Roosevelt Institute researcher says student-loan program is "a failed social experiment." But you already knew that.

Julie Margetta Morgan and Marshall Steinbaum wrote a blockbuster of a report for the Roosevelt Institute on the student-loan crisis. Unfortunately, the bland title and multiple graphs obscured the authors' key finding, which is this: Contrary to what student-loan advocates proclaim, a great many people who took out student loans for postsecondary education have not seen a rise in wages.

As author Julie Margetta Morgan summarized, "We've essentially engaged in a failed social experiment where the government thought that it would be fine to give people student debt because it would pay off in the long run and we're seeing that's not the case."

On the contrary, this is what Morgan and Steinbaum found:

• "More education has not led to higher earnings over time." Although the higher education community trumpets the myth that rising student debt and more education leads to higher income, that is not true. Instead, "the distribution of earnings in the labor market has remained relatively unchanged over time. And to the extent that individuals see an income boost based on college attainment, it is only relative to falling wages for high school graduates."

•  "Student debt is a burden for a growing share of young adults." Traditional ways of measuring student debt "fail to consider the changing distribution of  debtors over time or the changes in the ways that borrowers repay their loans." When these factors are accounted for, "the data show that many more Americans have debt, and the burden of that debt is more significant now than for previous generations."

•  "Credentialization better explain these dynamics than the 'skills gap.'" Although the nation's population is becoming better educated, "each educational group is becoming less well paid." In the authors' view, this phenomenon "is a result of declining worker power, which allows employers to demand a higher level of educational attainment for any given job, not a broken link between workforce skills and labor market demands."

• "These trends have had particularly negative impacts on Black and brown Americans." Minorities already have to obtain more education than their peers in order to get the same or similar jobs. In general, people of color have less wealth than nonminorities, which means students of color take on disproportionate amounts of debt, which exacerbates disparities in student-loan debt between minority and nonminority students.

 Morgan and Steinbaum fortify their arguments with statistical analysis, but this is the essence of what they found. A higher percentage of Americans have student-loan debt than previous generations, and they have more debt than in the past.  And this trend has developed at the same time that wages have remained stagnant.

As worker power in the job market declines, employers have been able to demand more credentials from job  applicants. In essence, employers have been"upskilling" the labor market.

 I see evidence of this everywhere. Lawyers, for example, need just one professional degree to practice their trade: a J.D.  Yet as the job market for attorneys tightens, I see more and more lawyers get additional education: an MBA, for example,or a master's degree in law.  But these additional credentials often do not lead to higher salaries--and generally are not necessary for the jobs they are seeking.

I give myself as an example of a person who took out student loans to get a credential that did not enhance my job skills. I had a law degree before I became a professor, and my legal skills and experience are all I needed to be a competent education-law professor, a job I have done for 25 years.

But to get my first professor's job, I had to have a doctorate, and so I took out loans to get an Ed.D. degree from Harvard. It was a complete waste of time and money.

Morgan and Steinbaum question the enormous public investment in postsecondary education our government is making through the student-loan program. Midway through their policy report, they make this trenchant observation:

If the only function of that public investment is to increase the credentialization of the labor market and enrich academic institutions that are best able to provide those credentials to students looking to differentiate themselves (at great expense) in a rat race, it's hard to conclude that the public investment s paying off . . . .

Indeed, the investment is not paying off.  For millions of Americans, the student-loan program is doing nothing more than sentencing them to become members of a permanent debtor class.

Will you will be richer if you get an advanced degree?

References

Jillian Berman. America’s $1.5 trillion student-loan industry is a ‘failed social experiment.’Marketwatch.com,October 18, 2018.

Julie Margetta Morgan and Marshall Steinbaum. The Student Debt Crisis, Labor Market Credentialization, and Racial Inequality. Roosevelt Institute, October 2018.

Iowa Wesleyan and Valparaiso Law School make brave decisions: “It is a far, far better thing that I do, than I have ever done"

“It is a far, far better thing that I do, than I have ever done." Who said that? I think it was some dead guy from the 19th century. Charles Dickens maybe?

Iowa Wesleyan University and Valparaiso Law School both made brave decisions this week, and I salute them for it. Valparaiso Law announced it is closing after negotiations to transfer the school to Middle Tennessee State University broke down. And the President of Iowa Wesleyan University, Steven E. Titus, posted a statement on the university web site candidly telling the campus community that the university faces a serious financial crisis and that the governing board is pondering the university's future.

