What If The Gainful Employment Rule Were Applied to All Law Schools?

The first draft of my latest article on The American Lawyer about the gainful employment rule asked that question, but I realized that reporting on the for-profits alone was more important. The broader question is much more appropriate for a blog post, and since another federal court upheld the rule, it appears it’ll stick around. So, here you go.

To recap, the Department of Education’s gainful employment rule applies two debt-to-earnings tests to a college’s debtors: one based on their total annual incomes and the other their annual discretionary incomes. The tests create three results: passing, falling “in the zone,” or failing. Passing either test gives the school an overall passing grade for that year, not passing either test but not failing puts them “in the zone,” but failing is failing. Sorry if there’s some equivocation among these terms; I blame the rule.

Failing in a given year won’t kill a school’s access to federal loans, but certainly four years of failing or being in the zone will do the trick.


  • Passing either debt-to-earnings test means debt payments are less than or equal to
    • 8 percent of total annual income, or
    • 20 percent of annual discretionary income.
  • The “zone” means debt payments are greater than
    • 8 percent of total annual income but less than or equal to 12 percent of annual income, or
    • 20 percent of annual discretionary income but less than or equal to 30 percent of discretionary income.
  • Failing occurs when debt payments are greater than
    • 12 percent of total annual income, or
    • 30 percent of annual discretionary income.

Got it? Good. If not, reread the article. I hate explaining this rule.

Rather than giving the numbers for both tests, I’m going to display the class of 2014’s mean debt (weighted with non-debtors (because I’m fair)), the minimum income (discretionary or total) needed to pass either test or at least stay in the zone, and the unemployment rate (“seeking” and “not seeking” employment, but excluding “deferred start dates”). The numbers will differ slightly from what I published in the article last week.

As for which test you’re seeing, since it’s somewhat important, the annual income test is the lesser test until about $43,000. After that, you are seeing the minimum discretionary income graduates need to be earning for the school to pass the test. That means they need to be earning even more money than what’s stated.

