Grade Inflation: It Depends How You Define ‘Educational Quality’

On VoxEU, we have Raphael Boleslavsky and Christopher Cotton’s, “The unrecognized benefits of grade inflation.” The authors write:

Our analysis reveals a surprising link between grade inflation and investment in education quality – schools invest more when they are allowed to inflate grades than when grade inflation is banned. …

With grade inflation, student transcripts convey less information, and therefore the employer relies less on transcripts and more on school reputation when evaluating graduates. In this way, grade inflation increases the incentives that schools have to undertake costly investments to improve quality of education, and the average ability of their graduates. To the extent that school investments and a student’s own study efforts are strategic complements in human capital development, students who anticipate greater investments by schools in turn have greater incentives to increase their own efforts. [Emphasis LSTB]

You could replace the emphasized bits about “education quality” with “wasteful spending” or the like and you’d have an accurate description of what goes on at law schools.

For instance, we have expanding faculties:

Law School Faculty Per School (Calendar-Year Average, Index 1999=100, Excl. P.R.)

(Source: Official Guide, author’s calculations)

We have lots of internal grants and scholarships:

Spending on Internal Grants and Scholarships Per Law School (2013 $)

(Source: ABA (pdf), Bureau of Labor Statistics, author’s calculations)

We have no (net) positive impact on job outcomes:

Percent Employed by Status (NALP)

(Source: NALP)

We have a decline in legal sector labor productivity:

Legal Sector Labor Productivity (2005=100)

(Source: Bureau of Labor Statistics)

…And all this is covered with tuition hikes on the poor souls who are paying full tuition (if that):

Median Full-Time Law School Tuition (2013 $)

(Source: ABA (pdf), FinAid.org, Bureau of Labor Statistics, author’s calculations)

None of this is necessarily the result of grade inflation, which the authors’ model takes to be endogenous when I happen to think it’s exogenous (Hell, even the law school deans say so). If anything grade inflation is a symptom of the same pressures the schools are under to signal their degrees’ prestige to employers. But job outcomes is most of what this all comes down to. If there weren’t such a wide dispersion of jobs and salaries, then there’d be less motivation to engage in these kinds of wasteful behaviors. The free student loans are the accelerant.

However, there’s no reason to believe that, in the face of grade inflation, colleges and universities would improve their reputations by carefully investing in better student outcomes; rather, they would invest the bare minimum of what the employers want to see—not what actually makes the graduates more productive. That’s why the employers complain about how law students take frivolous courses but keep hiring from elite law schools nevertheless.

Revealed preferences, people. Revealed preferences.

The ABA Task Force Might Not Think Grad PLUS Loans Are a Problem

…But Barack Obama certainly doesn’t either. Mere days after the ABA Journal tells us of the skepticism of some members of the ABA Task Force on the Financing of Legal Education about the effect student loans have on law school pricing, MainStreet.com informs us that the Obama administration is proposing new rules that would further reduce the already lax underwriting standards for Grad PLUS loans. If the administration has its way, prospective borrowers will no longer have those pesky 90-day-plus-delinquent debts held against them by the Department of Education.

And just how many grad students are denied Grad PLUS loans due to bad credit? ED tells us that they numbered about 129,100 between March 2013 to February 2014, but don’t worry, 65,507 were able to remediate the department’s decision via appeal or endorsement. ED data also tell us that Grad PLUS loan three-year cohort-default rates are below one percent. Care to know how many of them are on IBR? Well too bad: The “non-Federal negotiators” who met with ED officials before ED proposed the new rule didn’t think to ask that. (Source here and here)

Borrowers might also be able to exclude $2,000 in delinquent debt from their federal credit checks as well.

“The Obama administration is committed to keeping college accessible and affordable and helping families make thoughtful and informed choices to fund a higher education in today’s economy,” Education Secretary Arne Duncan said in a statement. “These changes allow us to continue to be good stewards of taxpayer dollars and open the doors of college to ensure all students have the opportunity to walk through them.”

