Income Based Repayment

2017-10-02 Site Update

Those interested in Student Debt Data can find it in the link.

The changes are not substantive, so if that doesn’t excite you, then listen to Sleaford Mods instead.

Fin.

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A Retrospective on Obama’s Higher Education Accomplishments

“Obama” appears in 38 of the 641 posts I’ve published on this site since it began in May 2010. A few weeks before he left office, I threatened to investigate what I’d written about him or his administration over those six-plus years. The short answer is that if you didn’t know any better, you’d’ve thought this author was a Bernie Bro.

But I do know better, and no, I’m not a Bernie Bro, but my thoughts on the 2016 election are for another post. Until then, I can’t argue with much of what I’ve written about Obama.

Consider this gem from, “Bucket, Meet Drop, or Why We Shouldn’t Tolerate Electoral Sunk Costs,” October 27, 2011:

This is what I mean by “electoral sunk costs”: It’s one thing to wake up one morning and realize you’re wedded to policies that sell jet-setting globalization but in reality force people to reduce their life expectations to McJobs. It’s another thing to go out and campaign on, “This country has been wrecked by kleptocrats. Time for the rich to ‘suffer’ painful reforms, and pay no attention to the fact that we just spent four years on hope and change and delivered neither.”

A weasel hath not such a deal of spleen as I am tossed with.

In faith, I don’t disagree with this position. “President Obama squandered an opportunity to be the FDR voters hoped he’d be,” I would write a few weeks later, and indeed, in higher education Obama was no visionary.

Here’s a summary my writings on Obama’s statements or his administration’s actions on higher education and student loans. The order is non-chronological.

  • College for all

I wrote a few posts on Obama or his administration’s overall higher-education agenda. Apparently, in August 2010 he said, “[Higher] education is the economic issue of our time.” (The White House has taken down the transcript. Hm.) He reasoned that because unemployment was double for non-college graduates than college grads, and that eight in ten jobs over the next decade would require workforce training or higher education, we needed to send more people to college. How the Great Recession suddenly made all these workers redundant escaped him; so much for aggregate demand.

He didn’t budge from that position. In “‘Hope and Change,’ Meet ‘No Hope, Cosmetic Change’” (February 19, 2013) I found that Obama’s Treasury Department and Education Department joined forces to argue the economic case for higher education. Treasury and ED believed that skill-biased technological change was forcing people out of work, even though the Labor Department projected more job growth in lower-wage service sector jobs than skilled ones. Labor productivity hasn’t gone far in the last decade either.

Obama even walked back the “Eight in ten” line a year after he made it. By 2011, only 60 percent of new jobs over the next decade would require more than a high-school diploma. I traced the source of that statement to a paper by the Georgetown Center for Education and the Workforce, which warned that by 2018—next year!—the U.S. would be short 300,000 college-educated workers. The paper dismissed pessimistic estimates of Labor Department data showing that tens of millions of college graduates are and would be “malemployed” because they worked in jobs that don’t require any real education.

  • Promoting income-driven repayment (IDR) plans

If there’s one thing that’s driven me nuts about writing about student loans is all the names that the government and journalists gave to IDR plans. To this day I still casually refer to them as IBR, but after the administration created Pay-As-You-Earn (PAYE), then REPAYE, and then distinguishing ICR from PSLF, it got exhausting. The salient point though is that under Obama, the government created a bunch of improved repayment plans, and promoted the existing ones that the earlier W. Bush government made.

Naturally, critics—mainly The Wall Street Journal and the New America Foundation—attacked the plans’ loan-forgiveness features and then raised alarms over the administration’s success at enrolling debtors on them. For example, in, “WSJ: Big Numbers Divided by Small Numbers Yield Large Percentages,” I made fun of the publication for its slant against student debtors. Primarily the criticism of IDR plans focuses on graduate- and professional-school debtors who are certain to obtain high-paying jobs and therefore need IDR plans—to say nothing of PSLF—least. These outlets almost never separate the problems of IDR plans from the odious Grad PLUS Loan Program, which is responsible for graduates’ high debt levels in the first place.

