Daniel Sutter: Will student loan debt crush Alabama’s graduates?
Many of Alabama’s 2018 high school graduates will start college this fall. Unfortunately, many recent college graduates report putting off buying cars or homes, saving for retirement, or marriage due to student loan debt. Will Alabama’s new grads face this fate? Student loans now total almost $1.5 trillion, with 2016 graduates averaging $28,000 in debt. With over 10 percent of loans in default, taxpayers may eventually pay much of that $1.5 trillion. A closer look at the numbers, however, offers hope for grads and suggestions for ensuring access to college without excessively burdening students or taxpayers. The $28,000 loan average is only for grads with debt; 30 percent of grads managed to complete college without borrowing. Students burdened with six figure loans, often featured in news stories, inflate this average and have frequently borrowed for graduate or professional degrees, or to attend expensive private or out-of-state universities. Attending a public university and paying in-state tuition allows pursuit of a degree with little debt. High schoolers can also earn college credit through dual enrollment and advanced placement courses. Two-year colleges provide a low cost way to begin studies, particularly for students with marginal test scores and grades. College graduates earn 60 to 70 percent more than high school grads, but students who never earn degrees struggle to pay back loans. Some students will never pay their big loan balances thanks to forgiveness programs. Although student loans are very difficult to discharge in bankruptcy, the Public Service Loan Forgiveness plan cancels remaining balances for government or not-for-profit sector workers after ten years of payments. The plan makes some sense: why collect extra taxes to pay government workers to pay back government loans? The program, however, lets students planning on public service careers take on debt they will almost surely never repay. Georgetown University used this plan to offer free law school for aspiring public interest lawyers. Mortgage-sized debts raise the question of why exactly the Federal government is in the student loan business. An economic argument arises from the nature of lending: unlike cars or homes, college degrees cannot readily be repossessed (and indentured servitude is illegal). Students may be unable to borrow for college if they or their parents lack collateral, despite the value of degrees. A market would exist in the absence of Federal student loans, in all likelihood using test scores, college grades, and choice of major in decisions. I believe that equality of opportunity explains the student loan program, not the economics of lending. The earnings premium shows that for many, college is the gate to the middle class. Americans like everyone to have an opportunity to succeed through hard work. Some nations ration access to college using standardized tests, with a teenager’s poor test performance limiting college options. Americans like people whom experts and bankers think will fail to still have a chance. Markets generally outperform government programs, but I’m okay with government loans for college. Why? Arthur Brooks of the American Enterprise Institute contends that about two thirds of Americans support markets, in principle if not always in the details. Furthermore, this support correlates with the perception that America is a land of opportunity. Maintaining support for markets may require loans to some marginally qualified students. Access to college as part of an opportunity society suggests focusing loans on undergraduate students. The Urban Institute, however, found that 38 percent of loans now go to graduate students. And the Government Accountability Office found that 30 percent of outstanding loans would likely be forgiven under various programs. We should rely on market loans for graduate and professional schools. While this may limit some students’ pursuit of advanced degrees, college graduates already earn 30 percent higher salaries than the national average. Why should taxpayers pay for college-educated Americans to pursue even higher salaries? Alabama’s college-bound 2018 high school graduates need not end up with mortgage-sized student debt. And Federal student loans can provide opportunity for Americans without overly burdening taxpayers. ••• Daniel Sutter is the Charles G. Koch Professor of Economics with the Manuel H. Johnson Center for Political Economy at Troy University and host of Econversations on TrojanVision. The opinions expressed in this column are the author’s and do not necessarily reflect the views of Troy University.
Government eases student loan rules for Hurricane Harvey victims
The Education Department is easing financial aid rules and procedures for those affected by Harvey. The department is encouraging students whose financial needs have been altered by the storm to contact their school’s financial aid office. The agency says in a statement that colleges and career schools will be allowed to use “professional judgment” to adjust a student’s financial information in the aftermath of Harvey. A school may even be able to waive certain paperwork requirements if documents were destroyed in the flooding. The department says borrowers struggling to pay off loans because of Harvey should inform their loan servicers – and they’ve been directed to give borrowers flexibility in managing loan payments. Republished with permission from the Associated Press.