Right. Something tells me Arne Duncan will never be held accountable for the student debt balloon he helped birth.

The MainStreet.com article then focuses on Parent PLUS loans that end up wiping out the parents because their kids are broke after college. However, you shouldn’t let that lull you into discounting the Grad PLUS variety. In the 2012-13 academic year, Uncle Sam issued $10 billion in Parent PLUS loans and $7.7 billion in Grad PLUS loans, which have been rapidly catching up in volume despite having half the number of recipients. That means people who take out Grad PLUS loans are likely to borrow larger sums than Parent PLUS loan borrowers. (Unless Parent PLUS borrowers are double-counted when they’re married couples or whatever.) Grad PLUS borrowers take out about $22,800 on average compared to the $14,000 for Parent PLUS borrowers.

On the bright side, Grad PLUS borrowers can throw all their loans onto protracted, bureaucratic, chapter 13 bankruptcy IBR and let the government eat the write-down if they’re largely unpayable. Parent PLUS borrowers aren’t so lucky.

Good News: The Student Loan Crisis Has Been Canceled

…According to the Brookings Institution’s Beth Akers’ and Matthew M. Chingos’ paper, “Is a Student Loan Crisis on the Horizon?” The authors find that not only is there no crisis today, but there won’t be one in the future. (“Crisis” here, I gather, means debtors being unable to make their payments and taxpayers being forced to write-down some billions in student loans.)

Before picking through their paper, though, I have to give special credit to The New York Times‘ David Leonhardt, who crows:

The deeply indebted college graduate has become a stock character in the national conversation: the art history major with $50,000 in debt, the underemployed barista with $75,000, the struggling poet with $100,000. … Such graduates make for good stories (and they tend to involve the peer group of journalists).

This comes mere days after The New York Times Magazine ran an article officially declaring that millennial college graduates who were living with their parents weren’t leaving. Many of the subjects had significant student loan debts and low-paying jobs. I’m not saying the participants were typical of their age group, but I’m impressed that Leonhardt can undercut his own publication. I admire gall.

As for Akers’ and Chingos’ paper, take a look at John Haskell’s response. He argues that the authors commit a composition fallacy by comparing student debt repayment during the more recent economic disaster with the halcyon days of the 1990s.

It’s an excellent point, and I have some of my own to add.

One, on page 4 of the report, the authors aggressively lean on the college premium as evidence that “the growth in debt is not [obviously] problematic.” The idea is that if the gap between college graduates’ earnings and high school graduates’ widens, then college is a good bet. The flaw, and there are many with this kind of thinking, is that both sets of earnings can be falling simultaneously but so long as high school graduates’ earnings are falling faster, then student debt can still be a problem even as the premium is growing.

Two, the authors make an implied structural unemployment argument when they write, “In 2011, college graduates between the ages of 23 and 25 … had employment rates 20 percentage points higher [than high school graduates].” However, not going to college isn’t the cause of lower employment rates among high school graduates. It’s because there’s slack demand for labor in the economy. It’s not too much of a stretch to hypothesize that employers prefer college graduates even for menial jobs.

Three, as always with college premium discussions, not everyone gets the average college degree, and not everyone has the average debt level. The authors only bring this up in their conclusion, which I think is unfair to readers.

Four, Akers and Chingos challenge the rhetoric of a student debt crisis by analyzing data on households with householders aged 20-40 from the Federal Reserve’s Survey of Consumer finances. It’s a minor point, but people who have higher debt levels are probably more likely to be living with their 40+-year-old parents than on their own. I doubt the effect is that large, but it’s something Akers and Chingos should have noted.

Five, it’s one type of composition fallacy to compare past trends with current outcomes, but it’s another to omit prospective factors from one’s predictions. The authors assume today’s college graduates won’t suffer from “cohort risk” due to the persistent output gap. It’s a pretty big if, and Akers and Chingos won’t pay anyone’s student loans if they’re wrong.

Having said that, when the authors find fairly low monthly payment-to-income ratios (excluding debtors making less than $1,000 per year) it may appear too good to be true, but we should acknowledge it.

