Thursday, April 11, 2019

Rep. Maxine Waters didn't ask mega-bank executives a stupid question at a congressional hearing; She asked them the wrong question

Congresswoman Maxine Waters, Chair of the House Financial Services Committee, asked seven big-bank executives an ignorant question when she had them appear before her committee earlier this week.

“What are you guys doing to help us with this student loan debt?" Waters asked the bankers.  Three of them  separately informed Waters that their banks have been out of the federal student-loan business since 2010, when the federal government began dispersing student loans directly. 

Ms. Waters apparently didn't know that, which must have been embarrassing to her. Nevertheless, Waters did not ask a stupid question. She asked the wrong question. In fact, several banks are involved in the private student-loan market: Wells Fargo, Citizens Bank, Suntrust, and Sallie Mae--to name a few. 

And it is a dirty business. Several banks are bundling their private student loans and selling them to investors as student-loan backed securities called SLABS, very much like the mortgage-backed securities that went south during the 2008 home-mortgage crisis. 

Moreover, most banks require student borrowers to find co-signers for their private student loans, which usually means Mom and Dad.  If a student defaults on a private student loans, the co-signer is on the hook to pay back the debt.  Can a co-signer discharge a child's student loan in bankruptcy? Probably not.  When Congress passed the so-called Bankruptcy Reform Act in 2005, it inserted a clause in the Bankruptcy Code making private student loans nondischargeable in the absence of "undue hardship."

So this is the question Congresswoman Maxine Waters should have asked the bankers who were arrayed before her at the Financial Services Committee hearing yesterday. "Do you support a change in the Bankruptcy Code that would make student loans dischargeable in bankruptcy like any other consumer debt?"

Put another way, she might have asked the bankers if they support Representative John Katko's bill to remove the "undue hardship" language from the Bankruptcy Code, which would allow destitute debtors to shed burdensome student-loan debts in the bankruptcy courts. How would the bankers have answered if Maxine Waters had asked them the right question? 

And here are a two questions for Congressman Waters:

Do you support Congressman Katko bill, which calls for taking the "undue hardship" language out of the Bankruptcy Code? 

Will you agree to be a co-sponsor of Representative Katko's bill, even though Mr. Katko is a Republican?

Megabank CEOs: "We don't know nothin' bout no student loan program."





Thursday, April 4, 2019

Commercial student-housing securities have high delinquency rates: Student slums on the Mississippi River flood plain south of LSU:

I live on LSU Avenue about two blocks from Louisiana State University. I also live about a block from Highland Road, an old thoroughfare dating back to the early 19th century. Highland Road received its name because it is above the Mississippi River flood plain--on high land.

Over the past few years, I have seen a frenzy in the construction of private student-housing apartment complexes in the flood plain not far from my house. Literally thousands of units stretch for several miles south of the LSU campus.

How are they financed? A lot of them are financed through Commercial Mortgage Backed Securities (CMBS), which are securities made up of student-housing commercial mortgages. They are very similar to the ABS (asset backed securities) that went belly up during the 2008 housing crisis as overpriced homes went into foreclosure by the thousands.

Now here is an interesting development. According to Commercial Real Estate Direct, delinquency rates for CMBS investments in student housing have "skyrocketed" by 144 percent over the past 12 months. This source reports that the delinquency rate for CMBS investments in student housing has increased nearly three-old to 9.11 percent.

Another source in the CMBS industry reported that student-housing delinquencies in CMBS 2.0 investments (CMBS entities created since the 2008 housing crisis) are 7 times the delinquency rate of the overall CMBS market.

Why the spike in delinquencies in the student housing sector? I can think of only one reason: oversupply. All over the United States, we see private, student-targeted apartment complexes springing up around college campuses.

There are simply too many apartments for the student housing market.  I see this first-hand in Baton Rouge. I'm guessing that delinquencies are ticking upward all across the country because a lot of these student-targeted apartment complexes have too many empty units.

The investors who are financing the student-housing frenzy around college campuses don't care if they are contributing to oversupply. They build the apartment complexes and then bundle them into mortgage-backed securities, which are sold to investors. It is the investors who bought the securities who will take the hit when delinquency rates go up.

 Oversupply hurts the older apartment complexes the most. Students naturally move from older units to newer units, which often have more amenities, like club houses and swimming pools  Many of the older  student-housing complexes were shoddily constructed and soon develop a tawdry appearance. As vacancy rates rise, less money is spent on maintenance and repair.

