NY Fed: Only 37 Percent of Student Loans in Repayment, Not Delinquent

I didn’t promise I’d cover it, but here it is, you lucky-duckies:

NY Fed--Student Loan Repayment Status in 2014

But I particularly relished the part at the end:

Some [the Brookings Institution] have argued that rising student debt and slow repayment are not particularly worrisome. After all, the story goes that if households can afford the modest payments they are making, then why worry about the cost of debt? But, of course, widespread failure to repay is a problem for the lender, in this case, federal taxpayers. We don’t fully understand yet how the burden of large amounts of debt on households’ balance sheets for long periods of time affects student borrowers’ behavior, but our research so far suggests that growing student debt has contributed to the recent decline in the homeownership rate and to the sharp increase in parental co-residence among millennials.

That, my readers, is as close as the Liberty Street gang is ever going to get to smacking-down the Brookings Institution.

MY DAY = MADE.

NY Fed Announces 2014 Was Again the Year of Student Loan Delinquency

…And you thought it was the year of the horse.

The Federal Reserve Bank of New York’s Household Debt and Credit Report gives us worrying news, again:

Percent of Balance 90+ Days Delinquent

If this keeps going I won’t even need to use an arrow to draw attention to the 90+ day delinquency line for student loan debtors. It’s already starting to look like a fish jumping out of the running river.

All household debt grew by $310 billion in 2014, but student loans accounted for only 20 percent of that, unlike last year, which was also the year of student loan delinquency. (Maybe they’ll have to throw out the Chinese zodiac altogether.) The year-over-year rate for student loans fell in 2014 as well, so at least that’s good news. The NY Fed people, though, are becoming … less restrained about student loans.

“[T]the increasing trend in student loan balances and delinquencies is concerning,” said Donghoon Lee, research officer at the Federal Reserve Bank of New York. “Student loan delinquencies and repayment problems appear to be reducing borrowers’ ability to form their own households.”

But don’t worry: The folks on Liberty Street are on the case. They plan to spend the rest of the week blogging on describing the debtors, explaining how the delinquency rate is calculated, and showing how debtors are (allegedly) paying down their balances. I doubt I’ll have time to comment on such things, but you ought to read it—if student debt is your thing.

For another perspective, data from the Department of Education also say things aren’t looking so hot for the American student loan debtor. As of Q1 2015, the number of guaranteed federal loan debtors who have defaulted on their loans has held at 4.4 million, and the number of total FFEL debtors is falling. The number of direct loan debtors in default has risen to 2.9 million from 2.4 million, about 10 percent of that total (9.1 percent in Q1 2014). Now, only 52 percent of all federal loans are in active repayment. More than one million direct loan debtors signed on to an income-sensitive repayment plan since last year. The number of people on PAYE nearly quandrupled. (It’s less than half a million, so that’s just big numbers divided by little ones.)

In short, people are starting to use IBR and its pals more, but they’re also defaulting.

Meanwhile, hours before the NY Fed worried that student loan delinquencies were on the rise, I read a Salon article suggesting that IBR isn’t very effective because it will forgive large student debt balances that are owed not by poor people but by those from affluent families, specifically law students. No relevant citation is given as to how we know that affluent law students will be IBR’s chief beneficiaries, but I’m sure all those poor people who attend for-profit law schools and graduate into chronic underemployment would beg to differ. It’s also odd that the article dismisses IBR on the logic that affluent families can bear it. If those debtors are so well off, why are they on IBR? Why should affluence matter when law school debtors can’t afford to pay their debts?

Nevertheless, isn’t it interesting that liberals and conservatives see IBR as a “debt-forgiveness” program? For conservatives it’s wasteful spending; for liberals its welfare for the wealthy. Sadly, these opinions have less to do with IBR itself and more to do with the Grad PLUS Loan Program. If people couldn’t borrow huge sums to begin with, everyone would see IBR in a better light.