Obama’s myopia on the value of college education was offset by his recognition that student debtors were hurting. Relying on a legislative framework created by his predecessor, the result is a cumbersome system (for debtors) that prevents widespread defaults and more Occupy Wall Street-type protests. At one point, he even proposed a budget that would change how the tax code treats forgiven loans.

  • The “gainful employment” rule

The Department of Education began working on the “gainful employment” rule early in Obama’s first term. Frequently criticized as unfairly targeting entrepreneurs, the rule attempts to ensure that for-profit colleges don’t exploit the federal loan system. It’s too bad federal law doesn’t authorize this kind of accountability toward all institutions, because if the “gainful employment” rule were applied to all law schools, many of them would fail quite quickly and a majority would be in serious trouble.

  • Ending the Federal Family Education Loan Program, buying up student loans.

One of the Affordable Care Act’s smaller cost-saving mechanisms was eliminating the program that guaranteed education loans by private banks, which are not to be confused with totally private loans. The program, which was the mainstay version of federal lending for decades, was a great way for banks to make easy profits. By socializing student lending, the government saved many billions of dollars, and made direct loans the only federal option for student debtors.

The Republican Party’s platform is to bring it back.

I discussed the ACA part here, but I think the numbers might be wrong because I didn’t consider that the government was buying up guaranteed loans, turning them into direct loans. This action is what will set the stage for many people shrieking that the government would lend $30 trillion by 2030 and more importantly a future write-down of the loans outstanding. Debts that cannot be repaid, won’t be. The only question is whether the write-down occurs through IDR mechanisms or something new. Here is where Obama kicked the can down the line to his successors.

  • Undoing subsidized loans for grad students, floating student loan interest rates

One result of the pointless debt-ceiling fight in 2011 was taking away subsidized Stafford loans from graduate- and professional-school students. Ultimately, it cost a new law student about $3,600 in payments.

I’m unsure if it was related to another government crisis, but Obama also signed legislation that floated student loan interest rates. The rates are based solely on the whims of the bond markets every spring. Nevertheless, the legislation has benefited borrowers because interest rates have been lower than the fixed statutory rates in the days of yore. In 2016, graduate/professional Stafford loans and Grad PLUS loans were about 1.5 percent lower than the fixed rates. This will save debtors money in theory, but if rates rise, they’re hosed.

  • The two-year law degree

In summer 2013, Obama even weighed in on legal education, which indicated either the coverage the topic was receiving or his interest as a former law professor. It was a throwaway statement, but I teased him for it in, “Obama Favors Law Graduate Underemployment, Poverty Wages.”

  • Arne Duncan

Finally, I add that I expected Arne Duncan to find a warm seat at the Lumina Foundation after he stepped down as Secretary of Education. Apparently, he defied this expectation, and he’s working with troubled Chicago youth. Good for him, but I still think he was incompetent because he egged Obama on with his college-for-all dogmatism.

Conclusion:

Obama made the typical student debtor better off than when he left office—but not by much. Some superficial changes and policy nudges lowered debt burdens and eased repayments, but much of it was incidental to his other objectives.

In light of the 2016 election, what disappoints me most about Obama is his 20th century attitude towards sending everyone to college. I can forgive Sanders, Clinton, and possibly Trump for believing college is the answer. These candidates were the dead hand of the pre-Reagan America trying to fit obsolete policies around new problems. But Obama is younger than these people, and it only makes him look even more like an out-of-touch ivory tower intellectual. Underemployment is still around in 2017, and more self-inflicted political crises will push student debt further down the agenda, so it’s not going to be resolved for a while. Amid today’s excitement, we shouldn’t forget that Obama gave higher education and student loan debt a lost decade.

5 Ways Speaker Ryan Might Change (Law School) Student Loans

Yes, not the Trump era—the Ryan era. Partly we should be clear about who’s really setting any agendas here, but it’s also to recognize that extraconstitutional President D. Trump might not finish his term. The way things have been going since the election, I wouldn’t be surprised if he’s gone by the time you’re reading this.

