Who Knew That Law Students Were Scamming the Government All Along?

[UPDATE: My mistake, California Western is a non-profit law school. Western State, on the other hand is.]

Andrew Martin, “Well-Off Will Benefit Most From Change to Student Debt Relief Plan, Study Says,” New York Times

Before I get started, there were two errors in my discussion of IBR last week.

One: Unpaid interest on IBR loans is not capitalized onto principal but it isn’t eliminated (except for the first three years for Subsidized Stafford Loans—not an issue for law school debt anymore). Unpaid interest accrues and is counted separately from principal, which I’ve never heard of before. Thus, the growth in debt is linear (unpaid principal plus unpaid interest) and not exponential (interest capitalized onto principal). Interest is capitalized when the debtor is no longer eligible for IBR, so don’t make a lot of money all of sudden after being on IBR for a while. As a result, large unpaid professional school debts can leave large tax burdens for debtors when the loan is forgiven.

Two: Readers will recall last week that I posted a chart showing the minimum income necessary to stay on IBR for a given debt level. That was based on the belief that the average interest rate IBR uses is not weighted. I think it is, in fact, so it looks something like this instead:

The difference is actually quite minor between the strict and weighted averages, but today’s post exists because I wasn’t the only one surprised by the gains debtors made by reducing the discretionary income percentage from 15 percent to 10 percent. The New America Foundation, via the New York Times, just released a report criticizing the changes to IBR—for unusual reasons.

“[T]he changes would provide big benefits to middle- and high-income borrowers, particularly for those seeking a graduate degree, the authors found. The report says that at least one financial planning company is telling law school students that the changes could allow them to write off $100,000 in student debt.

‘If left unchanged, the program is set to provide huge financial windfalls to people who, far from being in need, are among the most financially well-off graduates in today’s job market,’ the report says.”

Good news all you lawyers! You’ll make massive salaries even on IBR!

Law grads are a very bad example, and it’s unfortunate that the New America Foundation chose America’s most expensive and least lucrative professional degree to show how the rich are getting more benefits under the new rules. It’s one thing if Ben Bernanke’s son gets to be a doctor with $400,000+ of student loan debt, but it’s not like he went to the umpteenth tier trash pit Roger B. Taney Law Center in Annapolis, MD and couldn’t get a job, which is much more common than the New America Foundation cared to research.

Worse, the Times drew the wrong conclusion from the study: The problem isn’t that high-income law grads can write off large amounts of debts after 20 years instead of 25; rather, it’s that law schools are enticing applicants into doing so because it helps their bottom line, not because the educations they sell are needed or will produce the kinds of incomes necessary to pay off the loans.

Wait a sec, just which “financial planning company” is the Times referring to?

Why, the one that owns California Western Law School, one of the four for-profit law schools that are facing disproportionate scrutiny due to the newly enacted (and watered-down) “Gainful Employment Rule” that might limit the amount of Direct Loans their students can access.

The New America Foundation’s report has a few good suggestions for revising IBR that would help poorer debtors, and it’s right that the proposed changes to the program will benefit high-debt/high-income debtors, but that’s primarily because IBR’s debt-to-income ratios already scale upward.

The more significant criticism is that there aren’t that many high-debt/high-income debtors out there (I don’t think the report gives an actual number of high income debtors or their share of the total on IBR), which makes the New America Foundation’s arguments like those for means testing Social Security. Sure, we could reduce the amount that Warren Buffet gets when he retires (if he does), but the savings that come from specifically sculpting the policy to ensure that he doesn’t get any Social Security don’t outweigh the costs of implementing them.

Likewise, IBR doesn’t recognize that high-income debtors benefit from scaling effects of their incomes on their living standards. $80,000 in discretionary income is plenty to live on no matter what debts you have. The problems are why that much debt came into being in the first place, whether it’s payable in the long term, and how big the shortfalls will be. The aforementioned Bernanke fils might be doing just fine for himself, but he’s probably not better off than a doctor who graduated from his same med school in 1992. That’s the problem.