Monthly Student Loan Payment-to-Income Ratios, 1992-2010

I’m not sure what this means given the simple calculation I did above. It’s pretty surprising that student loans are such a small amount of monthly incomes. It might be that they’re excluding the billions of dollars in student loans that are in default, forbearance, deferment.

Finally, since the conversation on student loan debt is creeping towards amputating graduate school debtors from undergrads, gaze upon Akers’ and Chingos’ Figure 4:

Akers and Chingos Figure 4

The Survey of Consumer Finances is given only once every three years, but even between 2007 and 2010, the spike in graduates’ debt is evident. Who wants to bet that these aren’t Grad PLUS loans? Seriously, that program is not long for this world.

The authors conclude that their results should encourage Washington to not tweak the student loan system based on a perception of widespread financial hardship. They do not, frustratingly, discuss any of the existing indicators of a present student debt crisis. 11 percent of student loan balances are delinquent, 11 percent of debtors (minimum) with federal loans are in default, and $322 billion out of $1.043 trillion in federal loans are in deferment, forbearance, or default. (Calculated from here) Since we know the economy isn’t roaring forward and won’t without systemic reform, it’s hard to believe that all these loans will be repaid in full. If this doesn’t count as a crisis, what does?

 

Lowering Law School Tuition Mainly Benefits Students, Taxpayers

Gotta be quick, but Brooklyn Law School dean Nicholas Allard writes in The Chronicle of Higher Education, “Lowering Law-School Tuition Benefits Everyone, Not Just the Students,” which deserves comment.

The fact is that the financial model of law schools is broken. Unless the schools do what they can to make legal education more affordable, they will price themselves out of business, contribute to the high cost of legal services that most people need, and widen the gap in access to justice.

The first sentence is true, but the rest is questionable. Many people will not go to law school at any price, but some schools will survive if they slash tuition. However, tuition has little to do with the cost of legal services and access to justice (not the justice of rents to legal educators).

Allard appears to believe that high tuition leads to high debt, which leads to lawyers not taking public interest jobs that pay less then courtroom janitors. It’s odd because two paragraphs later, he mentions Public Service Loan Forgiveness and Pay-As-You-Earn, which falsify his thesis. If highly indebted graduates want to serve the poor, they should be able to under the current loan-repayment framework. Sure, the proposed caps on PSLF would be bad for debtors and are based on the belief that they over-borrowed rather than the schools over-pricing, the government over-lending, or the jobs-underpaying, but graduates do not often pass up public interest in favor of biglaw. Not everyone gets such a choice.

It is a shameful canard that student loans and indebtedness are the cause of high tuition. They are not; they are the symptom. Tuitions at law schools are soaring … because of the way law schools spend money in pursuit of rankings rather than investing in students, education, professional training, and scholarship.

Not sure what Allard means here, but I think it’s the closest I’ve seen to a law school dean rejecting the Bennett hypothesis. Without excessive federal lending, law schools couldn’t raise their costs. It’s the means of the tuition bubble, not the motive and opportunity—if you fancy looking at this like a murder mystery.

With political currents eroding America’s historic and successful support for higher education, we can’t expect anyone else to help. We must do what we can to break this cycle ourselves. By making law school expensive for motivated, talented women and men, we are shortchanging ourselves. In this country, lawyers have played the central role as guardians of our democratic republic and architects of economic opportunity and prosperity. They will be needed even more in the future.

Political support for legal education has not been a success. It’s created too many law schools, too many law school graduates, and too much unpayable student debt. For example, the NALP just reported that the percent of 2013 graduates employed at all in February 2014 had fallen—negligibly—to 84.5 percent, even though late last year Dean Allard predicted, “[T]he employment rates reported in 2014 will be substantially higher than in 2013.” (More on the NALP report another time.)

Look, good on Brooklyn Law School for unilaterally cutting its tuition next year. It may not be a voluntary rather than demonstrative act like if an elite law school did it to buck the U.S. News rankings, but we can have competent lawyers without student loans and expensive law schools.

