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.
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.
“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.
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.
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 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.
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.
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.
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.”
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.
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.
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:
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.
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:
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.
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.
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.
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:
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.
The New America Foundation’s article, “Income-Based Repayment Tops Repayment Plan Choice for First Time,” is such blatant policy trolling that you might wonder if it’s still Halloween and not Thanksgiving.
The NAF discovered that income-based-repayment program-enrollment efforts have borne fruit: It’s now the most popular plan among direct loan borrowers. (I haven’t checked myself, but let’s roll with it.) But the NAF’s response is confused: On the one hand, it likes low-income people enrolling in IBR, and it wants IBR to be the default repayment plan. This position is neither unusual or, superficially, disagreeable.
But on the other hand, growing IBR hordes keep the NAF awake at night:
Policymakers have to ask themselves, if college is a good investment, why are borrowers flocking to this insurance program? And why are those trends occurring while other economic indicators, like unemployment rates, are looking pretty good?
The easy answer is that college is not a good investment and “other economic indicators” are not looking pretty good. For one, the unemployment rate isn’t such a good measure of work when so many people leave the labor force.
Here’s the percent of 25-34-year-olds with zero earnings by education.
In 2014, 13 percent of college-educated young ‘uns weren’t working; in 1997 that was 7.1 percent, equivalent to 640,000 people. It’s possible many of these folks are back in school, but that just tells us the opportunity cost of education is low—because there aren’t any good jobs. And yes, incomes are down too.
The NAF then trots out (trolls out?) the discredited IBR deadbeat after linking to the GAO finding that only a fraction of IBR enrollees have high incomes:
Maybe IBR enrollment is not a good proxy for borrowers falling on hard times — at least not since the Obama administration … [changed the program] from what was a safety net in 2009 to a heavily subsidized loan program for even well-off borrowers if they borrow for graduate school.
Except the NAF’s research on the changes to IBR didn’t show anything of the kind. Its “Safety Net or Windfall” report never documented a single IBR deadbeat. Instead it crafted nothing other than hypotheticals: Its “narrated borrower examples” even included a law grad who went to California Western, a law school with bad employment outcomes, yet managed to start a job at $65,000 per year. After ten years “Robert” miraculously switched to a job that paid him more than $100,000 per year, and after 25 years, he was make more than $200,000.
Why not just say that he inherited $40,000,000,000 from his wealthy uncle who also happened to be the pretender to both the Qing dynasty’s and Ottoman Empire’s thrones? It’d still fit the NAF’s definition of research.
In truth, only 14 of California Western’s 219 graduates in 2014 found full-time, long-term work at law firms with more than 25 lawyers. 58 were either unemployed or couldn’t be found. The Pay-As-You-Earn changes to IBR benefited these people quite a bit because they will never repay their loans anyway. Income is the independent variable, not debt, and it’s pretty unlikely that after 30 years any California Western grads will be earning $240,000 annually like “Robert”—unless you live in the NAF’s world where one can pass off fantasy as policy analysis.
Because the economy is improving, the NAF reasons, there must—must—be another reason those folks are signing onto IBR:
Borrowers may be enrolling in IBR because they know a good deal when they see one. And as word gets out, more and more students are likely to borrow larger sums to pursue graduate school because they plan to use IBR. That is especially true if they qualify for earlier loan forgiveness under the Public Service Loan Forgiveness benefit. [Emphasis original.]
If this were true, then we’d expect law-school enrollments to swell, even at schools where the credential leads nowhere. Hey, who are students to argue if the government gives Grad PLUS dollars toward their living expenses and not demand they pay it back?
Except that’s still not happening, even three years after the NAF’s Kevin Carey predicted it would. It’s more likely that prospective applicants are sensitive to whether graduate programs lead to jobs at the other end, not whether they can get free money today. Here’s law school applicants:
I’ve asserted elsewhere that the law-school applicant crunch has slowed because of articles blathering about how now is the best time ever to go to law school. IBR is a secondary concern, if at all. Really, it’s bizarre that anyone would think that applicants are sophisticated enough to base their decision to go to law school on the existence of IBR but shallow enough to overlook evidence suggesting that J.D.s do not lead to long-term professional careers.
Moving on, the NAF then appears to argue that the Obama administration is wrong to characterize IBR as an insurance policy against student-loan defaults because defaults are still increasing. The NAF says this is a “strange trend” even though it offers no reason to believe that savvy borrowers might be signing on to IBR instead of defaulting, while others haven’t received the message. Maybe both types of borrowers have low incomes and can’t otherwise repay their loans in full, but this assumption negates the NAF’s position that the economy is improving. Oh well.
Finally, the NAF worries that outstanding student loans are growing despite falling issuances because either (a) debtors’ incomes are alarmingly low, or (b) IBR is too generous. Again, only a few paragraphs earlier, the NAF cited the GAO study that found 80 percent of IBR enrollees earn $20,000 or less. Incredible. The ghoulish IBR deadbeat lives on.
So there you have it: In one post the NAF starts by arguing that more people should enroll in IBR to avoid default and then concludes that we should be troubled by … more people enrolling in IBR to avoid default. If it’s (a), then the problem is underemployment and low-wage jobs, not IBR; if it’s (b), then the problem is excessive government lending for unneeded education, not IBR.
That’s enough troll, I’m ready for turkey now. Enjoy your Thanksgiving, too.
Post-script: In case any of you were wondering, Congress can change or revoke IBR at any time because the Higher Education Act is incorporated by reference into student-loan promissory notes. Because the number of IBR variants is increasing, it’s probable that the government is hoping to simplify all of them into one that will probably not be so generous to graduate students as PAYE is. This is a compelling reason to stay away from grad school just because IBR is around. (More here.)
Answer: Don’t Ask The Wall Street Journal.
According to Josh Mitchell’s, “U.S. Student-Loan Forgiveness Program Proves Costly,” 295,000 people are signed up for Public Service Loan Forgiveness, which cancels federal student loans after 10 years of payments with no tax liability afterwards, unlike other income-based repayment plans.
But before going further, a few compliments:
(1) The WSJ is correct that PSLF is a “forgiveness program,” in contrast to at least one past instance when the WSJ called IBR a “student-debt forgiveness program.” More accurately, IBR is a monthly-payment-reduction program.
(2) Moreover, I don’t think I’ve ever defended PSLF, so the WSJ’s examples of doctors taking advantage of the program, even though there’s a good chance they could repay their loans, are more believable than past reporting.
(3) Again, it’s nice to see the spotlight turned away from law grads.
However, the WSJ still doesn’t answer the question: How many of the 295,000 debtors (and projected 600,000 over the next decade) on PSLF will earn high enough incomes to compromise PSLF? Does the program work on net? If the IBR deadbeat is a myth, then shouldn’t we be just as critical of the PSLF deadbeat?
I don’t really have a dog in the PSLF fight, and it should be fairly easy to reform it to take the advantages away from the deadbeats, but the right questions still aren’t being asked. If the unfair beneficiaries are few in number, then they shouldn’t be sensationalized. (Amusingly, the New America Foundation argues that PSLF should be eliminated entirely because the WSJ made it look so bad that it could lead to further backlash against IBR, which, of course, the NAF has never engaged in.)
Speaking of asking the right questions: Is the problem PSLF, or is it the Grad PLUS Loan Program?
That’s all for now.