Records: Student-loan forgiveness has halted under Donald Trump
The U.S. Education Department has not approved any applications for student-loan forgiveness in cases of possible fraud since President Donald Trump took office, according to records sent to an Illinois senator. Democratic Sen. Richard Durbin released those records Wednesday and blasted the department for its inaction and for a June decision to delay and rewrite Obama-era rules that would have made it easier for students to get loans forgiven if they were deceived by their schools. “This response shows that while the Department of Education has illegally delayed the new borrower defense rule, it has also stopped processing federal student loan relief under current regulations for tens of thousands of defrauded borrowers,” Durbin said in a statement. “The department can’t ignore these borrowers any longer.” Department officials did not immediately respond to a request for comment. Durbin and four other Democratic senators sent a series of questions to the department on May 17 amid concerns that the pipeline to student-loan forgiveness had stalled under the Trump administration. Also signing the letter were Sen. Patty Murray of Washington, Sen. Chuck Schumer of New York, Sen. Sherrod Brown of Ohio, and Sen. Elizabeth Warren of Massachusetts. Under President Barack Obama, the department approved more than 28,000 claims for loan forgiveness from former students of Corinthian Colleges, a chain of for-profit colleges that closed in 2015 amid accusations that it falsified job-placement data and altered student grades. Those claims topped $558 million. But in the letter responding to Durbin’s questions, Acting Under Secretary James Manning wrote that “no borrower defense applications have been approved between Jan. 20, 2017, and today.” The records also revealed that the department has continued to receive new applications from borrowers who say they were victims of fraud. In total, the department said it received nearly 15,000 applications between Jan. 20 and July 5, mostly from Corinthian borrowers and from former students of ITT Technical Institute, a chain that closed last year. The number of new applications is likely to swell even further, experts say, amid a campaign by many state attorneys general to notify students who might be eligible for loan relief. Overall, the department said there are more than 65,000 pending claims for relief. Although most come from Corinthian and ITT students, others are from people who attended schools that are still in operation, including DeVry University and the University of Phoenix. Many advocacy groups and some Democrats in Congress have urged the department to clear the backlog, saying the delay has left thousands of borrowers strapped with debt that’s eligible to be erased under existing federal rules. In June, Education Secretary Betsy DeVos said that “promises made to students under the current rule will be promises kept” and added that her office was working to discharge more than 16,000 loans that were previously approved to be erased under Obama. But in the same announcement, DeVos unveiled plans to rewrite an Obama-era regulation known as the borrower defense to repayment rule, which aimed to quicken the path to loan forgiveness when schools commit fraud, and to hold those schools financially responsible. DeVos called it “a muddled process that’s unfair to students and schools.” Since then, the department has released little information about its progress, and questions sent to a spokeswoman have gone unanswered. Even top officials in the department aren’t being briefed on the progress, according to the records sent to Durbin. The letter from Manning says that while the department “is in the process of establishing reports including borrower defense information, there are currently no regularly produced reports provided to senior officials. Information is provided upon request.” Borrowers who are awaiting a decision from the department have continued to accrue loan interest, which the department revealed amounts to $143 million. And while most borrowers are given a grace period from their loan payments while they wait, the department said it has expired for “fewer than 50 borrowers” and that “these are exceptions.” But over the next six months, the period is set to expire for 31,000 borrowers. Manning wrote that those borrowers “could have their forbearances extended if their applications are still pending.” Republished with permission of The Associated Press.
Alabama city ranked as 5th most student debt city nationwide
Millennials may be typecast as an entitled, unmotivated and lazy generation that choose to crash in mom’s basement after college because they can’t find a job they like, but even those who fight the narrative and pound the pavement are facing massive post-college debts as they struggle to earn their independence in entry-level jobs. Today, college graduates spend nearly a fifth, or 18 percent, of their salaries just on student-loan payments, according to a recent report from Citizens Bank. And those debts are likely to grow old with them. Three in five graduates, who belong to the Millennial generation, expect to keep paying their college loans into their 40s. With college graduation season upon us, the personal finance website WalletHub on Tuesday released its 2016 report on the Cities with the Most & Least Student Debt where it compared the average student-loan balance against the median income in each of 2,513 U.S. cities to determine where Americans are most overleveraged on their college-related debts. Unfortunately for some Alabama students, the debt burden is devastating. In Selma, students are graduating with an average debt of $28,035. With a median income for ages 25 to 44 at $17,610, that means these graduates have a ratio of student debt to median income of a crippling 159 percent — the fifth worst in the nation. But Selma’s not alone, Talladega’s student debt to median income ratio ranks in the top two percent nationwide at 116 percent, followed close behind by Birmingham with 109 percent. According to Sandy Baum, Professor of Higher Education Administration in the Graduate School of Education & Human Development at George Washington University, and Senior Fellow at the Urban Institute, part of the problem is that college-bound students make the wrong choice about where to go to school and what to study. “Too many people make the wrong choice about where to enroll and what to study,” explained Baum. “That means they may be financing an endeavor in which they are unlikely to succeed, that leads to weak employment prospects even if they do succeed, or that is much more expensive than alternatives of equal or higher quality.” The other issue: some students borrow too much. “They take all the loans for which they are told they are eligible,” continued Baum. “Instead, they should think hard about what their needs will be over the course of the school year. This is particularly an issue for part-time students, who are eligible for the same amounts as full-time students … borrowing moderately is important.” To identify the cities that are most overleveraged on their student-loan debts, WalletHub’s analysts divided the average student-loan balance (based on TransUnion data from September 2015) by the median income of residents aged 25 to 44 in each of 2,513 U.S. cities. According to WalletHub, the most overleveraged cities include Voorhees, N.J.; Opa-locka, Fla.; College Park, Ga.; Bastrop, La.; and Selma, Ala. The least overleveraged cities include Lake Forest, Ill.; Sammamish, Wash.; Severna Park, Md.; Winchester, Mass.; and Scarsdale, N.Y.
