Wednesday, September 26, 2007

Bush WIll Sign College Cost Bill

President Bush will sign the College Cost Reduction and Access Act, H.R. 2669, into law tomorrow, Thursday, September 27, 2007. The signing ceremony will take place at the White House at 11:15 am eastern time. Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee and the author of the bill, will be in attendance.

New Yahoo Column Up

This was my easiest and most fun to write column so far. I just talked about some of the simple ways my household spends a little less and enjoys life more.
I didn't even get into the green angle, which is another excellent reason to not spend more than you need.

Monday, September 24, 2007

Great editorial on college admissions

a recent study of 146 selective colleges and universities, which concluded that students from the top quartile of the socioeconomic hierarchy (based on parental income, education and occupation) are 25 times more likely to attend a “top tier” college than students from the bottom quartile.
William Bowen, the former president of Princeton, and his associates discovered, in a rigorous study of 19 selective colleges, that applicants from disadvantaged backgrounds, whether defined by family income or parental education, “get essentially no break in the admissions process.” The paucity of students from poor and working-class backgrounds at the nation’s selective colleges should be a national scandal.

Sallie Mae Supports Bankruptcy Protection for Private Loans

So they say...
Chronicle of Higher Ed:

a Sallie Mae spokeswoman, Martha Holler, suggested a willingness to consider Mr. Durbin's plan.

"We agree that it may be appropriate to revisit how to handle private student loans in bankruptcy," Ms. Holler said in a statement, "and we would be happy to participate in finding a solution that provides relief to borrowers who act in good faith but still find themselves in difficult financial situations."

Time Magazine:
Conwey Casillas, Sallie Mae's director of public affairs, acknowledges that the previous bankruptcy law, which allowed students to discharge their loans after seven years of active re-payment, might be more appropriate, adding that the company would support revisiting bankruptcy laws for students who act in good faith but still struggle to pay off their debt.

Friday, September 21, 2007

A Doctor for the Young and Uninsured

This Williamsburg, Brooklyn MD specializes in 18-40 year olds without health insurance. He accepts no insurance and instead charges an annual enrollment fee for anytime access by mobile phone, email or IM, with rates he says are much better than you can get anywhere else. He promises personalized referrals and same-day or next-day house calls(!) .
I appreciate his efforts to innovate and work outside the system. If I didn't have health insurance I might think about it. It would be especially great to be able to see a doctor right away.
(Thanks, Gawker!)

Thursday, September 20, 2007

Why Private Student Loans Should be Dischargeable in Bankruptcy

Private student loans are unsecured consumer debt. Both unsecured consumer debt, such as credit cards, and secured debt such as auto loans and mortgages, are dischargeable in Chapter 7 bankruptcy. The only financial obligations that are not dischargeable in bankruptcy are things like court-allocated fines and child support, as well as federal student loans. At first blush, it would seem that the burden of proof is on those who say that student loans should be treated differently from all other forms of debt.

The adverse consequence arising from the current situation is that simply by virtue of being enrolled in an institution of higher education, including cosmetology school, people are able to borrow $50, $100, or $200,000 in unsecured loans, completely without regard to their ability to repay. If their income after leaving their programs falls short of the amount required to repay the loans, they then have absolutely no recourse.
These people are just like people who have taken out subprime mortgages, except the bank can't take the house back. There is no house.
Student Loan Justice has many tales of people who have committed suicide or fled the country after reaching this dead end. Or they may just abandon their aspirations, and/or live in poverty.

The adverse consequence, some argue, in making private student loans dischargeable in bankruptcy is that banks would become more cautious about their risk. The loans would become more expensive, and banks may try to determine if someone will be able to pay back the loan, based on their course of study or other factors.

Should lenders in general become more cautious about the risk of loans? YES.
Should they try to determine if the loans they make will be affordable to borrowers? YES.
This is what correction in the credit market looks like. Turning off the faucet of easy credit
may be painful but is necessary for mortgage lenders, credit card marketers, and all other types of debt.
If this necessary correction results in adverse social consequences, rather than continue the ability of banks to make money risk-free off the backs of students, maybe we need to think about shrinking the role of the private sector in higher education finance, and strengthening the commitment of state and federal governments to ensure higher education access. This means increasing financial aid, providing low-cost loans at the government's rate of capital, protecting borrowers, and controlling tuition increases. Unaffordable private debt does not equal higher education aid.