These decisions must have been very hard for both institutions. President Titus acknowledged that publicizing Iowa Wesleyan's financial situation might hurt enrollment, which could hasten its demise. "But we decided it was the right thing to let people know what was going on," Titus said. "There is risk no matter what we do."

As for Valparaiso, the loss of its law school diminishes the reputation of the university as a whole, as a law school is generally seen as a prestige-enhancing program.

In my view, both institutions are facing the stark financial reality that many private colleges are facing, and they are facing it with courage. Let's first look at Valparaiso. 

There are far too many law schools in this country, and enrollments have been declining. As reported in Inside Higher Ed, law-school enrollments have sunk from a high of 52,000 to 37,000. 

The quality of students being admitted to law schools is also declining. As tracked by Law School Transparency, a nonprofit group that reports on law -school admissions, some law schools have admitted students with LSAT scores so low that half the entering class faces a very high risk of failing the bar.

Valparaiso is closing its law school,  which is certainly in the public interest. It is far better for Valparaiso to close than for it to lower its admissions standards just to enroll more students.

As for Iowa Wesleyan, the school has been discounting tuition to attract students; according to one report, it has discounted tuition by more than half.  At some point that practice raises ethical issues.  How can a college justify charging its least attractive students full price when the average price is less than half that amount?

And how does a college explain the discounts to the students who receive them? Some colleges have been showering first-year students with scholarships--athletic scholarships in particular.  But is it honest to give an incoming student a volleyball scholarship when the school doesn't even field a decent volleyball team?

No, Valparaiso and Iowa Western should be commended for their courage and their honesty. It was a far, far better thing they did than perhaps anything they've ever done.

References

Scott Jaschik. Iowa  Wesleyan could become the latest small college to close. Insider Higher Ed, November , 2018.

Emma Whitford. Valparaiso Law School will close following unsuccessful attempt to transfer to Middle Tennessee University. Inside Higher Ed, October 31, 2018.

Alabama trashes the LSU Tigers and tailgaters trash the LSU campus: How about bloody marys for brunch?

Number 1 ranked University of Alabama trashed Number 3 ranked LSU on LSU's home field last night.  About 200,000 people were on hand for the debacle: 102,000 in the stadium and another 100,000 tailgaters. The score was 29 to 0. LSU's star field-goal kicker made one attempt for 3 points, but he missed.

In the hours leading up to the game, tailgaters were packed shoulder to shoulder around the stadium, making the campus look something like a Civil War army camp. Portapotties and trash cans were overwhelmed, and picnickers squatted on the sidewalks because there was no room for them on the lawns.

On the morning after game day, the crowds were gone, save for a few dozen recreational vehicles (each costing about a quarter of million). Shades were drawn in the RVs, but the generators were running, so the owners must have been inside, sleeping off their hangovers.

And shortly after dawn, the cleanup crews were out early picking up thousands of discarded beer cans, plastic cups, and styrofoam fast-food containers. LSU used to hire prison trustees to do this work, but the optics were bad. This morning, young people are picking up the trash, perhaps LSU student volunteers.

Big disappointment. If only LSU could have knocked off Alabama and its satanic football coach, Nick Saban. If LSU coach Ed Ogeron had pulled it off, the fans would certainly have erected a statue in his honor, a statue even larger and gaudier than the one Alabama installed for Saban. But it was not to be.

No matter. Lots of Baton Rouge restaurants offer Bloody Mary brunches on Sunday, and it least one restaurant includes all-you-can drink mimosas for folks nursing hangovers.  And then the Saints play the Rams on Sunday afternoon--an opportunity to drink Bud Lites and eat chicken fingers--chicken fingers that Coach Ogeron personally endorses.

Fall is the season of bacchanal in South Louisiana. Let's get drunk for every LSU game, every Saints game, and every playoff game.  Let's get drunk at the fraternity hazing exercises. After all, hardly anyone dies from alcohol poisoning.

And then spring comes--another season of bacchanal. Mardis Gras parades start at least two weeks before Fat Tuesday, and the St. Patrick's Day parade is another occasion for a huge town drunk. The garbage trucks follow closely behind the St. Patrick's Day floats, sweeping up the discarded beads and beer bottles.

A friend told me he attended a Mardis Gras parade in New Orleans a few years ago. A drunk driver, driving a beer truck as it happened, plowed into a crowd of spectators, killing a woman who was pinned under the vehicle. My friend said he saw revelers crawl under the truck and loot the woman's Mardis Gras beads. The corpse was still warm.

