Obama's College Scorecard is a Giant Student Welfare Scheme

University presidents are deeply disturbed that not only is President Obama not backing off from his proposal to Obama SocialistSS&SS /Foter/Creative Commonscreate a federal scorecard to rate colleges, but one of his deputies actually said that this was no more difficult than "rating a blender." Educating young minds is a such a lofty thing, you know, that comparing it to selling kitchen appliances  isn't just vulgar — it’s blasphemous.

But, I note, in my Washington Examiner column this morning, the tears of university presidents are the only good thing that’ll come out of the proposed scorecard. So enjoy them while you can. Because once they’ve dried their eyes, they’ll start seeing all kinds of opportunities for shaking down taxpayers.

For starters, the scorecard wants to tie federal aid—all $150 billion of it—to the ratings colleges get on “affordability and accessibility” for underserved populations. “This sounds great, but in reality it means that existing federal aid will beget more federal aid,” I note.

But this is not the only way that this scorecard will become a giant welfare scheme for universities and students. One of the little reported provisions in it is that it wants to expand a student loan repayment program called “Pay As You Earn.” This program caps the loan repayment of students at 10 percent of their income for 20 years, after which the remainder is written off. (For professions such as nursing it takes only 10 years to get the write-off.)  Currently, only 2 million or so avail themselves of this program. The president wants to extend it to all 37 million federal loan borrowers, including many new borrowers. I note:

Setting aside the fiscal insanity of expanding an entitlement at a time when the country is already groaning under debts and deficits, what incentive would students have to be careful shoppers if they know that Uncle Sam will eventually write off all their debts?

One reason college costs have grown 27 percent beyond inflation over the last five years is that parents are picking up an ever smaller share of their kids' college costs and the government (and other) grants ever more, according to a report last year by Sallie Mae, a government-sponsored enterprise that manages student debt. Loan forgiveness will shift this equation even more toward the government, giving students even less reason to seek -- and colleges less reason to become -- more cost-effective institutions.

But colleges can get really creative in legally scamming taxpayers on behalf of their students through this program. Consider this story about what Georgetown University’s law school has been doing that didn’t make it into the final column for space reasons.

The New America Foundation, no right-wing nut-bag critic of generous welfare policies, exposed that Georgetown was using this program to pick up the entire law school tab for its students—not just some portion that they couldn’t payback. This is how it works: The program forgives loans after 10 years for law graduates making less than $75,000 in government or non-profit jobs. Until then, however, they have to pay 10 percent of their income toward the loan.

So Georgetown calculates what 10 percent of $75,000 or so would add up to over 10 years. It hikes students’ tuition by that amount because that’s what they’d ultimately have to repay. The students finance their entire tuition—hike and all—from Uncle Sam. Georgetown uses the hike to pay off the feds and the students get to pocket the rest.

The Foundation estimated that Georgetown is able to extract close to $160,000 from Uncle Sam for students, basically their entire cost of law school.

Pretty neat, eh, to see how the nation's brainiacs are keeping themselves busy? Does Georgetown teach them how to spell crony socialism?

For a great explainer of the scam, check out The Washington Post’s Dylan Matthews’ piece.

Bobby Jindal on Georgetown's scam here.

My Washington Examiner column here.

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  • GILMORE||

    Anybody else getting video-ads autoplaying on H&R?

    If so, ideas on how to remove/block?

    I suspect it might be a toolbar virus or something.

  • Sevo||

    GILMORE|5.30.14 @ 12:51PM|#
    "Anybody else getting video-ads autoplaying on H&R?"

    None here; Firefox, ad-blocker running.

  • GILMORE||

    After fiddling around with IE for the last 30 mins, I've booted it and done the above, which has at least ended the annoying ads.

  • Christophe||

    Sounds like an issue on your side. Be safe out there.

  • Plàya Manhattan.||

    No videos here.

  • Rich||

    Almanian! gave Reason the ol' FU about it.

  • ||

    Progressives have an uncanny ability to put together "solutions" that have the exact opposite effect of their stated intent. I know this is intentional, but I'm a little bit in awe of their capacity for lying.

  • GILMORE||

    "Mad Scientist|5.30.14 @ 12:53PM|#

    Progressives have an uncanny ability to put together "solutions" that have the exact opposite effect of their stated intent:"

    You think this is a coincidence?

    It was apparent from the design that the 'affordable' care act had ZERO interest in attempting to reduce costs.

