Friday, April 25, 2014

More news on student loan forgiveness, courtesy of the WSJ

The New America report has been making waves, as news outlets such as Wall Street Journal report on the issue and expand on it.  Note that the WSJ article is behind a pay wall.

I missed something in my original post of the New America report that WSJ has picked up: that enrollment in income based repayment programs have grown by about 40 percent in the past six months.  According to the U.S. Education Department, via the WSJ, there are "at least 1.3 million Americans owing around $72 billion."

The WSJ also reports that the fastest growing program is "Pay As You Earn" (PAYE).  If you have trouble keeping the different student forgiveness programs straight, PAYE has you pay 10% of your "discretionary income" (which the WSJ defines as "annual income above 150% of the poverty line") in monthly installments until you have the debt forgiven.  "Public interest" jobs get your loans forgiven after making ten years of payments, while private-sector jobs take twenty years of payments.



Hilariously, the WSJ reports that the Dean of Georgetown Law, Bill Traenor, says that the government's forgiveness programs are not influencing G-town's tuition, which is approximately $50,000 (don't forget the high CoL that comes along with living in Washington D.C.).  Georgetown once proclaimed that "public interest borrowers might not pay a single penny on their loans—ever!", on their website.

                 The face of Bill, who cashed in $500,000 in 2012, according to the 2012 IRS 990.
                 He invoked the "Jesuit mission."  My great-uncle was a Jesuit, his Jesuit mission was assisting the poor in India.


According to the WSJ, G-Town has been "steering" its graduates into public-service jobs "as part of its Jesuit mission."  We have data on how many people are in G-Town's public-interest program: 432, up 60% from 2 years ago.  Maybe if Georgetown didn't charge an arm, a leg, and a gallbladder for tuition and lived up to its "Jesuit mission," its graduates could go into such public-interest jobs without needing to be bailed out by taxpayers.  But I digress.

The article also puts another nail in the coffin of the government's ability to forecast the cost of anything (Obamacare supporters take note here): "debt absorbed" by Stafford Loans exceeded government predictions from a year earlier by 90%!  I'm going on a limb here, but I think the "debt absorbed" by these programs is going to continue to skyrocket: after all, New America reported that the median law school graduated owed a total of $140,000 at graduation, which is $50,000 more than those who graduated from law school in 2008.

I remember reading that student loan forgiveness programs were not well known among graduates a couple years ago.  That seems to have changed, and has been taken note by New America and other critics of the leaky federal loan spigot.  Which, by the way, "has nearly doubled since 2007."  Which, by the way, was "disproportionately driven by the growth in graduate-school debt."

Since law schools are the worst offenders of the graduate school programs, they are more and more  in the crosshairs of those seeking to address issues regarding student loans, the poor job market, and escalating tuition.  The WSJ uses two law school graduates working in public-interest positions as examples of how much the forgiveness programs are being covered by taxpayers on an individual graduate's basis.

One is a public-interest (the position is not specified) attorney in California, making about $60,000 a year, after racking up $172,000 attending Hastings.  His monthly payment?  "420 a month," which doesn't even cover the interest owed.  Using the repayment calculator from New America, approximately $225,000 of student loans will have been forgiven within ten years.

The other is a public defender in New York, who makes $58,500, and pays only $350 a month on $180,000 in debt racked up at Syracuse.

It seems that the government and the law schools have found a way to increase the number of people interested in "lower-paying" government work

Who is in a better situation?  A law graduate working in a private law firm on the lower bimodal bump, or a law graduate working in a government-job on the lower bimodal bump?  Hell, forget about loan forgiveness and student loans.  In return for dealing with government bureaucracy, you get superior benefits, hours, not having to worry about bringing in clients or business, and maybe even a pension!

Speaking from my experiences at a DA's office, I know two employees, one for the DA and one for the opposing PD's office, who went to a private presttttigious school and each racked up about $250,000 in student loans.  Compare that to another recent graduate who is a prosecutor in the same office, who went to a similarly ranked public school and owes around $70,000-80,000.

