student loans

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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Office of Management and Budget: +$725 Billion in Direct Loans by 2027

Every year in July the Office of Management and Budget (OMB) publishes its Mid-Session Review of the federal budget, which normally includes the Federal Direct Loan Program and projects its future. This year, the MSR (pdf) was only 22 pages because Director Mick Mulvaney said there were only “limited budget developments” since the administration released its misopauperous budget on May 23, 2016. So let’s take a look at that instead…

It’s titled, “A New Foundation for American Greatness.” My favorite part reading it thus far is the entry, “Invest in Cybersecurity,” which features an unspecified commitment.

Anyway, the budget has the Federal Direct Loan Program information we’re looking for, so back to that. The federal government’s direct loans consist primarily of student loans, but there are a few other programs in there as well. However, federal direct loans do not include private student loans, but these are a small percentage of all student loans. Thus, the OMB’s measure is both over- and under-inclusive of all student debt, but it covers most of it.

The OMB classifies direct loan accounts as financial assets net of liabilities totaling $1.227 trillion in 2016. According to the office’s projections, by 2027 this figure will grow to $1.952 trillion—59 percent.

(Source: Budget of the U.S. Government Fiscal Year 2018 (pdf))

As with previous years, the current (2016) direct loan balance is below the OMB’s past projections, but not by much. For example, in FY2012, it predicted the balance would be $1.486 trillion by 2016, $259 billion (21 percent) higher than what actually occurred. Here are the OMB’s direct loan projections going back to FY2010.

Indeed, the most notable difference between His Emolumence’s OMB and Barack Obama’s is that it is now predicting far less student lending going forward. Total direct loans won’t even exceed $2 trillion. This, I think, is a more realistic assessment of where federal student lending is going. Whether this has something to do with the new administration or is standard practice for the OMB is outside of my knowledge base.

The OMB’s measure of direct loans is the net amount owed to the government, and the annual changes to that amount are not the same as the amount lent out each year to students. The Department of Education tracks its lending, which I discuss on the Student Deb Data page.

Only 13 Law Schools Didn’t Report 2016 Graduate Debt to U.S. News

Each year U.S. News & World Report lists law schools by the average indebtedness of their graduates. Importantly, the figures exclude accrued interest, which can be quite considerable. However, these numbers are probably the best estimate of the cost of attendance at a particular law school presented in a comparable form. The ABA does not publicize graduate debt in the 509 information reports, making U.S. News an unfortunately necessary source.

Here’s the debt table. A recurring problem in U.S. News’ debt data is law schools that misreport their graduating students’ annual debt as opposed to their cumulative debt, which is what the magazine asks for. Thus, I include last year’s numbers for illustration and encourage ridicule of law schools that cannot follow basic directions, but I welcome corrections.

