiherald.com/news/local/news-columns-blogs/fred-grimm/article42988848.html#storylink=cpy

David Halperin. $33 Million Per Year of Your Tax Money to For-Profit College Whose CEO Hid Criminal Record. Huffington Post, October 21, 2013. Accessible at: http://www.huffingtonpost.com/davidhalperin/33-million-per-year-of-yo_b_4136451.html

Michael Vasquez. Amid criminal charges, CEO of Dade Medical Ccollege Resigns. Miami Herald, October 23, 2013. Accessible at: http://www.miamiherald.com/2013/10/23/3706821/ernesto-perez-resigns-as-head.html

Dade Medical College owner turns himself in. Miami Herald, November 3, 2015. Accessible at: http://www.miamiherald.com/news/local/education/article42643344.html

Michael Vasquez and Christina Veiga. A for-profit empire, Dade Medical College, tumbles down. Miami Herald, October 30, 2015. Accessible at: http://www.miamiherald.com/news/local/community/miami-dade/article41967387.html


Tuesday, November 17, 2015

The Department of Education's so-called plan to "strengthen" the student loan system is pathetic. Do President Obama and Secretary of Education Arne Duncan really care about distressed student-loan debtors?

On October 1, 2015, the U.S. Department of Education issued a report entitled Strengthening the Student Loan System to Better Protect All Borrowers. It's about time. More than 20 million people are struggling with unmanageable student loans, including 10 million who are delinquent on their loans or in default.

But what a pathetic document! Clearly President Obama and Secretary of Education Arne Duncan don't have the moral courage to seriously address the student-loan crisis. They are just tinkering with this problem, hoping they can keep the student-loan crisis off the public's radar screen until after Obama leaves office.

Here are my specific critiques:

Garnishing Social Security checks of elderly student-loan defaulters. The federal government garnished the Social Security checks of a 155,000 student-loan defaulters in a recent year, which is shameful. It is true that the U.S. Supreme Court approved this practice in its heartless Lockhart decision; but President Obama, using his discretionary enforcement powers that he so often invokes, could stop garnishing Social Security checks immediately. But he hasn't done that because he really doesn't give a damn about the suffering of elderly people.

Instead, the Department of Education recently proposed to insert an inflationary index into the garnishing system that would allow Social Security recipients to protect more of their Social Security check from garnishment when inflation occurs. (Currently, only $750 a month is protected from garnishment.)

This is an incredibly callous proposal. In the Roth case, the 9th Circuit BAP court's 2013 decision, Jane Roth sought to discharge more than $90,000 in student-loan debt. At the time she filed for bankruptcy, she was 68 years old, had chronic health problems, and was entirely dependent on her Social Security check of less than $800 a month.

How could any humane and reasonable person argue that  any of Ms. Roth's Social Security check should be garnished? But that is what the Department of Education's recent report basically proposes.

Arbitration clauses imposed on unsophisticated student-loan borrowers by for-profit colleges. The New York Times reported recently that many private businesses (particularly those in the finance industry) require individuals to agree to arbitration clauses and to waive their right to sue. As the Times pointed out, the arbitration system favors the business community over private individuals.

Many for-profit colleges also require students to arbitrate their grievances and to give up their right to sue, even if they believe their college defrauded them or breached contractual obligations. Arbitration can be more costly for individuals than litigation because arbitration fees can be quite expensive. And a business party is more likely to win than an individual.  For-profit arbitration clauses have been upheld by the courts.

Why don't Arne Duncan and Barack Obama stop the for-profit college industry from inserting litigation waivers and arbitration clauses into their admission documents, which they could do simply by enacting a regulation prohibiting the for-profits from engaging in this pernicious practice?

I'll tell you why. Because for all their public hand-wring and their tongue-clucking over the student-loan crisis, Obama and Duncan are firmly committed to the status quo.  Obama and Duncan's failure to address unconscionable arbitration clauses is shameful.