In my town, the glut in student housing around LSU is slowly creating one big slum. Massive overdevelopment of student housing has overtaxed the road system as thousands of young people travel in and out of the flood plain to get to the LSU campus or to their part-time jobs.

The city of Baton Rouge appears to be doing nothing to regulate the student-housing market or to limit the number of apartment complexes that can be squeezed into the flood plain. I suspect the real estate developers are making strategic campaign contributions to our elected officials to look the other way while the speculators trash the city.

College students are a massive population of young people with money to spend. They all have access to about $50,000 in federal student-loan money during their undergraduate years and an almost unlimited amount of new student-loan money if they go to graduate school. The students have the cash to live in near-luxury level apartments. 

But if the levees fail east of the Mississippi River, the flood plain will be inundated in about ten minutes. All this slum housing will be swept away and thousands of people will drown. But of course the levees won't fail. We can count on the Corps of Engineers to keep our college students safe.








Monday, April 1, 2019

University of Kentucky college students go on hunger strike over food insecurity. UK President Eli Capilouto makes $790,000 per year.

More than sixty students at the University of Kentucky began a hunger strike this week. Some will go cold turkey (so to speak) and take nothing but water and edibles required by medical necessity--which I presume will not include Snickers. Others will restrict themselves to one meal a day.

Why are they refusing to eat? Are they calling attention to the student loan crisis, which has destroyed the lives of millions? Are they calling for student-debt relief? Are they asking for student-loan debt forgiveness?

No, they are going on a hunger strike because they might get hungry! Well--that's not quite accurate. Actually, the strikers are protesting what they say is the university's inadequate response to students' food and housing insecurity.

These are the strikers specific demands as reported by a local newspaper:

1) They want UK to establish a Basic Needs Health Center "focused on helping students with housing and food-related challenges."

2) They want the University to establish a Basic Needs Fund, which would distribute small cash grants to students with food or housing issues.

3) Finally, the strikers want the university to hire a full-time person dedicated to helping students meet their food and housing needs.

UK's president, Eli Capilouto, roused his public relations staffers from their slumbers, and the PR team pumped out a suitably sensitive and vapid public response. Here is a sample:

"[W]hile we may disagree in some of our specific approaches [to hunger]," Capilouto purred sympathetically, "we will never disrespect the concerns that have been raised or those who have raised them."  So--no tear gas or pepper spray. That's a relief! No one wants to get tear gassed on an empty stomach.

Capilouto went on to say that UK had cut the cost of its most popular meal plan and expanded the operating hours for the university food pantry. He also said the university was raising money for an emergency fund.

"These next steps are a beginning, not an end," Capilouto assured the strikers. "This is a journey we are on--as a campus community and as compassionate, caring citizens in a larger world."  Don't you love that journey bullshit?

And then President Capilouto concluded his feeble statement with a flourish: "After all, we share the same goal--a commitment to making progress  in ways that ensure the health and wellness of our students as we prepare them for lives of meaning and purpose."

Wow! I give President Capilouto and his PR hacks an A minus for producing a hunger-strike response that is as flavorless and boring as the ramen noodles his students are eating.  (I deducted a few points from his grade because he didn't include the words "transparent" and "inclusive.")

I don't mean to make light of food insecurity on college campuses. In spite of the fact that students borrow on average about $37,000 to get their college degrees, they sometimes fall short on grocery money. But isn't  that what the UK food pantry is for?

Let's take a closer look at what the UK hunger strikers are demanding: "A Basic Needs Center focused on helping students with housing and "food-related challenges." But UK has a student-housing staff and people in charge of the campus dining halls. That's not enough?

And the strikers want small financials grants--apparently to meet food and housing emergencies. But isn't that what the federal student loan program is designed for? And part-time jobs, for that matter.

But the strikers' last demand is truly ludicrous. The strikers, delusional perhaps due to lack of protein, want UK to hire ANOTHER ADMINISTRATOR who will be dedicated to "addressing students' food and housing needs."

I'm sure UK will be happy to comply. Heck, it might hire a half dozen new administrators to staff a Basic Needs Center.  Sure it will cost money, but UK can always raise its tuition; and students will simply take out bigger student loans to absorb the cost.

Why do you suppose the UK protesters didn't call a hunger strike to protest the student-loan crisis and the outrageous cost of going to college? You know why. UK would probably turn the fire hoses on them.

And here's a footnote. President Capilouto--Mr. Sensitive--makes $790,000 a year. That will buy a lot of ramen noodles.

