Wednesday, March 26, 2014

Student Loans Drag Down the Housing "Recovery"

The Law School Scam is but part of a larger transformation in higher education that has been going on for decades - namely, that the cost incurred to obtain the degree is increasingly inversely proportional to the value return it provides.  We of the scamblog community feel that law school has become one of the canaries in the coal mine concerning this phenomenon, in that it has spiraled out of control to the point of absurdity.  Despite all that has been said, across multiple platforms,  about the cost of the degree and the damage the indebtedness can cause, many still do not seem to grasp the impact.  As such, I offer the following:
 
Remember when housing was the primary aspirational asset for a still existent US middle class, to be purchased with some equity down by your average 30 year-old hoping to start a family in his or her brand new home, and, as the name implies, aspire to reach the American dream? Those days are long gone. Back in those days the interest rate on the 10 Year bond mattered as it determined the prevailing marginal affordability of leveraged real estate. That is no longer the case, at least not for about 90% of Americans, because as Goldman shows, while before the great crisis only 20% of home purchases were "all cash", since then the number has soared threefold, and currently the estimated percentage of cash transactions (by count and amount) has hit a record 60%. In other words, less than half of all home purchases are debt-funded, and thus less than half of all home purchases are actually representative of what middle-class America is doing.
 
 
So who cares, I hear some ScamDeans and LawProfs say.  That is the fault of the larger economy, not the valuable well-roundedness a law degree provides.  One should be more than pleased to shell out $250k for the experience, as a law degree is instant preftige and entre into the upper class.  Yet:
 
NAR President Steve Brown, co-owner of Irongate, Inc., Realtors in Dayton, Ohio, said student debt appears to be a factor in the weak level of first-time buyers. "The biggest problems for first-time buyers are tight credit and limited inventory in the lower price ranges," he said. "However, 20 percent of buyers under the age of 33, the prime group of first-time buyers, delayed their purchase because of outstanding debt. In our recent consumer survey, 56 percent of younger buyers who took longer to save for a downpayment identified student debt as the biggest obstacle." Brown notes the survey results are for recent homebuyers. "It’s clear there are other people who would like to buy a home that are not in the market because of debt issues, so we can expect a lingering impact of delayed home buying," Brown added.
 
Of course, this is across all university-educated people in and around Dayton, Ohio, not just law grads.  However, many talk about how $30k+ in student loans slows people down; how much more bogged down are unconnected people with an additional $100k+ in debt, i.e. the average law grad?
 
The incredible cost of law school does not just delay home purchases, it delays life itself.  More than that, it puts life in shackles.  If the ROI on law school approached some measure of reasonableness, then that would be one thing.  But that is not the case currently.  Lemmings, go do something else with your life.  Please. 
 
One thing is for certain:  I doubt this crowd had difficulty buying nice homes in and around Dayton.  Remember that the next time you think about law school, as one cannot, of course, write law review articles "defending liberty" and "pursuing justice" on the cheap. 
 
That's where you come in. 

48 comments:

  1. Thanks for the link. it's very powerful to have color photos of the hackademic grifters staring right back at you -- it really makes their filthy little con game come to life. Such a rogue's gallery of mugshots who run that P.O.S. F&%K Dayton.

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  2. But under-served communities!
    Practice-ready!
    Global leaders!
    Versatile degrees!
    Limitless opportunities!
    Public interest!
    Social justice!
    Rescue dolphins!

    Now see why America needs more JDs and they need to cost $200,000 each?

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  3. Awesome news:

    http://jdunderground.com/all/thread.php?threadId=67133

    A few thoughts:

    How much is a "buyout" at the University of Denver? Is it comparable to a severance package, or do they buy the professors a bus ticket out of town?

    They claim that they want to keep a 10 to 1 student faculty ratio. If they have 895 students and 96 faculty currently, and their enrollment drops 10%, that would suggest they are laying off 15 professors.

    Finally, Nancy, if you are reading this, you might find this link useful. HTH!
    http://www.fns.usda.gov/snap/supplemental-nutrition-assistance-program-snap

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    1. Comments at jdunderground are hilarious.

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    2. I went to Denver law in the eighties. They wasted so much money moving their law school from downtown to a new building on the old Colorado Women's College campus and then to their main campus, I resolved never to give them a dime of mine to waste. Tuition in my first year was high, and then got higher each year.

      Fortunately for me, I was able to get law clerk jobs during school and worked my way into a fairly good firm because of what I did, not what the lousy profs did.