    Similarly, most gun laws consistently are advertised 'a) Common sense restrictions intended to b) Reduce Crime' are so far from being remotely *either* that they overwhelm anyone's capacity to appreciate absurdity.

    All prog 'solutions' have a single goal = CONTROL

    The method by which you get CONTROL in prog-science is

    a) Force unholy amounts of money in its direction. Spend until the money is dripping out of every pore of the institution and any structures that had formerly been in place to 'direct money effectively' dissolve out of pure disuse.

    b) then insist on 'regulating' said institution when it becomes clear that 99% of all that money is simply going to 'waste'!

    Progs maintain a permanent blindspot in refusing to recognize that the 'problems' they try to solve are the creations of their earlier 'solutions'.

    Inequality? Gee, what that needs is MOAR GREAT SOCIETY! wash, rinse, repeat.

  • Scarecrow Repair||

    They don't even need great amounts of money. Jim Crow segregation was an entirely government-enforced mandate; witness the railroad company which led to Plessy (sp?) because they didn't want the expense of separate cars. The solution was not to repeal the Jim Crow mandated segregation, but to replace it with mandated integration, mandated affirmative action, and so on. If they had simply repealed the mandated segregation, voluntary integration would have long since become the norm except for a few isolated and poor nutjobs, and the problem would be over with by now. Instead we have full employment for lawyers, backlash upon backlash, and everyone who cares mad as hell at everybody else.

    It's not a progressive problem, they are just a subset of the general statist problem.

  • Ken Shultz||

    "For starters, the scorecard, wants to tie federal aid — all $150 billion of it — to the ratings colleges get on “affordability and accessibility” for underserved populations."

    Sounds like ObamaCare for universities.

    "One of the little reported provisions in it is that it wants to do expand a student loan repayment program called “Pay As You Earn.” This program caps the loan repayment of students at 10 percent of their income for 20 years after which the remainder is written off."

    Would this program have been possible if not for Obama having effectively nationalized the educational loan system back in 2010?

    http://www.sfgate.com/business.....193888.php

    People said nothing major would come of that--it was mostly just to save students from being at the mercy of greedy banksters. We may never be able to undo all the damage that Barack Obama has done to our country.

  • ||

    Yeah, the government snapped away all my loans from Chase in the middle of law school. It hasn't really affected me as I don't qualify for any income based repayment programs and am paying down aggressively but maybe if Chase still had kept them I would have been able to refinance them considering my and my families long history with them.

  • Plàya Manhattan.||

    They did the exact same thing to my wife. I remember thinking "WTF is FedLoan?".

  • Ken Shultz||

    Well, if Chase had kept the loans, it wouldn't have been as easy for Obama to come in and announce that everyone's loans are forgiven. Remember, back before Barack Obama was president, loans were considered property--and you couldn't just announce that you were taking people's property.

    Meanwhile, how much is the market willing to pay for student debt obligations--that disappear after ten years?

    Why would the market fund private loans like that at today's rates?

    One of the reasons the market has, traditionally, been willing to fund student debt was becasue it's supposedly the hardest debt in the world to discharge in bankruptcy. Now Obama's gonna give everyone a get out of your loan free card?

    From a student's perspective, what's the downside of taking on more debt--if the excess all gets forgiven after ten years?

    Does the term moral hazard mean anything to Obama at all? If he was a complete ignoramus about how debt works before he took office, didn't he learn anything during the housing crisis?! Obama's as dumb as a rock!

  • Plàya Manhattan.||

    "One of the reasons the market has, traditionally, been willing to fund student debt was becasue it's supposedly the hardest debt in the world to discharge in bankruptcy."

    That's half of the equation. The loans are also backed by the taxpayer. Wells or Chase can make 8% on the loans with literally zero risk.

  • LynchPin1477||

    It's one more step in the direction of "free" or damn near "free" college education for everyone. Come up to Quebec to see how that works out. A couple of years ago they tried to raise tuition by roughly $1000, up to maybe $5,000 per year. Students went on "strike" and literally rioted. Yeah, that will be real awesome for American higher education.

  • hawkfan050||

    "Would this program have been possible if not for Obama having effectively nationalized the educational loan system back in 2010?"

    This program, or rather the Income Based Repayment system, has been in place for nearly 10 years now. The first users of the program (working for government/non-profits) are just starting to get their loans forgiven. So not sure what the nationalization has to do with the program. Admittedly the Pay As You Earn program is new, but the concept is not.

  • Sevo||

    "Educating young minds is a such a lofty thing, you know,"...

    And teachers are angels, every one!