I'll end with this, to be examined at a later date:  from a public-policy minded regulator's perspective, what's the point of expensive private law schools with poor employment outcomes?

Bonus link: Stephen Harper and William Henderson's least favorite four-letter phrases in the English language: "I told you so."

32 comments:

  1. Like all the other posts on this site, this is terrific. Keep up the good work, all of you.

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  2. Great article. If there is any justice or common sense these programs will be cut back (e.g. limits on the amount that can be borrowed, so law schools can't keep jacking up tuition and sticking the taxpayers with the bill). The current system is benefitting no one except the law school deans and professors who already make very comfortable salaries, with benefits most of us can only dream of.

    I would submit that an indebted law grad lucky enough to get a public sector job is in a better position than a similarly indebted one who gets a 160k Biglaw job. The former has a repayment period half as long, plus the benefits, better hours, and less stress you noted. Also, while no position is really secure, I think a prosecutor or public defender or other govt. lawyer has better job security than a Biglaw associate.

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    1. Those government jobs paying $60k sound awfully appealing to me. And I don't even owe anything for the law degree that so far has been absolutely useless for finding work (other than a federal clerkship).

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    2. Bottom line, there should be no further talk of debt forgiveness until tuition is under control. Absent that, debt forgiveness will only encourage further tuition hikes.

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  3. I remember several ScamDeans and LawProfs crowing about IBR, PAYE, and the like years ago, and how great they thought it all was. It was a marketing gimmick to get asses in seats, nothing more, because when confronted with the actual economic truth of the situation and the consequences thereof, the Deans and Profs fell back on typical "blah blah blah public policy blah blah blah public service blah blah blah" libby-speak. Actually running a functioning, profitable business that delivers results, with no government cash spigot prop-up, is for the little people, apparently.

    To the Cartel, it really doesn't matter whether thousands of students get bilked or millions of taxpayers get bilked...just so long as they "get theirs." Dear me, how will all this prescious scholarship get written for under $100k a year? It's clearly impossible! Plus, those summer homes don't pay for themselves, you know.

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  4. Their "Jesuit mission" apparently includes lining the pockets of profe$$ors and admini$trators at the expense of students and the public.

    Jesuitry is a slur for self-serving reasoning of precisely this type.

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    1. Have you ever seen a Jesuit liquor cabinet? Some of them have forklifts. If the Jebbies know nothing else they know how to live large.

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    2. Serving God and Mammon.

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    3. While we're getting all Catholic up in here...

      Pope Francis is a Jesuit also: "‘The most serious of the evils that afflict the world these days are youth unemployment and the loneliness of the old. The old need care and companionship; the young need work and hope but have neither one nor the other, and the problem is they don't even look for them any more. They have been crushed by the present. You tell me: can you live crashed under the weight of the present? Without a memory of the past and without the desire to look ahead to the future by building something, a future, a family? Can you go on like this? This, to me, is the most urgent problem that the Church is facing.”

      Okay, "Jesuit mission" Georgetown, respond.

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    4. And then there are those of us middle-aged people who are both unemployed and lonely.

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  5. Is Obama seeking to limit the 10 year public forgiveness for an amount less than 60K?

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  6. This is great news because the feds tend to notice this stuff. To keep the costs down, they can cap how much debt can be forgiven (the # in the article was $57,500) or maybe even put limits on what schools' debt can be discharged based on objective criteria. I know, I know, that 2nd suggestions makes me racist. Everyone should have the chance to pay $200K for a worthless JD.

    Maybe the feds should make the school co-responsible for the discharged debt (or at least the IRS bill at the end). However, I'm guessing that most of these schools will be dead long before the debt is discharged, so it won't help much.