Howard $23,060 $20,178 $13,452 12.4%
Brigham Young $39,026 $34,148 $22,765 7.2%
Hawaii $39,949 $34,955 $23,304 15.5%
Alabama $45,830 $40,102 $26,734 3.5%
Lewis and Clark $47,014 $41,137 $27,425 15.4%
Arkansas (Fayetteville) $48,927 $42,811 $28,540 7.0%
Nebraska $49,758 $43,538 $29,026 6.0%
North Carolina Central $49,932 $43,691 $29,127 14.1%
District of Columbia $51,954 $44,434 $30,307 25.2%
Tennessee $52,961 $44,786 $30,894 14.6%
Wyoming $52,999 $44,800 $30,916 23.9%
North Dakota $55,743 $45,760 $32,517 13.2%
Connecticut $56,813 $46,134 $33,141 9.1%
Arkansas (Little Rock) $58,407 $46,692 $34,071 12.8%
Missouri (Columbia) $58,541 $46,740 $34,149 8.9%
Georgia State $58,650 $46,778 $34,213 5.6%
Mississippi $59,132 $46,946 $34,494 12.3%
Kentucky $60,629 $47,470 $35,367 5.6%
Wisconsin $61,117 $47,641 $35,652 7.6%
Kansas $61,410 $47,743 $35,822 8.4%
SUNY Buffalo $61,568 $47,799 $35,915 9.9%
New Mexico $61,795 $47,878 $36,047 3.6%
Liberty $63,917 $48,621 $37,285 25.0%
Georgia $63,954 $48,634 $37,307 13.6%
Texas Tech $64,047 $48,666 $37,361 18.8%
Northern Illinois $64,061 $48,671 $37,369 9.1%
Montana $64,094 $48,683 $37,388 11.3%
City University $64,284 $48,749 $37,499 20.7%
Oklahoma $64,613 $48,865 $37,691 7.7%
Florida $65,104 $49,036 $37,977 9.4%
Memphis $66,326 $49,464 $38,690 18.3%
Akron $66,681 $49,588 $38,897 8.7%
Cincinnati $66,697 $49,594 $38,906 10.4%
South Carolina $66,826 $49,639 $38,982 7.4%
Northern Kentucky $67,221 $49,777 $39,212 9.6%
Arizona State $67,227 $49,780 $39,216 1.5%
Florida State $68,319 $50,162 $39,853 6.0%
Wayne State $68,698 $50,294 $40,074 11.2%
Michigan State $69,711 $50,649 $40,665 1.2%
Houston $70,931 $51,076 $41,377 7.4%
South Dakota $71,067 $51,123 $41,456 6.2%
Boston University $71,181 $51,163 $41,522 6.5%
California-Davis $71,993 $51,448 $41,996 10.1%
Temple $72,019 $51,457 $42,011 9.1%
Washburn $72,555 $51,644 $42,323 8.9%
Indiana (Bloomington) $72,726 $51,704 $42,423 6.8%
Southern University $73,214 $51,875 $42,708 23.0%
Louisiana State $73,366 $51,928 $42,797 3.1%
Texas A&M [Wesleyan] $73,485 $51,970 $42,866 18.5%
West Virginia $73,712 $52,049 $42,999 8.5%
Utah $74,002 $52,151 $43,168 8.1%
Duquesne $74,172 $52,210 $43,267 13.5%
Arizona $74,516 $52,331 $43,468 4.9%
Texas $74,642 $52,375 $43,541 6.8%
Boston College $74,695 $52,393 $43,572 6.6%
North Carolina $74,905 $52,467 $43,694 11.9%
Maryland $75,615 $52,715 $43,894 8.8%
Illinois $76,374 $52,981 $44,071 5.9%
Campbell $76,555 $53,044 $44,113 13.6%
Iowa $76,670 $53,084 $44,140 2.3%
Washington University $76,828 $53,140 $44,177 1.2%
Drexel $77,209 $53,273 $44,265 11.3%
William and Mary $77,805 $53,482 $44,404 8.4%
Indiana (Indianapolis) $78,287 $53,651 $44,517 7.9%
Florida International $79,037 $53,913 $44,692 6.5%
Villanova $79,097 $53,934 $44,706 9.5%
Nevada $79,742 $54,160 $44,857 10.1%
Ohio State $80,527 $54,435 $45,040 1.4%
Pittsburgh $80,700 $54,495 $45,080 12.7%
Cleveland State $80,891 $54,562 $45,125 13.9%
Rutgers-Newark $81,451 $54,758 $45,255 8.4%
Idaho $81,604 $54,811 $45,291 8.1%
Louisville $82,077 $54,977 $45,401 7.1%
Baylor $82,833 $55,242 $45,578 11.8%
California-Irvine $83,342 $55,420 $45,696 10.8%
Tulsa $83,416 $55,446 $45,714 5.1%
Washington $83,732 $55,556 $45,787 14.0%
Maine $84,452 $55,808 $45,955 14.7%
Minnesota $84,834 $55,942 $46,045 6.9%
Cardozo, Yeshiva $85,151 $56,053 $46,119 15.3%
Toledo $87,232 $56,781 $46,604 17.9%
St. Thomas (MN) $87,349 $56,822 $46,631 8.4%
Washington and Lee $87,538 $56,888 $46,675 12.6%
Richmond $88,304 $57,156 $46,854 7.4%
Detroit Mercy $88,604 $57,261 $46,924 16.9%
St. John’s $89,567 $57,599 $47,149 8.9%
Yale $90,162 $57,807 $47,288 3.9%
Brooklyn $90,813 $58,035 $47,440 9.9%
Notre Dame $91,274 $58,196 $47,547 3.9%
Oregon $92,133 $58,497 $47,748 14.1%
Chicago-Kent, IIT $92,311 $58,559 $47,789 8.9%
Vanderbilt $92,969 $58,789 $47,943 2.6%