On a 25-year fixed repayment the average 2013 Brooklyn Law grad would have to cough up over $750 a month to make his or her student loan payments on $110,000 in debt. Even under the old IBR system, that would require an income of $121,600 per year from day one to escape loan cancelation after 25 years. Since many BLS grads don’t make that kind of income, many will undoubtedly take PAYE and the government will have to write-down the losses. Thus, Allard is right: The beneficiaries of lower law school tuition aren’t just law students but everyone else. Although, it is a “shameful canard” to imply that the federal loan program is a blessing for everyone but law schools and a handful of lucky law students.

PAYE for All!

From the Associated Press, “Obama to Announce Expansion of Student Loan Repayment Program.”

Obama on Monday will announce he’s expanding his “Pay As You Earn” program that lets borrowers pay no more than 10 percent of their monthly income in loan payments, the White House said. Currently, the program is only available to those who started borrowing after October 2007 and kept borrowing after October 2011. Obama plans to start allowing those who borrowed earlier to participate, potentially extending the benefit to millions more borrowers.

I didn’t realize Obama could do this via executive action, but there you have it. In fact, IBR was planned to transform into PAYE by 2014 by law all along. IBR as you’ve known it will be gone for good. RIP I guess.

“At a time when college has never been more important, it’s also never been more expensive,” Obama said in his weekly radio and Internet address released Saturday.

We can also expect a larger aggregate amount of student debt to be written off in the next couple of decades.

Obama also plans to announce he’s directing the government to renegotiate contracts with federal student loan servicers to encourage them to make it easier for borrowers to avoid defaulting on their loans. And he will ask the Treasury and Education departments to work with major tax preparers, including H&R Block and the makers of TurboTax, to increase awareness about tuition tax credits and flexible repayment options available to borrowers.

This is unobjectionable. Beyond that, though, the president voiced his support for Sen. Elizabeth Warren’s proposed student loan refinancing scheme, which would allow debtors to take advantage of the low overnight rates the Fed offers banks. Yes, it’s apples-to-oranges because student debts are paid within 10 years or more and not overnight, but it’s a little strange because the reason Congress abolished the guaranteed loan program under the Affordable Care Act was that it would use student loan repayments to pay for health care. With easily refinanced interest rates, that’s unlikely to happen.

The president will continue the push Tuesday in an online question-and-answer session hosted by Tumblr.

Maybe you can ask him how much student debt the OMB expects to be forgiven. I doubt it’s even pondered the question.

Senate Republican leader Mitch McConnell of Kentucky in a statement criticized the Democratic bill for failing to address college costs.

“This bill doesn’t make college more affordable, reduce the amount of money students will have to borrow, or do anything about the lack of jobs grads face in the Obama economy,” he said.

Pretty much.

Fed Household Survey Finds Rampant Student Loan Illiteracy

And you’re surprised because?…

Liberty Street Economics brings us, “What Americans (Don’t) Know About Student Loan Collections,” in which the authors report on the impact of an added question on student loans to the Fed’s Survey of Consumer Expectations. Its first chief finding is that only 35 percent of the households surveyed correctly answered this question:

If a borrower is unable to repay her federal student loan, what steps can the government take to collect the debt?

A. Report that the student debt is past due to the credit bureaus.

B. Garnish wages until the debt, plus any interest and fees, is repaid.

C. Retain tax refunds and Social Security payments until the debt, plus any interest and fees, is repaid.

The correct answer is all of the above. (You did know that, right? If not, don’t worry, fewer than half of all respondents who had student loans got it right too.) Alarmingly, 28 percent thought it was none of the above.

The survey’s second question was to rate on a scale of one to five how likely it is that a student loan can be discharged in bankruptcy, with one being “extremely unlikely” and five being “extremely likely.” Here, the authors’ findings are confusing because their chart says that 37 percent gave a 5, but the text says those 37 percent marked 1. It’s the type of mild error that is both understandable yet deeply annoying. The average response was 2.4, suggesting that “U.S. households overestimate the ease with which student loans may be expunged from their balance sheets.”