      Their best law teachers then were adjuncts who practiced law and taught a course on the side. Their tenured faculty - with rare exceptions - was lousy. I knew that then, and have confirmed it since.

      In my case and those of many classmates we self-taught ourselves more than the school did.

      I corresponded with the current dean awhile back, before I knew how Campos would go on to expose his hypocrisy. I'll be kind and say that I came away very unimpressed and underwhelmed.

      Last thought for this post: I note nowhere that Denver Law is cutting afminstrative positions or faculty salaries and benefits. It's clearly a keep the money rolling to the entrenched plan that they hope to execute.

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  4. Law profe$$ors. O Noble paragons of virtue! Yee who toil in the obscurity of Academia, enriching and educating tomorrow's Legal Minds. What pecuniary sacrifice has been laid upon Thee.

    What torment to see your former colleagues raking in fistfuls of cash as Biglaw partners while you suffer with $250,000 a year!

    Don't worry though. Those Biglaw firms will snap you up in a heartbeat as soon as you get sacked from your various Toilets. Hmmm. Or maybe not. Do you bring a large book of business? Have you actually practiced law, and recently? Is your expertise in something that brings in dolla$? I'm thinking ... probably not.

    You might need to rely on that nest egg you have been saving up for years. Or maybe you have been so secure in your tenure that you've become like a fat housecat and saved nothing. Maybe you've spent most of your pay on private schools for your children, German cars, boats, and trendy (expensive) restaurants.

    "Nobody’s ever taught you how to live out on the street, And now you're gonna have to get used to it."

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  5. Hell, I remember pointing this out - along with other critics of "legal education" - years ago. It's also going to affect the birth rate of this country.

    My brother in law is a dentist and he can't purchase a home due to his student loan balance. Yeah, good luck getting approved for a mortgage when you make $35K and you owe $125K in NON-DISCHARGEABLE debt, lemmings!

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    1. Thank you, you may have solved a mystery for me. In my small New England town school enrollment is in a free fall. When the current four classes in the high school graduate (2015, 2016, 2017, 2018) enrollment will be 2/3 of what it was in 2008. My friend the Town Clerk showed me how many birth certificates she has recorded in recent years, and it seems likely that enrollment will continue to fall after 2018 - possibly even reaching crisis levels where the high school will not be able to field sports teams. Neighboring towns are having similar drops in enrollment. I was searching the internet trying to come up with theories but this one had escaped me.

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    2. You're right about the birth rate. Worse, our GDP growth is attributable to incremental increased demand from population growth, and everyone in DC knows it. $70 trillion in unfunded liabilities for social security / medicare lurking out there, and no babies at the bottom on the pyramid to send into the salt mines. We'd have negative population growth except for immigration.

      Once you've made it impossible for young people in your country to carry on the basic purposes of life, you have to import people to keep your economy alive.

      Japan has a severely negative birth rate. It's got a strong anti-immigration policy. So the gov't funds dating events. Not a joke.

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    3. Yes. A huge, rent-seeking leech has been making one input cost way, way more than it's worth.

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    4. Yep, spot on, 10:12 AM. Here is a BBC article from 2007. Japan has been showing the world what lies ahead for a couple of decades now, but, as ususal, No One Cares...until it hits them.

      http://news.bbc.co.uk/2/hi/asia-pacific/7096092.stm

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    5. Here is a "Japanese government involved in dating" article.

      http://www.ibtimes.com/japan-encourages-young-people-date-mate-reverse-birth-rate-plunge-it-may-be-too-late-1562867

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    6. You are all correct that the declining average incomes and declining birth rates do not bode well for our future. Social security is basically a pyramid scheme and if there are only a couple of taxpayers for every retiree what do you think will happen?

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    7. Japan is an extreme case, but in pretty much every country in Europe the average number of births per woman has fallen well below the "replacement rate" which runs about 2.1 in a first world country. At that level each woman replaces herself and one man while accounting for the slightly higher number of male births and those girls who die before reaching childbearing age. The U.S. is hovering near the replacement rate but, as has been noted, saves itself with immigration. The first baby boomers, born in 1946, reached age 66 in 2012. 66 is the age when you can collect maximum Social Security. 1947 is on board and '48 is getting there this year. After that only 18 more years. God have mercy on the land.

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    8. Japan is probably just ahead of a developed-world trend on this. American demographics look like Japan in the early 1990s.