Private Student Loans Bankruptcy Discharge

Finally!! From Chronicle of Higher Ed:

Proposed legislation in Congress would allow borrowers to discharge their private student loans -- but not federally guaranteed loans -- after five years of repayment.

The bill, S 1561, was introduced in June by Sen. Richard J. Durbin, Democrat of Illinois, and is now pending before the Judiciary Committee. While the measure's future is uncertain, it may be attached to other legislation moving through Congress this year.

Supporters say the bill would provide much-needed relief to borrowers who find themselves in severe financial distress, while discouraging banks from making loans to students who are likely to default. They argue that it is unfair for the government to treat student loans more harshly than other forms of unsecured debt.

"We are more forgiving of the middle-aged guy who buys a Corvette and stops making payments than we are of the 22-year-old who goes to college and drops out," says Luke Swarthout, a higher-education advocate with the U.S. Public Interest Research Group. "If our laws are a reflection of our values, is that our value system?"

Bell Curve Guy is Back

He wants to abolish the SAT. Lots of people on the right and left find themselves agreeing with him, despite his infuriating, eugenics-sounding argument that rich, white kids are genetically smarter. Better get rid of Head Start then! It's just a big waste of money since parents who can't afford preschool have dumb genes.

"Mr. Murray said he had been thinking about these issues for a book he is working on about higher education, titled “Simple Truths.” He has four of them: Ability varies; half of all children are below average; too many people go to college; and the future depends on how the gifted are educated. At the moment, he said, “our college system is broke.”"

My take?
Ability varies; True. So do requirements for different jobs and for human happiness. Human intelligence and skills are multifaceted. Mr. Murray, for example, evidently lacks empathy and social intelligence.

Half of all children are below average; Seems true, but not on every dimension. Everyone has a variety of strengths and weaknesses, which change over time. The rigidity and negativity of the "below average" label is contrary to the principle of educating people to live up to the best of their own individual abilities.

Too many people go to college; Especially if you mean a four-year BA program, far too many people enroll without the ability and support they need to succeed. But the percentage of population with BAs almost perfectly matches the percentage of jobs requiring them, suggesting there's no surplus of graduates.

The future depends on how the gifted are educated: I think the future of a democratic society depends on how well we prepare everyone to succeed to the best of their abilities. The funny thing about gifted people is they tend to find their way toward appropriate sources of information and mentors on their own.

At the moment, he said, “our college system is broke.”

Yeah, I got to agree with that one.

Tuesday, September 18, 2007

How Valuable Is that MBA?

In my last Yahoo! column, I listed MBAs as the grad degree with the biggest avg payoff-to-debt ratio. In the last week, both the WSJ and the NYT ran contradictory stories on the popularity of the MBA--"never been more valuable" vs. "not as necessary for the big bucks in private equity and hedge funds". As media critic Jack Schafer points out in this amusing piece, the Journal has better evidence.

"the MBA is more popular than ever, with twice as many of the degrees earned in 2005 than in 1991...The growing demand for MBA graduates combined with plentiful career opportunities have created an environment in which "students can afford to turn down even six-figure offers from investment banks.""

Monday, September 17, 2007

College Won't Be Getting Cheaper

This guy is so right.

"How banks rip off college students and the government."

The founding editor of Slate authored a solid, if slightly rushed-sounding piece on a topic readers of this blog know well.

Here's my favorite bit:
The student loan "industry," as it is comically referred to in the newspapers, is an interesting case study in politics and business. To start, it is hardly an industry. There are no factories. The only things it "makes" are loans. Furthermore, it exists only because of a government program.

Also good:
Yet in the four decades since the federal government started it, the student loan business has evolved into a pretty good imitation of an industry, with trade associations, lobbyists, and support from politicians, mostly Republican. This "industry" is so dependent on the good will of politicians, in fact, that the reform bill alone may be enough to queer the deal in which its biggest player, Sallie Mae, is supposed to be bought by a private-equity firm for $25 billion...

And...
There is very little about the student loan program that has anything to do with free-market capitalism. Yet whenever the student loan system comes under criticism, lobbyists, "industry" leaders, and supportive politicians haul out the same old clich├ęs as if they were defending Adam Smith's famous pin factory itself.

