Will the Student Loan Crisis Bring Down the Economy? My Pessimistic View

Mike Krieger recently posted a blog on Liberty Blitzkrieg in which he argued that two issues will dominate American politics in the coming years: health care and student loans.

"Going forward," Krieger wrote,  "I believe two issues will define the future of American politics: student loans and healthcare. Both these things . . .  have crushed the youth and are prevent[ing] a generation from buying homes and starting families. The youth will eventually revolt, and student loans and healthcare will have to be dealt with in a very major way, not with tinkering around the edges."

Krieger concluded his essay with this pessimistic observation:

Student loans and healthcare are both ticking time bombs and I see no real effort underway to tackle them at the macro level where they need to be addressed. Watch these two issues closely going forward, as I think fury at both will be the main driver behind the next populist wave.

Krieger's dismal projection regarding student loans is supported by recent reports from the Federal Reserve Bank of New York.  The Fed reported that more than 44 million people are now burdened by student loans. About 4.7 million borrowers are in default and another 2.4 million are delinquent.

Moreover, a lot of this debt is carried by older Americans. According to Fed data, $216 billion is owed by people who are 50 years old or older. And we know from other sources that student loan debt is following people into their retirement years. In fact, about 170,000 people are having their Social Security checks garnished due to student loans that are in default.

Borrowers carry debt levels of varying amounts, but the Fed reported that 2 million people owe $100,000 or more on student loans. Interestingly, people with small levels of debt are more likely to default than people who have high levels of indebtedness. In the 2009 cohort, 34 percent of people who owed $5,000 or less had defaulted within five years. Among people owing $100,000 or more, only 18 percent defaulted during this same period.

And of course default rates don't tell the full story. Almost 6 million people have signed up for income-driven repayment plans, and most are making payments so low they will never pay off their loans. Millions more have loans in deferment or forbearance; and these people aren't even making token loan payments. Meanwhile, interest is accruing on their loans, making it more difficult for borrowers to pay them off once they resume making payments.

Surely, this rising level of student-loan indebtedness has an impact on the American economy. According to the New York Times, student loans now constitutes 11 percent of total household indebtedness--up from just 5 percent in 2008.  Obviously, Americans with burdensome levels of student-loan debt are finding it more difficult to buy homes, start families, save for retirement or even purchase basic consumer items.  No wonder sales at brick-and-mortar retail stores are down and the casual dining industry is on the skids.

So far, as Krieger pointed out, our government is tinkering around the edges of the student loan crisis, making ineffective efforts to rein in the for-profit college industry and urging students to sign up for long-term income-driven repayment plans.

But this strategy is not working. According to the General Accounting Office, about half the people who sign up for income-driven repayment plans are kicked out for noncompliance with the plans' terms. The for-profit colleges, beaten back a bit by reform efforts during President Obama's administration, have come roaring back, advertising their overpriced programs on television.

All this will end badly, but our government is doing everything it can to forestall the day of judgment. In Price v. U.S. Department of Education, a case I wrote about earlier this week, the Department of Education took six years to make the erroneous decision that a University of Phoenix graduate was not entitled to have her loans forgiven. DOE's ruling clearly violated federal law, and the Phoenix grad finally won relief in federal court.

But DOE isn't concerned about following the law. It just wants to stall for time--knowing that a student-loan apocalypse is not too far away.

The Student Loan Apocalypse

References

Michael Corkery and Stacy Cowley. Household Debt Makes a Comeback in the U.S. New York Times, May 17, 2017.

Mike Krieger. Student Loans and Healthcare--Two Issues that Will Define American Politics Going Forward. Liberty Blitzkrieg, May 4, 2017.

Meta Brown, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw. Looking at Student Loan Defaults through a Larger Window. Liberty Street Economics (Federal Reserve Bank of New York. February 19, 2015.

Private liberal arts colleges are discounting tuition by an average of 44 percent--undercutting the credibility of their sticker prices

Rouses Supermarkets, a Louisiana food chain, advertised a wine and spirits sale a few days ago. Three Olives root beer vodka--normally priced at $20 a bottle, was on sale--4 bottles for ten bucks!

