Student Debt

Speaking of Grad PLUS Loans…

This weekend, the Times both accepted the Bennett hypothesis and chose not to condescend to us about the “paradox” of how underemployed law grads can refuse to work for people who can’t afford to pay them. That’s really remarkable. What more can I say?

Okay, one point, an emphasis. When I wrote that applying the gainful employment rule to all law schools would cause fifty to close in short order, I was clearly being conservative. $50,000 in discretionary income is a lot of money, even for law school graduates.

And since we’re on the topic of student lending, the Department of Education updated its student loan data through the 2014-2015 academic year. I’ve updated the Student Debt Data page accordingly.

The big findings are that (a) people are borrowing less money from the federal government:

Amount of Federal Loans Disbursed

…But (b), Grad PLUS borrowing hasn’t changed much in the last year.

In the last two years though, the number of Grad PLUS borrowers has grown (+2,540) while the total amount borrowed has fallen (-$140 million). It only amounts to about $500 per borrower, but who knows, maybe it’s due to fewer law students? I wouldn’t be surprised.

Finally, in the same week that I bought my first car I realized after years of listening that Galaxie 500’s “Blue Thunder” is about a man’s love for his car, and the Route 128 reference indicates it’s an homage to the Modern Lovers’ “Roadrunner.” (I’m terrible at discerning lyrics; it’s usually not what I listen for in music.) I really dig how “Blue Thunder” denies the listener the chorus until the very end.

I prefer the album version, but how could I not post an ’80s video?


Office of Management and Budget: +$1.4 Trillion in Direct Loans by 2025

Projected Direct Loan Balances (OMB, Billions Current $)

(Source: OMB FY2016 Mid-Session Review (pdf))

…But we all knew it was going to say that. Also, that number includes other loan programs that aren’t student loans, but those aren’t nearly as big.

The good news, though, is that the actual amount of direct loans keeps coming in below the projections. Here’re the estimates from the mid-session reviews since FY2010 against the actual.

Direct Loan Balance Projections (OMB Billions Current $)

The FY2010 estimate was $161 billion more for 2014 than turned out to be the case. This variance implies that the government is overestimating future direct lending. It isn’t much, but it’s something to keep track of.

I should add that in general the OMB predicts that direct loan debt will even out at about 9 percent of GDP.

Good News: Students Borrowing Less From Education Department

The bad news is that I just updated the LSTB’s student debt data page, but revising it again is my problem, not yours.

For those in the know, the Department of Education (ED) tracks the amount of debt the government lends out each quarter (and each academic year), going back to the late 1990s. Here’s total borrowing by loan program, which includes direct loans and guaranteed loans back when they were around.

Amount of Federal Loans Disbursed

Don’t let the 2012 data throw you. Because Congress stripped subsidized Stafford loans from graduate and professional students, the 2012 bars’ meanings completely changed from previous years. Now all subsidized Stafford loan borrowers are undergraduates only, and ED kindly separated graduate unsubsidized borrowers from undergraduates. Nevertheless, the total amount of Stafford borrowing is dropping. In the 2011-12 academic year it was $85 billion; in 2012-13 it fell to $78 billion.

The declining loan volumes imply that the Office of Management and Budget’s long-term direct loan projections, which are discussed in the aforementioned student debt page) are probably high.

Projected Direct Loan Balance (OMB)

Less money lent out means fewer dollars likely to be lost to the program, so I consider this good news. However, the amount of money lent in 2012-13 is still sky high compared to the middle of the decade, and we don’t know who’s not borrowing, why they’re not borrowing, or whether their parents are just taking out dubious 410(k) loans instead.

Parent PLUS loan borrowing is down as well (-170,000 recipients), but that’s probably due to ED tightening the eligibility requirements on those loans. Grad PLUS loans are down slightly too, with about 18,000 fewer recipients. At most 2,000 of these can be attributed to law school graduates who were not replaced in the 2012-2013 academic year.

Here’s a chart of the number of recipients by loan type:

No. Federal Loan Recipients Per Year

(Note: the data point for unsubsidized undergraduate Stafford borrowers overlaps with the point for all PLUS borrowers in 2012, 6.9 million (left) and 697,000 (right), respectively.)