  • ||

    The public service PAYE is especially a scam because they don't even have pay taxes on the forgiven debt. Nice little gig for lawyers and doctors to run up huge student loan debt and get most forgiven.

  • DJK||

    I'm not really understanding how this works. PAYE only finances things if you're making less than $75k. Who in their right mind is going to law school to make less than $75k?

  • Plàya Manhattan.||

    Any law student who graduated after 2011.

  • DJK||

    I'm just having trouble believing that anyone would be this stupid. I know numerous young associates who are making well over $200k working in a corporate setting. The average law school costs $60k/year for 3 years - $180k, closer to $200k after interest. At a 5% interest rate, they can pay off that debt in just over 10 years by paying $2k/month. That's $24k/year, about 20% of after-tax income given a salary of $200k (I'm assuming the overall income tax burden is about 40%). That leaves about $96k in after-tax, after-loan income. The alternative is less than $50k after tax and after loan.

  • UnCivilServant||

    There are a great many law school graduates who can't get those 200k jobs. The market is saturated with cheap law grads.

  • Invisible Finger||

    And I know numerous law school grads struggling to find work. Not every law school grad can graduate in the top 5% of the class.

    No one is that stupid when the choice is 180K versus 75K. But when the choice is taking a job in the DA's office for 68K versus taking a private sector job for 85K, you have to do the math to figure out which is the better deal

    Also, the current interest rate is over 5%.

  • Bardas Phocas||

    Government lawyers?

  • ||

    Well that's the point, they get out of law school or med school with 200k in debt and realize working for the government or a non-profit for 10 years at 75k and having 200k (probably more, 10% of your income isn't going to cover interest at those kinds of debt amount) forgiven completely tax free is a better financial decision than working in the private sector for more pay but paying enormous amounts of interest.

  • DJK||

    Nope. Read my analysis above. It is easy to pay off law school debt and still maintain a more than comfortable lifestyle given the payscales in corporate law.

  • Invisible Finger||

  • ||

    I am a recent law grad making a good salary and it is easy for me to pay off my loans (I also only took out 70k not 200k like many) but most law grads aren't making anywhere near the amounts you are stating. The starting salary of an associate at the biggest law firm here in Houston starts at 160-180k and they don't raises super fast. The high starting salary is to recruit the top of the top graduates. That's top of the top schools. There are over 100 law schools, many of which are absolute shit. Quite a few of the shitty ones are private schools charging as much or more than the ivies.

  • Invisible Finger||

    My nephew chose the law school that gave him the bigger scholarship. So he had to make a decision: Do I go to a higher ranked law school and pay more money/take bigger loan or do I go to a lesser law school and pay less money/get smaller loan.

    That decision would be a lot different with this loan forgiveness plan in place.

  • ||

    I still think the decision is always to not do the loan forgiveness as I said below. Even if you are starting with a low salary you would hope that within 20 years you're going to be doing much better (or why go to law school at all).

    The only program that makes any sense is the 10 year public service with complete tax forgiveness as well if you want to work in certain fields. That program already exists. Go work in a DAs office for 10 years then move to criminal defense, go work in the SEC or IRS then move private. That kind of stuff. Of course those jobs are even harder to get now due to the forgiveness program.

  • Invisible Finger||

    Also let's not forget that the top 5% of the graduating class paid the same tuition as the bottom 5% of the graduating class.

    It's not fair!

  • Red Rocks Rockin||

    The high starting salary is to recruit the top of the top graduates. That's top of the top schools. There are over 100 law schools, many of which are absolute shit.

    I suspect a lot of law school grads go merely because they really don't have any idea what else to do with their lives. They think, "Well, I'll have a chance to make decent money, at least," but they don't really care for the profession all that much, or just want to get paid to argue with and berate people.

    But these days, from what I understand, unless you can get into biglaw you're pretty much fucked, especially if you went to some bottom-feeder law school.

  • The Late P Brooks||

    Progressives have an uncanny ability to put together "solutions" that have the exact opposite effect of their stated intent.

    Unintended consequences!

    Nobody expects them.

  • Ken Shultz||

    "One of the little reported provisions in it is that it wants to do expand a student loan repayment program called “Pay As You Earn.” This program caps the loan repayment of students at 10 percent of their income for 20 years after which the remainder is written off."

    Because the problem with this country is that there aren't enough deadbeats.

  • ||

    I read a decent amount of the personal finance subreddit as they are a generally sane corner of the website and it always amazes me to see the people coming on there wondering why their 100k undergraduate student debt keeps going up when they are making the minimum payments. These morons don't even realize that their minimum payments don't even keep up with the interest when they are on PAYE or IBR.