Moreover, thus far Trump’s sole contribution to student-loan reform has been yet another income-sensitive repayment plan, which was one of the few ideas that he provided any details for during the campaign. As I understand it, his proposal limits the repayment period to 15 years rather than 20, which saves on the net amount debtors pay while increasing their monthly payments. I don’t know if that would require any action by Congress, so I’m sure Betsy DeVos is right on it.

More interesting is why Trump even looks like he cares about student debtors at all. According to the WSJ, for example, they’re the biggest moochers ever, requiring a projected bailout of $100 billion over some number of years. (Never mind that a week later the Defense Department admitted that it wastes $125 billion every five years. Debtors are moochers; the Pentagon, no.) Republicans hate moochers, Trump is a Republican, debtors are moochers; therefore Trump hates debtors. Q.E.D. Maybe Trump sympathizes (if that’s possible) with student debtors because of his frequent bankruptcy filings and probable debts to Vladimir Putin’s buddies. Hey, the syllogism still works if Trump or Republicans are moochers or debtors themselves.

Anyhow, I don’t see student debt on Trump’s agenda such as it is. As I understand it, presidents have a brief window early in their first terms to push their priorities through Congress before their popularity plummets. Trump was never popular, and his popularity is already plummeting, so if student loans were a low priority to begin with, they’ll fall off his list now. Consequently, I think he’ll sign any legislation so long as he can spin it to sound like a victory. This leaves the legislature as the only source of policy. Senate Majority Leader McConnell is too busy looking like a tortoise, so this all falls to the House, which means Ryan.

And Speaker Ryan likes policy. He’s not particularly good at it, but he sounds like he is, so there’s that. Here is where I Ryan might take Congress on student loans:

  1. Nowhere. Ryan and friends are already excited about (a) avoiding their constituents who want to keep their Obamacare, (b) avoiding their constituents who want them to investigate the president’s Russia ties, (c) passing tax cuts for people who don’t need them, (d) passing a budget that slashes all discretionary programs (i.e. “Mr. Rogers’ Privatized Neighborhood“), (e) privatizing Medicare/Medicaid/Social Security/national parks, and (f) dealing with even more blowback from all of the above. If Trump’s conflicts blossom into a constitutional crisis, then we’ll have more entertaining things to think about than student loans.
  2. Adopting fair-value accounting for government credit programs. This is one of Ryan’s few policy positions I agree with, and the Congressional Budget Office does too. (More info here.) There’s long been plenty of liberal opposition to it, but the Republicans might be able to flip the Democratic senators necessary to beat a filibuster. Changing the Federal Credit Reform Act is also sufficiently technical that it will not lead to grassroots mobilization of angry liberals who believe fair-value accounting threatens diversity.
  3. Passing the ExCEL Loan Act. I have no idea where it originally came from, but sometimes even Democrats offer this bill. Its point is that there are too many types of federal loans and too many repayment plans. The ExCEL Loan Act consolidates them, but it also eliminates loan forgiveness features that come with income-sensitive repayment plans.
  4. Capping or eliminating Grad PLUS loans. Supposedly, Ryan doesn’t like the program, and other representatives have grumbled about it, so law schools’ crutch might finally die. The only two reasons to think this might not come about are (a) the diversity crowd, and (b) the for-profit law schools that provide a very important public service—can Ryan resist the siren call of corporate welfare?
  5. Reforming or Eliminating the Department of Education. Maybe something like this could happen if the Democrats do badly in the 2018 midterms—many Senate seats are up—but it depends on how the next two years unfold. Similarly, it’s possible that Republicans will resurrect the guaranteed loan program. Ultimately, there’s a tension between honoring the Bennett hypothesis and giving government revenue to banks.

In the past I’ve said that (4) (Grad PLUS loans) is a likely option, but now I’m not so sure. Nobody expected the election to turn out as it did, but I thought unified Republican governance would be more focused. Yet one month in we have a party that’s stumped on repealing the health care law it’s hated for years and is nowhere near cutting taxes. It’s not implausible, then, that higher education reform is either lower on the agenda or won’t be as decisive as we’d hope.

