Student Loan Reform

The Obama administration has proposed a solution to the student debt fiasco. From Yahoo News:

Obama will also call for caps on some student loans, limiting a borrower's payments to 10 percent of his or her income, and forgiving all remaining debt after 10 years of payment for those in public service work — and 20 years for all others.

This cap and forgiveness program is similar to the student loan program in the UK. The model helps reduce some of the asymmetries associated with student loan debt (really easy to obtain, hard to predict rate of return, and almost impossible ability to discharge) by ensuring there is a finish line to the loan race and by encouraging people to obtain higher education.

I fully support such a system. Education, particularly legal education, is a huge financial gamble. The current student loan system relentlessly punishes those who lose the bet until the day they die. This alternative model better helps apportion the risk of obtaining an education. While the individual who ultimately receives the education gets the most benefit (and correspondingly, should pay for that benefit), there is a huge societal interest in educating the masses. Because both the State and the student benefit, they should rightly split some of the risk/cost. Simply loading the debt onto the student without the possibility of discharge ensures that such a student will be held back financially for the rest of his life (hard to get credit if you can't pay your $3500 a month student loans).

This is a sensible solution. Let's hope it goes somewhere.

Law School Debt Exceeding $120 K

Visualize Law reports on the ballooning cost of law school. Particularly alarming (yet not surprising) is a calculation estimating "about 46% of all students in the year 2013 who [will] anticipate graduating with at least $120,000 in debt." Check out the article.

Food for Thought...

I wonder if the ABA would help push a type of debt-reduction similar to this one... after all, it is its fault that (A) we have degree inflation and (B) we have a completely useless third-year of law school we must attend (among other (C) through (ZZZZZZZ)s)...

In Ben & Tim We Trust? Nightmare #2

Never have I read a wire-report that has more inadvertently used a proper verb to describe the (ongoing and soon to worsen) economic mess that is Federal Economic Policy. Here, the word of choice is "divine." The entire paragraph that caught my fancy reads:

"With officials still grappling to divine the factors steepening the yield curve, a speedy decision on whether to ramp up the Treasury debt purchase program or the related plan to snap up mortgage-related debt seems unlikely."

Divine, as in divination...as in the prophetic method used by the Roman priests to tell the Caesars what the upcoming warring season would bring.

Here's a dictionary definition (from Webster's):

div·i·na·tion

Pronunciation:

\ˌdi-və-ˈnā-shən\

Function:

noun

Etymology:

Middle English divinacioun, from Latin divination-, divinatio, from divinare

Date:

14th century

1: the art or practice that seeks to foresee or foretell future events or discover hidden knowledge usually by the interpretation of omens or by the aid of supernatural powers

2: unusual insight : intuitive perception

Things are so economically bad in this country that our Ivy-trained economists are no more useful at telling us what is going on than the Horoscopes.

Sweet dreams are made of these...

Does This Apply To Lawyers, Too?

I've returned! Today's article (click here) comes from the Chicago Tribune and comments on the effects layoffs have on people's earning power. To summarize (and with help from the Jack Nicholson-Helen Hunt romcom): your earning power before layoff is "As Good As It Gets." This got me to thinking-- what does this say about all the layoffs and salary slashes in the legal profession (particularly BigLaw & Associates)? What about the future of law schools and the graduation of some of us who are looking at about 6-figure debt before we even get our first doc review? And, to add another ingredient into the mix: what about the ramping up of 'legal outsourcing'? Could 2008-2009 be just the beginning to the "Great Levelling Off" of wages some economists have been predicting?

With a return like this, I should've stayed away...

Law School Is For Everyone?

I think the headline to this piece was missing the following line: "Who Likes Being 150k in Debt."

I have nothing more (at least non-profanity laced) to say.

Open Thread: Student Debt and Tax Credits

On March 9, Craig opened a successful thread allowing students to discuss the idea of whether the federal government should, in addition to giving trillions of dollar in bailout money to other industry actors, forgive student loan debt. Absent the obvious moral hazard implications noted in the commentary of that thread, the idea was quite popular. Indeed, we even had the privilege of having Rob Applebaum, the creator of the Facebook group that started it all--and, unsurprisingly, that has now been featured on CNN and the Huffington Post--answer our readers' questions, and discuss the merits of his proposal. We have received numerous requests for a follow-up. So, here we go.

I spoke with one of our readers who suggested a new related idea for discussion on the matter of providing some relief to students with loan debt: namely, whether providing tax benefits for paying back student loans is a technically feasible and desirable policy in our current economic climate. Specifically, he noted that the government should consider:

making paying back an educational loan like contributing to a 401k for tax purposes . . . [This] should make sense.  Any money you put into the loan payback is typically untaxed and not included in your salary.

Our reader considered this idea:

ever since President Obama started discussing higher taxes on salaries while running for President.  [He] figured that it just did not make sense for graduates with huge loans.  They should be able to pay off all of their loans before being taxed at such a high rate.

Accordingly, this proposal should be considered in the context of graduate students who can be expected to earn taxable income over the level at which President Obama has proposed to raise the marginal rates.

Thoughts?

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See The Wallet Pop Blog for a discussion of a similar idea