Oh God.

It gets worse: In a parenthetical, the authors state that “reported federal recovery rates on defaulted direct student loans exceed [pdf] 70 percent.” (Emphasis original) The link is to ED’s student loan overview in its budget proposal for FY2014, which began in October 2013. On page S-32, it provides a table estimating that for all the subsidized Stafford loans disbursed in 2014, nearly a quarter will go into default (so much for those subsidies), and up to 9 percent of all PLUS loans will do so as well. I’m guessing this already takes IBR into account without estimating substantial future enrollments, which I think are likely. The net present recovery of subsidized Stafford loans that’s also net of collection costs is predicted to be nearly 90 percent.

FY2014 Estimated Recovery Rates

So the bad news is that American households don’t know the full extent of the consequences of defaulting on student loans. The good news is the government is going to be paid vastly more than it would if these were credit cards. Oh, that’s bad news for the student-loan-illiterate debtors. Oops.

When Will Robots Replace Journalists Urging Everyone to Go to College?

…Is the question that crossed my mind reading David Leonhardt’s, “Is College Worth It? Clearly, New Data Say,” for The New York Times.

The title alone tells you exactly how this article will play out. The “new data” will specify the returns to higher education for the “average college graduate,” who is, apparently, everyone who goes to college. There will be some quotes from notable college-for-all economists who haven’t left campus for the real world in ages. There will then be liberal-esque dismissal of student loan debt and how tough it is for college grads to find good jobs. The article will close with a bunch of hail-Mary pseudo-arguments about the consequences of not sending everyone to college. There might be a line about naughty for-profits.

Leonhardt’s article fits just about all the points.

Americans with four-year college degrees made 98 percent more an hour on average in 2013 than people without a degree.

There’s your “average” earnings premium.

“We have too few college graduates,” says David Autor, an M.I.T. economist, who was not involved in the Economic Policy Institute’s analysis.

There’s your cloistered economist.

But what about all those alarming stories you hear about indebted, jobless college graduates?

The anecdotes may be real, yet the conventional wisdom often exaggerates the problem. Among four-year college graduates who took out loans, average debt is about $25,000, a sum that is a tiny fraction of the economic benefits of college. (My own student debt, as it happens, was almost identical to this figure, in inflation-adjusted terms.)

Student debt excuses, check. They aren’t a problem because someday grads will have the college job that’ll enable them to pay them off. Debtors need to have faith, but don’t worry about David Leonhardt, he’ll do just fine because he’s just as average as you are with his job at the NYT.

Those who question the value of college tend to be those with the luxury of knowing their own children will be able to attend it.

As the economy becomes more technologically complex, the amount of education that people need will rise. At some point, 15 years or 17 years of education will make more sense as a universal goal.

And there’re your hail-Marys. (I’d love to know Leonhardt’s source for the first one.)

Nothing on the perfidious for-profits, but Leonhardt’s defensiveness is entertaining.

It’s important to emphasize these shortfalls because public discussion today — for which we in the news media deserve some responsibility — often focuses on the undeniable fact that a bachelor’s degree does not guarantee success. But of course it doesn’t. Nothing guarantees success, especially after 15 years of disappointing economic growth and rising inequality.

In other words, if college doesn’t pay off, don’t expect David Leonhardt to solemnly assess the situation. He’ll just blame “inequality” instead.

If NYT articles on higher education are going to be so one-sided and filled with unsubstantiated claims about its critics, why can’t we just replace their authors with robots?

Law School Salary Outcomes in One Uninfographic

More than three years ago, Frank the Underemployed Professional commented:

It’s too bad that there isn’t a good way to numerically quantify the monetary value of having a law degree. If we could do that and plot it over time, I’m sure it would decrease precipitously as the cost of tuition increases.

I thought of Frank when I put together a time-series chart of law graduate earnings for my last American Lawyer piece. It was really only one step away from being a comparison between law school costs and earnings outcomes. So after a little tinkering I think I can give as close an answer as anyone’s going to get.