Hillary Clinton to propose $350 billion college affordability plan
Calling for a “new college compact,” Hillary Rodham Clinton on Monday will unveil a $350 billion plan aimed at making college more affordable and reducing the crushing burden of student debt. At a town hall meeting in New Hampshire, the state with the highest average student debt in the country, Clinton will propose steps to reduce the cost of four-year public schools, make two-year community colleges tuition-free and cut student loan interest rates, according to campaign aides. The college affordability plan, a main plank of her policy platform, is an effort to address a major financial stress for many American families and satisfy a central demand of the Democratic party’s liberal wing. The proposal centers on a $200 billion federal incentive system aimed at encouraging states to expand their investments in higher education and cut student costs. States that guarantee “no-loan” tuition at four-year public schools and free tuition at community colleges would be eligible to receive federal funds. But Clinton doesn’t go quite as far as some more liberal politicians and party activists, who’ve made “debt- free college” an early litmus test for the presidential primary field. In May, Vermont Sen. Bernie Sanders released his own plan that would eliminate tuition and fees for public universities. The $70 billion annual proposal would be funded by imposing a tax on transactions by hedge funds, investment houses and other Wall Street firms. While military veterans, lower-income students and those who complete a national service program, like AmeriCorps, would go to school for free in the Clinton plan, others would incur costs for their schooling and living expenses at four-year public universities. “For many students, it would translate into debt-free tuition,” said Carmel Martin, executive vice president for policy at the Center for American Progress, who advised Clinton on the plan. “It will depend on the student circumstances and the institution they are going to.” For most students, their families will still be expected to make a “realistic” contribution, say Clinton’s aides, and students will contribute wages from 10 hours of work per week. Those currently repaying loans would be able to refinance their outstanding debt at lower rates, a change Clinton’s aides say will save an average of $2,000 for 25 million borrowers over the life of the loan – an amount that’s equal to just about $17 month over a 10-year repayment period. She would also expand income-based repayment programs, allowing every student borrower to enroll in a plan that would cap their payments at 10 percent of their income with remaining debt forgiven after 20 years. Private universities with “modest endowments” that serve a higher percentage of low-income students, including historically black colleges, would also receive federal funds to help lower the costs of attendance and improve graduation rates. The cost of Clinton’s plan would be offset by capping itemized tax deductions for wealthy families at 28 percent, like those taken by high-income taxpayers for charitable contributions and mortgage interest. That proposal, which has long been included in President Barack Obama‘s annual budget, would raise more than $600 billion in the next decade, according to the Treasury Department. Clinton’s plan would likely face a steep climb in Congress: A $60 billion Obama administration initiative for free community college has gotten little traction. Even so, college affordability has emerged as a major issue on the presidential campaign trail, as families face the highest debt burden in generations. National student debt is near $1.3 trillion and the average price for in-state students at public four-year universities is 42 percent higher than it was a decade ago, according to the College Board. In almost every campaign stop, Clinton hears from students and families worried about paying for school. Her team conducted weeks of meetings with experts on the issue to develop the proposal, including policy staffers for liberal leader Sen. Elizabeth Warren, D-Mass. “There’s something wrong when students and their families have to go deeply into debt to be able to get the education and skills they need in order to make the best of their own lives,” she told students and teachers at Kirkland Community College in Monticello, Iowa, in April, shortly after announcing her campaign. Clinton aides believe their plan will help build enthusiasm for her candidacy with younger voters – whose support twice helped catapult Obama into the White House. The policy rollout is timed for when students return to college campuses. Clinton organizers plan to promote the plan at registration events and other gatherings kicking off the school year, according to a campaign aide, in an effort to galvanize college students. Republished with permission from the Associated Press.