      Immigration stabilizes population growth, but I'm not sure its an unconditionally good thing (and I am an immigrant myself with illegal immigrant relatives). Immigration hurts the job market (unskilled and STEM) for Americans (even children of immigrants) and many immigrants are poor and uneducated, especially illegal immigrants who are often high-school dropouts. In fact, the "stagnant wages for 20 years" story in America may be largely caused by the mass movement of poor people into the USA.

      But thankfully America's immigrants are culturally similar. Compare to the situation in Europe. Today, Brussels, the capital of the EU, is +25% Muslim, and growing rapidly because of their higher birth rates. Europe's population looks like its gradually being replaced by people of different culture, religion, and ethnicities.

      200-400 British citizens are now fighting for jihadists in Syria. This was unthinkable just 10 years ago, and just imagine how unthinkable will the reality of Britain and Europe be in another 10 years.

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    9. I agree: If your economy runs on demand, importing mass amounts of people, even if they had job skills, which they don't, you cannot keep the service-consumer economy going without an increase in wealth producing industries, e.g. steel, consumer goods, pharmaceuticals, etc.
      What mass immigration does in reality is decrease the cost of labor, which temporarily increases profit margins and long term decimates demand, bringing the viability of a market economy in question. (It also causes less unity, and therefore, less ability for people to organize against power loci.)

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    10. Another negative salient point missed, is that immigrants have cohesive, extended families, coupled with tax exempt status and government loans, many small businesses have been bought by immigrants: 80 percent of franchises and budget motels are now Patel-Hindu owned. In less sophisticated countries, like N. Zealand, the number is 100 percent...
      When the corporate media claims that immigration helps the economy, they mean profit margins are temporarily increased to the magic 12 percent return (by lowering wages) and the extra mouths to feed causes a marginal increase in sales, often through crime or welfare payments... Destruction of Western society has an intangible value, as well...

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  6. This comment has been removed by the author.

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  7. Another angle to consider - those law grads who were once homeowners but who had to sell because their post-grad income was so low, and their debt payments so high, that they simply couldn't afford the house and had to downsize to a small rental, short sell, foreclose, etc.}

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    1. The two lawyers in my town both sold their Mercedes and they were years past paying off loans.

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  8. And the scam deans are still at it. Washington and Lee has started hiring its grads on a short term basis to make its employment figures look better. In 2012, they hired 1.5% of their grads. In 2013, they hired 16 of 143.

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    1. Ouch. My scam-tastic alma mater, UC Hastings (pronounced 'you see greed') hired...43 from the class of 2013. Yeah.

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    2. In a letter to applicants, W & L stated "Over the last year and a half, we have taken steps to offer new initiatives and programs not available to prior graduating classes. These efforts include stronger bar preparation support, externship and interview programs in Washington, D.C., a more robust post-graduate fellowship program, changes in our approach to the employment market, and new leadership in our career planning office."

      Now we know what they mean by "changes in our approach to the employment market." Nora Demleitner tried hiring students when she was at Hofstra and look where Hofstra is now. This practice was deceptive then and its deceptive now. An old dog can't learn new tricks.

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    3. You are looking at the wrong cetagories. It is only the full time, long term category that counts fully in the US News figures. Look at Boston U, George Washington, William and Mary, Notre Dame, UVa, Emory, and see how many school funded they have in the long term full time category.

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    4. Yes, but hiring graduates part-time still makes the employment figures look better.

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    5. Correction: Yes, but hiring graduates for short-term jobs still helps the employment numbers look better. It helps lower the underemployed score on LST. Why else would W & L suddenly hire 16 of its graduates on a short-term basis when they didn't do so in the previous year? You have to understand how these scam deans think.

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    6. Correction 2: I meant unemployed not underemployed.

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    7. My school too brought in "new leadership in [its] career planning office" right after my first year. (The old "leader" was so detested that the law students' association held a special meeting in the middle of the night during exam week in order to get her fired, and the administration was plainly sympathetic to those demands. She had the sense to quit before the guillotine fell.) Did it help? Not a bit. The new "leader" didn't even know the starting salaries at white-shoe firms, not even within a factor of three or four. Utterly useless. The old "leader" told me, when I asked about summer jobs, to spend the summer break traveling around France instead; the new one told me to buy a more stylish frame for my eyeglasses. Assistance with finding a job was conspicuous by its absence.

      But even capable leadership might not have been able to do much, as there simply aren't many jobs for students or new graduates these days.

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    8. Well what can they really do? If firms are hiring then that can all be facilitated online in this information age. If firms arent hiring then career service offices cannot refer to jobs that do not exist.

