New America Foundation: Let the Sins of Grad PLUS Loans Be Visited Upon IBR
Introduction
I ran across Matt Leichter and the Law School Tuition Bubble blog while doing some research on the Koch Brothers cozening up to CAP after having seen Beth Akers and Matt Chingos write for Brookings a think tank which in the past has been careful about what type of funding it receives and from where. You might not know; but, both Matt and Beth the same as Jason Delisle are indirectly funded by Lumina Foundation who has close ties with Sallie Mae and they write on student loans. That is a topic for another post. Back to Matt:
Matt Leichter received his J.D.-M.A. in law (2008) and international affairs (2009) from Marquette University, in Milwaukee, Wisconsin, and spent a semester and summer of law school at Temple University’s Tokyo campus in 2007. Before law school, he taught English at Omiya High School in Saitama, Japan, for two years. He started the Law School Tuition Bubble in May of 2010. Matt writes about student debt. I read his post on Jason Delisle’s critiqe on Income Based Repayment for Masters level graduates and felt it was worthy for AB. Income Based Repayment (IBR) caps the amount of money a graduate is to pay based upon income.
Grad PLUS and the IBR
Jason Delisle and William Holt did an opinion piece on the Washington Post and a similar argument by Jason Delisle has popped up over at the Washington Monthly. Jason has claimed the Income Based Repayment (IBR) plan in Student Loans has first cost the government $21 billion and then cost the government $19 billion.
While Alan Collinge would tell you the IBR is nothing to crow about as it takes forever to be free of the student loan, I think he might take issue with the costs cited by Jason which are brought into perspective by Matt Leichter on his blog Law School Tuition Bubble. Matt performs an excellent take down of Jason and William’s points which I will paraphrase here:
1. No evidence is cited by Jason Delisle showing the resulting $21 billion cost is the result of the IBR. This is supposition and conjecture on the part of Jason and meant to cause consternation on the part of the reader as to the alleged abuse. Matt Leichter of Law School Tuition Bubble blog takes issue with Jasons stance and attributes the $21 billion to changes to the model inputs reflecting less job growth or could potentially be the result of greater participation in the program. Without the evidence of where the numbers came from, Jason’s opinion piece is speculation.
2. Matt continues the take down of Jason’s adding more points which the reader can dwell upon. Jason uses the $21 billion eye catcher to segue into graduate students abusing the IBR to back back less. The problem is Graduate Plus Loan Program causing the issue rather the IBR with its unlimited funding. While admitting this is an issue, Jason takes the opportunity to attack the IBR.
3. Grad students abusing the IBR program is more supposition on Jason’s part. He has not established a foundation of data and stats to support his contention. There is only a hypothetical with no data to support Jason’s conjecture. For example, some data might show how many Grad students are on the IBR, how many have high enough incomes to repay the loans in less than 5 years, and how many Grad students are on the IBR who could not afford to repay under the old programs.
Broad based data establishes a foundation to which we can ascertain how many students are abusing the IBR under its current rules. Answering the question of how many students are not paying back within 20-25 years as opposed to beneficiaries of the IBR may cause changes in the rules. Jason expects us to accept his hypothetical on pure faith.
4. To make his point Jason develops a hypothetical Law student just graduating, having $150,000 in debt and earning $70,000 annually.
Jason’s hypothetical student graduates with $150,000 in college debt and a $70,000 does little to bolster his argument. For example; while the $150,000 in debt is possible, the salary is not as it exceeds the median for a student just starting out as reported by the National Association for Law Placement, Inc. Matt correctly points out Jason’s hypothetical is in the upper 23% of household income for beginner lawyers. The true median income is ~$62,000 and would include part time workers and those unemployed as reported by the NALP.
Jason then add a spouse wife to the household to boaster his hypothetical. The spouse makes $80,000 annually which ratchets the couple into the top 10% bracket of houshold incomes. The question still remains of validity of this hypothetical as Jason never cites any data to support his contention. Once again we are left in the dark with Jason’s assumption.
Furthermore, the IBR does not take spousal income into account and Jason and William take the IBR to task for not doing so. Matt counters with an argument; “Are you shocked? Well, the response is, so what? Robert’s wife didn’t sign the master promissory notes any more than she would his gambling debts. If Robert wants to leave work to raise their kids, for example, it doesn’t imply that his wife would 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?
Delisle and Holts hypothetical do little to make their claim the IBR is at fault for this phenomena. In realty and as Matt correctly points out, the same could have occurred with a lottery winning by the parents or other gains neither of which have any influence on IBR policy. In the end, how many actually gain from the loophole in policy. Jason’s supposition again lacks data.
5. The claim of Graduates IBR being unfair beneficiaries is made again by Delisle and Holt and they comprise 50% of all recipients of the IBR program. Graduates also attend Bachelor programs (quelle surprise!). Here again no data is supplied and we are given an opinion of what may be taking it to the extreme. Jason creates another Pink Cadillac scenario, an image of graduates driving Pink Cadillacs to currency exchanges to cash their big checks are about all Delisle and Holt can conjure up. We are left in the dark to imagine this to be occurring on a regular basis.
6. IBR was never developed by lawmakers with Grad Plus Loans in mind. Rather than a problem with the IBR, the problem lies with the Grad Plus program which both Delisle and Holt overlook to make their attack. As Matt Leichter questions the credibility of the complainers contentions throughout their expose, no data is presented to support their claims of misappropriation of funds which is to the root cause. The claims are all hypothetical.
7. Jason takes this one-step further in his analysis, stating the Federal Government provides loans at a reasonable interest rate(?). This is so far from the reality of the situation it borders on the ludicrous. As I have stated before, no other loan made has such tight restrictions on it and can not be discharged through bankruptcy. The distinction between the two types of Loans is one can be discharged in bankruptcy and the other can not. Guess which one can be discharge? Students are bound by a signature to indentured servitude until the loan is paid off or 20-25 years pass of IBP. Matt make a common sense point on the real implicit contract between students, the government, and student loans; “the implicit contract was the Loans would make debtors into more productive workers filling higher paying and skilled jobs.” The evidence since the seventies does not support the advent of more and higher paying jobs to have happened and Jason’s version of contract has gone unfulfilled from the government side leaving many of its citizens economically harmed.
I can not add to Matt’s closing statement and will use it verbatim: “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 supposed (me) 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.”
Reference:
“New America Foundation: Let the Sins of Grad PLUS Be Visited Upon IBR”The Law School Tuition Bubble blog, Matt Leichter, February 2015.
“A student loan blind spot”Washington Post,