Tuesday, May 8, 2018

Baby Boomers are stealing from the Millennials: Stocks and bonds for grandma and grandpa; perpetual debt for their grandchildren

Baby Boomers are stealing from the Millennials. People in their 60s and 70s are retiring comfortably in sunny Florida or taking luxury river cruises down the Danube. Meanwhile, their grandchildren are struggling with massive student-loan debt they will never pay off.

As John Rubino put it, "we baby boomers have rigged the system in our favor at the expense of pretty much everyone else," forcing younger generations to take out student loans to get their college degrees. "[S]tudent loans--barely necessary when most boomers graduated 40 years ago--have become a life-defining problem for our kids and grandkids."

Rubino is right. The people who run this country--judges, legislators, college presidents, and the captains of industry--got their college degrees for a modest sum; and most graduated with little or no student debt. But their grandchildren will take out massive student loans to get their postsecondary credentials; and many will remain indebted for decades.

According to a Brookings Institution report, most student borrowers with large loan balances are not defaulting on their loans; they just aren't paying them back. Millions have their loans in deferment, allowing them to skip their loan payments without being put into default.  Six million are now enrolled in some type of income-based repayment plan (IBR) that allows them to make smaller loan payments but keeps them indebted for 20 or 25 years.

Millions more are simply defaulting on their loans--which means their credit is shot and their loan balances have shot upward due to default penalties and accrued interest on their unpaid debt. According to the New York Times, college borrowers defaulted at the rate of 3,000 a day in 2016.

Rubino sees only one solution to this mess:"massive devaluation" of our currency to allow student debtors to pay off their loans with cheaper money. But that won't work unless Millennials' salaries rise high enough so that current debt loads are no longer burdensome. And there is no sign this is happening.

Total outstanding student-loan indebtedness is now about $1.5 trillion, or $1.6 trillion if you include private student-loan debt. About half of this amount will never be paid back. We really only have two options. We can forgive billions of dollars in uncollectable student-loan debt or we can continue to allow millions of Americans to slip out of the middle class--dragged down by their student loans and unable to buy homes or save for their retirement.



References

Adam Looney & Constantine Yannelis. Most students with large loan balances aren't defaulting. They just aren't reducing their debt. Brookings Institution, February 16, 2018.

Josh Mitchell. The Rise of the Jumbo Student Loan. Wall Street Journal, February 16, 2018.

John Rubino. Loan Shark Nation: Forcing Our Kids To Choose Between Student Loans And Everything Else.

The Wrong Move on Student LoansNew York Times, April 6, 2017.

Monday, May 7, 2018

College borrowers who see their student-loan debt triple will never pay off their loans: The tragic story of Rick Tallini

Pope Francis once said that a life prison sentence is essentially a death sentence, and of course he is right.

Something similar can be said about college borrowers who see their debt load double, triple, or even quadruple. They've received a life sentence of indebtedness, and a death sentence to any dreams they may have about retiring or purchasing a home.

Here's an example of what I'm talking about. Rick Tallini borrowed $55,000 to go to law school back in the 1990s.  Had he gotten a good job immediately after graduating, he would have been fine. But Tallini didn't find that good job, and so he put his loans in deferment for extended periods of time, while interest accrued at 8 or 9 percent.

Around ten years after he graduated (according to a CNBC story), Tallini's loans went into default, and his student-loan creditor tacked on additional fees. By the time Tallini consolidated his loans, he owed $150,000--nearly three times what he borrowed. Apparently, his debt continued to grow due to accruing interest, and now he owes $330,000--six times what he borrowed!

Will Tallini ever pay off this debt?  Of course not. The federal government sentenced him to a lifetime of indebtedness--an economic death sentence. Although the CNBC story did not say, Tallini probably does not own his own home, and he probably has inadequate savings toward his retirement.

Mr. Tallini, who is 61 years old, really has only two options: He can file for bankruptcy and attempt to discharge his debt in an adversary proceeding. If he goes that route, he could be in litigation for years because the U.S. Department of Education and its proxy debt collectors will overwhelm him with their teams of heartless attorneys.  And he might not prevail.