    This is what will happen with expanding those programs and even though it may get forgiven in 20 years it is not going to be good for them financially and they are going to get stuck with a massive tax bill at the end. Something tells me that the kind of people paying less than the interest on their loans aren't going to have the money to pay that saved up and the IRS is going to much less friendly with them. This will surely be another crisis to be solved by government.

  • Ken Shultz||

    "His program caps the loan repayment of students at 10 percent of their income for 20 years after which the remainder is written off."

    He's also limiting payments to 10% of your salary.

    It doesn't matter how much debt you take on, you can't ever pay more than 10% of your salary for 20 years.

  • Ken Shultz||

    Captain Obvious says, "And what do we expect that to do for tuition rates?"

  • ||

    Yes but currently only the 10 year public service program forgives the remainder without a tax on the forgiven amount. I don't see anything in the new proposals that the 20 year program is exempt from tax. You may pay only 10% of your salary for 20 years but then your going to have to make a huge lump sum tax payment if your loans are big enough.

  • LynchPin1477||

    Give it time. I'm sure they'll get rid of the tax for anyone making over $150,000/year whatever income they arbitrarily define as making someone "rich".

  • Rich||

    These morons don't even realize that their minimum payments don't even keep up with the interest

    Hey! Those "morons" have a COLLEGE DEGREE!

  • UnCivilServant||

    I know plenty of morons with a participation award from some insitute of 'higher education'

  • Invisible Finger||

    These morons don't even realize that their minimum payments don't even keep up with the interest when they are on PAYE or IBR.

    No different than the housing bubble "pick a payment" loans.

  • ||

    On and another way this is a terrible plan is that you have to keep making less than 75k for 20 fucking years. If say you get raises, promotions, new job offers, etc. during your prime earning years, suddenly your sitting there with huge loans that you haven't been paying down fast enough and no longer qualify.

    Unless you plan to work for your whole life in a career that pays lower wages it is always better to just get on with it and start paying down as fast as possible. And the people who do plan to do so shouldn't be getting into that much debt for their degree in the first place.

    The whole goddamn thing is just doubling down on the shitty incentives that already exist.

  • Invisible Finger||

    it is always better to just get on with it and start paying down as fast as possible.

    True. And notice how the housing market keeps inflating house values by giving the exact opposite advice.

    How many Americans would prefer a 30-year mortgage to a 15-year mortgage? The answer to that question today is very different from the answer you would have gotten in 1967.

  • ||

    On the other hand with interest rates as low as they are a 30 year mortgage may be fine if you are responsible and take that extra money and put it into retirement. Of course many people see that as free money to spend on shit.

  • Invisible Finger||

    More likely they tell themselves that the bigger house is their nest egg. Forgetting the bigger property taxes.

  • Invisible Finger||

    The interest on a 30-year mortgage is a known amount. The earnings on "retirement" is unknown. If past results were an indication of future returns there wouldn't be any underfunded pension plans.

    The surest bet is to not have debt.

  • The Late P Brooks||

    Autoplay video ads are the price we pay for civilization.

  • DJK||

    Ad-blocker plugin on Firefox. Done.

  • Fist of Etiquette||

    Educators generally don't like to be graded. Universities aren't unionized?

  • LynchPin1477||

    This program caps the loan repayment of students at 10 percent of their income for 20 years after which the remainder is written off

    In other words, it's not a loan, it is a subsidy program for people who go into low paying jobs, with taxpayers and students that get good paying jobs picking up the tab. Fuck.

    Also, is that 20 years of employment or 20 years, fixed? Because here is one potential consequence: women will spend more time out of the workforce raising children to reduce the amount of money they have to repay. Then we'll get another government program to address the disturbing underrepresentation of young women in the workforce.

  • Warren's Strapon||

    Why is everybody so upset about the blender comment? Rating colleges really shouldn't be much more difficult than rating blenders. I can't imagine my life would be that different now, 20 years after the fact, if I'd gone to any one of the other half dozen engineering schools in the region.

  • Red Rocks Rockin||

    Rating colleges really shouldn't be much more difficult than rating blenders.

    It depends on the criteria being used to rate the colleges, many of which are entirely subjective. At least with blenders you can look at horsepower, blender settings, durability--things that are quantifiable in direct relation to the quality of the product.

    The ratings of a college, on the other hand, are entirely dependent on subjective measurements that may or may not indicate the quality of the institution.

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