American Prospect Piece

I have an online op-ed in the American Prospect on what else, young people and debt:

Attracting Young Voters with Debt Relief

The sub-prime mortgage scandal is only part of the debt problem in the United States. The issue is likely to attract the attention of young voters this election cycle, which may be the key to bringing about change.

Debt is the new four-letter word. As the credit-fueled housing bubble comes ever closer to bursting, Democrats in Congress and on the stump are denouncing predatory lenders and their "Wild West" ways. The potential industry blowback extends far beyond NINJA (no income, no job, no assets) mortgages and "liar loans." A whole new debt-industrial complex -- high-interest payday loans, deceptive credit card practices, creditor-friendly bankruptcy laws, and an oversubsidized student loan business -- is undermining Americans' economic security.

Friday, September 14, 2007

Funny Video on Credit Cards on Campus

Don't Get F#%?'D: pretty good advice.

Edwards: Free College For Everyone Is Achievable

I think this article is notable not only for Edwards' remarks, but that Slate chose to feature them in the headline of an interview that ranged over important issues like Iraq, health care and the general state of the economy.

"The idea is for any young person in America who graduates from high school, qualifies to go to college, and commits to work while they're there, a minimum of 10 hours a week, we pay for their tuition and books. So the notion is knock down the barriers, don't give it away, make sure that young people who want to go to college and are committed to go to college are willing to work for it."

College for Everyone-John Edwards Site

Wednesday, September 12, 2007

Generation Debt video on CurrentTV

Check it out--they borrowed the title, but I don't mind. . .

Latest Yahoo Column Up


Is Grad School Worth The Cost?

It depends where you go, and how much you pay for it.

Update: the New York Times says enrollment in masters' degree programs has been growing twice as fast as other programs. And they are a great source of revenue--especially for the college. The Times doesn't evaluate the claim of good value, merely saying
"many students believe that these multiple degrees are highly valuable in today’s competitive job market."

Tuesday, September 11, 2007

"Students First In Line"

Thank you, Onion News Network!
The nation's poorest schools will receive extra government funding to teach their students skills like rifle assembly and precision marching.

Monday, September 10, 2007

Will Credit Crunch Hit Other Kinds of Debt?

How will the mortgage mess affect people holding credit card debt and student loans?
Well, in the short term, subprime borrowers of all kinds (that is, people with poor credit) are apparently being targeted with more credit card solicitations than ever. "Direct-mail solicitations to subprime borrowers were 41 percent higher in the first six months of 2007 than they were in the first half of 2006. At the same time, solicitations to the most credit-worthy consumers fell by 13 percent. And the numbers are even starker when you look at June of 2005. "

As well, credit card delinquencies are up because people are finding it harder to use their home equity to pay off debt.

Like mortgages, lots of credit card debt, car loans and student loans are also packaged into asset-backed securities that are sold to investors, which does raise the specter that as the secondary market dries up, this kind of debt will be harder to get (or just more expensive.) The SF Chronicle says:

"I'm clearly hearing that bankers are being cautious, taking a second look, making sure they understand the risk they're taking," says James Chessen, chief economist with the American Bankers Association. For the riskiest customers, "it's naturally going to cost the borrower more," he says. But by and large, "for consumers with good credit, there has been no spillover effect" from the mortgage crisis, says Greg McBride, a senior analyst with Bankrate.com.

So: if you have bad credit, you will have the opportunity to get more credit , and more expensive credit. If you have good credit, you will have fewer opportunities to get credit that costs essentially the same as before. I think I know which side of the line I want to be on.

The Chronicle article also uncritically repeats threats from student lenders that with the $21 billion subsidy cut, they will just be forced to cut all discounts from loans. Because god forbid they should have to compete, actually compete, on price.

Is TV Making Us Dumb Spenders?

Almost all the fictional characters on TV are obscenely wealthy. Discuss.

As the economy skids, pundits scoff at the excesses of Americans who take out huge mortgages for five-bedroom McMansions, finance their Lexuses with adjustable-rate home equity loans and charge flat screens on their credit cards... It's not hard to see where Americans got the idea that a normal-size home and regular clothes will never be enough. Twenty or 30 years ago, after all, TV characters had cheap clothes and tacky furniture and bad hair, and they were happy to be getting by. Shows like "Roseanne" and "Laverne & Shirley," and more recently, "Seinfeld" and "Everybody Loves Raymond," brought us regular families with regular jobs and regular problems. [Um, no. Seinfeld had none of the above, although his one bedroom NYC apartment was quite believably scruffy--remember how it was cluttered with that bike which he never, ever rode?]