Making private loans dischargeable in bankruptcy. The DOE report recommends "potential changes" to the treatment of private loans in the bankruptcy courts.  DOE is referring to a provision in the Bankruptcy Code that Congress legislated in 2005 that makes private student loans nondischargeable in bankruptcy unless the debtor can show "undue hardship."  Senator Joe Biden, acting at the behest of the banking industry, helped get that legislation passed.  Thanks,Joe!

Several prominent bankruptcy scholars have recommended that the 2005 legislation be repealed and that private student loans be dischargeable in bankruptcy like any other nonsecured debt. But the DOE doesn't go that far. Here's what the DOE report says:
[T]he report recommends allowing private loans that do not offer [pay-as-you-earn or PAYE]-like borrower protections to be dischargeable in bankruptcy similar to other forms of consumer debt. Allowing private lenders the protection of non-dischargeability if they offer PAYE-like features will provide an incentive for private lenders to create meaningful ex ante payment modification options available for when borrowers cannot make standard payments. (p. 17)
In other words, Obama and Duncan propose that banks will still have the protection of having their student loans virtually impossible to discharge in bankruptcy if they will allow distressed student-loan borrowers to switch from standard loan payments to long-term income-based repayment plans. Of course, the banks might be willing to add an income-based repayment feature to their student loans, but that would mean that most private student loans would negatively amortize due to the fact that the income-based payments would almost certainly not be large enough to pay accumulating interest.

What an idiotic notion! What the DOE report should have said is simply this: private student loans should be dischargeable in bankruptcy like any other unsecured loan--period.

The fact the the Department of Education advocates any restrictions on bankruptcy relief for distressed debtors who took out private student loans is outrageous and shows that the Obama administration--for all its posturing--is little more than a lackey of the banks.

A few timid but good recommendations. The DOE report does contain a few timid but good recommendations  Eliminating tax liability for people whose student loans are forgiven under long-term income-based repayment plans is a good idea and one that President Obama had earlier proposed.

But student-loan borrowers were never under much of a threat of being assessed a huge tax bill if their loans were discharged. Present IRS regulations do not consider a forgiven loan to be taxable income if the debtor is insolvent at the time the loan is forgiven.  And in any event, this relief is small consolation for people who wind up in 25-year income-based repayment plans.

Streamlining the disability discharge process, which DOE recommends, is also a good idea.  But if it is such a good idea, why did DOE oppose bankruptcy discharge for Bradley Myhre, a quadriplegic student-loan debtor whose expenses exceeded his income due to the fact that he needed  a personal full-time caregiver in order to remain employed? (Myhre v. U.S. Department of Education, 2013).

Finally, DOE promises to streamline the process whereby individuals can have their student loans forgiven if they were defrauded by the institution they attended.   The DOE report states that the Department of Education "will conduct negotiated rulemaking on borrower defense and plans to develop new regulations to clarify and streamline loan forgiveness under the defense repayment  provision . . . ."

What DOE probably means is that it will negotiate with the for-profit college industry regarding the process for forgiving loans owed by students who were enticed to enroll at for-profit collegea through fraud or misrepresentation. Of course it is a good idea to streamline the loan-forgiveness process for people who attended institutions that have been found guilty of misrepresenting their education programs.

But I doubt if DOE is willing to streamline the loan-forgiveness process enough to provide meaningful relief. After all there are 350,000 former students of the Corinthian Colleges system, which filed for bankruptcy last spring amid allegations of wrongdoing.  As of a few months ago, only about 3,000 students had had their student loans forgiven by DOE.