Did I rush to my nearest Rouses grocery store to stock up on root beer vodka? No, I did not. Instead I formed a negative opinion of the stuff. I concluded that any vodka that can be purchased on sale for two dollars and fifty cents a bottle is probably not worth $20 a bottle.

Private liberal art colleges are risking their long term viability by slashing their posted tuition prices drastically. Last year, the colleges discounted freshman tuition by an average of 49 percent; and tuition for students as a whole were slashed by an average of 44 percent.

In an informative article for Inside Higher Ed, Rick Seltzer identified  two trends that are driving colleges to heavily discount their tuition prices.  First, students' families need increased levels of financial aid in the wake of the 2008 recession. Second, colleges are heavily competing for students due to a downward demographic trend of fewer college-age students in the population. Ken Redd, research director for the National Association of College and University Business Officers (NACUBO) was quoted as saying he saw nothing on the horizon that would dissipate those trends.

Not surprisingly, small colleges are discounting tuition more heavily than large comprehensive universities.  At the small schools, freshman tuition is being discounted by more than 50 percent.

According to NACUBO's report, tuition discounting is happening even as colleges raise their sticker prices. Unfortunately, for many colleges, this tactic has not increased net revenue. “If you adjust for inflation, many schools are actually seeing real decreases in net tuition revenue,” Mr. Redd said.

Increased tuition discounts is just another sign that private liberal arts colleges are under an existential threat. Several have closed already, and others are taking drastic action to cut their costs.

Holy Cross College in Indiana sold 75 acres of real estate to Notre Dame to bolster its financial picture even as it struggled to quell rumors that it will soon be closing. Wheeling Jesuit University is encouraging faculty members to retire early.  Mills College, a small women's college in California, is laying of faculty members. Mills is running a $9 million deficit on a $57 million operating budget--clearly not sustainable.

At some colleges, administrators are finding that a smaller and smaller percentage of applicants who are admitted actually show up as students.  Mills for example, admitted 1,242 applicants in 2013-2014; and only 217 applicants actually enrolled. In 2015, the enrollment picture was even bleaker: 639 applicants were admitted and only 139 students actually enrolled.

Some small private colleges will survive in spite of the bleak financial picture. Those that have real estate to sell, like Holy Cross, can keep the wolf from the door for a few more years. Colleges that have large endowments can draw down those funds to meet their budgets.

But ultimately, a lot of small liberal arts colleges are going to close. Their target customers won't be hurt by this trend; they will simply enroll at public institutions. But faculty and staff  from closed colleges are going to find it very difficult to find new jobs.

References

Scott Jaschik. 'Financial Emergency' at Mills. Inside Higher Ed, May 17, 2017.

Rick Seltzer. Discounting Keeps Climbing. Inside Higher Ed, May 15, 2017.

Rick Seltzer. Holy Cross College to Sell Land to Notre Dame. Inside Higher Ed, May 15, 2017.

Rick Seltzer. Early Retirements at Wheeling Jesuit. Inside Higher Ed, May 10, 2017.

University of Phoenix graduate got her student loans discharged on the grounds that Phoenix falsely certified she was eligible to receive the loans

 As the Department of Education attests on its own web site, DOE will forgive or cancel student loans under certain circumstances. For example, students are entitled to have their loans forgiven if the school they were attending closes while they were enrolled or shortly after that.   Students can also obtain a discharge if they can show they were induced to take out student loans through fraud. And students are also entitled to have their student loans discharged if the school they attended falsely certified that they were eligible to receive a federal student loan.

Unfortunately, the administrative process for obtaining a loan discharge is not easy to navigate. In fact, one might conclude that DOE sets up roadblocks to prevent student borrowers from getting the releases to which they are legally entitled. Price v. U.S. Department of Education, decided last year, illustrates just how difficult it can be to obtain a loan discharge even when a student is clearly qualified for relief.

Price v. U.S. Department of Education: The facts

Phyllis Price graduated with a degree from the University of Phoenix in 2005. She paid for her studies by taking out student loans, which she consolidated into a single loan for $36,868 bearing interest at 5.3 percent.