Alabama business roundup: Headlines from across the state
Here’s a roundup of some of the weekend’s top business headlines from across the state: Alabama Newscenter: Business Facilities: Alabama ranks high for auto manufacturing, workforce development Alabama got high marks for “Automotive Manufacturing Strength” and AIDT, Alabama’s workforce development agency, ranked high among “Workforce Training Leaders” in Business Facilities magazine’s annual rankings report, released last week. Record output at Alabama’s three auto assembly plants underlined the state’s No. 2 ranking in the magazine’s “Auto Manufacturing Strength” category. Alabama and Tennessee swapped positions in the rankings from the previous year. “Alabama, this year’s No. 2, is throwing down a marker for a heavyweight rematch: the Crimson Tide rolled out nearly a million vehicles in 2014 for Mercedes, Honda and Hyundai, with Mercedes expanding at Tuscaloosa to introduce a new model,” Business Facilities noted in its ranking report. Alabama’s “world-class on-site training for advanced manufacturing,” is cited for a No. 2 ranking among “Workforce Training Leaders.” AIDT, which has trained 600,000 Alabamians since its founding in 1971, is a division of the Alabama Department of Commerce. “We’re proud of the efforts that these rankings represent,” Commerce Secretary Greg Canfield said. “But there is still much work to be done. With a new workforce incentive structure and a streamlining of resources, we’re poised for even greater things in Alabama.” Under Governor Robert Bentley’s leadership, Commerce is expanding its responsibilities in workforce development with key programs being consolidated within the department. AIDT remains the centerpiece of Alabama’s workforce development efforts. “It’s always nice when rankings come out and people outside of the state recognize the job you’re doing as an organization,” said Deputy Commerce Secretary for Workforce Development and AIDT Director Ed Castile said. “But it really says more about the people of Alabama who go through training and get those advanced skill jobs and make the products that people want. They truly are the best assets we have.” Alabama also ranked No. 6 among the states in the “Education: Tech Skill Leaders” category and No. 9 for “Lowest Industrial Electricity Rates.” Business Facilities has been ranking states annually for 11 years. Alabama Newscenter: Alabama shucks! Oyster means world for Gulf Coast farmers Alabama’s oyster reefs have historically harvested an average of one million pounds of oysters per year and have made it one of the top oyster producing states in the nation for more than a century. But changes to water temperature, environmental impacts, parasites and other issues have made the reefs unpredictable and, at times, unproductive. Oyster farming – with the help of the Auburn University Shellfish Laboratory – has emerged as a more controlled way of continuing Alabama’s oyster producing traditions. This video story put together by Joe York for the Southern Foodways Alliance based at the University of Mississippi’s Center for the Study of Southern Culture talks about how oysters have a strong future through farming in the state. “In 2009, not a single oyster farm operated on the Alabama coast. By 2015, there were eight oyster farming companies, all determined to prove that the world’s best oysters come from this Southern state. Lane Zirlott, of Murder Point Oyster Company, calls it an oyster revolution – one that focuses on presentation as much as taste, and enables hard-working families to make a consistent living on the Alabama waters,” York wrote in the introduction to the video. Officials want to see farming grow alongside increases in reef harvesting to boost oyster production in Alabama to new heights. Birmingham Business Journal: Blue Bell resumes ice cream production at Sylacauga plant Blue Bell Creameries on Wednesday confirmed that production has officially resumed at its Sylacauga facility as the company looks to move forward following a listeria scare that halted work across its footprint. The ice cream products are currently being added to the company’s inventory, but no date has been given as to when products will return to store shelves, according to a report from Fox 6. The company began trial runs at its Sylacauga plant in July, and over the last month, have continued until production was ready to return to a normal pace. A spokesman for the Alabama Department of Public Health, which has partnered with the company through the process, said Blue Bell has run tests at the Sylacauga plant and are free to produce and sell ice cream products. Blue Bell in April recalled all of its products after at least 10 people were diagnosed with listeria. Three of those infected died, according to the Centers for Disease Control and Prevention. The company closed its four locations in Alabama, Oklahoma and Texas for cleaning, in addition to saying the Blue Bell staff at all facilities would undergo training to emphasize aggressive cleaning methods. Blue Bell in May laid off more than a third of its workforce following the closing of the plants and furloughed an additional 1,400 workers. Birmingham Business Journal: Alabama among worst states for student loan debt A new report claims more than 11 percent of all student debt is currently in default – and Alabama is faring much worse than other states. That’s according to a new report by WalletHub, which ranked Alabama 44th overall on the list of the best states for student loan debt. The study took several factors into account, including average debt, student loan debt as a percentage of income, unemployment rate and percentage of student loans in default. The state scored the worst in unemployment for adults aged 25-34, coming in at 50th. Alabama ranked 44th for the percent of student loans in default and 39th for average student debt. WalletHub’s report said the best states were Utah (No. 1), Wyoming (No. 2) and North Dakota (No. 3). Yellowhammer News: High-tech European space company to launch manufacturing operation in Alabama Switzerland-based RUAG announced Friday that it will launch an Alabama manufacturing operation after forming a strategic partnership with United Launch Alliance, which produces rockets at a factory in Decatur. RUAG, one of Europe’s leading suppliers of products for the space industry, said the new Alabama