The Salon article also apparently cleaves to the Elizabeth Warren assertion that the government is profiting on federal loans, even though that doesn’t make sense. If IBR cancels big loans while millions of people who aren’t on IBR are defaulting, then when, exactly, is the government going to be repaid?

Naturally, I don’t foresee IBR as a long-term success for the government; I agree with the CBO that losing $39 billion over a decade is probably not to the program’s credit. But it sounds to me like the 500,000 debtors who defaulted on their direct loans last year would benefit from IBR, and they’re probably not law school lucky duckies.

It’s Time to Give Up on Solving ‘Income Inequality’

Anyone who needs a reason to retire the term “income inequality” need only look to the Institute on Taxation and Economic Policy (ITEP), which recently released its fifth edition of its “Who Pays?” report on the impact of state taxes on household incomes. As with previous years, it dispiritingly finds that most states’ taxation structures are regressive, which means poor and middle-income households pay a higher proportion of their incomes in taxes than the highest earners.

As for specific taxes, the ITEP concludes that income taxes, particularly on individuals and corporations, are the most progressive, while sales and excise taxes are the most regressive. On property taxes, sandwiched between the two, the report states:

Overall, the property tax is a regressive tax.

What the ITEP is saying, in other words, is that taxes on property fall hardest on households that don’t own property. If this sounds like nonsense to you, it’s because it is. Usually we think that taxes fall first on that which is being taxed, so households and businesses with lots of property ought to be paying the bulk of state property taxes. Or, as economist Mason Gaffney wrote in his 1971 paper, “The Property Tax Is a Progressive Tax” (pdf), “To own property is to be rich, in the measure that one owns, and to tax the quality of richness should not be presumed to burden the poor more than the rich.” The ITEP begs to differ.

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GlaxoSmithKlineMitchellHamline

The only thing that should surprise anyone less than Hamline’s and William Mitchell’s merger should be their new name, Hamline|Mitchell [UPDATE: It’s actually Mitchell|Hamline. No idea why I got that wrong.], which sounds like a self-satisfied pharmaceutical company. In fact, Mitchell was the product of five law schools between 1900 and 1956. It’s like planetary accretion.

Personally, my money was on University of La Verne, which has still managed to stumble along, despite its superfluousness, but the biggest loser here is Slate‘s Jordan Weissmann who bet a mere $2.00 with UC-Berkeley’s Steven Davidoff Solomon that at least one law school would close or merge by 2018. Come on, everyone knew a law school would close or merge by 2018. Like, what were you thinking?? I swear, the best investment opportunities are squandered on the folks who can afford them.

The only real news of note is what we still don’t know. From the Star Tribune:

[Former Mitchell dean Eric] Janus acknowledged that combining the two schools will result in some cuts in faculty and staff. But he declined to speculate how many jobs may be lost, and said he hoped to avoid layoffs through voluntary attrition.

For reference: Fall 2014 [Hamline, Mitchell]:

  • Full-Time Faculty: 14, 26
  • Deans, librarians, and others who teach: 11, 13
  • Part-Time: 33, 191

The bad news for Minnesota’s legal market is former law profs competing for jobs—and I doubt their amazing experience as law profs will translate to partner offers.

Site Update 2015-02-09: Law Graduate Overproduction Page

The update can be found here. (The 2011 edition has been moved here.)

To keep the analysis consistent with previous years, I used the class of 2013 even though data for the class on 2014 are available (and logged by moi). It’s a little problematic given that 2013 was the law graduate high tide, but that’s what happens when law schools enroll people without regard to employment outcomes.

I do not discussed the BLS’s proposed changes to its methodology for measuring occupational replacements. Assuming it’s approved, then for future versions, if the BLS separates annual replacement openings between those created by workers who leave the labor force and workers who move to different occupations, then I’ll use the labor force rate as the measure for “sustainable jobs.” It’s imperfect, but the same can be said of the current methodology.

I’ve also updated the site’s highly popular lawyers per capita by state page to include employed lawyers per capita and idle attorneys using the 2012 employment data. I am waiting on the ABA to update its national lawyer counts for 2014 and 2015. (They do plan on doing that right?)