# SCHOOL 2015 DEBT 2016 DEBT PCT. CHANGE
1. Thomas Jefferson 172,726 182,411 5.6%
2. Whittier 148,316 179,056 20.7%
3. San Francisco 162,434 167,671 3.2%
4. New York University 166,022 167,646 1.0%
5. Georgetown 160,606 166,027 3.4%
6. American 160,274 164,194 2.4%
7. Golden Gate 143,740 161,809 12.6%
8. Columbia 168,627 159,769 -5.3%
9. John Marshall (Chicago) 162,264 158,888 -2.1%
10. Florida Coastal 160,942 158,878 -1.3%
11. Cornell 155,025 158,128 2.0%
12. New York Law School 161,910 157,568 -2.7%
13. Pennsylvania 144,153 156,725 8.7%
14. Virginia 146,907 155,177 5.6%
15. Northwestern 155,796 154,923 -0.6%
16. Pepperdine 148,959 154,475 3.7%
17. Elon 128,407 153,347 19.4%
18. Harvard 149,754 153,172 2.3%
19. Ave Maria 134,071 152,476 13.7%
20. Detroit Mercy 137,047 152,000 10.9%
21. Barry 138,410 151,479 9.4%
22. Denver 132,158 150,055 13.5%
23. Santa Clara 144,130 149,940 4.0%
24. Miami 155,796 149,580 -4.0%
25. Willamette 133,318 148,429 11.3%
26. Nova Southeastern 123,798 147,879 19.5%
27. California Western 162,260 147,302 -9.2%
28. Loyola (CA) 148,035 146,494 -1.0%
29. Michigan 142,572 146,309 2.6%
30. California-Berkeley 144,981 145,260 0.2%
31. George Washington 136,662 145,240 6.3%
32. Baylor 135,817 144,732 6.6%
33. Pacific, McGeorge 149,470 144,431 -3.4%
34. Chapman 103,956 144,409 38.9%
35. Marquette 138,549 142,601 2.9%
36. Hofstra 125,300 142,261 13.5%
37. Southern California 134,673 140,745 4.5%
38. Seattle 136,889 139,745 2.1%
39. Lewis and Clark 140,025 139,624 -0.3%
40. Tulane 153,606 139,508 -9.2%
41. Duke 131,073 137,829 5.2%
42. Stanford 132,970 137,625 3.5%
43. Charleston 146,230 137,345 -6.1%
44. California-Hastings 135,886 137,157 0.9%
45. Valparaiso 131,024 136,765 4.4%
46. Mercer 138,575 135,300 -2.4%
47. Suffolk 138,724 135,272 -2.5%
48. Widener (Delaware) 136,992 135,151 -1.3%
49. Chicago 129,636 134,148 3.5%
50. Catholic 139,803 133,917 -4.2%
51. Campbell 115,128 131,894 14.6%
52. Creighton 117,980 130,145 10.3%
53. Widener (Commonwealth) 148,496 129,016 -13.1%
54. Stetson 130,079 128,703 -1.1%
55. San Diego 135,433 127,693 -5.7%
56. Samford 124,106 127,611 2.8%
57. Vanderbilt 114,447 127,434 11.3%
58. DePaul 131,148 126,446 -3.6%
59. Roger Williams 123,332 126,334 2.4%
60. Southern Methodist 124,723 126,172 1.2%
61. Seton Hall 133,000 125,300 -5.8%
62. Pace 124,823 124,317 -0.4%
63. Regent 93,142 124,221 33.4%
64. Notre Dame 122,822 123,924 0.9%
65. Yale 122,796 121,815 -0.8%
66. Western New England 121,367
67. Emory 121,278 120,804 -0.4%
68. Washington 111,003 120,554 8.6%
69. Western State 122,315 119,382 -2.4%
70. Mississippi College 129,000 119,000 -7.8%
71. Cardozo, Yeshiva 119,294 118,764 -0.4%
72. St. Mary’s 122,560 118,583 -3.2%
73. California-Los Angeles 118,874 118,291 -0.5%
74. George Mason 121,910 118,056 -3.2%
75. Penn State (Penn State Law) 129,772 117,692 -9.3%
76. Brooklyn 108,942 117,581 7.9%
77. St. John’s 115,666 117,572 1.6%
78. St. Louis 113,070 117,335 3.8%
79. Syracuse 139,753 117,127 -16.2%
80. Fordham 149,058 116,326 -22.0%
81. Texas A&M [Wesleyan] 104,200 115,405 10.8%
82. Maryland 114,493 113,927 -0.5%
83. Drake 107,679 112,893 4.8%
84. Northeastern 127,406 111,410 -12.6%
85. Penn State (Dickinson Law) 116,717 109,828 -5.9%
86. Gonzaga 125,347 109,692 -12.5%
87. Boston College 112,439 108,873 -3.2%
88. Dayton 115,740 108,724 -6.1%
89. Duquesne 104,623 108,414 3.6%
90. Baltimore 112,008 108,328 -3.3%
91. Chicago-Kent, IIT 115,040 107,688 -6.4%
92. Albany 125,157 107,185 -14.4%
93. Minnesota 92,179 106,436 15.5%
94. Washington and Lee 110,067 105,426 -4.2%
95. District of Columbia 108,095 105,330 -2.6%
96. Wake Forest 97,550 105,090 7.7%
