Tag: “student loans”

  • The Empiricist Strikes Back

    Posted by

    Katie Porter

    The Washington Post had a story yesterday about the Department of Education's look at how student loan servicers deal with the Servicemembers Civil Relief Act and its protection to members of the Armed Forces. Senator Elizabeth Warren is drawing on her years of empirical research to question the methodology and the resulting conclusions of the study. (In a warning strike for the Empiricist, Senator Warren and some colleagues asked just why it was taking a large government agency well over a year to conduct a study–a credible claim from someone who conducted several large empirical studies, largely with the help of a few research assistants.)Shutterstock_184208507

    As a professor, Warren conducted several large empirical studies, each gathering hundreds of variables on a sample of  more than 1,000 families in bankruptcy. She is miffed that the Department of Education only conducted a detailed review of 55 cases (out of a universe of 20,000). A prior DOJ investigation concluded that 60,000 servicemembers paid too much interest on their student loans, resulting in a $97 million settlement with Sallie Mae and its former subsidiary Navient. Yet, the Department of Education apparently uses a very different legal standard for determining compliance with Servicemembers Civil Relief Act than the Department of Justice. Not surprisingly, with a tiny sample and a narrow analysis, the Department of Education concluded all was well and good.

    But as Senator Warren well understands as an empirical researcher, what you find depends on where your look–and if you have your eyes open! Her staff report details other concerns in a report , which reads more like something you'd find on SSRN or in a social science journal than the typical sound-bites of Washington press releases.  Senator Warren had to defend her research methodology and findings, and she always rose to the occasion. Having an Empiricist in Congress means you can expect someone reading your report, not accepting the conclusions. Senator Warren is bringing her research acumen to the government's work–where like in the scholarly world, there are not-so-good studies and good studies. Our servicemembers deserve a hard look at whether their legal rights are being protected, while they are protecting our rights.

     

     

  • Student Lending

    Posted by

    Katie Porter

    As Prof. Nathalie Martin noted, the ABI has an upcoming conference on student loans. For those more interested in policy than straight up bankruptcy law, the St. Louis Federal Reserve will host a one day conference on the state of student loans in America on November 18. The conference, “Generation Debt: The Promise, Perils and Future of
    Student Loans,” comes on the heels of a report issued by the Consumer
    Financial Protection Bureau outlining the similarities between the student loan crisis and the recent financial meltdown. The Fed’s involvement as a leading research institution–on student lending is great news.

    Policy makers, academics and students (young adults) need
    frank and honest discussions about education finance. But young people’s economic vulnerability in
    this country is about much more than student loans; this generation
    faces critical junctures as they secure jobs (or not), marry and form
    families (or not) and pursue and pay for higher education (or not). The Fed’s conference will hopefully offer a more multi-dimensional
    view into young adults and their financially fragile status than many of
    the high-profile articles that focus singularly on the role of student
    loan debt    .

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  • President Obama takes on the student debt bomb; meanwhile, the Gainful Employment Rule saga enters a 5th year

    Posted by

    Jean Braucher

    Prospects do not look good for President Obama’s vastly ambitious initiative (not yet really a plan) to take on growing college debt.

    Consider that the U.S. Department of Education (DOE) is going into its fifth year, and counting, of efforts to regulate just one higher education sector, for-profit schools, to stop those with the worst record of imposing unmanageable debt from continuing to live on a federal dole.  After a big setback in a legal challenge by the industry last year to a new Gainful Employment Rule, DOE has recently resumed its efforts, with a second round of negotiated rulemaking set to begin in September. 

    The for-profit industry itself has argued for an expansion of regulatory scope to all colleges, presumably not because that would lead to quicker controls on for-profit schools' own operations.  The Obama administration may have lost necessary focus.  It should be taking on worst things first rather than subjecting even the most efficient, debt-free sectors of higher education to expensive new regulation.