At this time, I will brag that the Census Bureau’s press relations department cited my work on this topic last August.

NY Fed Chimes in on Collapsed Household Formation Rate

Following up on last week’s post, the Federal Reserve Bank of New York put up a post titled, “Household Formation within the ‘Boomerang Generation’,” asking, “Why might young people increasingly reside with their parents?”

Of the excellent charts the authors provide, I’ll only reprint the one I like best:

The write:

The chart also suggests, however, that the trend in parental co-residence has not substantially changed the fraction of individuals living with a single roommate, an arrangement that in many cases is likely to be a romantic partnership. (These patterns are similar for thirty-year-olds, where our analysis using the Current Population Survey indicates that co-residence with one adult is a highly accurate indicator of romantic partnership.)

So when exactly are the <50 percent of 25 year-olds supposed to form romantic partnerships and buy out their parents’ homes?

Answer: Never.

Our results demonstrate that local economic growth is a mixed blessing when it comes to building youth independence: Improvement in youth employment conditions enables young people to move away from their parents, but rising local house prices are estimated to have forced many young people to move back home. These two effects partially offset each other.

[W]hile local economic growth, reflected in rising youth employment and escalating house prices, has mixed consequences for youth independence, the increasing magnitude of student debt among college graduates appears to be driving young people home and keeping them there.

It’s astonishing that the NY Fed of all places is more willing to tell it like it is than the East Coast media elite, who think we need to send everyone to college and that student debt isn’t a problem.

CBO: IBR/PAYE to Cost Gov’t $39 Billion Over Ten Years

Most people know better than to read through the Congressional Budget Office’s annual “Budget and Economic Outlook,” which was released last week. Not me, though.

Student loans play a subtle roll in these kinds of reports, and this year’s offers an interesting twist. In Appendix A, which concerns the changes since August to the CBO’s baseline projection, on page 113 (pdf 119) it states:

CBO increased its projection of outlays for federal student loans by $39 billion over the 2015–2024 period. That increase is primarily attributable to higher projections of participation in repayment plans that are based on a borrower’s income. Under those plans, the government forgives the loans of borrowers who meet certain criteria, so they cost more than other repayment plans.

Yeeouch.

Don’t worry too much though, the office still believes that there’s an overall negative subsidy to the student loan system thanks to its accrual accounting methodology. I’m a rare liberal who thinks fair-value accounting works better. I think the opponents of FVA confuse the government’s enormous borrowing power with the belief that it never spends money recklessly.

The CBO’s specific estimates of the federal student loan system will be out later, but I suspect this stray statement will be used by Wall Street Journal types to argue that IBR/PAYE is a “debt forgiveness program” for wastrel college students rather than a monthly payment reduction program that it’s largely intended to be. At least people can’t say that it’s a student debtor shakedown to extend standard repayment plans. This whole student loan thing is going to get uglier and not end well. I’m not excited about it.

Shifting gears, another place student debt rears its hideous visage is in household formation. On page 36 (42), the CBO tells us that “[S]tudent loans have rendered some young adults unable or unwilling to obtain a mortgage.” Brookings Institution people, take note.

But for some reason the CBO thinks household formation will surge ahead.

CBO Household Formation Projection

The CBO’s only reason for optimism is “better prospects for jobs” and easier access to mortgages, yet it concedes that in recent years household formation has not been linked to employment gains as it has been in the past.

Looking at the employment-population ratio for 25-54-year-old Americans, there’s but slim reason to be hopeful. It’s risen two percentage points since October 2011, but it needs to go up five more points to return to its 2000 peak. I don’t think the current trajectory is compatible with rapid growth in household formation. On the other hand, two percentage points is probably more than I would’ve predicted a couple years ago.

Civilian Employment-Working Age Population Ratio

Without new households, vacancy rates will stay high (though there are regional variations I’ll not speculate on at this time), so expectations of higher future land values will stay suppressed. This doesn’t bode well.

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