The fact that a few high-income grads benefit from a change a law that’s already generous to low-income debtors isn’t that big a deal. I stand by my conclusion that IBR shouldn’t be a protracted, bureaucratic, Chapter 13 bankruptcy. Just give debtors the real thing and eliminate the Direct Loan Program.

I’d like to stop there, but I have to set the record straight: California Western is a terrible example of IBR free-booting. The New America Foundation writes:

“Sure, having $100,000 in debt forgiven while you earn $70,000 a year sounds like a get-rich-quick scam. After all, the most the federal government will provide college students is $22,200 over four years through the Pell Grant program, which is targeted to only the neediest undergraduate students. Surely the federal government doesn’t have a program that would give over four times as much aid to law school graduates with starting annual salaries of $70,000 who go on to earn much more over their careers? Except, this turns out to be true.” (1)

FALSE.

Law school graduates do not have $70,000 starting salaries. Even NALP says that’s a distorted figure. The median starting lawyer salary (not just JD-holders, guys) in 2011 was $61,500 for 15,999 of 45,495 graduates reporting (PDF).

Speaking of graduate outcomes, just what happened to California Western’s?

Last year 26.7 percent of its graduates were either unemployed or didn’t even bother returning their employment surveys. Only 60 percent were “Employed Bar Passage Required,” and 21.8 percent reported working in solo to 10-firm positions full-time/long term. Only 8.4 percent landed in larger firms.

This is not a graduating class that’s “having $100,000 in debt forgiven while earning $70,000 in a get-rich-quick scam.” It’s a graduating class with an average of $153,145 in debt that requires more than $80,000 annually to reduce its loan principal under the current IBR, an income few of California Western’s 285 graduates will have any time soon. Implying that these law grads are scamming the government based on advertising from a for-profit law school is shoddy research, and the “Narrated Borrower Example” of Robert the Law School Grad is unreasonably unindicative of the majority of outcomes California Western Law School students can expect. Many of them will be paying 10 percent of their discretionary incomes for 20-25 years for degrees they will never use, and the government will end up canceling large amounts of their law school debts.

On the bright side, at least California Western pays for a fraction of that in corporate income tax.

NPR Asks If Law Schools ‘Cook Their Employment Numbers’

Larry Abramson, “Do Law Schools Cook Their Employment Numbers?” National Public Radio

Much of the piece is a rehash of law schools luring students in with juked employment numbers. To that extent, it tells us nothing new. Moreover, the problem I’m having with these types of pieces that characterize the problem as graduates vs. law schools vs. the ABA vs. Law School Transparency is that they take it as a given that law school must be expensive. The only time the word “tuition” appears is when NPR talks somewhat dismissively about scam blogs.

“But in blogs like the LawSchoolScam.blogspot.com [Exposing the Law School Scam], former students howl about high tuition and lousy job prospects.”

That’s it. No discussion on if these “howling” former students have a point about tuition being too high, if there is tuition inflation, and what’s causing it. But that’s not what raised my eyebrow:

“[Changes in the ABA's rules] will help applicants in the future decide if they are picking a school that is turning out employable lawyers.”

If you’re a layperson, doesn’t this sound bizarre to you? Why on earth should we loan money to people to go to law schools that don’t turn out employable lawyers? Doesn’t this mean law schools should close? How many? I chalk this up to unartful writing, but it still sounds like NPR contemplates allowing law schools to waste loan dollars so long as the applicants—I mean—consumers make an informed choice.

There’s one point of fresh substance at the end of the piece: ED’s and the ABA’s powers regarding employment and accreditation.

“When critics attacked for-profit colleges for similar problems, the Department of Education tightened regulations on those schools. But the Department says it has no authority to do the same to the vast majority of law programs.”

So this means ED can’t condition loan access on gainful employment rates ala the gainful employment rule. Earlier:

[ABA Section of Legal Education Chair and New England School of Law's Dean John] O’Brian says it’s still up to students to scrutinize that data, because the ABA can only demand transparency. “These schools are simply required to report. We do not have minimum standards for employment,” he says.