…And here’s the amount disbursed per recipient:

Amount Disbursed Per Recipient

Splitting graduate unsubsidized Stafford borrowers from the undergrads reveals just how much more graduate and professional students borrow. If grads and professionals go add Grad PLUS loans to their unsubsidized Staffords, they’re taking on more than $37,000 in debt in one academic year. Since there were 335,000 Grad PLUS borrowers last year, we can expect that in the near future, the highest student debt brackets (e.g. >$100,000) that we’re told aren’t really a problem will increase more quickly than the lower brackets. This much is not good news.

I’d give an update on the freestanding private law schools, but for some reason Western State didn’t appear in the data and I’m waiting for an explanation from ED.

THE LAW SCHOOL DEBT BUBBLE: $53 Billion in New Law School Debt by 2020

So we know that in 2010, a majority of 44,245 law graduates took on $3.6 billion in student debt based on comparing Official Guide and U.S. News data. Without back issues of U.S. News, is it possible to figure out how much debt previous classes took on, and—*gasp*—project it into the future?


The ABA provides a piffle of a PDF titled, “Average Amount Borrowed for Law School,” which begins with the 2001-2002 school year and ends with the 2009-2010 one. I’m guessing the law schools didn’t send the ABA 45,000 debt numbers but merely the average of their students’ debts, so what you see on the ABA’s PDF is not the average debt load of public and private law school graduates but is actually the average of law schools’ reported average graduate debt levels. To test the ABA’s version’s accuracy, let’s compare its numbers to the average of U.S. News’s law schools’ average debts for the 2009-2010 school year.

U.S. News $70,795 $107,182
ABA $68,827 $106,249

The average public law school’s average students’ debt differs by about 3%, private schools 1%. Clearly, we’re talking about the same stuff, so we can use the ABA’s numbers. Here’re graphs of graduate debt levels.

And yes, they track 3-year average tuition levels, at least for private law schools. For public law schools, I added one year of non-resident tuition to two years of resident tuition, and it falls a little short, which suggests that either a large proportion of people who go to public law schools move to different states and pay at least one year of resident tuition, or public law school students have been taking on more debt than before the turn of the century.

With the ABA data in hand, there are three more things we need to determine total law school debt: the number of graduates, the breakdown of graduates (public/private), and how many of them took on debt. The split between public and private law school grads in 2010 was 34%/66% according to the Official Guide, and roughly 84% of all public school grads took on debt as opposed to 83% of private grads according to U.S. News. Using these assumptions we can compare total graduate debt for the class of 2010 with the two methodologies.

U.S. News $951,772,400 $2,668,868,422 $3,620,640,822
ABA $869,979,117 $2,497,898,010 $3,367,877,127

It appears the ABA data are more generous than the U.S. News ones are, placing total graduate debt at $3.368 billion rather than $3.62 billion.

Using the “public/private grad split” and “percent who take on debt” assumptions from above, we can calculate how much total law school debt law grads took on going back to the 2001-2002 school year. Although, we should note that only two of the sixteen law schools that received ABA accreditation between 2001 and 2009 were public schools (Irvine received accreditation in summer 2011), so these numbers likely underestimate the totals because the proportion of public law school graduates would have been greater at the beginning of the decade (say 37% tops) than now.

Since the debt levels are growing exponentially, here’s the projection for 2020 grads.

It appears legal education has been one of America’s winning industries for the last twenty years, posting an estimated 6.8% annualized growth rate in terms of debt revenue alone, though that’s a slight overestimate due to the relatively greater number of graduates between 2001 and 2009. In the future, total annual graduate law school debt will double by the end of the decade (~$6.8 billion/year), and this is a conservative estimate because many public law schools are rapidly “privatizing” by going off state subsidies. Continued high unemployment will encourage this process for those public law schools that aren’t leaving the state dole whole hog, such as Minnesota and Arizona State. Public law schools will supplement subsidy shortfalls with tuition increases and a handful of alumni donations. This will add $50.6 billion onto around 500,000 future law graduates’ shoulders. In 2010, the total average debt for graduates who took on debt was $90,959. At current graduation rates, in 2020, of 54,536 graduates, 45,625 will take on debt, and their total average debt will be $149,120 ($114,801 for public school grads; $173,161 for private grads).