California-Los Angeles $93,221 $58,877 $48,002 6.3%
Emory $93,473 $58,966 $48,060 2.6%
Massachusetts — Dartmouth $93,819 $59,087 $48,141 16.0%
Fordham $94,187 $59,215 $48,227 9.8%
Baltimore $95,222 $59,578 $48,468 11.5%
Wake Forest $95,703 $59,746 $48,581 7.0%
St. Mary’s $95,761 $59,766 $48,594 17.9%
Southern Methodist $95,955 $59,834 $48,640 6.7%
Seton Hall $96,075 $59,876 $48,668 6.3%
Case Western Reserve $96,159 $59,905 $48,687 9.5%
Pennsylvania $96,201 $59,921 $48,697 0.4%
South Texas $96,686 $60,090 $48,810 9.2%
Dayton $97,598 $60,409 $49,023 11.4%
Colorado $97,675 $60,436 $49,041 4.2%
Quinnipiac $99,563 $61,097 $49,481 14.2%
Stanford $99,947 $61,231 $49,571 2.7%
Duke $100,325 $61,364 $49,659 2.8%
Samford $100,526 $61,434 $49,706 13.2%
Oklahoma City $100,825 $61,539 $49,776 5.6%
Mississippi College $101,946 $61,931 $50,037 21.1%
Syracuse $102,107 $61,987 $50,075 11.4%
Drake $102,326 $62,064 $50,126 9.2%
Suffolk $102,844 $62,245 $50,247 14.4%
Southern California $102,872 $62,255 $50,254 5.1%
William Mitchell $102,986 $62,295 $50,280 7.3%
Virginia $103,102 $62,336 $50,307 2.3%
Ohio Northern $104,531 $62,836 $50,641 18.1%
Loyola (LA) $104,924 $62,973 $50,732 19.3%
Pace $105,075 $63,026 $50,767 14.3%
San Diego $105,351 $63,123 $50,832 18.3%
Harvard $105,951 $63,333 $50,972 2.4%
Michigan $105,978 $63,342 $50,978 2.6%
Mercer $106,506 $63,527 $51,101 13.3%
Capital $106,628 $63,570 $51,130 31.3%
Tulane $107,133 $63,747 $51,248 9.7%
Hamline $107,514 $63,880 $51,337 8.7%
George Mason $107,715 $63,950 $51,383 2.7%
Gonzaga $107,940 $64,029 $51,436 16.0%
Chicago $108,521 $64,232 $51,572 1.9%
Penn State (Dickinson) $108,981 $64,393 $51,679 14.8%
New Hampshire $109,322 $64,513 $51,758 10.3%
New York University $109,331 $64,516 $51,760 1.3%
Western State $109,519 $64,581 $51,804 11.6%
DePaul $109,529 $64,585 $51,807 18.9%
George Washington $110,250 $64,837 $51,975 5.3%
Roger Williams $110,547 $64,941 $52,044 17.9%
Pepperdine $110,599 $64,960 $52,056 18.2%
Albany $110,656 $64,980 $52,070 14.2%
St. Louis $110,737 $65,008 $52,089 10.1%
Miami $110,761 $65,016 $52,094 7.7%
California-Berkeley $111,966 $65,438 $52,375 2.4%
Cornell $112,050 $65,468 $52,395 1.0%
Loyola (IL) $113,373 $65,931 $52,704 8.0%
Santa Clara $113,702 $66,046 $52,780 33.0%
Elon $113,902 $66,116 $52,827 27.9%
Denver $114,912 $66,469 $53,063 8.3%
Hofstra $114,917 $66,471 $53,064 7.9%
Ave Maria $115,045 $66,516 $53,094 33.6%
California-Hastings $116,260 $66,941 $53,377 22.1%
Regent $116,397 $66,989 $53,409 12.3%
Creighton $116,459 $67,011 $53,424 9.0%
Columbia $117,098 $67,234 $53,573 2.1%
Chapman $117,259 $67,291 $53,610 19.6%
Nova Southeastern $117,347 $67,321 $53,631 11.1%
Northeastern $117,379 $67,333 $53,638 14.4%
Marquette $118,389 $67,686 $53,874 9.8%
Georgetown $118,918 $67,871 $53,998 5.0%
Western New England $119,714 $68,150 $54,183 20.4%
John Marshall (Chicago) $121,990 $68,947 $54,714 8.8%
Valparaiso $122,769 $69,219 $54,896 20.9%
Catholic $123,026 $69,309 $54,956 13.4%
Stetson $123,167 $69,358 $54,989 7.2%
Widener $123,914 $69,620 $55,163 8.1%
Charleston $124,976 $69,992 $55,411 24.0%
Pacific, McGeorge $125,060 $70,021 $55,431 22.5%
Loyola (CA) $125,546 $70,191 $55,544 17.9%
Seattle $126,157 $70,405 $55,687 18.0%
Willamette $126,572 $70,550 $55,783 13.9%
St. Thomas (FL) $128,135 $71,097 $56,148 17.6%
Golden Gate $128,733 $71,307 $56,288 33.3%
Northwestern $130,452 $71,908 $56,689 7.2%
Touro $131,627 $72,319 $56,963 19.9%
Vermont $131,639 $72,324 $56,966 16.9%
American $132,232 $72,531 $57,104 15.2%
San Francisco $135,802 $73,781 $57,937 32.5%
California Western $137,589 $74,406 $58,354 23.7%
Whittier $137,958 $74,535 $58,440 24.2%
New York Law School $138,296 $74,654 $58,519 13.3%
Barry $141,716 $75,851 $59,317 17.7%
Florida Coastal $151,390 $79,237 $61,574 14.9%
Thomas Jefferson $156,925 $81,174 $62,866 29.0%