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    9. My career services office was absolutely worthless in my first two years. The director of Career Services refused to help anyone who wasn't in the Top 10. She would tell everyone else that it was highly unlikely that we were going to get jobs. If pushed, she would half heartedly review a student's resume.

      The kicker: she was out every single Thursday afternoon to get her hair and nails done.

      When the new guy came in, she was just kicked upstairs and given a deanship, which she still holds to this day.

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  9. Until the late 1970s, many working-class people could afford a house, even in big cities. Archie Bunker, a high-school dropout, got $6 an hour as foreman at a loading dock (doing unskilled work) but had a house in New York City that was appraised in the low $40k range. Today that house would cost about twenty times as much—but wages have not increased at that rate. How many lawyers today could buy that house?

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    1. The "American Dream" has basically meant being able to afford a home, send your kids to college, and have a secure retirement. To do all three of those things now or in the future requires one to be rich, not middle class.

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  10. Not sure how this plays out, but do the mortgage companies look at total debt or do they look at monthly income vs. expenses. If you are on IBR and can keep your debt payments down to 10% of your income, even if your debt is huge, you still might qualify for a mortgage right? Or do they take into account your total debt profile? I would think your cash inflow and outflow on a monthly basis is all that is really important. Nando, nobody is buying a house on 35K of income, debt or not.

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    1. It depends on the company but they look at a lot of factors. Income to debt ratio is one, and ratio of monthly payments to total debt amount (e.g. is the person going to be saddled with debt long-term?) is another. Someone on IBR will get killed on those factors. Also there's the fact that a future Congress could pull the plug on IBR at any time, or significantly curtail it.

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    2. If you are on IBR today there is no guarantee that you will be on IBR tomorrow. Actually there is no guarantee that there will be IBR tomorrow. And in any event, at the end of the IBR period you could end up with a massive tax lien against your house.

      A bank will look at your entire debt. Anything else is unrealistic.

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    3. The bank wants good security. It certainly does not want to lend most of the cost of the house only to see that house seized by a creditor with priority.

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  11. Hey OTLSS Crew,

    Have you guys seen this report yet that is making the rounds? Found it in a WSJ article: http://www.newamerica.net/publications/policy/the_graduate_student_debt_review

    The report examines graduate school debt / tuition inflation. The conclusions will not surprise you, but will help make others understand.

    Conclusions of the study:

    LAW SCHOOL = WORST COST INFLATION RATE IN THE COUNTRY; HIGHER THAN UNDERGRAD; HIGHER THAN EVERY SINGLE OTHER GRAD DEGREE.

    LAW GRADS = 2nd HIGHEST DEBT BURDENS IN THE COUNTRY, EXCLUDING LAW GRADS UNDERGRAD DEBT!

    Money quote: "[P]olicymakers and news media should shift their understanding of student debt as primarily an undergraduate problem." Although fewer students attend grad school than undergrad, in absolute terms grad school inflation is set to outpace undergrad in total contribution to the 1.3 trillion in bad student loan debt already out there.

    The study also, helpfully, breaks out debt loads by quadrilles, for easy comparison with the reported average debt load of graduates at particular schools.

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  12. Oh, hell yeah, thanks for the link 10:00 AM!. This is a fantastic summary and state of the union.

    Step right up, boys and girls, get that "Million Dollar Law Degree"....and a heapin' helpin' o' debt! Tenure doesn't pay for itself, you know!

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  13. @9:12 am,

    "Not sure how this plays out, but do the mortgage companies look at total debt or do they look at monthly income vs. expenses. If you are on IBR and can keep your debt payments down to 10% of your income, even if your debt is huge, you still might qualify for a mortgage right?"

    Banks and mortgage companies look at total outstanding debt, genius. These pigs learned their lesson from the housing bubble. They are not going to extend a huge line of credit for someone who owes $150K in NON-DISCHARGEABLE debt - and does not make a stellar income. As I stated earlier, my brother in law is a practicing dentist. He owned a home PRIOR to going to dental school. Now, he and his wife cannot qualify for a mortgage. He incurred about $250K for his dental degree.

    Mortgage companies are FULLY AWARE of the nature of "educational" debt. They know that people will take care of this debt first, since one can always walk away from a home. Charles Cooper seems to understand that many are in the same boar, where they are worse off - in terms of purchasing a home - than they were prior to entering professional or graduate school.

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    1. That is a good point Nando--banks will seriously consider non dischargable debt e g student loans more so than dischargable debt like credit cards.