Fox Business Report assures us daily that the economy is booming with record-low unemployment and a robust growth in wages. In Baton Rouge, people drive around in late-model luxury cars and pack the restaurants every night.

Cheaply built apartment complexes are being thrown up willy nilly for LSU students in the flood plain next to the Mississippi River levees. They feature swimming pools, and enormous television screens in the common areas. Meanwhile LSU passed a rule requiring most first-year students to live on campus, and it built its own faux-luxury residence halls to accommodate them.

But in North Baton Rouge, weekend killings are routine. A six-year-old was shot dead a couple of days ago, and thirteen-year-old was arrested.  Baton Rouge schools are a mess, and almost no one of means will put their children in a public school.

The rich go to private schools, and the less well-to-do buy inexpensive homes in adjoining parishes where the schools are better. They drive to work every morning on Interstate 10, which is a parking lot from 7:30 AM until about 10 AM on workdays.

But the commute is not so bad. You can check your cell phone when the traffic grinds to a halt or listen to Stuart Varney on Fox Business Report tell you how much money we're all making in the stock market.

Nick Saban's statue at University of Alabama
Photo credit: David Mercer, USA Today

Education Corporation of America brazenly uses an Alabama court to delay lawsuits against it. Is this a great country or what?

Education Corporation of America (ECA), a for-profit college chain, brazenly filed a federal lawsuit in Alabama last month, asking Judge Abdul Kallon to put it into receivership and enjoin all litigation against it. ECA hopes to delay its creditors and other litigants while continuing to receive federal student-loan money.

What a cocky, shameless and impudent strategy!

Judge Kallon initially obliged ECA, ordering a halt to all litigation against ECA until October 29. Then, on October 29, the judge  extended the injunction until November 5. Parties opposing ECA's Alabama litigation must find lawyers to represent them in Alabama, which will be costly.

For example, Gleneagles Office, LLC, a Maryland corporation, filed a lawsuit in Maryland last month, seeking to collect almost $100,000 in back rent and late fees from Virginia College, which ECA owns. Judge Kallon's injunction, issued seven days after Gleneagles filed its lawsuit for back rent, halted that litigation.

Gleneagles hired an Alabama law firm to oppose ECA's attempt to enjoin lawsuits against it. Gleneagles pointed out that ECA guaranteed the Virginia College lease and agreed that any dispute about the lease would be litigated in Maryland. Gleneagles also argued that Judge Kallon does not have jurisdiction over it.

A Texas company also joined the Alabama lawsuit to oppose ECA's request for an injunction. The Texas company is landlord to a Brightwood College campus in Arlington, Texas. Brightwood is another college owned by ECA.

Perhaps ECA's various landlords and creditors have the financial resources to fight ECA in Alabama, but ECA's former students do not. ECA's list of litigation against it (or its subsidiary affiliates) include several suits by former students. ECA managed to force many of these suits into arbitration, probably because ECA required students to sign arbitration agreements as a condition of enrollment.

So what's going on?

ECA is in financial trouble. Enrollments have dropped, and it is in danger of losing its accreditation. Meanwhile it has been sued by landlords, former students, and former employees on a variety of grounds.  ECA managed--temporarily at least--to halt all the litigation against it based on the signature of one Alabama federal judge, who may not have jurisdiction over any of this litigation. Some creditors have joined the Alabama lawsuit to stop this charade, but most of ECA's former students and employees don't have the financial wherewithal to do that.

Essentially, ECA's Alabama lawsuit has given ECA  all the benefits of bankruptcy without the downside of losing federal student loan money.  And when it becomes advantageous to do so, ECA can stroll into bankruptcy court any time it likes.

Isn't it ironic that ECA can use the courts to its advantage while its students are barred from suing it based on arbitration agreements ECA or its subsidiaries required them to sign as a condition of enrollment?

And isn't ironic that ECA can file for bankruptcy whenever it chooses (which it will probably do eventually), while ECA's students face enormous obstacles to discharging their student loans in bankruptcy?

Is this a great country or what?

References

Joinder of  Pioneer Industrial LLC and Pioneer Parking Lot, LLC to National Retail Properties LP's Memorandum in Opposition to Emergency Motion for The Appointment of a Receiver and Entry of a Temporary Restraining Order and Injunctive Relief, filed October 29 2018 in Education Corporation of America v. U.S. Department of Education, Case No. 2:18-CV-01698-AKK.