Alternatively, Tallini can sign up for a long-term income-based repayment plan that can last 20 or 25 years.  He could be dead before his repayment obligations are met. And if he is fortunate to still be above ground when his income-based repayment plan terminates, the IRS will send him a bill for the forgiven amount of his loan because the IRS considers forgiven debt to be income.

In my view, Mr. Tallini's case demonstrates irrefutably that America is no longer a just society and our colleges and universities are no longer working for the public good. Higher education (including legal education) is a racket financed by student loans owed by people like Rick Tallini, who went to law school more than 20 yeas ago hoping to build a good and satisfying life.

And look at what he got instead. Crushing debt he will never pay off.

Rick Tallini owes $330,000 in student debt. Photo credit: CNBC
References

Annnie Nova. He had $55,000 in student loans, now he owes $330,000 . . . Here's how it happened. CNBC.com, May 6, 2018.

Annie Nova. These are the ways student loans stop people from buying houses. CNBCcom. March 31, 2018.

Sunday, May 6, 2018

Mount Ida College closes down: Knowing when to fold 'em

General George Washington fought a brilliant campaign in the Delaware Valley during the winter of 1776-1777, but he knew when to fold his cards. He won a stunning victory at the battle of Trenton, where he caught the Hessians with their pants down on the day after Christmas.  But a week later, Washington and his army found themselves facing General Cornwallis' elite British forces arrayed against him across Assunpink Creek. Night was falling; and Washington knew his army would be annihilated if it didn't hit the road before dawn.

What to do?

Washington didn't stick around for a battle. His army sneaked away under cover of darkness, leaving campfires burning and a small rear guard to deceive the British into thinking the Continentals were going to fight it out the next morning.

Mount Ida College, like George Washington, knows when to slip away. Following Washington's example, it gave every indication that it would be open for business for the 2018-2019 school year. The college admitted a new freshman class; it even offered scholarships to attract more students.

Then, seemingly out of the blue, Mount Ida announced it was shutting down.  It had been quietly negotiating with the University of Massachusetts at Amherst, which agreed to buy Mount Ida's 72-acre campus for $70 million. It also revealed that it had agreements in place with nearby colleges to take Mount Ida's transfer students.

Did Mount Ida behave reprehensibly? I don't think so. I'm sure Mount Ida's governing board knew it had to act in secrecy in order to make a clean getaway.

Understandably, students, parents, and Mount Ida professors are angry.  "Why are you preying on our children, luring them to come to Mount Ida with nonexistant money?" a mother of an incoming freshman asked.

Professor Fernando Reimers, a Harvard professor and member of the state board of higher education, also judged Mount Ida harshly. "It seems to me that this is not only an example of system failure," Reimers fulminated self-righteously.  "[T]his is an example of serious leadership failure."

But what does Professor Reimers know about running a small liberal arts college? Not much, I'll warrant.

Mount Ida is the latest name on a growing casualty list of small colleges that are calling it quits.  These little boutique schools just can't make it in an age of soaring tuition and an ever more burdensome regulatory environment.

We shouldn't condemn Mount Ida's governing board for the way it announced the school's closure. There is no painless way to shut down a college. It may have acted deceptively by pretending it was going to be operating for another year, but Mount Ida was simply stoking its campfires, much like Washington did on the banks of Assunpink Creek, sneaking away as best it could in the face of overwhelming forces.

As the immortal Kenny Rogers put it, you have to know when to hold 'em, know when to fold 'em, know when to walk away, and know when to run. In the next few years, we will see a lot of small colleges shut down. Parents who don't want to run the risk that their children's college will shut down precipitously, should send their kids to a public university.

George Washington knew when to fold 'em.

Saturday, May 5, 2018

Fail State, Alexander Shebanow's Documentary about For-Profit Colleges, is an excellent movie. Go see it.

A few nights ago, I watched Fail State, Alexander Shebanow's documentary movie about the seedy for-profit college industry.  Director Shebanow did a masterful job of explaining how for-profit colleges have used deceptive recruiting techniques, strategic campaign contributions, and congressional lobbyists to rip off vulnerable Americans: minorities, the poor, and first generation college students. Over the years, the for-profits have sucked up billions of dollars in federal student-aid money while offering shoddy education programs that left their students with enormous student-loan debt and no work skills.