$50.6 billion isn’t completely accurate because not everyone who starts law school finishes. The ABA kindly furnishes us with a PDF that tells us what law school attrition rates are by year (and if you do the math, you’ll find that about one entering student in eight drops out). It doesn’t tell us what the rates are by public or private law school (the Official Guide would), though I’d guess more are private than public. Nor does it tell us how many of them took on debt. I’ll use our previous assumptions anyway and add the following: (1) 1Ls paid 1.5/6ths of what they would’ve paid as 3Ls, 2Ls 4.5/6ths of what they would have paid as 3Ls, and 3Ls 5.5/6ths of what they would’ve paid had they not left. It’s crude, but fair. (2) Those who paid never came back, and (3) they all paid with debt. The attrition PDFs are all missing the 2008-2009 school year (stupid ABA), so I averaged the numbers from the previous and succeeding years to fill the gap. I’m omitting 4L attrition. They’re few in number, and I suspect many of them returned to complete their degrees later. Here’s what we get:

Attrition adds about 6% to the debt totals, increasing the numbers to $53.442 billion, an additional three billion dollars ED will disburse.

According to the Office of Management and Budget, the U.S. will issue $1,302 billion in Direct Loans by FY2020 (Table S-12). $53.4 billion of that will be new law school loans (4.1%), if these data are comparable. I don’t think anyone has an idea of how much existing student debt is for law school, but given what the ABA data already show and looking backwards, it’s probably between ten and thirty billion dollars. Knowing how anemic job growth has been for lawyers over the last few decades, it is clear that the federal government will waste a lot of money supporting the legal education system due to the impracticability of repayment under even 25-year repayment plans, leading to near-universal use of Income-Based Repayment.

I’m in favor of IBR, but endless law school tuition increases makes this a losing program for ED and taxpayers, unless the interest from everyone else repaying their loans covers forgiving billions of dollars in law school debt. However, I doubt the Congressional Budget Office, much less OMB, has projected IBR’s effects twenty-five years from now using fair-value accounting.

Meanwhile, doubling law school debt in ten years all but verifies that law schools are Winston Universities, claiming to ED and Congress that law students must spend billions of federal dollars on educations that in many instances are superfluous to the economy’s needs and are overpriced for the few that are. We can only hope Congress kills the Direct Loan Program and restores bankruptcy protection from student loans before this problem gets worse.

Sadly, the ABA was in the best position to ensure that law schools worked efficiently and were not over-enrolled, yet it stood by while law schools prioritized their own prestige over their students’ welfare. Beyond the cost to students and taxpayers is the immense shame the ABA and the legal profession will face.

Federal Student Loan Debt Will More Than Double by 2021; GDP, Not So Much

A few weeks ago I painstakingly projected where the federal government’s Direct Loan Program was going, and for the last several months I’ve been tracking growth in government holdings of nonrevolving debt as a proxy for the government’s Direct Loans balance to prove that. Here’s what I projected:

Then a reader directed me to the Office of Budget and Management’s (OMB) Mid-Session Review (MSR), which has been doing this all along. The following data come from the 2012, 2011, and 2010 MSRs. The 2009 MSR doesn’t have Direct Loan balances (but amusingly, it fails to predict the recession, which doesn’t bode well for OMB’s credibility).

What’s neat is that my projections were largely accurate. The Direct Loan Program will cause student debt to grow from 1% to 8% of GDP yet never crest it. The loan balance is growing linearly, thankfully. However, there are two potential flaws. One, the GDP growth the government is projecting may not come to pass. Sure, recovery will eventually come, but refusal on Congress’s part to increase spending and the Fed’s inaction suggest that we are taking the slowest, most painful path to recovery. Slow growth implies a higher debt-to-GDP ratio of Direct Loans.