Conclusion

In my opinion, President Obama's Department of Education issued a report that purports to "strengthen" the student loan system for the protection of borrowers but does not attack the underlying problems.  Until the private loan industry and the for-profit college industry are shut down and distressed student-loan debtors have meaningful access to the bankruptcy courts, the student-loan catastrophe will just grow bigger. And the number of people who can't make their student-loan payments--now more than 20 million--will only grow larger with each passing day.

https://i.guim.co.uk/img/static/sys-images/Guardian/Pix/pictures/2008/12/16/obamaeducation476.jpg?w=620&q=85&auto=format&sharp=10&s=26d17b6c928a0f80f7662a66a2d328a8
Frankly, my dear, we don't give a damn.
References


Sirota, David. Joe Biden Backed Bills to Make It Harder For Americans To Reduce Their Student Debt. International Business Times, September 15  , 2015. Accessible: http://www.ibtimes.com/joe-biden-backed-bills-make-it-harder-americans-reduce-their-student-debt-2094664

U.S. Department of Education. Strengthening the Student Loan System to Better Protect All Borrowers.  Washington, D.C., October 1, 2015: Author. Accessible: http://www2.ed.gov/documents/press-releases/strengthening-student-loan-system.pdf

Friday, November 13, 2015

When the mouse is away, the cats will play or (to mix my metaphors) the nannies have put the children in charge of the nursery at American colleges and universities

"When the mouse is away, the cats might play," Churchill remarked about one of his political colleagues. I believe he was speaking of Neville Chamberlain, the British prime minister who sealed the Munich Pact with Hitler. (And we know how that turned out.)

I thought of Churchill's line as I contemplated recent events at the University of Missouri, a fine public university with one of the best journalism programs in the United States. As everyone listening to the news now knows, Timothy Wolfe, Mizzou's president, stepped down after being accused of inadequate sensitivity to racism on the university campus.

This incident follows similar outbreaks of hysteria on other university campuses, including distinguished institutions like Yale and Dartmouth.

Apparently, there is a general perception among college students, the elite media, and even the Obama administration that America's college campuses are bastions of sexism and racism.  It is said that one in five college women are victims of sexual assault or attempted sexual assault and that minority students are repeatedly victimized by racist slurs.

Personally, I don't believe it. America's colleges and universities have many sins to answer for, but racism and sexism are not among them. No senior university administrator would last a moment in the politically correct atmosphere of academia if he or she said or did anything that could even remotely be considered as being insensitive on matters of race or gender.

In fact, the nation's college communities are in a frenzied debate about bathroom etiquette. Back in the Neanderthal age (20 years ago), benighted Americans thought that men should go to the men's bathrooms and women should use the women's bathrooms.  But now that simple rule has been undermined by people who are oh so much more sensitive than you or me.

And Christian student groups, once seen as inoffensive and perhaps even moral paragons, are now being kicked off campus by such prestigious institutions as Berkeley and Bowdoin. Mustn't allow Christians, with their benighted views on family life, to be recognized as a student group. They might pollute the rarefied atmosphere of our enlightened universities.

So if universities have turned their attention to toilet rules and to booting Christians off their campuses, I can't imagine that college administrators are insensitive to the very important issues of gender and race.

My guess is that President Wolfe did not resign out of shame about his insensitivity to racism.  He just said to hell with it.

I will make one final point about the witch-trial atmosphere of American colleges and universities, and it is this: Apparently no one at our higher education institutions has a remote notion of what free speech and academic freedom mean.

Worse than that, we've allowed students to tell professors and administrators what these concepts mean. If indeed college students know more than their teachers about academic freedom and our precious right to freedom of speech than their instructors and deans, why in the hell are students paying $40 grand a year to get a college education?

The University of Missouri imbroglio is not a new phenomenon. Tom Wolf's essay "Mau-Mauing the Flak Catchers" was written more than 40 years ago, and it describes exactly the kind of behavior that we see at the University of Missouri.  Our college leaders either don't understand the principles of civil discourse and academic freedom or they are so cowardly that they will submit to being lectured on racial civility by their uncouth and ignorant students.  Or perhaps both.

Personally, if I were mom or pop, I would consider telling my kids to skip college altogether. Certainly, no one should borrow money simply to buy a seat in a guerrilla theater. And any university alum who makes a monetary donation to an American college or university is a fool.