Note: Howard almost certainly published its graduates’ annual debt and not their total debts as it was asked, and this table excludes law schools that reported debt levels but not the percent of their graduates with debt.

I reckon that any law school whose graduates would need make $50,000 in discretionary annual income would probably fail the gainful employment rule in short order unless they were elite law schools with low unemployment rates. That’s about $100,000 in mean weighted debt, coincidentally—before interest. That’s at least 50 schools.

Kicking these law schools out of the federal loan program would be in keeping with the Department of Education’s stated goals for crafting the rule—accountability for student outcomes—but Congress won’t let it, which is why I found the comments to the department so galling. Some people claimed that graduate programs should be excluded from the rule because they didn’t face the same “employment challenges and return-on-investment considerations” compared to lower levels of higher education.

Looking at the above table … Right.

New Rule Spells Trouble for For-Profit Law Schools

…Is up on The American Lawyer.

Doomed! DOOMED I TELL YOU! Mwahahahaha!

I’d wanted to comment on the ABA Task Force on the Financing of Legal Education’s report, but alas my trusty computer that I’d been working on to write this blog all these years ran its last clock cycle over the weekend. Naturally, everything was backed up and has been transferred to my new machine. The show will continue—albeit with a delay.

In the meantime, here’s some Cloud Cult, which I saw at Minneapolis’ Northern Spark a couple weekends ago.


Graduate Student Loan ‘Horror Stories’ Are the Point

Most of what Jordan Weissmann writes in “A Sign That Washington Might Be Charging Too Much Interest on Their Student Loans,” is correct. Okay, the title should use “Its Student Loans,” but that’s trivial.

Weissmann argues that startups targeting high-income graduate student debtors for student loan refinancing probably aren’t much of a threat to the federal loan program’s profitability (assuming there is any). The example he cites from a Bloomberg article isn’t very inspiring. The debtor has an MBA earns $140,000 per year, and has a scant $45,000 of debt. A 31 year old, the debtor’s 6.55 percent interest rate indicates that he probably has only unsubsidized Stafford loans from back when the interest rates were fixed rather than Grad PLUS loans at a floating rate. He is totally ineligible for income-based repayment. Rhetorically speaking, so far so good.

As for that assumption about that the federal loan program’s profitablity, we’ve already been down that road. (In a related article, Weissmann implies that anyone who disagrees with accrual accounting is a conservative—ha.) The government may have lower borrowing costs, but that doesn’t mean it always lends money wisely. Anyone who disagrees is free to argue why we shouldn’t socialize the entire credit system—and not just postal banking, I mean everything.