Shebanow's movie has two broad themes. First, the director shows the for-profit college industry for what it is: a quasi-criminal enterprise that undermines the integrity of higher education. Second, Shebanow's story showcases community colleges as the proper institutions for offering inexpensive but useful postsecondary training.

The student-loan crisis is a long, sad saga of corruption and deceit, and no 90-minute movie can cover the whole story. Nevertheless, I wish Fail State had touched on some of the reforms that could offer student-loan victims relief from crushing debt.

About 20 million people are burdened by student loans they can't pay back. This number includes students who attended for-profit colleges, private nonprofit schools, and state universities.  The Federal Reserve Bank of New York has documented that this huge level of indebtedness is undermining the national economy. In my view, the only sensible thing to do is open up the bankruptcy courts to theses sufferers and give them an opportunity for a fresh start, freed from debs they cannot pay.

Moreover, although Shebanow's indictment of the for-profit colleges is damning and irrefutable, I wish the movie had more clearly stated that this industry needs to be completely shut down. Trying to clean up this gangster industry by enacting tougher regulations will be about as effective as trying evangelize a crocodile.

In a sense, Fail State is much like The Big Short, the star-studded movie about the subprime mortgage meltdown. Both stories are sagas about greed, corruption, and governmental indifference. Shebanow directed a fine movie, and everyone thinking about enrolling at a for-profit college should be required to see it before signing on the dotted line.


References

Zachary Bleemer, et al. Echoes of Rising Tuition in Students' Borrowing, Educational Attainment, and Homeownership in Post-Recession America. Federal Reserve Bank of New York Staff Report No. 820, July 2017.

Thursday, April 19, 2018

Professor Randa Jarrar, who rejoiced at the death of Barbara Bush, boasts she can't be fired

Randa Jarrar, a tenured English professor at Fresno State University, made the news this week for her tasteless tweet about the death of Barbara Bush. This is what Jarrar said:
Barbara Bush was a generous and smart and amazing racist who, along with her husband, raised a war criminal. F*** outta here with your nice words. 
PSA: either you are against these pieces of shit and their genocidal ways or you're part of the problem. that's actually how simple this is. I'm happy the witch is dead. can't wait for the rest of her family to fall to their demise the way 1.5 million iraqis have. byyyeeeeeeee.
All the hate I'm getting ALMOST made me forget how happy I am that George W Bush is probably really sad right now.
Jarrar has been roundly excoriated  by conservative pundits for her crude remarks about a great American, but she is unrepentant. Here is Jarrar's response to her critics: 
sweetie i work as a tenured professor. I make 100K a year doing that. i will never be fired. i will always have people wanting to hear what i have to say. even you are one of them!
Perhaps enough has been said about Jarrar's boorish behavior, but as a tenured professor myself, I would like to add a few reflections.

First, Randa Jarrar exemplifies all that is wrong with higher education today. A tenured professor--an English professor, for God's sake--apparently saw the death of Barbara Bush as an opportunity to spew sneering profanity into the twittersphere.  There was a time when university professors were expected to be models of civility and decency. The very idea that an English professor at a public university  would cruelly mock a recently deceased First Lady even before Mrs. Bush was buried should shock us all.

Secondly, Jarrar's taunting retort to her critics presents a strong argument against tenure. Tenure's defenders say it is necessary to preserve academic freedom, but Jarrar seems to think that tenure is nothing more than a license to behave boorishly. "[I] will never be fired," she boasted; and people will always want "want to hear what [I] have to say." Really?

Isn't it outrageous that Randa Jarrar has a tenured position at a California university, which comes with excellent health insurance and a good pension? Meanwhile millions of Americans have student loans up to their eyeballs--loans taken out to take classes from buffoons like Professor Jarrar.

But this is the saddest thing of all about the Jarrar affair: Professor Jarrar is probably right. She will never be fired.

Professor Randa Jarrar: "i will never be fired"
References

Leah Barkoukis. Fresno State Has Some News For Bush-Bashing Professor Who Thinks She Can't Be Fired. Townhall.com, April 19, 2018.

Tuesday, April 3, 2018

Don't Go To College, Says Kurt Schlichter; And By God, He May Be Right!