Neville Chamberlain: Sensitive to Hitler's point of view

Thursday, November 5, 2015

Suicide and Student Loans: Is There a Link?

Death rates among white, middle-aged Americans have gone up significantly in recent years. According Anne Case and Angus Deaton, two Princeton economists, death rates for people in the 45 to 54 age group began rising in 1999. For middle-aged white people with a high school diploma or less, the mortality rate rose 22 percent between 1999 and 2013.

Why are relatively young white Americans dying at a higher rate than they did 15 years ago? Case and Deaton say most of the rising mortality rate can be attributed to suicide or deaths related to alcohol or drug abuse.People in this age group are experiencing a lot of stress, including economic stress; and they are turning to alcohol and drugs to deal with it. “What we see here is a group that’s in quite a lot of distress,” said Ms. Case in a Wall Street Journal interview.

As Case and Deaton said in their report:
Although the epidemic of pain, suicide, and drug overdoses preceded the financial crisis, ties to economic insecurity are possible. After the productivity slowdown in the early 1970s, and with widening income inequality, many of the baby-boom generation are the first to find, in midlife, that they will not be better off than were their parents. Growth in real median earnings has been slow for this group, especially those with only a high school education. 
As everyone knows, Americans' accumulated student-loan debt has been going up steadily for the past 20 years. Could there be a  link between student-loan debt and rising mortality rates among middle-aged white Americans?

Deaton and Case did not examine student-loan indebtedness in their study, and any attempt to link student loans to rising death rates would be speculative. Moreover, Case and Deaton found that middle-aged people with college degrees had not experienced higher mortality rates.

Nevertheless, suicide rates for the Baby Boomer generation have gone up dramatically in recent years. According to a report by Katherine Hempstead and Julie Phillips, the suicide rate  for people in the 40-64 age group has gone up 40 percent since 2007.

Hempstead and Philips suggest that economic problems may have contributed to the rising suicide rate among Baby Boomers, and that "adverse effects of economic difficulties on psychological well-being may have been greater for those who did not anticipate them; this may well have been the case for those who were educated and wealthier . . . ."

One thing is certain: Our federal government has constructed a student-loan scheme so heartless that it almost seems to have been designed to plunge millions of Americans into long-term clinical depression.  So isn't it reasonable to conclude there is a connection between crushing student loans and rising suicide rates among middle-aged people?

Let's examine some of the evidence pointing to growing stress among student-loan debtors:
  • As the New York Times recently pointed out, ten million people are in default on their student loans or delinquent on their loan payments.
  • According to a recent report by the Brookings Institution, loan balances for a significant number of student-loan debtors actually went up after they entered the repayment phase  of their loans. Why? Because a lot of people have obtained economic-hardship deferments that exempt them from making loan payments due to dire economic circumstances.  But because they are not paying down accruing interest, their loan balances are getting larger, making them more difficult to pay off.
  • The percentage of elderly Americans with unpaid student-loan debt is going up. According to a report from the General Accounting Office, the percentage of people in the 65 through 74 age group with outstanding student loans grew from 1 percent in 2004 to 4 percent in 2010, a four-fold increase   And the amount of student-loan debt owed by elderly people is growing as well.  In fact, the amount of debt held by elderly Americans grew six fold between 2005 and 2013--from $2.8 billion in 2005 to $18.2 billion.
  • The federal government is  garnishing more and more Social Security checks to collect on unpaid student loans.   In 2002, only 31,000 people had Social Security benefits garnished because they had defaulted on their student loans. That number ballooned five fold in just 11 years. In 2013, 155,000 Americans saw their Social Security checks reduced due to unpaid student-loans.
Let's consider that last bullet from a more personal perspective. According to a story posed on Market Watch, the U.S. government is garnishing the Social Security checks of Naomia Davis, an 80 year old woman who is suffering from advanced Alzheimer's Disease. Ms. Davis's only income is her $894 Social Security check, and the feds take $134 of it to pay down on an old student loan.