Price was 52 years old when she began her studies at the University of Phoenix and had not graduated from high school. A university counselor "instructed her to state on the [admission] application that she had actually finished school and to fill in the year she 'should have graduated.'" Price filled out the forms as she was directed.

Apparently, Price's degree from Phoenix did not benefit her financially. She was working as a contract administrator at the time she began her studies, and she was still doing substantially the same work ten years after obtaining her degree.

Price's first payment on her consolidated loan was due in August 2006. She did not make payments on the loan, and the Department of Education (DOE) declared her in default in October 2007.

In March 2008, Price filed a "False Certification (Ability to Benefit) Loan Discharge Application" in an effort to get her loans discharged. Essentially, she argued that her student loans should be canceled because the University of Phoenix had falsely certified that she was eligible to receive federal student loans for her studies.

American Student Assistance (ASA), DOE's loan servicer, denied Price's application and told her to produce evidence that she did not have a high school diploma. Price produced her high school transcript, which was prominently stamped "DID NOT GRADUATE" and asked for a hearing.

On June 24, 2009, more than a year after Price produced her high school transcript, DOE affirmed ASA's original decision denying her a loan discharge.  On October 1, 2014--more than six years after she filed her discharge application, DOE issued its final decision denying Price's "false certification discharge application."  A short time later, Price received notice that her wages were subject to being garnished for failure to pay back her student loan. Price then brought suit in federal court.

Statutory and Regulatory Issues Pertinent to Price's case

Under the Federal Family Education Loan Program (FFELP), private lenders make loans to "eligible borrowers" to finance postsecondary studies. The loans are insured by student loan guaranty agencies and reinsured by DOE. Generally, an eligible borrower is someone who has a high school diploma or a GED. 

"However, a 'student who does not have a certificate of graduation from a school providing secondary education, or the recognized equivalent of such certificate,' may qualify for a loan if the school certifies that she has the ability to  benefit from the education it provides." Price v. U.S. Dep't of Educ., 209 F. Supp. 3d 925, 930 (S.D. Tex. 2016) (quoting 20 U.S.C. sec. 1091(d)). 

A school can certify that a student has the ability to benefit from its programs if the student passes an independently administered ATB ("ability to benefit") test.  However, the University of Phoenix did not require Price to take an ATB test.

What is the purpose of the "ability to benefit" rule? Congress adopted "ability to benefit" legislation in 1992, "spurred by public concern over unscrupulous schools exploiting student borrowers who received no benefit from expensive classes of little use." Id. Under federal law (20 U.S.C. sec. 1087(c) (1)), the Department of Education is required to discharge loans taken out by people who were falsely certified as being eligible to receive federal loans by the schools they attended. 

A federal magistrate rules in Price's favor

Price filled out an application to have her loans discharged in 2008, asserting under oath that she did not have a high school diploma at the time she took out federal loans and had not been given an ATB test. End of story, right?

No, DOE refused to discharge her student loans on the grounds that it had no evidence that the University of Phoenix had systematically violated the "ability to benefit" rules. In refusing to forgive Price's loans, a federal magistrate found, DOE violated federal law and DOE's own regulations. In essence, the Magistrate observed, DOE's decision-making process "amounted to a cursory glance at the forest, with no attempt to spot the only tree that mattered."

DOE attempted to defend its decision by offering post hoc rationalizations. In particular, the Department argued that Price obtained a degree from the University of Phoenix and should not be allowed to benefit from that degree without paying for it. But the federal Magistrate rejected that argument, pointing out that Price was entitled to have her loans forgiven whether or not she obtained a degree. 

Furthermore, the Magistrate noted, Price apparently had not benefited from her studies at the University of Phoenix. "Price is doing essentially the same job as before she enrolled, and any psychic benefit from achieving a degree is more than offset by eight years of fending off debt collectors." In any event,  the Magistrate continued, "Congress did not see fit to condition student loan relief upon a showing that the student ultimately failed to graduate." Id. at 934.

Why did DOE deny Price the relief to which she was legally entitled?