Kurt Schlichter wrote a sprightly essay for Townhall last month, arguing vigorously that young people should just skip college. "What passes for 'education' today is nothing of the sort," Schlichter writes, "and what calls itself 'academia' is really just a venal trade guild packed with mediocrities desperately trying to keep fooling people into forking over $60,000 a year--usually obtained via ruinous borrowing that ties a financial anchor around the defrauded grads' necks for the rest of their lives."

Who can disagree? As Schlichter says, "much of academia's product is largely garbage," particularly in the liberal arts. People are now graduating with English degrees without having read Shakespeare, or without knowing how to spell Shakespeare, for that matter.

Of course higher education argues ad nauseam that a degree in liberal arts has some intrinsic worth. As John Kenneth Galbraith put it years ago:
Education is, most of all, for the enlargement and the enjoyment of life. It is education that opens the window for the individual on the pleasures of language, literature, art, music, the diversities and idiosyncrasies of the world scene. The well-educated over the years and centuries have never doubted their superior reward; it is greater educational opportunity that makes general and widespread this reward.
 But who believes that anymore? Administrators at small liberal arts colleges purr seductively about the value of a liberal education while they lay off history professors to beef up their MBA programs-where the real money is. And ever so earnestly, they defend inflated tuition prices even as they discount their tuition rates by half.

Really, why pay good money for a liberal arts degree? Why study American literature if professors cannot identify a canon of great American writers? Why read Faulkner, Hawthorne, Henry James, Melville, or Fitzgerald if the English faculty writes them all off as a bunch of dead, white, misogynistic and racist males?

And in truth, I would not advise a young person to invest much time in reading William Faulkner or Henry James. Or Steinbeck, for that matter, although The Grapes of Wrath speaks to me as a great book, probably because I am a descendant of Okies.  

In fact, American writers are still writing great books, maybe better books than the ones our old professors said we must read. T.C. Boyle's Tortilla Curtain is as searing a book as you will ever read about being a despised refugee in America, every bit as good as The Grapes of Wrath. And although The Great Gatsby may be the great American novel, Tom Wolf's Bonfire of the Vanities, a more contemporary tale, describes the emptiness of wealth just as movingly as Fitzgerald's classic.

Today, American society has become so diverse that it makes no sense to argue that there are great American novels that everyone should read or even an accepted narrative of American history that everyone should learn. I read Marquis James' Pulitzer Prize winning biography of Andrew Jackson and was convinced Jackson was a great American. But we may take Old Hickory off the $20 bill; and if we do, he won't be coming back.

I read Douglas Southall Freeman's multi-volume biography of Robert E. Lee and concluded that General Lee was a decent man. But New Orleans ripped Lee's statue of its pedestal at Lee's Circle, and Lee definitely won't be coming back. 

Maybe we should all construct our own personal canon of great books, our own personal narrative of history.  As a Catholic, for example, I consider the Philadelphia Bible Riots every bit as important as the so-called Boston Massacre, but few people would agree with me. And for me, the great coming-of-age novel is not Catcher in the Rye by that sleazebag J.D. Salinger, but Richard Bradford's Red Sky at Morning, a book about being young in northern New Mexico during World War II.

But if we are all free to construct our own canon of literature and our own narrative of history, which liberal arts professors are basically arguing we should do, then why the hell should we pay sixty grand a year for our kids to attend some moldy liberal arts college in the upper Midwest?

Because the colleges need your money, I suppose. And if you don't have sixty grand, don't worry. The government is quite willing to loan it to you.

References

Kurt Schlichter. Don't Go To College, Townhall, March 22, 2018.



Betsy DeVos and the Republicans wants to dump the Public Service Loan Forgiveness Program: Big Mistake

Betsy DeVos and the Republicans want to dump the Public Service Loan Forgiveness Program (PSLF)  because the program is too expensive. According to the Department of Education's Inspector General, costs of the government's various loan forgiveness programs shot up from $1.4 billion in 2011 to $11.5 billion in 2015--about a nine-fold jump.

In fact, all the Department of Education's loan-forgiveness programs are bleeding red ink. As the Government Accounting Office reported in November 2016, the Department underestimated the cost of these programs. For one thing, DOE assumed that student-loan debtors would sign up for a repayment plan and not switch.