Behold, on this day I give unto thee the law school outcomes “uninfographic”:

Law School Uninfographic
(Click to Enlarge)

Why an uninfographic? Because it tells so much yet requires even more explanation. The data come from three sources: the National Association for Law Placement’s (NALP’s) Employment Report and Salary Survey (ERSS) (many older years courtesy of moldy paper editions of the Official Guide), the ABA’s Section of Legal Education and Admissions to the Bar, and the Census Bureau’s Person Income Tables. I’ll go through each of these sources.

NALP

NALP’s ERSS tracks law graduates’ employment status outcomes, their job types, and their median salaries if they work full-time. It’s been doing this for nearly thirty years, but I’ve only managed to find data going back to 1991.

The salary data are not drawn from a random sample, and for most employment statuses only a minority of graduates report salaries. The median salary is very likely well above what the median graduate earns unless non-reporters and those in part-time positions are somehow earning more than grads employed full-time. Assuming this isn’t the case, the overall median figures shown here are roughly in the top 20-25 percent of total graduates between 2007 and 2012. Moreover, as demand for lawyers slackens, the median becomes even less representative of the class, a phenomenon I suspect is true for the 1990s legal sector recession. Oh, and did I mention that the median salary is also smack dab in the middle of a bimodal distribution?

What follows is a breakdown of each employment status by the range of graduates reporting salaries, the range of full-time workers in that status category, and the range of total workers in that employment status. Again, these ranges go from 2007-2012.

Employed Full-Time (black with circles):

  • 18,400-23,300 full-time salaries
  • 31,100-34,800 full-time workers
  • 35,700-37,500 total
  • 43,500-46,400 graduates

Bar Passage Required (blue with diamonds):

  • 16,000-21,300 full-time salaries
  • 24,900-30,000 full-time workers
  • 27,200-31,100 total

JD Advantage (red with squares):

  • 1,100-2,200 full-time salaries
  • 2,500-4,700 full-time workers
  • 3,100-5,900 total

Other Professional (green with triangles):

  • 670-780 full-time salaries
  • 1,700-1,800 full-time workers
  • 2,000-2,300 total

Non-Professional (purple with x’s):

  • 40-80 full-time salaries
  • 280-330 full-time workers
  • 530-810 total

Not Working (FYI):

  • 900-1,200 Advanced Degrees
  • 1,700-4,700 Seeking Employment
  • 700-1,300 Not Seeking Employment

Not Reporting (FYI):

  • 2,000-3,200 Not Reporting

ABA

The ABA Section of Legal Education collects graduate debt data from each law school (black with crosses for public law schools, black with dashes for private law schools), which excludes accrued interest. It then averages these without weighting them by the number of graduates with debt per school. Part of the rapid rise in law school debt is due to some law schools misreporting their 3Ls’ disbursed debts rather than their graduates’ total debts. The larger factor, I believe, is students’ decisions to rely more on Grad PLUS loans, which law students can use for living expenses as well as tuition not covered by Stafford loans.

I thought about using median law school tuition instead of graduate debt but decided against it. On the one hand, tuition data go back further and they show just how much more expensive public law schools have become. On the other hand, mean debt figures include tuition discounts, private loans, and living expenses.

Census Bureau

The Current Population Survey tracks full-time workers by education level attained and age, and it provides specific data on earnings of those who work full time, defined as those working 35 hours or more per week. Shown here is median earnings of full-time workers aged 25 to 34 with a bachelor’s degree (black with x’s). I included it to show a baseline alternative to law school. Unfortunately, it’s an age range and not a starting salary, so it’s not perfectly comparable to the NALP data, but at least it’s a “true” median and not the 75th to 80th percentile due to poor sampling like NALP’s.

Between 1994 and 2012, 73 to 78 percent of 25 to 34 year-olds with bachelor’s degrees who reported earnings worked full-time. Including people in that age range without earnings, it ranges from 65 to 71 percent.