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  7. What a racket. Getting a professional degree at taxpayer expense. Only a Communist who wants to transfer wealth to the needy by bilking the taxpayers.

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    1. Um, I think the wealth is being transferred to the law profs and administrators like the dean above who makes half a million a year. They are far from needy.

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  8. Here's a fairly recent post in Matt Leichter's blog:

    https://lawschooltuitionbubble.wordpress.com/2014/04/15/cbo-projects-additional-1-3-trillion-in-student-loan-debt-by-2024/

    It seems the federal government's own accountants expect GradPlus loans to be moderately profitable over the next decade. And law school debt makes up a disproportionately large amount of GradPlus. As Matt points out though its unlikely that this profit will eventuate, due in large part to IBR and PAYE.

    Unfortunately it will probably take the government a few years to realize this, so in the meantime they have every incentive to keep shovelling out massive GradPlus loans to any law school student who can sign a promissory note.

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    1. The government knows it will lose money. It is choosing to bailout higher education. The feds say their losses on Public Sector Loan Forgiveness exceeded their expectations by 90% this year. Since PSLF takes 10 years, those PSLF losses that exceeded expectations by 90% are from graduates who earned their degrees in 2004 or before.

      How much worse has the tuition inflation and therefore necessity to borrow gotten since 2004?

      The federal government will not count the last 3 graduating classes who were forced onto IBR / PAYE as defaults, like it should, in order to remove schools' eligibility to take loan money from federal programs. If they did, the majority of law schools would close overnight, and the over supply problem in the legal field would immediately ease.

      The fact that the government chooses to bail out law schools, rather than do the only thing that makes sense for it - to restrict supply of new legal grads - in order that existing debtors can find jobs and pay back their loans shows it doesn't care about the situation and deserves the losses.

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    2. The law skules, and by extension the law profe$$ors, are simply sucking the state's teat. Student loans are akin to corporate welfare; they serve well-connected élites rather than aspiring students.

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    3. 9:10 you're probably right. In which case what the CBO is doing is close to fraud to give the government an excuse to continue throwing what is effectively bailout money at law schools.

      And technically speaking GradPlus loans are private loans I believe, although they are 100% guaranteed and underwritten by the government so the point is somewhat moot.

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    4. Well, @9:10, here's the thing of it. The small percentage of public school students who get special ed services consume a huge proportion of public school budgets. Even some special ed teachers have told me privately that much of the spending is a complete waste that will make no difference in students' lives. But no politician wants to be accused of taking things away from those poor retarded children so the cash keeps flowing. It is thus with student loans. Any politician who says enough is enough will be attacked for being an elitist who thinks higher education should only be available to the wealthy. This will only end when law schools start folding and there will be a lot more ruined lives before that starts to happen.

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    5. 9:10 here @ 1:42. Never underestimate the education lobby, right? They've got everything they wanted since 1976.

      Dept. of Ed. made 51 billion in "profit" - whatever that means - last year, but originated 150 billion in new loans during the same period...well, by my count that's not a cash-flow positive entity.

      Law schools took 4.88 billion in direct federal loans last year, per this source. http://www.lawschoolcafe.org/thread/federal-investment-in-legal-education/

      That's a 4.8 billion dollar back-door-bailout *last year alone*, because if IBR/ PAYE counted as defaults against the schools, they couldn't take a dime more - they'd be over the cohort default rate thresholds for eligibility. And lord knows, they aren't surviving on students paying tuition in cash, or in Sallie Mae bucks.

      Put 4.8 billion in perspective. Chevron's 4th quarter net operating income was 4.3 billion in 2013!

      Totally sickening. The Dept. of Ed. talks about "access" to education for the poor as if they weren't the ones out there supporting the tuition price, supporting the whole industry, that churns out victims...among them, the federal government!

      Truly, truly the whole federal government is captured by crony interests. Totally astounding the damage they'll do to pass fat stacks to law schools.