In short, it is reasonable to conclude that crushing student-loan debt contributes to depression and even suicide among Baby Boomers who are struggling to pay off college loans they took out when they were young.  The student loan crisis is not only eroding Americans' sense of economic well being; it may be literally killing them.



References

Jillian Berman. When your Social Security check disappears because of an old student loan. MarketWatch, June 25, 2015.  Accessible at: http://www.marketwatch.com/story/when-your-social-security-check-disappears-because-of-an-old-student-loan-2015-06-25

Anne  Case and Angus Deaton. Rising morbidity and mortality in midlife among white
non-Hispanic Americans in the 21st century.  Accessible at: http://www.pnas.org/content/early/2015/10/29/1518393112.full.pdf

Editorial. Death Among MiddleAged Whites. New York Times, November 5, 2015.

Editorial. Why Student Debtors Go Unrescued. New York Times, October 7, 2015. Accessible at: http://www.nytimes.com/2015/10/07/opinion/why-student-debtors-go-unrescued.html?_r=0

General Accounting Office. Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Borrowers. GAO-14-866T. Washington, DC: General Accounting Office. http://www.gao.gov/products/GAO-14-866T

Katherine A. Hempstead and Julie A. Phillips. Rising Suicide Among Adults Aged
40–64 Years: The Role of Job and Financial Circumstances.  American Journal of Preventive Medicine 84(5):491-500 (2015). Accessible at: http://www.ajpmonline.org/article/S0749-3797(14)00662-X/pdf

Jason Iuliano. An Empirical Assessment of Student Loan Discharge and the Undue Hardship Standard. American Bankruptcy Law Journal 86 (2012), 495.

Gina Kolata. Deaths Rates Rising Middle-Aged White Americans, Study Finds. NewYork Times, November 3, 2015. Accessibe at: http://www.nytimes.com/2015/11/03/health/death-rates-rising-for-middle-aged-white-americans-study-finds.html

Betsy McKay. The Death Rate Is Rising for Midle-Aged Whites. Wall Street Journal, November 3, 2015. Accessible at: http://www.wsj.com/articles/the-death-rate-is-rising-for-middle-aged-whites-1446499495

Tuesday, November 3, 2015

If you have to enroll in a 25-year income-based repayment plan to pay for your college education, you attended the wrong college

In his 2012 book entitled Don't Go To Law School Unless), Paul Campos made a statement that startled me by its intense clarity. "The truth is," Campos wrote, "that people who are likely to end up in [income-based repayment plans] if they go to law school should not go at all" (48). 
And of course Campos is right. But isn't the same observation true about undergraduate education as well? A person who must enter a 25 year income-based repayment plan to pay for a college degree either enrolled in the wrong college or chose the wrong academic major--and probably both.
For example, Ron Lieber of the New York Times wrote a story about five years ago that featured Cortney Munna, who borrowed almost $100,000 to get a degree in women's studies and religious studies at New York University, one of the most expensive universities in the world.. At the time of Lieber's story, Munna was working for a photographer for $22 an hour and enrolled in night school in order to defer her loan payments. 
As Lieber pointed out, going back to college simply to postpone student-loan payments on the degree one already has is not a good long-term option because interest continues to accrue on the debt.
I wonder how Ms. Munna is doing today. I think the chances are very good that she is in a 25-year income-based repayment plan
Campos said in his book that "there's a good argument to be made that law schools [that] promote IBR[income-based repayment plans] are participating in  a fraud on the public." (50) Again, I think Campos is right.
 Most people who enter into 25-year income-based repayment plans won't make payments large enough to cover accruing interest and also pay down the principal on their loans. In other words, most people in IBRs will see their loans negatively amortize. This means the taxpayer will be left holding the bag when the loan-repayment term ends and the unpaid portion of the loan is forgiven.
To return to Ms. Munna's story, shouldn't NYU bear some responsibility for allowing her to borrow so much money for a degree that is not likely to lead to a job that will allow her to pay back the debt?