Required to report, yes; enforced to report? No. We’ll see how that one goes. However, can the ABA enact minimum employment standards? 34 CFR 602.16(a) reads:

“§ 602.16   Accreditation and preaccreditation standards.

(a) The agency must demonstrate that it has standards for accreditation, and preaccreditation, if offered, that are sufficiently rigorous to ensure that the agency is a reliable authority regarding the quality of the education or training provided by the institutions or programs it accredits. The agency meets this requirement if—

(1) The agency’s accreditation standards effectively address the quality of the institution or program in the following areas:

(i) Success with respect to student achievement in relation to the institution’s mission, which may include different standards for different institutions or programs, as established by the institution, including, as appropriate, consideration of State licensing examinations, course completion, and job placement rates.”

The only interpretation of this regulation I could find is in a draft of ED’s “Guide to the Accrediting Agency Recognition Process,” dated February 2010, which states on page 27:

“Compliance Factors … The agency must specify when it is appropriate to consider course completion, State licensing examination, and job placement rates and provide justification.”

It sounds to me like the ABA can do a whole lot more than transparency when it comes to regulating law schools’ graduates’ employment outcomes, and it would use the same mechanism that allowed it to rescind the University of La Verne’s provisional accreditation last summer due to its low bar passage rates. All it has to do is prove to ED that applying more rigorous job placement standards denotes “success with respect to student achievement.” I’m not sure if that means it can say that 95 percent of grads have to be in full-time JD-preferred positions nine months after graduation, but it can at least make the argument, contrary to Dean O’Brien’s statements.

[UPDATE]: I forgot to mention that I liked Kyle McEntee’s point that the ABA’s changes “won’t help students already in school.” Why current students aren’t walking away is still a mystery to me.

Direct Loans One Year On: Government-Held Nonrevolving Debt Grows 66%; GDP, 3.7%

In March 2010, President Obama signed the Health Care and Education Reconciliation Act. One of its provisions terminated the infamous Federal Family Education Loan Program (FFELP), leaving the Department of Education as the sole originator of all federal student loans via the Federal Direct Loan Program, which has existed since 1993. Starting July 1, 2010, all new federal student loans would be Direct Loans, and this is a good thing, at least because the FFELP was monumentally wasteful. It allowed banks to play middlemen over nondischargeable student debt, grossed ED an average $1.22 on every $1.00 for every defaulted loan, and fueled the Student Loan Asset Backed Securities (SLABS) trade. Direct Loans alone, the thinking went, would solve these problems once and for all. As I’ve written elsewhere, the government is making two crucial errors. One, its accounting system doesn’t measure student loans’ full market risk; two, it doesn’t hold higher education accountable, sitting by while universities capture student loans’ value and increase tuition above inflation regardless of job availability (Gainful Employment Rule aside).

One year after switching to Direct Loans exclusively, looking at the Federal Reserve’s G.19 Release and the Bureau of Economic Analysis’s nominal GDP values, we find that the Direct Loan Program’s sole result is… increasing student loan debt. Government-held nonrevolving debt grew 66%, GDP only 3.7%. In numeric terms, during the 2010-2011 academic year (second quarter-to-second quarter), government nonrevolving debt grew $147.5 billion ($222.6 billion to $370.1 billion), GDP, $529 billion.

How do we know that government-held nonrevolving debt is mainly student debt? According to the Office of Budget and Management, in FY 2010 (October 2009 – September 2010), ED lent $74.709 billion in Federal Direct Loans, bought $56.909 in student loans off the market ($131.618 billion) and spent the final $42.141 billion in FFELP loans. In FY 2011 (October 2010 – September 2011), it calculates that it will have lent out $133.507 billion in Federal Direct Loans, and in FY 2012 it will increase that to $145.129. So these numbers mostly line up, but it’s important not to confuse Federal Direct Loans and government-held nonrevolving debt.