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  9. The impact of this loan program has been a proliferation of temp jobs for lawyers, to the extent there are jobs, and the disappearance of permanent jobs, all having to do with gross overproduction of lawyers. Training young people for structural unemployment, all at huge taxpayer expense.

    We probably have in all 350,000 full time permanent employee jobs for lawyers in America and another 100,000 at most self employed lawyers who can make a go of it. That compares to 1.6 million ABA accredited law school grads of working age, a number that is rising precipitously every year.

    The Republican members of Congress - I am not going to tell people what to study.

    Obama - good for me and my wife, so must be good for everyone.

    Smart people, from law makers and policy makers to top college grads - but all blind as a bat towards to the horrific social policy and horrific consequences to America of this program of throwing money at education without studying the outcomes.

    Guess what - there are no real studies of lawyer employment beyond first jobs. We have a good number of honors Harvard and Yale Law grads unemployed and underemployed in the second halves of their careers because the oversupply of young graduates are filling whatever lawyer jobs there are.

    We have a structural disaster in the legal profession of large numbers of talented lawyers from top schools not being able to get the type of jobs that counts as full-time and permanent for first years once they age out of big law and their first or second post-big law job.

    The policy makers and law makers need to separate supply and demand for lawyers that is grossly out of whack from the social policies behind taxpayer -financed aid for professional schools, and how much of it should the government give.

    Lots of Obama talk about outcome-based tests for aid, and no action at all. Meantime, lives are being ruined because the federal government is creating economic incentives for the creation of a massive oversupply of lawyers.

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    1. This is an excellent summary of the current situation in one comment. You should contribute to these blogs regularly if you dont already do so. Well done, sir (or ma'am).

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    2. Imagining The Open ToadApril 28, 2014 at 10:05 PM

      BB - I could be wrong but I think I recognize the writing style as a relatively regular ITLSS poster from a year or so ago...

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  10. I just had dinner with a close friend whose niece is considering graduate school. I had advised her strongly not to go to law school. He told me she has talked to about ten other people who have told her the same thing so she ruled it out. One more person saved. The word really is getting out

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    1. Imagining The Open ToadApril 28, 2014 at 10:12 PM

      LOL, and not in a mean way at all. That's a day when you can say, "Today, I did a good thing".

      It's amazing the resistance to understanding how bad the crisis is. I'm frankly shocked that your friend's niece ran into more than just yourself who said the same thing.

      I spend a lot of time talking to folks in my parent's generation who, in the moment, seem to get what I'm saying about how truly bad going to LS will be for the average person, but then, in the next moment (or the moment thereafter) talk to some lemming and tell them all about how they know someone who did great in LS and thereafter.

      They just can't let go of their early "more school is always better" conditioning. Some days I'm somewhat sympathetic to that; other days I feel like I'm beating my head against the cinder blocks.

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  11. what is to stop an enterprising/smart individual (or his friends) from starting their own bullshit NFP to qualify themselves for student loan forgiveness?

    "For public employees and those working for a nonprofit, so long as they made regular payments the debt would be considered settled after 10 years regardless of how much was owed or paid back."

    http://time.com/72786/the-next-massive-bailout-student-loans/

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    1. Sounds like the plot of "The Producers"!

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    2. It's likely that would fall under fraud. Remember, it's not a new idea, so the courts have probably seen it before.

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  12. "... least favorite four-letter phrases in the English language: "I told you so." "

    That's not a 4-letter phrase.

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  13. I would love it if student loan forgiveness applied to me. I am graduating in a year and I'm afraid of the debt. I currently don't have a job to pay the minimum payback amount.

    Will Jenkins | http://studentloanreliefservice.com

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  14. I have only been in the work force for a few years now. I am disabled and I am finding consistent work hard to come by. This causes me to not be able to pay much in the way of my student loan bills. Can I get a disability waiver or hardship claim?

    bryanflake1984| http://studentloanreliefservice.com

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