President Capilouto--Mr. Sensitive--makes $790,000 per year.


Saturday, March 23, 2019

Don't want no stinkin' Louisiana driver's license: Andrea Ballinger, LSU administrator with six-figure salary, quits her job rather than get Louisiana driver's license

Louisiana law requires unclassified state employees who earn salaries over $100,000 per year to obtain Louisiana drivers licenses and register their cars in Louisiana.

A few days ago, four LSU administrators, all making six figures, quit their jobs rather than comply with the law. All four claim Illinois as their primary residence, and three of them worked for LSU at least part of the time from Illinois.

Who are these jokers?

Andrea Ballinger, LSU's Chief Technology Officer, makes $268,000 a year. She left Illinois State University in 2017, where she made $193,424.  Apparently, LSU was so desperate to hire Ballinger that it gave her a $20,000 moving stipend.

Matthew Helm, LSU's assistant vice president in information technology services, draws a salary of $202,085.

Susan Flanagin, director in information technology services, makes $149,000.

Thomas Glenn, LSU's director of information technology services, gets paid $144,000 a year.

If I were making more than a quarter of a million dollars to work at a Louisiana university, I would damn well get a Louisiana driver's license and put a Louisiana license plate on my humble Subaru.

So why would these knuckleheads quit their jobs rather than register their cars in Louisiana?  Their lame explanation: Getting Louisiana driver's licenses and registering their cars in Louisiana would violate Illinois law!

I doubt we will ever know the full story, but here is my guess: All four of these characters have some sort of financial tie to Illinois that would be jeopardized if they established legal residence in Louisiana. If so, those ties must be substantial for them to give up their high-paying gigs at LSU.

Apparently, all four former LSU employees are leaving the Pelican State and heading back to the Land of Lincoln. I say good riddance!

Andrea Ballinger, LSU's former chief technology officer


Thursday, March 21, 2019

Take out student loans, get a college degree, and then go to work for a rental car agency: Is this the American Dream?

Enterprise Rent-A-Car is the number one employer of college graduates in the United States. According to Chronicle of Higher Education, Enterprise expects to hire 8,500 college graduates in 2019. In fact, three of the top ten companies for hiring college graduates are car rental companies: Enterprise, Hertz, and Avis.

For Enterprise, CHE reported, "a college degree matters mostly because it suggests that a candidate has acquired the right mix of skills to succeed in an entry-level job--and to move up the ladder from there." However, CHE explains, Enterprise does not care much about where its new hires went to college, what they studied, or their grades. Enterprise just wants people who obtained a degree.

Over the course of my working life, I've interacted with hundreds of car-rental agents. In my opinion, these agents don't need college degrees to rent cars. The idea of someone taking out student loans and spending four or five years in college just to get a trainee's position at Enterprise, Hertz, or Avis is absurd.

In my opinion, Enterprise's hiring policy is an example of credential creep. Companies don't require new hires to have college degrees because colleges teach useful job skills; for the most part they don't.

Rather a college degree is just a credentialing signal; it tells employers that an individual has the stamina to endure boredom, lackluster instructors, and mindless bureaucracy for four or five years--attributes that fit them perfectly for a trainee's job at Enterprise.

In fact, a high percentage of college graduates are now taking jobs that don't require a college degree. According to a report by the Federal Reserve Bank of New York, issued less than two years ago, 43.5 percent of college graduates are in jobs that typically don't require a college education.

And yet millions of young Americans are willing to take out student loans to go to college--on average, about $37,000.

So if you are a college student, you should ask yourself this question: Are you willing to borrow $37,000 in order to get a college degree and then go to work for a company that doesn't care where you went to school, what you majored in, or what your grades were?

If you answered yes, you are qualified to be a car-rental agent.

Photo credit: Thrillist.com

Tuesday, March 19, 2019

USA Today reports that millennials are having trouble buying cars and homes due to burdensome student loans---that ain't the half of it

According to a story published yesteerday in USA Today, fewer millennials are able to buy cars and homes because they are burdened with high levels of student debt.

This problem is well documented. The Federal Reserve Bank of New York reported that declining home ownership is partly due to student debt, and the American Enterprise Institute published a paper last December showing that student loans partly explain declining birth rates in the United States.

The USA Today story began by spotlighting Amanda Hill, a 27-year-old college graduate who amassed $90,000 in student-loan debt to get a bachelor's degree from Hampton University in Virginia. Ms. Hill said she is reluctant to take on any more debt because she owes so much on her student loans. Instead of buying a new car--the first major purchase for most college graduates--Ms. Hill bought a used Saturn for $500.