Clearly, Price was ill-treated by DOE, which dragged her through a tedious administrative process for six years before ultimately denying her claim.  And, as a federal magistrate concluded, Price was clearly entitled to have her student loans forgiven under federal law and DOE's own regulations.

Why did DOE take the position it did? I can think of only one reason--DOE is so desperate to keep people from getting their loans forgiven that it is willing to ignore federal law. 

DOE is like the fabled Dutch boy with his thumb in the dike. Once a few people are granted relief from their student loans, it will be apparent that millions are entitled to relief. That will lead to a torrent of loan forgiveness, which will cause the federal student loan program to collapse.

References

Price v. U.S. Dep't of Education, 209 Fed. Supp. 3d 925 (S.D. Tex. 2016).

The Protection of Social Security Benefits Restoration Act: Will there be bipartisan support?

Senators Ron Wyden (D-OR) and Sherrod Brown (D-OH) reintroduced the Protection of Social Security Benefits Restoration Act a few days ago. If adopted into law, this bill will stop the federal government from garnishing the Social Security benefits of elderly people who defaulted on their student loans.

This is a good bill, and it deserves bipartisan support.

Late last year, the General Accounting Office released a report on governmental offsets of Social Security benefits. The GAO documented that 173,000 people had their Social Security checks reduced due to defaulted student loans in 2015. This is nearly a five-fold increase from 2002, when only 36,000 people had their Social Security checks reduced for that reason.

Senators Wyden and Brown first introduced this bill in 2015, when it had five additional co-sponsors. This year the bill has 10 additional co-sponsors--all Democrats: Senators Dianne Feinstein (D-CA), Kirsten Gillibrand (D-NY), Patrick Leahy (D-VT), Jim Merkley (D-Or), Bill Nelson (D-FL), Bernie Sanders (D-VT), Elizabeth Warren (D-MA), Sheldon Whitehouse (D-RI), Mazie Hirono (D-HI), and Brian Schatz (D-HI).

Surely this bill will garner widespread support among both Democrats and Republicans. If ever there was a bill that deserves bipartisan support, this is it.

Americans should watch this bill closely to see if it makes its way into law. Any Senator or Congressperson who votes against this bill should be voted out of office. Any federal legislator who tries to delay the bill or prevent it from moving forward should be given the boot.

Admittedly, this bill will only make a small contribution to relieving the suffering of overburdened student-loan debtors. Eight million people have defaulted on their loans and almost 6 million more have been forced into income-driven repayment plans that stretch their payments out for 20 to 25 years. Millions more are not making their loan payments because their loans are in deferment or forbearance.

No reasonable person can argue against passage of the Wyden-Brown bill. If the Protection of Social Security Benefits Restoration Act fails to become law, it will be a sign that our elected representatives cannot work together to solve real and obvious problems, which will mean our country is in real trouble.

Senator Ron Wyden (D-OR)

References

Brown Introduces Bill to Stop Government from Taking Away Social Security Benefits to Pay Off Student Loans. Brown Press Release, May 3, 2017.

Senate Democrats Introduce Bill to Stop the Government From Taking Away Social Security Benefits to Pay Off Student Loans. Wyden Press Release, December 10, 2015.

United States Government Accountability Office. Social Security Offsets: Improvement to Program Design Could Better Assist Older Student Borrowers with Obtaining Permitted Relief. Washington DC: Author, December 2016).

ECMC n v. Acosta-Conniff: Just because you made some bad decisions doesn't disqualify you from discharging your student loans in bankruptcy

Alexandra Acosta-Conniff (Conniff), a single mother of two and an Alabama school teacher, took out student loans to further her education; and she eventually obtained a Ph.D. degree from Auburn University.  She made some payments on her loans, but she put them in deferment for several years due to her low income and her family situation.

Interest accrued on the loans while they were in deferment, and by the time Conniff filed for bankruptcy, her loan balance had grown to $112,000.  In 2013, Conniff filed an adversary action against Educational Credit Management Corporation, seeking to discharge her student loans in bankruptcy.

At the trial on her adversary complaint, Conniff (who argued her case without a lawyer), presented evidence that her expenses slightly exceeded her income and that she was only able to make ends meet by getting financial aid from her parents.