Two, here’s a table of the numeric growth in Direct Loans:

2009 293
2010 179
2011 110
2012 126
2013 173
2014 148
2015 138
2016 123
2017 107
2018 101
2019 96
2020 94
2021 96

The numeric growth includes a combination of newly originated loans less defaulted and repaid loans. Notice how the numeric growth declines below $100 billion per year by the end of the decade. Assumedly, this decline is due to loans originated now being repaid. Although, there’s good reason to suggest they won’t be. The government uses “accrual accounting” to determine the value of the loans, which excludes the actual market risk caused by a poor economy. If the economy is depressed, the government will receive a lower return on its loans due to defaults and Income-Based Repayment (IBR), which is effectively a twenty-five (and soon twenty)-year Chapter 13 bankruptcy plan. Student loans are the only type of consumer debt increasing in this depressed economy, and their nondischargeability reduces debtors’ purchasing power, which further hampers economic growth.

By contrast, we know that when we apply fair-value accounting rules to Direct Loans, the government loses money. Meanwhile, we don’t know if the government is taking tuition increases into account. There’s zero evidence that higher education will cost less in the future, so as tuition increases, so will debt loads, and by extension the amount the government is willing to give to ED to loan out.

Doubling the amount of debt on the government’s books makes sense if the gains materialize, i.e. the graduates’ educations transform them into more productive workers than had they not gone. This would be signaled—not proven—by significant growth in wages for college graduates, which we haven’t seen for many, many years. Whether college degrees alone actually transform students into better workers has not been established, and I believe it to be false.

Loaning a trillion dollars over a decade for higher education when the returns are doubtful is not something the private sector would do without loan guarantees. Thus, ending the guaranteed loan program in 2010 was a good idea as it was costly to the government, but doing so gave the federal government a pyrrhic victory because it’s now essentially guaranteeing the loans to itself. Ultimately, we will have to choose between letting the private sector finance higher education with some combination of fully dischargeable student loans and human capital contracts, or the government will have to pick up the tab and assume the risk of buying educations for people who may not use them productively.

2010 Law School Grad Debt at $3.6 Billion

A reader recommended I calculate total law school debt for 2010 grads. How? By taking the number of grads from each law school in the Official Guide and then multiplying them against the average debt levels and the percentage of students taking on debt in U.S. News and World Report’s rankings. Why this isn’t in the Official Guide is beyond me. These data can tell us quite a bit, and it’s only part of some research I’ve been doing.

First, a caveat: U.S. News isn’t complete. It excludes the Puerto Rican law schools, which as I’ve written before are their own unique disaster. It’s also missing a few points. So, for University of Phoenix, Harvard University, and Appalachian School of Law I used the average percent of graduates with debt (85.1%). For Florida International, I duplicated Florida State’s debt numbers and percent with debt, same for Indiana-Indianapolis from Indiana-Bloomington, and Widener-Harrisburg from Widener-Delaware. I also found La Verne’s and Widener-Harrisburg’s number of graduates from their websites as the Official Guide misprinted Widener-Delaware’s data for Harrisburg’s (shows how no one reads the Official Guide), and it excludes La Verne because it had lost its accreditation.

After slapping this into a spreadsheet, here’re a few factoids.

(1)  The average 2010 public law school graduate had $53,661 of debt at graduation; for private school grads it was $79,699. The average overall law student took on $97,306 (yes, the overall average is greater than the public/private ones).

(2)  2010 public law school grads incurred $951.8 million in debt; private graduates $2.669 billion. Total law school graduate debt was $3.621 billion in 2010.

(3)  The average public law school gained $12 million in debt from 2010 grads (median 10 million, standard deviation $7,710,185); that’s $22.8 million for private law schools (median $19.6 million, standard deviation $13,699,205). Here’re the dispersals.

And here’re the top 20 law schools by total graduate debt. For public schools the list isn’t too surprising. For private schools, though, it’s an interesting mix of prestigious and not-so-prestigious law schools. Some of it is high cost and some of it is large enrollments. However, I can’t ignore how much of an outlier Cooley is, so I included the z-score’s on the right of the table. The z-score measures a data point’s distance from the mean, and it’s measured in standard deviations. Cooley’s 4.72 tells us it is way out there.