Speaking of unified governance, a few weeks ago the ABA House of Delegates rejected the Section of Legal Education and Admissions to the Bar’s proposed bar-passage standard for law schools. As with all rulemaking or legislation the dispute isn’t fully resolved, but it’s noteworthy that the section committees that passed the standard are supposed to be the ones captured by student-loan dependent law schools and self-important law professors, while the House of Delegates is independent. Instead, the house is preaching diversity while the section passed a rule mandating accountability. Maybe the house is bad-copping the good-cop section, or the ABA’s politics have gone topsy-turvy as our Putin-loving government’s has.

In context, the bar-passage standard appeared to be the only viable idea out of the ABA that would shut down the most superfluous law schools. Given that the number of applicants is flat, and assuming policy is still gridlocked, it seems we’re in for more of the same for the next few years.

WSJ’s Editorial Page Blames Obama for Preventing Student Loan Defaults

I wrote that the WSJ’s reporting on student loans had improved slightly. Its editorial responding to the GAO report on the Department of Education’s cost estimate of income-driven repayment plans, on the other hand, backslides. It’s really more of a rant than an editorial, but here’s a digest of what I think it was arguing:

  • Cutting out banks as middle-men for federal student loans costs taxpayers money, even though it didn’t, and that change had nothing to do with IDR plans.
  • Democrats knew that student loans would never be repaid when it federalized student lending. Again, even if true, this claim has nothing to do with IDR plans, which were authorized by prior administrations.
  • IDR plans keep default rates “artificially low,” which while technically accurate doesn’t explain how debtors are supposed to pay loans they can’t repay. What would the WSJ propose if all these people default instead?
  • The Obama administration allowed borrowers to retroactively sign on to IDR plans, which is true but doesn’t explain how debtors would repay the loans otherwise since they probably would not be able to discharge them in bankruptcy.
  • IDR is an “entitlement” that can be “exploited,” even though there’s no evidence student debtors could repay their loans without it. Assuming the GAO’s report is correct, IDR plans are doing exactly what they are supposed to do. The problem is that too many people have too much debt.
  • The Obama administration is responsible for the shoddy accounting of student loans’ ultimate costs—which I’ll accept—but it doesn’t blame lending programs passed by the Bush II administration that created these unpayable debts to begin with. Seriously, the WSJ threw the 2000s down the memory hole.
  • The Obama administration used costly IDR plans to buy votes. No evidence is given, and didn’t younger voters bail on the Democrats in this election? Nice bribe, Obama.
  • Implicitly, the Republican-controlled Congress bears no responsibility for failing to create more jobs or raise incomes, even though it was more concerned with slashing the budget, shutting down the government, and threatening to default on the national debt despite trifling interest rates.

I feel bad for the reporter who carefully tried to explain the GAO’s report and was just upstaged by an incompetent, partisan editorial. (I hope it’s not the same author.)

There’s much blame to place at Obama’s feet regarding the value of college education and student loans. One of these days I’d like to summarize my coverage of him to gauge my fairness towards the outgoing administration. Hopefully, I’ve been consistently non-partisan in my analysis, but perhaps not. However, if the best the WSJ can do is blame Obama for preventing defaults on loans that could not be repaid given the Congresses he had to work with, I’m confident my final assessment will smell like roses by comparison.

WSJ’s Student Loan Coverage Improves: More Facts, Fewer ‘Deadbeats’

And not just facts, neutral facts, which is how reporting is supposed to be. I’ve criticized The Wall Street Journal‘s student loan coverage, but its most recent article on the topic, “U.S. to Forgive at Least $108 Billion in Student Debt in Coming Years,” is a start in the right direction.

Okay, the title could use some work. More accurately, it should be something like: “GAO Projects U.S. Will Forgive $108 Billion in Student Loans in Coming Years.” It’s 76 characters, which is too long for most SEO-obsessed editors, but it doesn’t characterize a possibility as a certainty.