Non-party Gleneagles Office, LCC's Opposition to Plaintiff's Motion for Preliminary Injunction, filed October 29, 2018 in Education Corporation of America v. U.S. Department of Education, Case No. 2:18-CV-01698-AKK.

Order Extending Temporary Injunctive Relief, signed on Octobe 29, 2018 in Education Corporation of America, et al. v. United States Department of Education, 2:18-CV-01698-AKK.

Augustin v. U.S. Department of Education: Adventures in Fantasy Land

In  April 2016, Pierre Augustin filed an adversary complaint in a Maryland bankruptcy court, seeking to discharge $210,000 in student loan debt. He told the court he had been burdened by this debt for 24 years, and that his financial circumstances did not permit him to pay it back. Augustin's wife also had student-loan debt: $120,000. Together the couple had accumulated a third of a million dollars in student debt.

Augustin had three postsecondary degrees: a bachelor's degree in political science from Salem State University in Massachusetts, a master's degree in public administration from Suffolk University in Boston, and an MBA from University of Massachusetts Lowell. Seventeen years after receiving his MBA degree, he was working  as a security guard.

Augustin claimed he was unable to find a job in the field of his degrees, but together he and his wife earned a net income of more than $6,000 a month. The Department of Education (DOE) offered Augustin a 25-year income-based repayment plan that would allow him to pay $331 a month toward his student loans or a 15-year plan with payments of $1,138 a month.

Augustin did not accept DOE's offers. Under the 25-year plan, he argued, he would face a lifetime of indebtedness. Moreover, when the payment term ended, he would face massive tax liability for the amount of forgiven debt. The 15-year plan was also unacceptable, he maintained, because it would not allow him to save money for his retirement.

Bankruptcy Judge Thomas Catliota was not sympathetic. The judge applied the three-pronged Brunner test to determine whether Augustin's student debt constituted an undue hardship.  Under Judge Catliota's analysis, Augustin failed all three prongs.

First, Judge Catliota noted, Augustin could make monthly loan payments of $331 under the 25-year repayment plan while maintaining a minimal standard of living. Second, Augustin could not show additional circumstances that would make it impossible to make monthly payments in that amount.

Finally, Judge Catliota ruled, Augustin had not demonstrated good faith. Augustin had not made a single payment on his student loans for more than a quarter of a century. "By his own  admission,"the judge pointed out, "Mr. Agustin deferred his loans for approximately 26 years."

Moreover, Mr. Augustin was not willing to accept DOE's offer of a  manageable repayment plan. In Judge Catliota's view, "This shows lack of good faith on [Augustin's] part."

Not surprisingly then, Judge Catliota refused to discharge Mr. Augustin's student debt. Applying the three-part Brunner test, Augustine was not entitled to relief.

Perhaps Judge Catliota reached a just outcome in the Augustin case. But let's look at the case in a larger context. Why does the Department of Education loan people money for multiple college degrees and then permit borrowers to make no payments on those loans for 25 years?

Why does the government push people into 25-year repayment plans that allow debtors to make monthly payments so low that they don't cover accruing interest? Even if Mr. Augustin agrees to make income-based payments of $331 a month for 25 years, he will never pay back the $210,000 he owes.

Finally, why apply the Brunner test to people like Mr. Augustin? Why not simply ask whether Mr. Augustin and his wife will ever pay back $330,000 in student-loan debt? The answer is clearly no.

In short, Augustin v. Department of Education is another adventure in Fantasy Land, which is what the federal student-loan program has become. Our government has rigged an insane student-loan program that is trapping millions of people to a lifetime of indebtedness from which there is no relief.

References

Augustin v. U.S. Department of Education, 588 B.R. 141 (Bankr. D. Md. 2018).

Education Corporation of America files for receivership: Using lawyers' tricks to suck up more federal student-loan money

Education Corporation of America (ECA), a for-profit college chain, filed a lawsuit a few days ago in an Alabama federal court. The lawsuit seeks to put ECA into receivership, and it asks the court to halt all litigation against it. ECA also wants Betsy DeVos and the Department of Education to keep showering it with student-loan money while it straights out its financial affairs.

ECA is closing more than two dozen of its campuses; and it needs to keep getting federal student-loan money, it argues, so it can do a "teach out" at campuses it intends to close. If it allows current students to finish their academic programs (through a teach-out), those students won't be eligible to have their student loans forgiven under the "closed school" rule. That will save the Department of Education a lot of money, ECA says.