1 California-Hastings 35,570,896 3.05
2 Michigan 35,510,278 3.04
3 Virginia 34,631,340 2.93
4 Indiana (Indianapolis) (Est.) 31,571,512 2.53
5 California-Los Angeles 28,055,645 2.08
6 Baltimore 26,128,664 1.83
7 Texas 23,974,030 1.55
8 California-Berkeley 22,810,122 1.40
9 Temple 20,771,127 1.13
10 Indiana (Bloomington) 20,695,707 1.12
11 Minnesota 20,487,209 1.09
12 Penn State 19,684,105 0.99
13 Maryland 19,049,364 0.91
14 George Mason 18,726,770 0.87
15 Florida 18,699,633 0.86
16 Rutgers (Newark) 17,373,648 0.69
17 Wisconsin 16,589,299 0.59
18 North Carolina Central 15,495,257 0.45
19 Oregon 15,462,409 0.44
20 Houston 15,323,970 0.42


1 Cooley 87,410,308 4.72
2 Georgetown 68,060,738 3.30
3 Harvard (Est.) 58,024,861 2.57
4 American 53,397,546 2.23
5 New York University 49,767,194 1.97
6 New York Law School 48,762,544 1.89
7 Florida Coastal 47,445,152 1.80
8 Suffolk 47,203,984 1.78
9 George Washington 45,084,600 1.63
10 Fordham 43,865,940 1.54
11 Loyola Marymount (CA) 43,621,657 1.52
12 Columbia 42,031,490 1.40
13 Brooklyn 37,970,649 1.11
14 Pacific (McGeorge) 36,806,108 1.02
15 Stetson 36,236,370 0.98
16 John Marshall (IL) 35,749,033 0.94
17 Miami 35,670,595 0.94
18 South Texas 35,593,309 0.93
19 Catholic 34,665,333 0.87
20 Cardozo 34,165,228 0.83

I have more to say on aggregate law school debt growth, but that’s for a separate post.

[UPDATE: Here’s the post, “THE LAW SCHOOL DEBT BUBBLE: $53 Billion in New Law School Debt by 2020.”]

Consumer Credit Update (2011 October)

It’s the fifth business day of the month, which means the Federal Reserve has updated its G.19 Release, its estimate of outstanding consumer credit. One problem the U.S. economy faces is that nonrevolving consumer credit is growing faster than the economy. While the G.19 Release doesn’t quantify how much nonrevolving debt is student debt, it is very likely that most increases in that category are attributable to the Direct Loan Program’s student loans because of high tuition and the near impossibility of discharging student debt in bankruptcy. All figures are billions of dollars, and all percentages are annualized. Link here for my ongoing analysis of increasing nonrevolving debt relative to GDP and Direct Loans projections.

This month, the Fed revised the second quarter 2011 numbers again. These are seasonally adjusted.

2011 Q1 2011 Q2 r 2011 Q2 r
Total 2,421.5 2.2% 2,442.5 3.5% 2,442.5 3.5%
Revolving 792.8 -3.7% 795.9 1.6% 795.9 1.5%
Nonrevolving 1,628.6 5.1% 1,646.6 4.4% 1,646.6 4.4%

Not much of a change. Here’s what we get for August.

2011 Q2 r 2011 July r 2011 August p
Total 2,442.5 3.5% $2,454.4 5.9% 2,444.9 -4.6%
Revolving 795.9 1.5% $792.3 -5.4% 790.1 -3.4%
Nonrevolving 1,646.6 4.4% $1,662.1 11.3% 1,654.8 -5.2%

So there’s a seasonally adjusted drop last month in consumer debt. Good.

As for holdings of nonrevolving debt, government holdings account for nearly all the growth of nonrevolving credit as well as the largest annualized increase. These numbers are not seasonally adjusted and do not sum together; annualized increases are mine.

July (revised) August (preliminary) Numeric Change Annualized Increase
Total NRV 1,652.6 1,661.7 9.1 6.8%
Government 385.7 391.8 6.1 20.7%
Commercial Banks 491.3 492.5 1.2 3.0%
Finance Companies 432.7 434.1 1.4 4.0%
Credit Unions 186.6 188.7 2.1 14.4%
Savings Institutions 37.0 37.3 0.3 10.2%
Nonfinancial Business 44.7 44.9 0.2 5.5%
Pools of Securitized Assets 74.5 72.3 -2.2 -30.2%

In non-seasonally adjusted terms, nonrevolving debt still increased, and government-held debt is still growing the fastest, though not as fast as July when it grew at a 64.1% annualized rate. According to the BEA, real economic output grew at a 0.4% in Q1 2011 and 1.3% in Q2.