ECMC opposed bankruptcy relief, arguing Conniff should be put into an income-driven repayment plan. ECMC also maintained that Conniff had discretionary income she could devote to making loan payments because she made voluntary payments of $220 a month to her retirement plan.

Judge William Sawyer, an Alabama bankruptcy judge, applied the three-part Brunner test to Conniff's circumstances and concluded that she passed all three parts. First, she was unable to pay off her loans and maintain a minimal standard of living for herself and her children. Second, additional circumstances existed showing that it was unlikely that her financial circumstances would improve during the loan-repayment period. Finally, Judge Sawyer was convinced that Conniff had handled her student loans in good faith.

In deciding Conniff's case, Sawyer, wrote that he was familiar with teachers' pay levels in Alabama, and he considered it unlikely that Conniff's pay as a teacher would increase significantly in the years to come. The judge estimated that Conniff's working life would extend no more than 15 years and that she would be unable to repay her student loans in that time period. Thus, Judge Sawyer discharged Conniff's loans in their entirety.

ECMC appealed to a U.S. District Court, arguing that Judge Sawyer had misapplied the Brunner test. Judge W. Keith Watkins, who heard the appeal, sided with ECMC and specifically found that Conniff failed Brunner's second prong because she had not demonstrated additional circumstances showing that it was unlikely she could repay her student loans in the future.

Essentially, Judge Watkins expressed disapproval of Conniff's decision to obtain a Ph.D. "[Judge Watkins] opined that Conniff has only herself to blame for incurring student debt in the pursuit of multiple degrees that she should have known would not lead to an increase in income sufficient to cover the debt."

Adopting a censorious tone, Judge Watkins said this:

Although [Conniff] is not satisfied with the pay the advanced degrees ultimately have yielded, Conniff chose to earn four degrees, funded primarily by student loans, in her preferred career path of education with a general understanding of the benefits she wold obtain from the degrees versus the costs. She admits specifically that she decided to obtain another student loan to earn her pinnacle Ph.D. in special education and agreed to repay it, knowing how the cost of the Ph.D. compared with the increase in pay it would provide. Conniff finds herself in circumstance largely of her own informed decision-making, which although not dispositive is a consideration.

Conniff, who by now had obtained excellent legal counsel in the person of retired bankruptcy judge Eugene Wedoff, appealed the district court's decision to the Eleventh Circuit Court of Appeals. There, she was more fortunate.  The Eleventh Circuit panel reversed Judge Watkin's opinion and remanded Conniff's case for further consideration.

The Eleventh Circuit specifically disapproved of Judge Watkin's conclusion that Conniff failed the second prong of the Brunner test because she "ha[d] only herself to blame" for her student-loan predicament. In the Eleventh Circuit panel's view, this was the wrong way to interpret Brunner's second prong. Thus, the Eleventh Circuit instructed:

[T]he second prong [of Brunner] is a forward-looking test that focuses on whether a debtor has shown her inability to repay the loan during a significant portion of the repayment period. It does not look backward to assess blame for the student debtor's financial circumstances. Thus, even if the court concludes that a debtor has acted recklessly or foolishly in accumulating her student debt, that does not play into an analysis under the second prong. Nor should it be considered on remand in analysis of that prong. [emphasis supplied] 

The Eleventh Circuit decision (which was not published) is not an outright win for Conniff. She must return to the district court to enable Judge Watkins to reconsider her situation under the Brunner test in accordance with the Eleventh Circuit's directive. But it is a good decision overall, not only for Conniff, but for many other student-loan debtors in bankruptcy.

Let's face it. Millions of distressed student debtors are indebted up to their eyeballs by student loans at least partly because they made some questionable decisions. Perhaps they obtained their degrees from expensive for-profit colleges instead of enrolling in a more reasonably priced public institution. Maybe they chose professions that will not lead to high-paying jobs. Perhaps they changed majors midway through their studies and incurred additional costs.

But the Eleventh Circuit of Appeals has ruled that judges should not examine a debtor's past when determining future ability to repay student loans. The second prong of the Brunner test "is a forward-looking test" and "does not look backward to assess blame." 