To give you a better idea of how bad 2010-2011 was for Direct Loans, here’s what nonrevolving debt has looked like over the past decade (second quarter-to-second quarter).

And here’s its ratio to GDP:

From 2008 to 2010, total nonrevolving debt fell by $26.1 billion, yet government-held nonrevolving debt grew by $118 billion due to more universities switching to the Federal Direct Loan Program and the federal government buying up FFELP loans, doubling the government’s holdings of nonrevolving debt.

So in the 2010-2011 school year private sector holdings of nonrevolving debt contracted by $81.3 billion, yet the government’s increased by $147.5 billion. Government-held nonrevolving debt is the only kind of consumer debt that is increasing during a time of excess private sector debt and low GDP growth. That’s bad, and it would be decreasing if student debt were dischargeable in bankruptcy. By comparison, revolving debt (credit cards) has fallen to 5.26% of GDP, the lowest this century.

(These are end-of-year data and not Q2-to-Q2; 2011 projections are my own; additional source: 1.54 Release (mortgage debt: 2009-2011, archives 2004-2008 (the February updates show the data from five years earlier))

Naturally, education is something we expect to provide value in the future rather than in the present by creating more productive workers, so ED wants the public to believe that once the economy recovers all this debt will be paid down and the debt-to-GDP ratio will fall. This outlook assumes that higher education is reasonably priced and provides the value it claims to—two points that are likely false and are certainly unsubstantiated.

PROJECTIONS

To illustrate the implications of the current policies, it’s worthwhile to predict what will happen if they continue, so let’s assume that the 2010-2011 school year is indicative of the future; in other words ignore the FY 2012 increase in Direct Loans. Basing the future on the recent past isn’t implausible. As far as I’m concerned, if Krugman thinks the Congressional Budget Office is fantasizing a recovery in 2015, I’m convinced too, so we’ll assume the nominal GDP growth rate is the same over this decade as in the past school year. I’ll also assume that others’ holdings of nonrevolving debt will contract at the same rate as in 2010-2011 (it’s not really relevant beyond the $700 billion of remaining FFELP loans and another $100-200 billion in private student loans). The one place I’ll break is with the government’s holdings. If we believe that it’ll grow at 66% indefinitely, then we’ll have $35 trillion dollars of government-held debt by 2020, and that, frankly, is absurd. Given the budget data from above, the government is willing to lend out roughly $135 billion every year, so I’ll increase government-held nonrevolving debt linearly rather than exponentially like everything else. We get this:

And the ratio to GDP:

That’s $1.6976 trillion in government-held nonrevolving debt (from $370.1 billion after Q2 2011), and a debt-to-GDP ratio of 8.19% (up from 2.47%). Although I’d trust the accuracy of this projection through, say, 2014, in my opinion the crude result appears right: government-held student debt will approach 10% of GDP. The only things that could shift this are better macroeconomic management (e.g. a Newer Deal), the Asian Import Fairy, a Euro breakup (which would worsen the situation), and the Gainful Employment Rule forcing for-profit colleges into private sector student loans—not that it’d help the overall situation, but it would change the debt composition. What happens to the remaining several hundred billion dollars of FFELP loans and private student debt is anyone’s guess.

What does this mean?

The good news about the student debt bubble: The U.S. government is NOT Lehman Brothers. It can NEVER go bankrupt. Lehman failed because it couldn’t pay its creditors with its earnings. The United States is not a bank. It has the power to tax, and all its debts to bondholders are denominated in its own currency. It may end up raising taxes or minting a pile of platinum coins if bondholders get scared, but it will not go belly up due to Federal Direct Loan defaults.