97. Indiana (Indianapolis) 106,114 105,065 -1.0%
98. Boston University 102,329 104,755 2.4%
99. Richmond 110,665 104,624 -5.5%
100. Ohio Northern 102,414 104,284 1.8%
101. Pittsburgh 104,484 103,990 -0.5%
102. California-Davis 113,765 103,811 -8.7%
103. Texas 102,101 103,417 1.3%
104. Case Western Reserve 105,854 102,370 -3.3%
105. Oklahoma City 121,607 102,024 -16.1%
106. Quinnipiac 97,335 101,371 4.1%
107. St. Thomas (MN) 101,950 100,805 -1.1%
108. Mitchell|Hamline 108,019 100,603
109. Colorado 107,080 100,499 -6.1%
110. California-Irvine 125,473 100,408 -20.0%
111. Indiana (Bloomington) 91,020 99,895 9.8%
112. Illinois 118,731 99,782 -16.0%
113. Villanova 110,792 99,736 -10.0%
114. Louisville 86,880 99,581 14.6%
115. Massachusetts — Dartmouth 102,603 98,730 -3.8%
116. Arizona State 106,426 97,780 -8.1%
117. Nevada 81,579 97,361 19.3%
118. Houston 87,602 97,246 11.0%
119. Drexel 100,362 96,402 -3.9%
120. New Hampshire 108,896 95,650 -12.2%
121. North Carolina 102,828 95,365 -7.3%
122. Florida International 95,331 93,838 -1.6%
123. Washington University 109,232 93,768 -14.2%
124. Missouri (Kansas City) 96,639 93,678 -3.1%
125. Utah 79,124 91,982 16.3%
126. Michigan State 93,245 91,014 -2.4%
127. SUNY Buffalo 86,970 90,546 4.1%
128. Wyoming 77,421 90,231 16.5%
129. William and Mary 110,140 90,028 -18.3%
130. Lincoln Memorial 95,495 89,779 -6.0%
131. Southern University 86,708 89,552 3.3%
132. Maine 99,617 89,513 -10.1%
133. South Carolina 85,006 89,388 5.2%
134. Kansas 80,884 88,809 9.8%
135. Florida State 82,102 88,732 8.1%
136. Loyola (IL) 133,052 88,588 -33.4%
137. Ohio State 96,253 88,301 -8.3%
138. Southern Illinois 90,727 87,634 -3.4%
139. Temple 86,999 86,937 -0.1%
140. Northern Illinois 77,975 86,899 11.4%
141. Idaho 81,993 86,022 4.9%
142. Toledo 94,295 85,649 -9.2%
143. Arizona 100,902 84,601 -16.2%
144. Louisiana State 90,609 83,919 -7.4%
145. Oklahoma 82,818 83,433 0.7%
146. Akron 78,575 82,854 5.4%
147. West Virginia 85,063 82,683 -2.8%
148. Hawaii 54,988 82,510 50.1%
149. Florida 84,580 82,480 -2.5%
150. Georgia 86,515 82,199 -5.0%
151. Wayne State 82,397 81,738 -0.8%
152. Washburn 86,621 81,528 -5.9%
153. Tennessee 66,939 80,445 20.2%
154. Missouri (Columbia) 81,149 80,138 -1.2%
155. Texas Tech 74,673 80,087 7.3%
156. City University 77,751 78,523 1.0%
157. Wisconsin 84,650 77,555 -8.4%
158. Memphis 77,752 76,997 -1.0%
159. Tulsa 82,954 76,988 -7.2%
160. Alabama 74,921 75,577 0.9%
161. Cincinnati 82,988 75,512 -9.0%
162. Montana 79,304 75,470 -4.8%
163. New Mexico 69,366 75,277 8.5%
164. Northern Kentucky 84,714 74,190 -12.4%
165. Iowa 86,373 74,128 -14.2%
166. Liberty 68,667 73,857 7.6%
167. Connecticut 69,195 72,042 4.1%
168. Arkansas (Fayetteville) 64,901 67,758 4.4%
169. Mississippi 71,330 67,539 -5.3%
170. North Dakota 69,058 66,917 -3.1%
171. Arkansas (Little Rock) 68,960 65,931 -4.4%
172. Georgia State 66,637 64,384 -3.4%
173. Nebraska 58,744 62,888 7.1%
174. North Carolina Central 27,972 60,479 116.2%
175. Kentucky 77,793 59,163 -23.9%
176. Brigham Young 62,423 58,133 -6.9%
177. South Dakota 57,170 56,609 -1.0%
178. Rutgers 89,507 56,173
179. Vermont 156,710 52,682 -66.4%
180. Howard 141,044 50,920 -63.9%
181. Belmont 56,225 40,677 -27.7%
182. Loyola (LA) 124,143 39,138 -68.5%
183. South Texas 121,767 38,717 -68.2%
184. Capital 116,283 35,079 -69.8%
185. Cleveland State 93,865 29,051 -69.1%
186. Florida A&M 20,500
187. Faulkner 18,434
188. Oregon 106,540 17,834 -83.3%
10TH PERCENTILE 77,421 65,931 -16.0
25TH PERCENTILE 86,999 85,649 -6.1%
MEDIAN 112,439 105,330 -1.0%
75TH PERCENTILE 133,318 135,151 4.5%
90TH PERCENTILE 148,496 152,000 11.4%
MEAN 111,874 107,608 -2.1%