Where Weissmann gets tangled up is when he writes, “[W]hile there are certainly plenty of horror stories out there from underemployed and overindebted law grads and Ph.D.s, advanced degree holders are generally high earners who rarely default. Their reliable payments help subsidize lending to low-income undergrads, who are generally far less of a solid bet for the government.”

First of all, graduate debtors’ low default rates are probably due to selection bias, not high incomes. Presumably, highly educated people are savvier, more conscientious, and therefore more likely to contact lenders when they start running into financial problems, so they sign up for hardship deferments rather than default. Now they have IBR. In short, not being in default isn’t the same thing as being in full repayment.

More importantly, however, is that the characterization of law debtors and others as “horror stories” is misleading. In the past I’ve estimated that about 30 percent of Grad PLUS loan dollars go to students at private law schools. More go to public law school debtors. Weissmann should know that a sizeable proportion of these debtors will never repay their loans in full. Even if they’re a minority of graduate debtors, they still owe more than the average, but that’s where the profits are supposed to come from! Consequently, that minority matters quite a bit.

What’s needed is a cross-section of Grad PLUS dollars (not debtors) by degree, then repayment status, and then repayment type. If a minority of debtors owes a greater proportion of the debt and is on IBR because it has a low income, then startups poaching a few MBAs will be the least of ED’s problems.

New America Foundation: Let the Sins of Grad PLUS Be Visited Upon IBR

I’ll try to go quickly through the New America Foundation’s (NAF’s) Jason Delisle’s and Alexander Holt’s Washington Post opinion piece from Friday. Reacting to news that the president’s budget forecasts income-based repayment programs (IBR) will cost the government an additional $21.8 billion, the authors argue that “too much” of it is attributable the administration’s changes to IBR, i.e. reducing monthly payments even more and accelerating loan forgiveness to 20 years from 25. Their article has many problems.

One, Delisle and Holt don’t provide evidence that the $21.8 billion comes from the changes to IBR. They’re just conjecturing. My hunch is that the additional costs are mainly attributable to the changes in the budget’s model that don’t anticipate as much job growth as before—or just increased participation in IBR. Without this evidence, the rest of Delisle’s and Holt’s article is just righteous huffing.

Two, the authors use this pretext to slide into their grad-students-are-abusing-IBR claim the NAF has been making for a few years now. This argument is problematic because the problem isn’t IBR so much as the Grad PLUS Loan Program, which the authors understand is unlimited and to their credit have advocated abolishing elsewhere. That’s all fine and good, but if the problem is Grad PLUS, then it’s not IBR, and the authors should focus on that instead. More on this point below.

Three, the grad-students-are-abusing-IBR claim has never been substantiated either. The NAF has always trotted it out in hypotheticals without doing the actual research. How many (and what percentage of) graduate debtors are (a) on IBR and (b) earn high enough incomes that could allow repayment under 25-year or consolidated repayment plans without compromising their living standards? Also, how many grad debtors are on IBR but are not earning enough to repay their loans under the older repayment plans?

These questions are crucial because until they’re answered those of us sitting at the feet of the East Coast think-tank elite can’t weigh how many people unfairly benefit from the changes to IBR against those who do not. If every unfair IBR beneficiary is canceled out by dozens of debtors who will never repay their loans in 25 or 20 years, then it’s safe to say that the changes to IBR are useful and the adverse consequences minimal. (And it’s not like the IBR changes have influenced people’s graduate school enrollment behaviors as law school applicants are still falling.) In the end, Delisle’s and Holt’s arguments are really just revamped versions of welfare queen fear-mongering.

Four, Delisle and Holt do not regain any sympathy with their hypothetical graduate debtor, Robert, who finishes law school with $150,000 in debt and earns $70,000 per year. Here are the problems with Robert:

(a)  For those of us who’ve done the research, Robert’s debt is plausible, but his income is not. Robert earns well over the median salary reported to NALP in 2013 ($62,467). Assuming that all non-reporting graduates are making less than the median, which I believe is fair, Robert is above the top 23 percent in law graduate earnings. He is quite atypical. The true median, which would include graduates working part-time and the 12.3 percent who were unemployed (and matter since we’re talking about debt repayment), is much, much lower. It’s likely many of them will never repay their loans. These people will benefit from the PAYE changes, but the NAF ignores them.