Speaking of which: Yes, student loan defaults will continue to increase. The chart ED issued recently probably conceals many more defaults beyond the two-year cohort it normally tracks. Yes, IBR/ICR will leave ED holding the bag. Yes, legislators will realize this is a severe problem. Whether they simply decide to terminate the student loan programs and leave current debtors to suffer or instead cancel the outstanding student debt is debatable. The latter, whether by direct cancellation or bankruptcy reform, is the preferable and responsible solution as the government should realize it will not get its money back and that there’s an inherent moral conflict between shepherding the public fisc and playing for-profit bank. If the government opts to force student loan repayments in the name of austerity, debtors will respond with a mass default and tax resistance as well. Note that we’re still only talking about Direct Loans, and the outstanding FFELP and private student loans will require additional government action.

While it’s not going to be as significant a financial collapse as the eight trillion dollar housing bubble, the student debt bubble will re-teach the American elite that democracy fails when people believe their government no longer represents them. Americans revolted over taxation without representation; how will they respond to outright peonage to their stubborn government?

Gainful Employment Rule Gutted and Adopted

Tamar Lewin of the NYT and EduBubble believe ED has failed to rein in for-profit higher education.

“We believe that very few programs will be forcibly closed by our standards,” Secretary of Education Arne Duncan said. “We want to give people a chance to reform. As a country, we need this sector to succeed. This is not about ‘gotcha.’ ”

I have nothing against for-profit higher education in principle so long as the students pay out of pocket (and I see no reason to treat nonprofit higher education differently). If they’re thriving on federally originated non-dischargeable student debt with no increase in quality, then the ‘gotcha’ is on taxpayers.

[D]epartment officials estimated that 5 percent of the 13,155 for-profit programs covered by the rules, and 1 percent of the 42,290 public and nonprofit programs, would lose their eligibility for student aid.

A program would lose eligibility for federal aid only if: fewer than 35 percent of its graduates are repaying principal on their student loans three years out, and, for the typical graduate, loan payments exceed 30 percent of discretionary income as well as 12 percent of total earnings.

So even if a program loses access, students can turn to private student loans, which have been completely covered by the ‘undue hardship’ exception to dischargeability since 2005. Then the Times heralds the revenge of lemon socialism.

[T]he for-profit education sector had many of the “same characteristics of what happened with subprime housing and securitization, namely that they can capture all the upside of increasing volume while shifting all of the downside to somewhere else, which is students and taxpayers.”

[National Economic Council director Gene Sperling] said the rules would “only decrease access to very weak programs that leave students with a crushing debt burden.”

In other words, don’t expect student debt to drop for a while.

[UPDATE]

At Innovations, Richard Vedder attacks the Gainful Employment rule for different reasons. Although I disagree that the Obama Administration is particularly anti-business (I think businesses are on a general hiring strike and don’t want to make money), I largely agree with Dr. Vedder’s point that tax status should be irrelevant to regulating aid. Indeed, I wouldn’t be able to blog on legal education if that were the case.

A case can be made to restrict federal financial aid. I would go even farther—an excellent case can be made to eliminate such aid. An even more compelling argument can be made that we should not be trying to expand higher education enrollments. But if the U.S. government is going to try to expand higher education and distribute aid to students, it should not base restriction of that aid on the ownership structure of the institution.

[UPDATE]

Dean Baker spanks the Post:

The Washington Post, which is part of a corporation whose primary income comes from for-profit colleges, told readers that new regulations on student loans would:

“effectively would shut down for-profit programs that repeatedly fail to show, through certain measures, that graduates are earning enough to pay down the loans taken out to attend those programs.”

…

[A]nyone who wants to would still be able to attend any for-profit college they chose. They could even borrow money to do so. They would just be unable to get a subsidized loan from the government for this purpose.

The problem is that private student loans aren’t dischargeable in bankruptcy and thus place far more risk on students than on lenders. I wonder if for-profit colleges will start auto-financing.

Their Satanic Majesties Links—House Votes to Defund “Gainful Employment”

Default: The Student Loan Documentary’s Facebook page related a couple interesting links:

(1) Melissa Linton, “USC Ranked 7^th for Debt by CNBC,” in The Daily Trojan

So USC’s graduates carry an average $36,787 in debt. Its law students are charged $10,000 more than they were seven years ago.