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    2. Banks like down payments on real estate to ease their comfort level, usually 15-20%, but 25-30% is where deals are sealed. This is usually where the parents of the couple contributed to their children, provided the house wasn't some goliath and the wedding was in reason. These days, the parents can't afford to contribute because the contribution was already made for college. In essence, the down payment went to higher education so it can pay for the outrageous tuition which is a reflection of the bloated salaries, fancy buildings and other horseshit.

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    3. Nando is wrong. Total debt is not really considered by the mortgage industry, they consider ability to pay, something like your monthly cost on housing can not exceed 44% of your monthly income or something close to this formula. So yes, even with large Student Loans, people can buy houses, so long as their income per month and debt repayment is limited to a percentage of that income. But $1000 per month or more in payments is going to play havoc with your ratios of course.

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  14. The Deans and tenured professors know that law students are just beefstews! Rusty nails! They take all of their federal dimes and leave em broke and unemployed like two bit four bit troglodyte bedlamite diabetic Loogaroos! That is GANGSTERTALK!

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  15. I am connected to many recent Georgetown and George Washington law school graduates(2011~2013) with a few other T14 and Fordham grads on Linkedin. If you check out their profiles, there are basically two groups of people. The first group consists of graduates who have full-time permanent jobs. My impression is that these people are in the minority among the linkedin profiles of the GW and GT grads. And these grads, with a few exeptions, are associates in biglaw who usually nag those jobs as summer associates.
    Now the second group, which I find kind of scary and surprising, is made of GT and GW grads who don’t have a permanent job now and gives me the impression it is a much bigger group than the former group by looking through those profiles. These graduates usually put like 4~5 internship experiences from prestigious PIs such federal agencies, courts, and national non-profit organizations.(Yet it is DC) Most of them graduate from law schools during 2011~2013. A few them even graduate from 2010! Yet a lot of them only have internship experiences on their linkedin profile!! Even when they put their non-internship experience, they are mostly waiter or pizza delivery jobs.
    A typical linkedin profile from this group looks like this:
    1. An useless undergraduate major such as Music Business, International Relations, History, Religion Studies, History, Gender Studies, Gay Studies, Museum Studies, Theater Arts, Language Studies…
    Some even list those shit courses they studied in college. Peace and Justice in Middle east…haha…
    2. Usually no permanent job experiences. If they have one, it is a waiter, tutor, pizza delivery job done during their college years

    3. Law school from GW,GT, Fordham, or Columbia. With some shit moot court, secondary law review experience listed.

    4. Their Internship experiences during law school and after graduation look like this:

    An internship in a federal agency: FTC, or a division in DoJ, DoD, DoE, or Do Homeland Security for like 3 months.
    An internship(Not summer Associate) in a Biglaw for like 3 months
    An internship in an non-profit organization for like 3 months.(Ex: Peace and justice center for blah blah blah, Yada Yada Foundation and etc)
    Research assistant for so and so law professor.
    A fellowship for XXXX. This is most likely the law school’s pet project to keep grads on employed status.
    A law clerk for so and so court

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    1. I'm not surprised by this. Although GW was once considered to be a semi-elite school, that is no longer the case. It recently lowered admission standards and expanded its incoming class by 80 students. Basically, GW is looking to cash in on its once solid reputation before it ends up like American. I wouldn't go near the place unless I had a free ride and/or a guaranteed job waiting for me after graduation.

      As for G-Town, its always been the red haired stepchild of the so-called top 13. Given its huge class sizes and the horrible job market, there are real risks to attending this school - especially if you pay with loan dollars.

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    2. Music business is an actual major? I've never heard of it, but It seems like a good segway to law ...

      All you have to do as a music business major is just walk over to any Apple store to find out what's happened to the music business. Just like the legal profession, this is an industry that's been clobbered by technology.

      And, BTW, that's been great for consumers. No longer do I have to purchase a CD/tape/record/8-track with 20 songs when I really only like 1 or 2 songs in the album.

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  16. How fast would the higher ed system collapse if the Federal government could no longer guarantee student loans? What would be left? (This could happen as a result of a financial, fiscal, or monetary crisis.)

    I'm guessing 50-75% of schools would shut down. Law schools would be especially devastated.

    The impact might be less in the event of a common-sense Federal reform, like only guaranteeing $20,000 of student loans per person per year.

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    1. On the other hand, we could do what they do in Europe: The state sponsors seats in university based on projected demand. If that demand falls, the funding is rescinded and the best and brightest students, not the wealthiest, attend school, which is free.

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