But that's not what happened. Many college borrowers tried to repay their loans under DOE's standard 10-year plan but couldn't find jobs that paid enough to service their monthly loan payments. Millions then switched to income-driven repayment plans (IDRs), which lowered their monthly payments, but those payments were not large enough to cover accruing interest. In my estimation, most of the people in IDRs will never pay back their loans because interest is accruing on loan balances with every passing month.

PSLFs have specific problems, which make them particularly expensive for taxpayers.  First, the PSLF program, which was approved by Congress in 2007, defined eligibility far too broadly.  Anyone working for the federal, state or local government and anyone working for a nonprofit charitable corporation is eligible. As Jason Delisle observed in a Brookings Institution report, about a quarter of America's entire workforce is eligible for a PSLF plan.

PSLF advocates sometimes say the program was designed to encourage people to enter hard-to-fill public service jobs: police officers, fire fighters, ambulance drivers, and inner-city school teachers. But that description is misleading. Accountants, lawyers, public relations people--anyone working for the government or a non-profit--is eligible. 

And there's a second problem with PSLFs: Congress put no cap on the amount a PSLF participant can borrow. DOE apparently calculated costs based on the assumption that most PSLF beneficiaries had relatively low loan balances. But a lot of people applying for the program are people who accumulated massive debt from attending graduate school. A typical lawyer, for example, graduates law school with an average of $140,000 in accumulated student loans.

PSLF participants--including lawyers, accountants and MBA graduates--will make monthly payments based on a percentage of their adjusted income for 10 years, with the unpaid balance being forgiven when their 10-year repayment plans expire.  But most PSLF participants won't come close to paying off their loan balances after 10 years, and American taxpayers will be picking up the bill.

Thus, Trump and the Republicans have valid concerns about IDRs and PSLF programs.Nevertheless, I do not think these programs should be eliminated.

Why? Because 44 million Americans have student-loan debt and about half of them will never pay it back.  Congress has blocked bankruptcy relief for most of these people, which means they have two choices: default or sign up for an income-based repayment plan.

In my view, then, DOE's income-based repayment plans and the PSLF program should be continued  because the only other option for millions of distressed college borrowers is default.

But ultimately, there is only one way out of the student-loan morass. First. we must either allow insolvent student borrowers to discharge their college loans in bankruptcy or we must forgive the debt en masse. Second, we must shut down the venal and corrupt federal student-loan program and allow all Americans to get a free undergraduate education at a public college or university.

I realize this is a hard reality, which our government is refusing to face. But face reality it must; and the longer it waits to do so, the more people will be harmed by a student-loan program that is totally out of control.


Representatives Virginia Foxx: Republican Chair of the House Education Committee
References

Douglas Belkin, Josh Mitchell, & Melissa Korn. House GOP to Propose Sweeping Changes to Higher EducationWall Street Journal, November 29, 2017. 

Ryan Cooper. The case for erasing every last penny of student debt. The Week, February 8, 2018.

Stacy Cowley. Student Loan Forgiveness Program Approval Letters May Be Invalid. New York Times, March 30, 2017. 


Danielle Douglas-Gabriel. GOP higher ed plan would end student loan forgiveness in repayment programs, overhaul federal financial aid. Washington Post, December 1, 2017.

Scott Fullwiler, Stephanie Kelton, Catherine Ruetschlin, & Marshall Steinbaum. The Macroeconomic Effects of Student Loan Cancellation. Levy Economics Institute. Bard College, February 2018.

Jason Delisle. The Coming Public Service Loan Forgiveness Bonanza. Brookings Institution Report, Vol 2(2), September 22, 2016.

Andrew Kreigbaum. GAO Report finds costs of loan programs outpace estimates and department methodology flawedInside Higher Ed, December 1, 2016.

Eric Levitz. We Must Cancel Everyone's Student Debt, for the Economy's Sake. New York, February 9, 2018.

Amanda Palleschi. Student Loans Are Too Expensive To Forgive. fivethirtyeight.com, March 27, 2018.


US. Government Accounting Office. Federal Student Loans: Education Needs to Improve Its Income-Driven Repayment Plan Budget Estimates. Washington, DC: U.S. Government Accounting Office, November, 2016. 

Jordan Weissmann. Betsy DeVos Wants to Kill a Major Student Loan Forgiveness ProgramSlate, May 17, 2017.