Easy fix: Just don't watch TV. Or watch Lost, The Wire, and 24, shows where survival is paramount.

Friday, September 07, 2007

Getting it Right: Congress Passes Higher Ed Bill

From the PIRGs:

Today the U.S. Senate and House of Representatives passed the College Cost Reduction and Access Act by votes of 79 to 12 and 292 to 97 respectively. The bill now goes to the President who has said he will sign the legislation into law.

Statement by U.S. PIRG Higher Education Advocate Luke Swarthout:
“The College Cost Reduction and Access Act is the most meaningful higher education reform in more than 15 years. The legislation addresses the dual financial challenges of access and affordability that face American college students. The legislation provides billions of dollars a year in additional grant aid to low-income students through the Pell Grant program. It will also help students address the burden of rising student debt through lower interest rates and a new repayment system.

This legislation is an example of Congress getting policy making right. The bill trims excessive subsidies that benefit a handful of banks and directs them to millions of students and families who are working to pay for college. The bipartisan votes for this legislation, and the President’s pledge to sign it into law, are testament to the broad support for helping students and families pay for college.”

Thursday, September 06, 2007

Bush Will Sign Student Aid Bill

It's official, folks: The rules are changing.

At a press conference with students on Capitol Hill today, Rep. George Miller (D-CA), the chairman of the House Education and Labor Committee, announced that the Bush administration plans to sign the College Cost Reduction and Access Act into law if the Congress approves it as anticipated.

Today’s news is proof that elections can make a difference. Last November, Democrats promised to make college more affordable for every qualified student, and with this bill we are making good on that promise. This is not only an exciting day for students and families, but also for the direction of our country.

Details of New Higher Ed Bill

The House and Senate passed their versions in July; here is the compromise. They could vote as soon as tomorrow.
New York Times.
The College Cost Reduction and Access Act will help address the dual financial challenges of access and affordability facing students. The legislation will:
  • Increase the maximum Pell Grant award by $490 in each of the next two school years, by $690 in the following two school years and by $1,090 in each additional year. The Pell Grant is the nation’s premier college access program, providing grants to 5 million low-income students each year. The maximum Pell Grant is currently $4,310. (This would make it $6,670 by 2010 by my count).
  • Create an Income Based Repayment program that allows borrowers to repay their loans as percentage of their income. Borrowers would be expected to pay 15% of any income above 150% of the poverty line (about $15,000 for a single individual). This new program will protect borrowers with low salaries from making unmanageable payments.
  • Reduce interest rates on student loans for more than 5 million low and middle-income student borrowers receiving subsidized Stafford loans. To see who would benefit from these interest rate reductions read U.S. PIRG’s report.
  • Finance increased education spending by reducing subsidies to student lenders. Lenders will receive a reduced rate of return for offering federal student loans and a slightly reduced reinsurance rate from the federal government. As a result, the increased grant aid and loan benefits will have no additional cost to taxpayers.


Wednesday, September 05, 2007

Student Aid Bill Vote Coming Soon

From George Miller's office:

Last night the House and Senate began the process of negotiating final legislation on H.R. 2669.

House and Senate negotiators met this morning and are expected to negotiate and approve a final bill (a conference report), later this afternoon. Details of this final legislation will be released as soon as possible (I expect around 3:30 or later).

Both the House and the Senate are expected to take final votes on the legislation by the end of this week. If approved, the bill would then go to the President for his signature.

Yahoo! Finance Column: IS College Worth It?

Here's my most recent column on Yahoo! finance:
"For the purposes of this column, however, I'll put aside the important intangible benefits such as widening cultural horizons and developing critical thinking, civic participation, healthier living, and stronger relationships. In strict dollar terms, is that degree going to be worth the parchment it's printed on for Generation Debt?"


Also, I was on KCRW's (Los Angeles) "To The Point" show yesterday. It's a pretty interesting half hour of talk about the mortgage meltdown. Particularly the woman from the National Consumer Law Center.