Thus, although the Eleventh Circuit's decision in Acosta-Conniff v. ECMC did not rule decisively in favor of cancelling Conniff's debt, she can take comfort from the fact that the lower court will consider her circumstances without blaming her for going to graduate school.

 References

Acosta-Conniff v. ECMC [Educational Credit Management Corporation], 536 B.R. 326 (Bankr. M.D. Ala. 2015), reversed, 550 B.R. 557 (M.D. Ala. 2016), reversed and remanded, No. 16-12884, 2017 U.S. App. LEXIS 6746 (11th Cir. Apr. 19, 2017).

ECMC [Educational Credit Management Corporation v. Acosta Conniff], No. 16-12884, 2017 U.S. App. LEXIS 6746 (11th Cir. Apr. 19, 2017) (unpublished opinion).

ECMC [Educational Credit Management Corporation] v. Acosta-Conniff, 550 B.R. 557 (M.D. Ala. 2016), reversed and remanded, No. 16-12884, 2017 U.S. App. LEXIS 6746 (11th Cir. Apr. 19, 2017).

Richard Fossey & Robert C. Cloud. Tidings of Comfort and Joy: In an Astonishingly Compassionate Decision, a a Bankruptcy Judge Discharge the Student Loans of an Alabama School Teacher Who Acted as Her Own Attorney. Teachers College Record, July 20, 2015. ID Number: 18040.

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The Opioid Epidemic and The Student Loan Crisis: Is there a link?

James Howard Kunstler wrote one of his best essays recently about America's opioid epidemic, and he began with this observation:

 While the news waves groan with stories about "America's Opioid Epidemic," you may discern that there is little effort to actually understand what's behind it, namely the fact that life in the United States has become unspeakably depressing, empty, and purposeless for a large class of citizens.

Kunstler went on to describe life in small towns and rural America: the empty store fronts, abandoned houses, neglected fields, and "the parasitical national chain stores like tumors at the edge of every town."

Kunstler also commented on people's physical appearance in backwater America: "prematurely old, fattened and sickened by bad food made to look and taste irresistible to con those sick in despair." And he described how many people living in the forgotten America spend their time: "trash television, addictive computer games, and their own family melodramas concocted to give some narrative meaning to lives otherwise bereft of event or effort."

There are no jobs in flyover America. No wonder opioid addiction has become epidemic in the old American heartland. No wonder death rates are going up for working-class white Americans--spiked by suicide, alcohol and drug addiction.

I myself come from the desperate heartland Kunstler described. Anadarko, Oklahoma, county seat of Caddo County, made the news awhile back due to four youth suicides in quick succession--all accomplished with guns. Caddo County, shaped liked the state of Utah, can easily be spotted on the New York Times map showing where drug deaths are highest in the United States. Appalachia, eastern Oklahoma, the upper Rio Grande Valley, and yes--Caddo County have the nation's highest death rates caused by drugs.

Why? Kunstler puts his finger on it: "These are the people who have suffered their economic and social roles in life to be stolen from them. They do not work at things that matter.They have no prospect for a better life . . . ."

Now here is the point I wish to make. These Americans, who now live in despair, once hoped for a better life. There was a spark of buoyancy and optimism in these people when they were young. They believed then--and were incessantly encouraged to believe--that education would improve their economic situation. If they just obtained a degree from an overpriced, dodgy for-profit college or a technical certificate from a mediocre trade school, or maybe a bachelor's degree from the obscure liberal arts college down the road--they would spring into the middle class.

Postsecondary education, these pathetic fools believed, would deliver them into ranch-style homes, perhaps with a swimming pool in the backyard; into better automobiles, into intact and healthy families that would put their children into good schools.

And so these suckers took out student loans to pay for bogus educational experiences, often not knowing the interest rate on the money they borrowed or the payment terms. Without realizing it, they signed covenants not to sue--covenants written in type so small and expressed in language so obscure they did not realize they were signing away their right to sue for fraud even as they were being defrauded.

And a great many people who embarked on these quixotic educational adventures did not finish the educational programs they started, or they finished them and found the degrees or certificates they acquired did not lead to good jobs. So they stopped paying on their loans and were put into default.