(2) Sharona Coutts, “House Passes Amendment to Block Funding of Oversight Measure for For-Profit Schools,” in ProPublica

Arch-nemeses of higher education reform, representatives Virginia Foxx (R-NC) and John Kline (R-MN) sponsored a bill to defund any attempt to monitor enforcement of the yet-to-be-adopted “Gainful Employment Rule” to federal lending to for-profits. Coutts doesn’t believe it’ll pass the Senate, though. If conservatives were serious about balancing the budget, they’d cut the entire federal lending program and change the bankruptcy code to allow student debtors to restructure and spend their money on things they need.

Which leads me to…

(3) Richard Vedder, “From Wall Street to Wal-Mart: Why College Graduates Are Not Getting Good Jobs,” in Center for College Affordability

Dr. Vedder slipped this past me a couple months ago. A very quick and good read.

Here’s your quote of the day:

[R]ecent efforts by President Obama’s U.S. Department of Education to enact and enforce “gainful employment” rules primarily on for-profit higher education institutions are misguided. This report has shown clearly that severe gaps exist between college-level training and labor-market job opportunities for graduates. Underemployment is a persistent problem permeating throughout all of American higher education and is by no means limited to only one sector. Using for-profit institutions as a scape-goat fails to address the full-extent of this problem.

FILM REVIEW: Default: The Student Loan Documentary

Krotala Films gave me the privilege of reviewing Default: The Student Loan Documentary. I didn’t expect blogging would lead me to film reviews. Indeed, that’s more my brother’s bailiwick. But like Marty McFly, when someone calls me chicken…

While I don’t have an eye for composition (Default had an attractive color scheme and looked great in Hi-Def), I can waddle through some of its arguments and points.

1.  I think it was Alan Collinge of Student Loan Justice who delineated the triumvirate of players: Lenders—Congress—Universities. He lays out how lenders influence Congress into passing student debtor-unfriendly legislation. I also liked how the history of student lending traced back to a fluke in the Great Society. I hadn’t realized that people were considering a tax credit rather than a lending program.

2.  The students’ stories were compelling, and chalkboarding their loans was an effective visual. I’m glad the students all discussed their part-time or full-time work. It helps counter the arguments from those criticizing students for laziness.

3.  Default claims the student debt problem has grown in the last 10 to 15 years, which I hadn’t heard before. I’d heard the problem originated in the late 1970s when bankruptcy protections were first removed from student debt.

4.  Sallie Mae benefits from defaults. I never understood why until now. SLM can print money by charging defaulting debtors whatever fees it wants, and debtors can’t negotiate them or discharge them in bankruptcy.

My greatest difficulty with the movie was wondering what I would’ve done with 27 minutes. It’s not a lot of time to present the problem, but I felt the film’s tone arced well throughout. The producers deserve credit for working with the time they had.

Some things I would’ve added:

1.  Apologists dismiss critics with the, “You borrow it; you live with it,” argument. That’s the largest obstacle to reform. I think asking one of the borrowers what she or he thought of it would’ve been interesting.

2.  As you can imagine, I wanted more on how universities have been increasing tuition due to free money from the government. A profile of how one university spent the money would’ve connected them better to the triumvirate Collinge outlined above. For example, the details and stories Mish Shedlock describes in this post make me want to set the nearest free-spending university on fire. Moreover, this explains the problem mentioned in the movie of Pell Grants’ decreasing value: it’s not that they don’t keep up with tuition or inflation; it’s that tuition is growing out of control.