Note: Mitchell|Hamline’s 2015 entry is the bare mean average of William Mitchell’s and Hamline’s 2015 figures.

And per this post’s title, here’s the List of Shame: Law schools that chose not to submit their graduates’ debt information to U.S. News, along with their last-reported figures and the year in which they reported them. Thanks to the gainful employment rule, I was able to track down median graduate debt at three for-profits. As I am merciful, I exclude the three Puerto Rico law schools from this count.

  • Arizona Summit [Phoenix] – $178,263 [2015, median, for-profit]
  • Atlanta’s John Marshall – $161,910 [2015, median, for-profit]
  • Charlotte – $145,834 [2015, median, for-profit]
  • Touro – $154,855 (2014)
  • Southwestern – $147,976 (2012)
  • Thomas (FL) – $140,808 (2014)
  • New England – $132,246 (2013)
  • WMU Cooley – $122,395 (2012)
  • Appalachian – $114,740 (2012)
  • La Verne – $112,628 (2012)
  • Texas Southern – $99,992 (2012)
  • Concordia – NEVER
  • Indiana Tech – NEVER

These 13 law schools account for 2,282 graduates out of 36,664, or 6 percent of the total.

Normally, I would estimate the change in the weighted-average amount of debt law graduates at public and private law school take on, but because U.S. News reported absurdly high percentages of graduates with debt at each law school, I decline to make those estimates now. However, the unweighted-average private-law-school graduate debt, which is what is commonly reported, fell by 3 percent; it also fell by 4 percent at public law schools. Much of this is due to clear misreporting by law schools, some of which after all these years still report their graduates’ debt in their final year of law school.

Speaking of which, here are some curious results:

  • Fluctuations: Hawaii (+50.1%), Chapman (+38.9%), Regent (+33.4%), Whittier (+20.7%), Tennessee (+20.2%), California-Irvine (-20.0%), Fordham (-22.0%), Kentucky (-23.9%), Belmont (-27.7%), and Loyola (IL) (-33.4%).
  • Big raspberries: Howard (-63.9), Vermont (-66.4), South Texas (-68.2), Loyola (LA) (-68.5), Cleveland State (-69.1), Capital (-69.8), and Oregon (-83.3).

In all, it’s good the non-reporting count fell. Kudos to the law schools that reported this year that did not for 2015, even if I don’t believe Faulkner’s or Florida A&M’s grads finished with so little debt.

Click to read the 2015 edition, the 2014 edition, or the 2013 edition of this post.

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.

CBO: $1.3 Trillion in New Federal Student Loans by 2027

Each year the Congressional Budget Office (CBO) provides its baseline projections for the federal student-loan program. This year it published them early with its annual “Budget and Economic Outlook.” The projections include the total amount of new federal student loans that the office believes will be disbursed, future interest rates, and subsidy costs, i.e. whether the government will make or lose money on the loans. This year, the CBO projects that the government will lend an additional $1.3 trillion to students between FY2017 and FY2027. The figure is up slightly since the 2016-2026 period, discussed here.

Subsidy Rates

The CBO uses an accrual-accounting methodology to determine the present value of federal loans. This essentially means discounting the estimated cash flows of student loans against government securities. If student loans make more money than buying government debt would, then the loans are valuable. Accrual accounting does not include the market risk that a private lender would consider when offering a student loan, which is why many people advocate fair-value accounting. It’s a surprisingly contentious issue, which I elaborate on in the student debt data page, because under most fair-value accounting estimates the government loses money on student loans.

Under accrual accounting, the CBO projects negative subsidy rates for federal student loans; that is, it sees the government profiting from its lending. All student loans issued in FY2017 will earn an estimated 13.3 percent return, about the same as last year. Of interest to law-school watchers: Unsubsidized Stafford loans and Grad PLUS loans issued in FY2017 will make 18.6 percent and 20.8 percent returns, respectively. Oddly, Parent PLUS loans appear to be the most profitable for the government.

table-2As with last year the CBO included fair-value estimates of federal student loans. By this measure, the government loses about 10 percent of its investment on student loans every year until FY2027. Unsubsidized Stafford loans and Grad PLUS loans lose about 4.5 percent in 2017, but the percentage increases over the decade. Parent PLUS loans remain profitable.