Conversely, the WSJ neglects to cite another GAO study on the subject of student debtors’ earnings. Its data are nearly two years old, but they show that 72 percent of people on income-sensitive repayment plans were earning $20,000 annually or less. Not even 10 percent of IBR and PAYE participants (157,000) made more than $40,000 per year.

Thus, the WSJ’s reasoning still follows a shaky line of reasoning:

(1) IBR participants’ debts are high,

(2) High debts are only feasible for grad students taking out Grad PLUS loans,

(3) Graduates tend to find jobs with high incomes and have low unemployment rates,

(4) So the benefits of IBR go to high-income people.

The prior GAO study pokes holes in (3) and (4). Income is the independent variable, not debt, and incomes are low. Still, the WSJ’s reporting this time inserts enough adverbs to qualify these claims that I’m going to give this an earned “C.” There is no grade inflation on this blog.

Oddly, in its haste to cover the GAO’s attacks on the government’s accounting for student loans, the WSJ neglects to include immanent compensating factors that will raise student debtors’ incomes: tax cuts, stimulus, job growth, a harried Fed, and 3-4 percent growth in the near future. Things will rapidly get better for America’s student debtors.

WSJ Has No Idea Who Benefits From IBR/PAYE/REPAYE/ETC

A hypothetical: Jill and Jack live in the same town. Jill has many healthy habits but is a nurse who spends time around infected people, Jack less so. The town is hit with a case of spectrox toxaemia, a dangerous disease. The government offers to immunize people. Jill decides to be immunized; Jack does not. Jill does not get sick; Jack does. So, epidemiologists, did Jill not contract spectrox toxaemia because she was immunized or because of her healthy habits (or luck)?

If you’re The Wall Street Journal, the answer is her habits. Most of us would believe otherwise, given how dangerous spectrox toxaemia is and Jill’s contact with its victims.

Likewise, this line of reasoning animates the WSJ’s opinion of the government’s income-sensitive repayment programs for student debtors, which it claims benefit higher-debt people with better credit scores than lower-debt people who don’t. It’s unintuitive, if you’re the WSJ apparently, but it makes more sense to those of us familiar with the student debt system.

Here’s how it works: People who take out lots of debt might not in fact have the incomes to repay them, so they choose an income-sensitive repayment because the alternative is … Default! Thus, looking at how much they borrow is less important than looking at how much they’re paid.

Last year, in fact, the Government Accountability Office explored this topic and found that most people in income-sensitive repayment programs were earning less than $20,000 annually. So the Jills aren’t so different from the Jacks after all.

Sure, if there were no IBRs/PAYEs/REPAYEs/ETCs, then these Jills with good borrowing habits would be more likely to take deferments and forbearances, but their debts would still not be repaid. That’s because debts that can’t be repaid will not be repaid, no matter what someone’s credit score or how much they borrowed. What matters is what they earn, and college graduates don’t earn much these days.

And if you think the Jills have too much debt, then the problem isn’t IBR/ICR/REPAYE/ETC, it’s that the government lends too much money to people for degrees they don’t need.

NY Fed: Student Debt Delinquencies Still High in 2015

What started in 2012 just isn’t stopping. According to the Federal Reserve Bank of New York’s Housing Debt and Credit Report, the percent of student-loan balances that are 90+ days delinquent was about 11.5 percent at the end of 2015, about where it was a year ago. Delinquencies for all other household debts save credit-card debt fell last year:

Student-Loan Delinquencies (2015)

This year, the NY Fed declined to discuss all those bad student loans, unlike last year.

Between fourth quarter 2014 and and the end of 2015, all non-housing debt grew from $3.15 trillion to $3.37 trillion. Student-loan debt accounted for 31 percent of the $220 billion increase.

Meanwhile, looking through Department of Education data, only 51.74 percent of all $1.204 trillion in federal student loans are in active repayment. 21 percent are in deferment or forbearance, and 9.5 percent are in default. Of the $585.8 billion of direct loans in repayment, forbearance, or deferment, $188.2 billion are on IBR or PAYE. Nearly one-third of all direct loans in repayment are in one of these plans, about 15.6 percent of all student loans.

This just doesn’t end. Until it will.