Of course, universities are not in the habit of admitting that some of their degree programs are overpriced. But maybe it is a habit they should acquire.  How many private universities could look their students in the eye and say their degrees in women's studies, religious studies, sociology, urban studies etc. etc. etc. are worth going $100,00 into debt? Not many.
References
Paul Campos. Don't Go To Law School (Unless). Self-published, 2012.
Ron Lieber. Placing the Blame as Students Are Buried in Debt. New York Times, May28, 2010. Accessible at http://www.nytimes.com/2010/05/29/your-money/student-loans/29money.html

Friday, October 30, 2015

Income-Based Repayment Plans are a fraud on college students: Reflections on Paul Campos' analysis of IBRs

Don't Go To Law School (Unless), Paul Campos' excellent book on the economics of legal education, was published in 2012, and I am embarrassed to say I did not read it until this week. Campos delivered a devastating critique of American law schools, which have charged insanely high tuition for turning out more lawyers than the nation needs. No one should make a decision to go to law school without reading Campos' book, along with the recent report on law-school admissions standards put out by the public interest group Law School Transparency.

Even people who don't plan to go to law school should read Campos' book, because his indictment of legal education also applies to higher education in general. All over the United States, colleges have jacked up their tuition, forcing their students to borrow more and more money. It is now apparent that millions of students are saddled with unmanageable student-loan debt.

To keep the gravy train rolling, higher education's insiders now back long-term income-based repayment plans (IBRs) that lower borrowers' monthly loan payments but extend the repayment time to as long as 25 years. Policy think tanks like the Brookings Institution, the Obama administration, and the New York Times have all backed IBRs.

Let's look at what Paul Campos had to say about IBRs in Don't Go To Law School (Unless).  (Campos also criticizes public service loan forgiveness plans (PSLFs), but I will not comment on PSLFs in this essay).

"The truth is," Campos wrote, "that people who are likely to end up in IBR . . . if they go to law school should not go at all" (48).  People who participate in these long-term repayment plans will generally be making payments so low that they don't cover accumulated interest, which means that many debtors will never pay off their loans. Moreover, Campos notes, under current IRS regulations, any debt that is forgiven at the end of a long-term repayment plan is considered taxable income.

Campos trenchantly pointed out that IBRs are simply a way to prop up the law schools' broken business model:
When law schools push the supposed benefits of IBR . . . to prospective students, what they're really doing is advertising that they're operating under a business model that doesn't work unless it is subsidized heavily at both ends by the American taxpayer. Law school is subsidized on the front end by federal educational loans, which allow students to borrow money they won't be able to pay back, and by IBR  . . on the back end, which allows graduates to have the "privilege" of being in debt servitude to the U.S. government for ten or, more likely, twenty-five years, with the added bonus of being hit by a huge tax bill at the end of it all. (51)
Indeed, Camps suggests that law schools that push the benefits of IBRs are engaging in unethical behavior. "Given that the American taxpayer will be left holding the bag for all the unpaid debt accrued by law graduates in these programs, there's a good argument to be made that law schools who promote IBR are participating in a fraud on the public" (50) (my emphasis).

Every criticism Campos raised about IBRs as a means of financing legal education applies to higher education in general. Twenty-five year repayment plans (or even the less onerous 20-year repayment plan developed by the Obama administration) force students to pay a percentage of their income to the federal government for the majority of their working lives.

These long-term repayment plans demonstrate the intellectual vacuity of our higher education community. In their desperate effort to maintain the status quo, colleges and universities are throwing their students under the bus.  Rather than change their business model, they raise their tuition rates every year and soothingly assure their students not to worry---they will have 25 years instead of 10 to pay off their student loans.

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American universities are using IBRs to throw their students under the bus.

References

Paul Campos. Don't Go To Law School (Unless) (published by the author, 2012).