(b)  The authors then fashion out of Robert’s rib a wife, who earns $80,000 per year. With an annual household/family income of $150,000, readers should recognize that this partnership is in the top 10 percent by household income. Is this common for graduate debtors? Probably, but again the authors don’t say.

(c)  Delisle and Holt proceed to criticize IBR for not taking spousal incomes into account, that only 1.9 percent of Robert’s household’s/family’s income is going to his student loans. Are you shocked? Well, the response is, so what? Robert’s wife didn’t sign his master promissory notes any more than she would his gambling debts. If Robert wants to leave work to raise their kids, for example, doesn’t that imply that his wife will essentially assume his debts? Would the NAF say this if Robert were Roberta? How would unmarried Robert feel if he had to tell his bride-to-be that she’d be partly on the hook for his student loans if they got married? Again, what if Robert were Roberta, who would be more likely to take time off to raise children?

(d)  The authors’ hypothetical is only as outrageous as the lopsided assumptions they bake into it. It’s one thing to say that Robert, unusual though he is, benefits more from the Obama administration’s changes to IBR than before. But it’s a rhetorical foul altogether to throw in a wife, whose high earnings Robert largely has no power over, and then blame IBR for the result. Delisle and Holt could just as easily give Robert’s parents multimillion-dollar lottery tickets or 5 percent of Maine’s landmass, but it would still have little relevance for IBR as a policy.

Five, the authors repeat that graduate debtors are the unfair beneficiaries of the administration’s changes to IBR, that they’re half of all IBR participants (unsurprising: they have undergraduate debts too), that they have higher incomes and are less likely to be unemployed than undergrad (or non-grad) debtors. Again, no income data on IBR participants is given, so Delisle’s and Holt’s IBR welfare queens are all speculative. Now, I’m sure some exist, but the NAF needs to show us the bodies and carefully tell us whether they’re worth less than the number of underemployed graduate debtors who won’t be able to repay their loans.

Six, even if they do that, all their talk of IBR’s “loan-forgiveness benefits” is really a problem with Grad PLUS loans, not IBR. As I wrote last week, IBR without Grad PLUS loans would be much more innocuous. It’s one thing for Delisle and Holt to make poor arguments with unrepresentative examples, but I question their credibility if they’re going to attack IBR, which I think we all agree was never crafted with Grad PLUS loans in mind, instead of the loan program itself. Why not attack the problem at its source? What’s so special about IBR, then? Nor does it help that they bait their readers with the $21.8 billion IBR shortfall and then switch it with the changes to IBR without evidence. For all their elegant, mathematical—and probably costly—policy papers, the NAF’s results almost always have zero external validity. Like, if I didn’t know any better, I’d say those folks had some kind of ulterior, partisan motive…

Seven, and finally, at the beginning of their article the authors characterize the federal loan program as “an implicit contract: Students get loans to go to college at reasonable interest rates, with no previous credit history required, but when they graduate, they [and their high-income spouses, apparently] have to pay them back. But that agreement is shifting.”

In their dreams. The “implicit agreement” was that the loans would make debtors more productive workers so they could fill higher-paying jobs that required additional skills. Little of this has turned out to be true: There’s no good evidence that widespread college education is raising our national income, and the government has pretty much reneged on its jobs promises.

As far as contracts go, this one has been drafted in favor of the government. When its underlying assumptions are true, everyone wins, but when they’re not, the government won’t be held accountable for self-serving research, false promises, and reckless lending. Instead, attempts to help the debtors will face resistance by people like Delisle and Holt, who will howl at all the alleged benefits the lucky-duckies are getting—and right now we’re only talking about grad student debt! Consequently, you should expect the endgame for all this unpayable student loan debt to be really, really acrimonious.

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.


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.

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.


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