Editorial

1). Strikingly, law graduates in full-time, non-professional positions make less than the median full-time college graduate in the same age range. Even the 75th percentile full-time non-professional salary (not shown) is less than the median full-time college grad. This is a strong indicator that law grads who do not find good jobs quickly do not benefit much from going to law school. In any given year, roughly 20 percent of all graduates are in a non-professional position or less (i.e. unemployed or not reporting, which I don’t take to be a good outcome).

2). Many graduates in better-than-non-professional jobs earn less than the college median nonetheless. Of course, as we’ve learned from the After the JD research, there’s a lot of attrition for law grads in private practice, with some leaving law entirely for positions that don’t really need legal education. Others find themselves in smaller practices with reduced earnings. The turnover factor increases the likelihood that there are better alternatives to law school.

3). I’m sure I say this every other post, but the Grad PLUS Loan Program needs to die. Although some law grads may’ve benefitted from it instead of taking out private loans (or even skipping law school), its primary contribution to humanity is to bail out law schools by providing them with students who would have been unable to attend for want of money for living expenses and excess tuition. Those students now have much higher debt-to-income ratios and no real choice but to go on IBR, which is turning into a policy piñata. Even if you ignore the discussion of whether law schools absorb federal loans, I’m still astonished that to my knowledge no law school has ever discouraged students from taking out giant sums of money for living expenses.

4). Recent graduate full-time starting salaries have fallen to their mid-1990s level. Looking at the ABA data for 2013 grads’ employment outcomes, it doesn’t look like this summer’s edition of the ERSS will show much improvement. Anyone predicting recovery in demand for lawyers is invited to explain what mechanism will bring that about. It certainly won’t be household spending on legal services that’s for sure.

5). Due to the aforementioned bimodality of the NALP data, the 25th percentile full-time employed law graduate reporting a salary (not shown) was only $5,200 higher than the median full-time college grad in 2007.

By 2012, the gap had fallen to $668.

Assuming a hierarchy of earnings with full-time jobs over part-time jobs over non-reports over unemployment, the 25th percentile salary was the ceiling for roughly 60-66 percent of law graduates from 2007 to 2012. Even I don’t want to believe the outcomes can be that bad.

That’s all I’ve got to say on the subject for now.

So Much for That Student Loan Interest Rate Cut

Last year, Congress rejiggered student loan interest rates from legislatively fixed rates to fixed rates based on the 10-year Treasury note (1.81% at the time). The result was a pretty big cut last year. For undergraduates, the unsubsidized Stafford loan rate fell from 6.8% to 3.86% but the subsidized loan rate rose to 3.86%. For grad students, the unsubsidized Stafford loan rate fell from 6.8% to 5.41%, and Grad PLUS loans fell to 6.41% from 7.9%. Everyone said rates would spike and trap students who’d been gulled by the lower rates. I figured the fears were unfounded because there wasn’t any reason to believe interest rates would rise.

Well, everyone was right.

Last week the Consumer Financial Protection Bureau publicized its estimate of the new rates based on the most recent Treasury note auction (2.62%). They’re about half a percent lower than two years ago.

CFPB New Loan Rates

Psych!

Back in mid-June, former Fed Chairman Ben Bernanke indicated that the Federal Reserve would begin “tapering” its bond purchases, which sent interest rates up. Eyeballing the interest rate on 10-year notes, it looks like the taper comment cost student debtors a half percentage point in student loan interest, accounting for the bulk of the difference in rates between this year and last year. I might not be right, but you can blame him if you want.

WSJ: Big Numbers Divided by Small Numbers Yield Large Percentages

The Wall Street Journal tells us that 1.63 million people are now on IBR, up from *gasp!* 1.32 million last quarter and (avert your eyes innocent readers!) 950,000 in the third quarter of 2013. That’s SEVENTY-TWO PERCENT GROWTH! HOLY COW! (Note: These figures are only for borrowers with Direct Loans. The actual figure is higher when you include guaranteed-loan borrowers.)