Note also that the CBO believes the net number of loans will rise during the decade. It’s already evident that federal student-loan borrowing is declining.

table-6Under accrual accounting the student loans will net the government $112.6 billion; under fair-value accounting the government will lose $133.8 billion. This isn’t a lot of money for the government, actually, but it could obviously be redirected to better uses.

Interest Rates

A crucial variable affecting subsidy rates is the CBO’s projection of future interest rates. Last year, the office believed interest rates for FY2016 would be about half a percent higher than they turned out to be. This year, the CBO estimates that interest rates will plateau at 3.5 percent starting in 2022.

projection-of-10-year-treasury-bond-interest-rates

Last year, I argued that the interest-rate estimates were more plausible than two years earlier. That was, however, before the election, and now the rate on 10-year government bonds is much higher than before. As a result, student debtors will probably pay higher rates starting in the next academic year, and the accrual method will produce higher future profits for the government that are probably illusory.

Does Charlotte Law School Offer a Test of the Bennett Hypothesis?

The Charlotte Observer tells us that the Department of Education believes Charlotte Law School has engaged in “‘dishonest’ practices,” and as a result it is yanking CLS’s access to federal student aid by the end of the year. ED blindsided CLS—at least that’s the school’s story—but apparently its low bar-passage rates, the ABA’s probation of it, and its alleged misrepresentations to applicants and students are the culprits. Maybe CLS will successfully appeal the decision, but if it doesn’t then we’ll get the opportunity to test whether law schools absorb federal student loans and pass them back on to students, aka the Bennett hypothesis.

Okay, maybe the shock is so sudden that the school would need to scramble to balance its budget anyway (and I think the “90/10” rule applies, but I won’t go into that). However, we do know some things about how CLS’s revenue and spending.

For one, in the 2015-16 academic year a mere 31.3 percent of its full-time students paid full tuition ($41,348). Altogether, it made $8.5 million from these students. Thanks to the article and ED data, we know that last year the school was a conduit for $48.4 million: $19.1 million in direct unsubsidized Stafford loans and $29.3 million in Grad PLUS loans. Because CLS is relatively new and freestanding, it probably has no significant endowment or gift income.

Here’s how much federal loan money CLS has disbursed each year since it was founded and its revenue from full-time students paying full tuition.

cls-student-loan-disbursements-and-revenue

Note: CLS’s numbers of full-time students paying full tuition appear erratic for unknown reasons, probably misreporting by the law school, but that’s CLS’s problem, not mine.

And here’s how much it disbursed per student (including non-recipients), along with the weighted-average full tuition between full-time and part-time students. Not everyone borrows each type of loan, but the chart gives a sense of how much students are paying for both their educations and living expenses on top of that.

federal-loans-disbursed-per-cls-student

CLS is an unusual case because it was founded around the time odious Grad PLUS loans came into being. Its budget is undoubtedly acclimated to them and probably can’t be balanced without them. Moreover, I think I’ve underemphasized how crucial it is that they pay for law students’ living expenses. Without that, students would not be able to go to law school. Nevertheless, the Bennett hypothesis tells us that if this school is to remain in business as an ABA-accredited school but without access to federal loans, then we should expect it to charge much, much less than it currently does. Although, it may offset costs by encouraging students to borrow from private lenders, whose loans will not be dischargeable and probably require co-signers.

I doubt CLS is as bloated as an elite law school is, but it will soon cost a lot less to attend if it wants to stay in business. Unfortunately, I suspect liberals will see CLS’s downfall as a victory over predatory for-profit colleges rather than evidence that federal loans help law schools more than students. Still, it’s a victory. Maybe Infilaw will get the message that many nonprofit law schools should’ve years ago.

Finally, in passing I notice that CLS’s enrollment is quite lopsided: 452 women to 260 men. The mainstream discussion on law school enrollment in 2016 is emphasizing how women now outnumber men. Without CLS, the margin falls to a sliver. It’s a notable finding, but I’d like it if the coverage drew more attention to the fact that men attend more prestigious law schools (some articles do). I don’t see it as a milestone for the profession because it’s pretty clear that schools like CLS enroll a larger proportion of women—and schools like CLS don’t offer much of a path to a professional career.