    About half of U.S. undergraduates go to community colleges.  As of 2011-12, according to the College Board, the average annual published tuition at public two-year schools was $2,963 (sticker price), and after taking into account grant aid and tax benefits, the average student paid nothing for tuition and fees (actually on average they got $810 more in aid than tuition and fees, meaning some money for living expenses).   In the most recent figures available on debt (probably getting worse because of public funding cuts leading to higher tuition), 62% of two-year public school graduates incurred no debt, and only 5% finished school with more than $20,000 in debt.  Most of the students at community colleges pay as they go by working their way through school. These schools need continued public funding to preserve their largely debt-free culture, which also makes not finishing school a low risk to students’ financial futures.  President Obama’s new rating system for all of higher education would not address the problems in this all-important two-year public sector, which offers subsidized education that only costs as much per student as high school.

    For-profit schools, which have grown to enroll about 10% of college students, are at the other end of the debt spectrum—their students incur the most debt and have the highest default and delinquency rates (while the schools pay the least for actual education as opposed to marketing and other administrative costs).  For an exposition of the for-profit schools' business model, including heavy dependence on federal funds, see my paper from last year; it also provides a comparison to the debt picture at public and non-profit institutions as well as an account of the regulatory process through spring of 2012). 

    It is good news that DOE hasn’t given up on regulating for-profits better despite a loss, discussed more below, in federal district court in June of 2012.   That decision actually provides a roadmap for redoing the Gainful Employment Rule (GER) to pass legal muster, while making it tougher than the very weak regulation that was struck down.

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  • NACBA warns of student loan “debt bomb”

    Posted by

    Jean Braucher

    At its annual Capitol Hill Day in Washington this week, the National Association of Consumer Bankruptcy Attorneys sounded an alarm about the growing student loan problem, calling it a “debt bomb.” NACBA released a survey of its members indicating that more potential clients these days have unmanageable educational loans and are facing aggressive collection efforts. See http://www.nacba.org/Legislative/StudentLoanDebt.aspx. It has become common for people to have two mortgage-size debts, one for a home and another for an education. The educational loan problem is looking something like the one a few years back with subprime mortgages.

    Absent “undue hardship,” very hard to establish, student debt can be a life sentence because these loans are not dischargeable in bankruptcy. NACBA supports making private students loans dischargeable again (as they were before the 2005 law). Beyond that, it favors going back to the pre-1990 approach of allowing discharge of any student debt after five years. If the education isn’t paying off enough to make the loan repayable after that much time, something has to give so that people can get on with their lives–and some day buy a home, start a family, and save for their kids’ education and their own retirement.

    As a participant in the Capitol Hill Day, I found congressional staff reacted very sympathetically. They are mostly young people carrying big student loans or with friends who have them. They know how hard it is to manage this debt even when you have a decent job. They easily recognize what a big problem this is for their generation and even more so for the next one. This issue isn’t going away.

  • For-Profit Higher Education Industry Sues to Block Weak “Gainful Employment” Rule

    Posted by

    Jean Braucher

    Last week the Association of Private-Sector Colleges and Universities (aka the Career College Assn.) filed suit in U.S. District Court in Washington, D.C., to block enforcement of the U.S. Dept. of Education’s “Gainful Employment” regulation, issued in June.  See here for the complaint.   The for-profit colleges are challenging the agency's authority to issue that regulation.  It requires that, to be eligible to receive federal grant and loan funds, the colleges must show that 35 percent of former students are paying something (even $1) on their student loans (or that they must meet other benchmarks set in terms of debt to income).

    So let’s back up and put this issue in context.  There is lately a general unease about whether the cost of higher education is worth it, even though income rises and unemployment decreases steadily with successive degrees (except that PhD’s are more likely to be unemployed than those with professional degrees, hardly a surprise).  See here.   

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  • Debt-Free: An Unrealistic Expectation

    Posted by

    Elizabeth Warren

    A Vice-President at Dickinson College complained about the move by wealthier schools to eliminate student loans as part of the aid package, arguing that such a move creates the "unrealistic expectation that students should graduate debt-free."  He points out that people borrow for cars and homes, and that education is just like any other big-ticket purchase.  In effect, rich people can buy it for cash and those with less money should finance it over time. 

    If education is like a Hummer–cash or credit–then why stop with college?  Why not shut down the public schools K-12, and let those whose parents want them to learn to read and write pay cash or take on loans? (Maybe we’re heading that way with failing schools in some cities.) 

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