This line of bull reminds me of the story about a man who murdered his parents and then begged the court for leniency on the grounds he was an orphan.

ECA operates  under numerous brand names, including Virginia College, New England College of Business, Brightwood College, and Golf Academy of America; and it is in big financial trouble. It submitted a list of legal claims against it to the Alabama court, which is 15 pages long. Landlords are suing for back rent and other litigants have sued for breach of contract, fraud, failure to pay wages,  race discrimination, age discrimination, false advertising and some other stuff. 

Why doesn't ECA just file for bankruptcy? One reason: Under federal law, ECA would immediately lose access to all federal money if it filed for bankruptcy. It is hoping to keep federal money flowing as a long as possible.

I hope Judge Abdul Kallon sees through ECA's dodgy litigation ploy and refuses its plea for a receiver and an injunction against its creditors. (Judge Kallon granted ECA a temporary restraining order on October 19, but he will have to extend it to keep ECA's creditors at bay.)

  ECA needs to close, and it needs to close NOW. Every day it continues operating is another day uninformed students will be taking out student loans to pay for an ECA education that probably won't get them a good job. In fact, ECA's own accrediting agency scored ECA's campus-level job placement rate at only 16 percent.


References

David Halperin. For-Profit College Chain Claims Financial Distress, Sues DeVos. Republic Report, October 18, 2018.

Steve Rhode. Education Corporation of America Whines Over Failure. Get Out of Debt Guy (blog), October 22, 2018.

Alan White. For-profit college chain files (for receivership). Credit Slips, October 22, 2018.

Thomas Jefferson Law School won't admit new students next spring: Ask not for whom the bell tolls; it tolls for the legal profession

Thomas Jefferson School of Law (TJ) announced it will not admit new students to enroll this spring. Why?

Linda Keller, Thomas Jefferson's new dean, gave this explanation (which was probably drafted by a public relations person):

The Law School is committed to providing the best environment for our students. We've decided to forego the revenue that a spring entering class would provide because a proportionally smaller spring entering class might not provide the vibrant, collaborative atmosphere for our new students that is an essential part of the first-year law student experience.

My cynical interpretation of this cheery blather is that Thomas Jefferson didn't recruit enough students to make up a decent cohort for spring 2019. Indeed, TJ's student enrollment dropped from more than 400 in 2010 to less than 300 in 2017.

Thomas Jefferson School of Law should close--period. By almost any measure, the school is not producing lawyers who can find decent jobs in the legal profession. According to Law School Transparency, which reports important metrics for law schools, TJ's 2017 graduating class had an employment rate of only 21.3 percent. Graduates' under-employment rate was 42.3 percent.

Not a single 2017 graduate got a judicial clerkship, jobs that go to the most able law graduates. And none went to work for large law firms,  which generally pay the highest salaries.

And most shocking of all, TJ's 2014 entering class had a 2017 bar passage rate of only 26.5 percent! That's right, only a little more than one in four of TJ's 2017 graduates passed the bar.

Why do students enroll at a law school with such a dismal record? Is it cheaper than more prestigious schools? No, it is not. The non-discounted cost to get a law degree from Thomas Jefferson is $280,000! That's right, it costs more than a quarter of a million dollars to get a law degree from Thomas Jefferson, and only one out of four 2017 graduates passed the bar.

This country has too many law schools. There simply are not enough jobs for the newly minted attorneys coming out of the nation's lawyer factories. The American Bar Association, which accredits law schools, has done a poor job and allowed too many schools to operate. Based on their bar passage rates and poor job-placement rates, at least 20 schools should be shut down immediately.

Some of Thomas Jefferson's graduates sued the school awhile back for fraud, but TJ beat the wrap. But enrollment is dropping, bar pass rates are awful, and the time has come for TJ to close its doors.

Thomas Jefferson School of Law

References

Scott Jaschik. Thomas Jefferson Law Won't Admit Students for Spring. Inside Higher Ed, October 18, 2018.

Staci Zaretsky. Struggling Law School Will Not Accept New Students This Spring. Above the Law, October 17, 2018.

Staci Zaretsky. Verdict Reached in the Alaburda v. Thomas Jefferson Landmark Case Over Fraudulent Employment Statistics. Abovethelaw.com, March 24, 2016.