And then the loan collectors arrived--reptilian agencies like Educational Credit Management Corporation or Navient Solutions.  The debt collectors add interest and penalties to the amount the poor saps borrowed, and all of a sudden, they owe twice what they borrowed, or maybe three times what they borrowed. Or maybe even four times what they borrowed.

Does this scenario--repeated millions of time across America over the last 25 years--drive people to despair? Does it drive them to drug addiction, to alcoholism, to suicide?

Of course not.

And even if it does, who the hell cares?

Drug Deaths in 2014

References

James Howard Kunstler. The National Blues. Clusterfuck Nation, April 28, 2017.

Sarah Kaplan.'It has brought us to our knees': Small Okla. town reeling from suicide epidemic. Washington Post, January 25, 2016.

Natalie Kitroeff. Loan Monitor is Accused of Ruthless Tactics on Student Debt. New York Times, January 1, 2014. 

Gina Kolata and Sarah Cohen. Drug Overdoses Propel Rise in Mortality Rates of Young Whites. New York Times, January 16, 2016.

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. 

Haeyoun Park and Matthew Bloch. How the Epidemic of Drug Overdose Deaths Ripples Across America. New York Times, January 19, 2017.

A Holy Cross Vice President writes confidential email hinting that the college may close and mistakenly sends it to the entire student body: Oops!

Kelly Jordan, Vice President for Student Affairs at Holy Cross College in Indiana, sent a confidential email to a boarding school administrator last April, hinting that Holy Cross may soon be closing. Kelly told his correspondent that he might "spend the better part of the coming school year closing down the college."

Unfortunately for Vice President Jordan--and for Holy Cross, for that matter--Jordan's email was mistakenly sent out to the entire student body. Oops! The South Bend Tribune, a local newspaper, picked up the story; and now the whole world knows that the future of Holy Cross is in doubt.

Father David Tyson, interim president of Holy Cross, sent out the usual damage-control email message, assuring students that "I look forward to classes beginning in August and working with the faculty and students to create a bright future for the college that fully reflects the Holy Cross mission."

Note that Father Tyson did not contradict VP Jordan's message that Holy Cross might soon be shutting down.

Holy Cross is clearly in trouble. Its former president stepped down earlier this spring along with three of its five vice presidents. The college is quite small--only about 500 students; and the future of many small liberal arts colleges is uncertain.  Less than a year ago, two small Catholic colleges announced they were closing: St. Catharine College in Kentucky and St. Joseph's College in Indiana.

Most small liberal arts colleges depend heavily on tuition revenue, and a lot of them are having trouble attracting students. The National Association for College Admission Counseling recently published a list of colleges that still have room for incoming freshmen or transfer students in their fall 2017 classes. As of early this month, there were more than 500 colleges and universities on that list.  A majority of those schools were private liberal arts colleges with less than 5,000 students.  Seventy-seven of those schools had 1,000 students or less.

A lot of small liberal arts colleges are fighting to survive; and many will fail over the next two or three years. Holy Cross's recent embarrassment raises questions about how college administrators should deal with their own institutions' struggles.

Obviously, small-college administrators should do everything they can to attract new students and revenues. But there comes a time when college leaders need to ask themselves if they have a moral obligation to shut down rather than attract more new students into an institution that is on the road to closure.

If so, when should students and staff be told? I can't answer that question, but for Holy Cross the question is moot thanks to the fact that a confidential email message went public.

Photo credit: South Bend Tribune

References

College Openings Update: Options for Qualified Students. National Association for College Admission Counseling (n.d.).

Margaret Fosmoe. Holy Cross VP paints bleak future for college in emails mistakenly sent to students.  South Bend Tribune, May 6, 2017.

Scott Jaschik.  College Will Suspend Operations. Inside Higher ED, February 7, 2017.

Scott Jaschik. 350 Colleges Still Have Room for New Undergrads. Inside Higher ED, May 4, 2017.

Emily Tate. College VP Sends Email on Possible Closure. Inside Higher Ed, May 8, 2017.