3.  Towards the end, one borrower said that education leads to a just society. This is the great philosophical issue underpinning all higher ed discussions. It’s an Enlightenment-era sentiment: knowledge both liberates us from superstition and leads us to progress. I agree with this sentiment—or at least, I want to agree with it, for yours truly has two humanities degrees, a law degree, a social science degree, and was once a teacher himself. I appreciate the education I received. However, the great counterargument to the excesses of our higher education system isn’t coming from mildly statist social liberals like myself but from conservatives and libertarians such as Shedlock above, or for you academics: Charles Murray and perhaps Richard Vedder. These are individuals who adamantly claim that higher education isn’t for everyone, is wasting resources because many college graduates end up in jobs that don’t require college educations, and worse holds people to intellectual standards they can’t meet. When confronted with universities’ decadent spending, I’m finding myself agreeing with them, though I hope the emancipatory aspects of the humanities can be shifted into lower education or be sold a lot more cheaply. If the movie had another half hour, it could’ve related the student debt nightmare to spending and then on to this higher level of analysis. Those interested can watch a longer, more sterile discussion on Blogging Heads.

4.  I also would’ve added an economist to describe what would happen if student loan debt were forgiven. I’m not that person, but the idea isn’t as radical as the lawyer in the movie made it out to be. Bailouts rescue both the debtor and the creditor. For the federal government, this’ll rescue itself from an open wound hemorrhaging tax dollars. It would stimulate the economy, since the money would be spent productively rather than getting hosed up by loan corporations and collectors. Finally, it could be financed by the Federal Reserve printing the money, buying the necessary Treasury securities, and then rebating any subsequent interest back to the Treasury. This would leave no interest burden on future Americans.

5.  Finally, there are three efforts improving the student debt situation that may’ve been worth mentioning. One is the Private Student Loan Bankruptcy Fairness Act/Fairness for Struggling Students Act (that’s probably going to stall in the new Congress). The second is the Department of Education’s Gainful Employment rule change that will curb for-profit higher education, and the third is the non-profit advocacy company, All Education Matters run by Cryn Johannsen.

There was one point I disagreed with:

At one point someone said that we spend more on the elderly than on the young. Government spending on the elderly comes largely from Social Security, which they paid into when they were working. It’s their money, and they deserve the return because it was forced savings. We don’t need to impoverish the elderly to invest in the young.

I’m not going to give a thumb or star rating to Default. It’s message is more important than what more sophisticated reviewers can dissect that I cannot, but I hope Kratola can distribute it as widely as possible, especially to high school students who can best benefit from its warning.

Mr. Tambourine Links—NY Daily News Sides with Students, Kaplan Scams the Troops

Ah the Byrds…

Editorial, “College Costs Just Keep Going Up, Hobbling Graduates with Unfair Burdens of Debt,” in New York Daily News

Quote of the day:

[The financial aid compensating for rising tuition] comes largely from the federal government. Meaning, out of your pocket. And ours. And out of the pockets of families scraping to raise that extra 8% for tuition.

A government-sanctioned racket is what it is. States cut back on assistance to schools, so the schools raise tuition. Then the feds jump in, dish out billions in taxpayer dollars in student aid, and tuition goes up again. And again.

Meanwhile, those fortunate folks who inhabit the groves of academe feel absolutely no need to hold the line on expenses. They ought to be ashamed, most of all for sending so many graduates out into the world with diplomas and loan statements showing a near-lifetime’s worth of debt.

Daniel Golden, “Kaplan Quest for Profits at Taxpayer Expense Ensnares Veteran,” in Bloomberg

Golden reports that Kaplan is targeting veterans for its for-profit education programs, often touting that it’s owned by the Washington Post (the same media company that gives space to David Broder to advocate for warfare to stimulate the economy).  Its recruiters also decline to inform applicants that its online law school enables one to sit only for the California bar.

Looking on Kaplan’s site, a four year (!) law degree requires tuition of $9,984 per year ($39,936 total??).  This is absurd.  Conventional law school business models are bad enough but given that there’s no building, no library, and no need for scholar-faculty beyond recorded lectures, it’s simply unbelievable that Kaplan’s legal education could be so expensive.  One more reason to hope for the Gainful Employment rule change and to pray for the Washington Post’s demise.