…Or it’s just what you’d expect to happen when you divide large numbers by small ones, especially when the government has been lamenting low IBR enrollment rates. Indeed, I recall way back in October 2012 when Inside Higher Ed dared to run an article titled, “An Underused Lifeline,” in which we learned that only 1.1 million borrowers had enrolled in IBR and 474,000 on ICR (clearly one of these two publications knows how the federal loan programs work better than the other).

Apparently, though, the world changed when I wasn’t looking, and now IBR and its friends are monstrous, out-of-control, “fastest-growing forms of financial assistance” because the Obama administration’s efforts to sign people up are working better than intended. Don’t tell the WSJ, but if you include Direct Loan borrowers on ICR, the total is 2.23 million borrowers. Another 850,000 are in “alternative” or “other” repayment plans, which will probably have the same effects as IBR/ICR/PAYE do on the budget. It’s all on ED’s Web site.

It’s like you can report on people signing up for IBR but not the PPACA exchanges.

Aside from mastering basic math skills, there are a few other points worth noting from the article:

(1). Treasury’s deputy secretary Sarah Bloom Raskin says seven million people are currently in default on their government student loans. There are currently 40 million federal loan borrowers, leading to an overall default rate of 17.5 percent. If you’re going to sensationalize the potential losses on IBR, you should be pointing out that the federal loan program has been a disastrous failure all along. Instead, the coverage appears to focus on how to “fix” IBR as in point (4) below.

(2). Thou shalt be specific in thy reportery:

The programs’ popularity comes as top law schools have taken to advertising their own plans that offer to cover a graduate’s federal loan repayments until outstanding debt is forgiven—opening the way for free or greatly subsidized degrees at taxpayer expense.

To my knowledge, only one “top law school” has advertised such plans. The WSJ should have been specific. Also, the story might be newsworthy in law school reporting, but overall, I consider it pretty minor. Georgetown University Law Center grads don’t number 2.23 million and not all of them are on IBR, ICR, etc.

(3). The motivations of the Obama administration:

The Obama administration has sought to boost enrollment in income-based repayment to reduce defaults, which have soared in recent years amid the weak labor market.

If I were cynical, I’d say Obama’s student loan policies are just a ploy to kick the student debt can down the road for his successors to deal with.

Also in case you’re thinking of tarring the Democrats by saying IBR is a handout to the 47 percent or whatever, recognize that it was enacted during the Bush administration.

(4). More Lucky Ducky Debtors:

The Obama administration, while touting the overall benefits of the programs, has voiced concerns that they could benefit some borrowers who need the help the least—namely lawyers and doctors making high incomes. The White House proposed in its budget earlier this year to limit the amount forgiven under the programs.

Has anyone bothered to calculate how many high-debt, high-income lawyers there are on IBR? What proportion are they of the total? How big would the losses be?

(5). …Which leads to the issue of the article’s tone. Consider the title, “Enrollment in Student-Debt Forgiveness Programs Soars in 2014.” IBR is not a “student-debt forgiveness program.” That’s a feature of IBR, not its primary purpose, which is to reduce monthly payments for struggling debtors. Thus, the title misleads readers because it implies that everyone who signs onto IBR will have their loans canceled.

Now, it’s true that the average IBR debt is about $55,000, that many debtors will probably never be able to repay their loans, and that taxpayers will probably have to accept a write-down on student loan debts. However, IBR just masks the student debt crisis. Without these programs, highly leveraged debtors would still be highly leveraged, and taxpayers would still have to cancel many bad student loans. IBR changes none of this other than rescuing people from debt servitude in exchange for tax liens on their incomes.

Despite the sudden hype, we have no idea what the dispersion is for IBR debts (and (future) incomes). It could be that a majority of the IBR debtors have small debts that will be paid off in fewer than 20 years. A bigger problem is the Grad PLUS Loan Program (another Bush-era invention), which is a blank check to the aforementioned lawyers and doctors, or, rather, their universities. Good reporting would have told readers this.

[Note: corrected typos.]

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