As USA Today reporter Susan Tompor reported, many millennials are constrained by their student loans from buying big-ticket consumer items. "Plain and simple," Tompor wrote, "many young consumers just aren't ready to consume."

But the plight of millennials is much worse than USA Today portrayed it. Not only are many young Americans unable to buy consumer goods because of their student loans, millions will never pay off their debt.

Let's look more closely at Amanda Hill's situation. She enrolled in an income-based repayment plan that set her monthly loan payments at only $200 a month. USA Today didn't report whether Hill is in a 20-year or a 25-year repayment plan, but it doesn't really matter.  If interest accrues at 5 percent (the current rate for federal student loans), Hill will have to pay $4,500 a year just to cover accruing interest.

But Hill is only paying $200 a month--or $2,400 a year. Thus, with each passing month, Hill's debt is growing larger. In three years or so, Hill will owe $100,000 even if she makes every payment on time.

USA Today did not disclose Hill's college major, her current salary, or her job title; but clearly she must be working in a low-paying job to be making payments of only $200 a month on a $90,000 debt.

Hill might find a better job that will allow her to make larger monthly loan payments. But that will have to happen soon if Hill is going to be in a position to make payments large enough to cover accruing interest and pay down some of the principal on her debt.

The chances are very good that Amanda Hill will make regularly monthly payments for 20 or 25 years under an income-based repayment plan and owe far more than she does now when her payment obligations come to an end. Her remaining debt will be forgiven, but she will get a huge tax bill because the IRS considers forgiven debt to be taxable income.

In short, Amanda Hill's problems are a lot more serious than an inability to buy a new car. She very well may be looking at a lifetime of indebtedness. That's a high price to pay for a bachelor's degree from Hampton University.


Sunday, March 17, 2019

Rich parents paying bribes to get their kids into elite colleges: Why risk jail for kids to get a mediocre education?

I live in Louisiana, where the most heinous thing a person can do is buy Chinese crawfish.

So I shouldn't have been shocked by the reaction of my Louisiana friends to the college-admission scandal that is roiling the national media. Several Louisianians expressed surprise that it is illegal to bribe your way into an elite college.  After all, my friends pointed out, it is well known that wealthy people get their kids into Baton Rouge's exclusive private high schools by making big donations.

What's the difference, one chum asked me, between bribing a soccer coach to get admitted to Yale and making a $5,000 donation to Catholic High School to make sure one's child gets admitted?

Not much, I admit.

Nevertheless, why pay bribes to get your kid into an elite college? After all, it is not the end of the world if your child does not get into Yale, USC, or Georgetown. There are a lot of prestigious universities in this country, and a well-qualified high-school graduate has a shot at getting into one of them.

Moreover, today's elite colleges are not what they used to be. Grade inflation, identity politics, and an atmosphere of political correctness have watered down the curriculum at colleges that once maintained rigorous academic standards.  According to a Boston Globe article published 18 years ago, 91 percent of Harvard's students graduated summa, magna or cum laude in 2001. 

How could that be? According to the Globe writer, "It takes just a B-minus average in the major subject to earn cum laude -- no sweat at a school where 51 percent of the grades last year were A's and A- minuses."

Maybe Harvard tightened standards since that article was written in 2001. Or maybe not. According to a Harvard Crimson article published in 2017, "more than half of surveyed [Harvard]seniors reported a GPA of 3.7 or greater, which is higher than an average grade of A- for every course."

So what's my point? I suppose it is this. America's elite colleges are nothing special, and families shouldn't turn them selves inside out to get their children into these overpriced diploma factories. They shouldn't go into ruinous debt to pay tuition bills at these hot-air palaces, and they certainly shouldn't pay a bribe to get their kids into Yale.

I did not get my undergraduate degree from a prestigious university. I did, however, get a doctorate from Harvard Graduate School of Education; and it was nothing special.

I realized before I graduated that I had made a major mistake when I enrolled at Harvard. I feel very sorry for parents who took out Parent PLUS loans or co-signed their children's student loans in order to pay tuition at some overpriced, high-prestige university.

As for the parents who face criminal charges in the college-admission scandal, I do not think they should go to jail. Rather, their children should be forced to attend the colleges they bribed their way into, and parents should pay the full tuition cost. Four years later, when the parents see how their kids turned out after graduating from one of these elite schools, that will be punishment enough.

Felicity Huffman (photo credit: David McNew/ AFP/ Getty Images)