The Link Kontroversy—Law Schools’ Evening Programs Imperiled, ‘Gainful Employment’ Rules Stalled, & Boy Have I Got a Job for You!

Karen Sloan, “Law School’s Evening Classes Fall Prey to Recession,” in The National Law Journal

Pace University Law School has decided to phase out its evening program.  The reason: people’s employers aren’t paying for it anymore.  It’s heartening to know that those interested in evening programs opt against attending rather than take out student loans.  It also indicates that people don’t save up money to go to law school.

Goldie Blumenstyk, “Education Dept. to Delay Issuing ‘Gainful Employment’ Rules Opposed by For-Profit Colleges,” in The Chronicle of Higher Education

Mike Elk, “Why Are Progressives Fighting Student-Loan Reform?” in The American Prospect

The DoE caved to for-profit colleges and will delay full implementation of the “Gainful Employment” rule.  Much of it will go into effect next month, the rest early next year.  Fortunately, the DoE is only delaying implementation to clarify critics’ comments.  No evidence suggests it’ll water down the rule.

Meanwhile, various progressive groups are fighting the proposal because they hate people short-selling for-profit higher education.  Elk tells us this confuses conflicts of interest with good business judgment.  Bubbles are unsustainable so they will pop.  The sooner they pop the better for the economy.  Short-sellers help bubbles pop sooner.  Therefore, short-sellers help the economy.  Q.E.D.

Job Opening for…Dean, Cleveland-Marshall College of Law, in the ABA Career Center website

If deaning a law school has been your lifelong dream (and you’ve got the bar cred to back it up) now is your chance to arise—and claim your destiny!

Minimum Qualifications: All candidates must have a J.D. or LL.B. degree and a record of significant professional achievement.

Preferred Qualifications: The preferred candidate will demonstrate many of the following attributes: • the vision and creativity to guide C|M|Law to greater national prominence as it prepares students for the 21st-century legal practice • proven fundraising skills • significant leadership experience • a strong record of scholarship • a commitment to promoting excellence in teaching • a commitment to supporting faculty research and an intellectually diverse culture of scholarly inquiry and debate • a commitment to diversity among students, faculty, and staff • the ability to lead and develop an excellent and dedicated staff • the ability to enhance partnerships with the University, alumni, and community

Oddly enough, I frequently find myself criticizing law school deans on this blog, but instead this post gives us an opportunity to see what Cleveland State’s priorities are.  Specifically, it says it wants someone with “the vision and creativity to guide C|M|Law to greater national prominence…”  I can’t help but think that the university wants its new dean to value expenditures per student rather than whether they’re comfortably employed upon graduation.

Department of Education to the Rescue? Proposed CFR Changes to account for “Program Integrity” and “Gainful Employment”

 

The lesson I took from this exercise is that Uncle Sam has no neck.

 

Jerry Kowalski alerted me to a proposed change to the Code of Federal Regulations, (34 CFR Part 668) that just might kill the law school tuition bubble if adopted.  I’d read about the rule change elsewhere, and thought it applied exclusively to for-profit higher education institutions, including a handful of law schools that are at least provisionally ABA-accredited: (Florida Coastal School of Law, Phoenix School of Law, Charlotte School of Law, and John Marshall Law School (the Atlanta, GA one)).[i] From reading the document, it’s unclear as to whether the rule change applies to only for-profit schools or could be interpreted to apply to all law schools.

The DoE’s suspicion of for-profit education is justified, for if you think law schools are scams, wait til you see the outrageous multi-million dollar salaries CEOs of these schools make.  Whether the ones at for-profit law schools make that kind of money, I know not.  Unfortunately, according to the New York Times, resistance to the rule is strong, and I doubt conventional law schools would go along with it.

Aside from for-profit institutions, the proposed rule also refers to “recognized occupations,” specifically:

The proposed regulations are intended to address growing concerns about unaffordable levels of loan debt for students attending postsecondary programs that presumptively provide training that leads to gainful employment in a recognized occupation. (43619, left column)

It confuses me from here: