Friday, April 20, 2018
These are non-clinical appointments that will take effect in 2018 (except where noted); I will move the list to the front at various intervals as new additions come in. (Recent additions are in bold.) Last year's list is here. Feel free to e-mail me with news of additions to this list.
*Kerry Abrams (immigration law, family law) from the University of Virginia to Duke University (to become Dean).
*Richard Albert (constitutional law, comparative constitutional law) from Boston College to the University of Texas, Austin (effective January 2018).
*Hilary Allen (financial regulation, corporate) from Suffolk University to American University.
*Albertina Antognini (family law, property) from the University of Kentucky to the University of Arizona (untenured lateral).
*Olufunmilayo Arewa (intellectual property, international trade, entrepreneurship, law & technology) from the University of California, Irvine to Temple University.
*Mario Barnes (constitutional law, criminal law, national security law, race & the law) from the University of California, Irvine to the University of Washington (to become Dean).
*Joshua Blank (tax) from a professor of practice position at New York University to the University of California, Irvine.
*Khaled A. Beydoun (constitutional law, civil rights, torts) from the University of Detroit Mercy School of Law to the University of of Arkansas, Fayetteville.
*Binyamin Blum (legal history, evidence, criminal procedure) from Hebrew University, Jerusalem to the University of California Hastings (effective spring 2018) (untenured lateral).
*Jeremy Bock (intellectual property, civil procedure) from the University of Memphis to Tulane University (untenured lateral).
*William Boyd (environmental law, energy law) from the University of Colorado, Boulder to the University of California, Los Angeles.
*Samuel Bray (remedies, property, constitutional law) from the University of California, Los Angeles to the University of Notre Dame.
*Emily Bremer (administrative law, legislation, civil procedure) from the University of Wyoming to the University of Notre Dame (untenured lateral).
*Jennifer Chacon (immimgration law, constitutional law, criminal law & procedure) from the University of California, Irvine to the University of California, Los Angeles.
*Stewart Chang (family law, comparative law) from Whittier Law School to the University of Nevada, Las Vegas.
*Jessica Clarke (sexual orientation, gender & law; employment discrimination; constitutional law) from the University of Minnesota to Vanderbilt University.
*Frank Rudy Cooper (criminal procedure, civil rights, race, gender & law) from Suffolk University to the University of Nevada, Las Vegas.
*Diane Desierto (public and private international law) from the University of Hawaii to the University of Notre Dame (School of International Affairs).
*Victor Fleischer (tax, corporate law) from the University of San Diego to the University of California, Irvine.
*Nuno Garoupa (law and economics, comparative law) from Texas A&M University to George Mason University.
*Brandon Garrett (criminal procedure, civil rights) from the University of Virginia to Duke University.
*Andrew Gold (private law theory, fiduciary law, corporate) from DePaul University to Brooklyn Law School.
*Philip Hackney (tax) from Louisiana State University to the University of Pittsburgh.
*Victoria Haneman (trusts & estates; tax) from Concordia University (Idaho) to Creighton University (untenured lateral).
*Christopher Holman (intellectual property, law & biotechnology) from the University of Missouri, Kansas City to Drake University.
*Robert Jackson, Jr. (corporate law) from Columbia University to New York University (though he will be on leave initially while serving on the SEC).
*Dalié Jiménez (bankruptcy, consumer law) from the University of Connecticut to the University of California, Irvine.
*Kristin Johnson (financial markets, corporate) from Seton Hall University to Tulane University.
*Michael Kang (election law) from Emory University to Northwestern University.
*Orin Kerr (criminal procedure, computer crime law) from George Washington University to the University of Southern California (effective January 2018).
*Robert Knowles (civil procedure, national security law) from Valparaiso University to the University of Baltimore (untenured lateral).
*Eugene Kontorovich (constitutional law, federal courts, public international law) from Northwestern University to George Mason University.
*Rebecca Kysar (tax) from Brooklyn Law School to Fordham University.
*Jill Wieber Lens (torts, products liability, remedies) from Baylor University to the University of Arkansas-Fayetteville (effective January 2018).
*Sheldon Bernard Lyke, (property, trusts & estates, critical race theory) from Whittier Law School to Northern Kentucky University Chase College of Law (untenured lateral)
*Suzette Malveaux (civil procedure, civil rights, complex litigation) from Catholic University to the University of Colorado, Boulder.
*Khrista McCarden (tax) from Pepperdine University to Tulane University (untenured lateral).
*Jeremy R. McClane (corporate, securities, commercial law) from the University of Connecticut to the University of Illinois, Urbana-Champaign (untenured lateral).
*Justin McCrary (law & economics, empirical legal studies, corporate) from the University of California, Berkeley to Columbia University.
*Agnieszka McPeak (torts, law & technology, privacy) from the University of Toledo to Duquesne University (untenured lateral).
*Curtis Milhaupt (Japanese law, East Asian legal system comparative corporate governance) from Columbia University to Stanford University (effective January 2018).
Thursday, April 19, 2018
Here is the announcement, I've inserted institutional affiliations of the scholars whose work was recognized:
The Corporate Practice Commentator is pleased to announce the results of its twenty-fourth annual poll to select the ten best corporate and securities articles. Teachers in corporate and securities law were asked to select the best corporate and securities articles from a list of articles published and indexed in legal journals during 2017. More than 565 articles were on this year’s list. Because of the vagaries of publication, indexing, and mailing, some articles published in 2017 have a 2016 date, and not all articles containing a 2017 date were published and indexed in time to be included in this year’s list.
The articles, listed in alphabetical order of the initial author, are:
Choi, Stephen J. (NYU), Jill Fisch (Penn), Marcel Kahan (NYU), and Edward Rock (NYU). Does Majority Voting Improve Board Accountability? 83 U. Chi. L. Rev. 1119-1180 (2016).
Cox, James D. (Duke), Fabrizio Ferri (Columbia Busness), Colleen Honigsberg (Stanford), and Randall S. Thomas (Vanderbilt). Quieting the Shareholders' Voice: Empirical Evidence of Pervasive Bundling in Proxy Solicitations. 89 S. Cal. L. Rev. 1175-1238 (2016).
Gelpern, Anna (Georgetown) and Erik F. Gerding (Colorado). Inside Safe Assets. 33 Yale J. on Reg. 363-421 (2016).
Goshen, Zohar (Columbia) and Richard Squire (Fordham). Principal Costs: A New Theory for Corporate Law and Governance. 117 Colum. L. Rev. 767-829 (2017).
Hwang, Cathy (Utah). Unbundled Bargains: Multi-agreement Dealmaking in Complex Mergers and Acquisitions. 164 U. Pa. L. Rev. 1403-1451 (2016).
Judge, Kathryn (Columbia). Information Gaps and Shadow Banking. 103 Va. L. Rev. 411-480 (2017).
Morley, John (Yale). The Common Law Corporation: The Power of the Trust in Anglo-American Business History. 116 Colum. L. Rev. 2145-2197 (2016).
Pollman, Elizabeth (Loyola/Los Angeles) and Jordan M. Barry (San Diego). Regulatory Entrepreneurship. 90 S. Cal. L. Rev. 383-448 (2017).
Subramanian, Guhan (Harvard). Deal Process Design in Management Buyouts. 130 Harv. L. Rev. 590-658 (2016).
Rauterberg, Gabriel (Michigan) and Eric Talley (Columbia). Contracting Out of the Fiduciary Duty of Loyalty: An Empirical Analysis of Corporate Opportunity Waivers. 117 Colum. L. Rev. 1075-1151 (2017).
Tuesday, April 17, 2018
Monday, April 16, 2018
I'm sorry to report that Professor Stout, a leading figure in corporate law at Cornell (and who taught previously for many years at UCLA), has died of cancer. I will add a link to the Cornell memorial notice when it appears.
UPDATE: The Cornell memorial notice is here.
Privatization scheme highlights rifts in Democratic party between donors and educators (Michael Simkovic)
Democrats in Colorado recently voted overwhelmingly to reject public school privatization and deregulation efforts (charter schools). Chalkbeat reports:
"Delegates at the Colorado Democratic state assembly Saturday sent a clear message to the state chapter of Democrats for Education Reform: You don’t have a place in our party.
After booing down the head of the education reform organization, who described herself as a lifelong Democrat, delegates voted overwhelmingly Saturday to call for the organization to no longer use “Democrats” in its name. While it’s unclear how that would be enforced, the vote means a rejection of DFER is now part of the Colorado Democratic Party platform. . . .
The platform amendment reads:
“We oppose making Colorado’s public schools private or run by private corporations or becoming segregated again through lobbying and campaigning efforts of the organization called Democrats for Education Reform and demand that they immediately stop using the party’s name Democrat in their name.”
Vanessa Quintana, a political activist . . . said that before she finally graduated from high school, she had been through two school closures and a major school restructuring and dropped out of school twice. Three of her siblings never graduated, and she blames the instability of repeated school changes.
“When DFER claims they empower and uplift the voices of communities, DFER really means they silence the voices of displaced students like myself by uprooting community through school closure,” she told the delegates. “When Manual shut down my freshman year, it told me education reformers didn’t find me worthy of a school.”
Just two people spoke up for Democrats for Education Reform. . . .
In an interview, Quintana said she sees education reform policies as promoting inequality, and she wants to change a status quo in which reformers are well represented in the party establishment. She feels especially strongly about ending school closure and sees school choice as a way to avoid improving every school.
“Families wouldn’t need a choice if every neighborhood had a quality school,” she said. “There should be no need to choice into a new neighborhood.”
She believes the reform agenda is not compatible with the education platform of the party, which reads, in part, “our state public education laws and policies should provide every student with an equal opportunity to reach their potential.”
This move highlights a major rift within the Democratic Party on education policy. Charter school advocacy, expansion and evaluation has been heavily funded by foundations affiliated with technology companies--most famously the Bill & Melinda Gates Foundation--billionaire philanthropists traditionally viewed as Democratic-leaning such as the Broads, as well as conservative and libertarian billionaire philanthropists such as the Kochs and Waltons. By contrast, teachers’ unions have fought for higher wages, stable employment, smaller class sizes, and better textbooks and equipment for students in public schools, as well as nationwide efforts to ameliorate poverty, which teachers say undermines students’ ability to focus on their studies.
There is a serious empirical dispute over the quality of charter schools. The foundations say that charters, often staffed by young, inexperienced, and low-paid teachers with frequent turnover are the future of education. But peer reviewed empirical studies have not consistently found evidence that charter schools improve student performance, compared to public schools, after properly controlling for student characteristics and expenditures per student. Although some studies get positive results (see here and here ), these studies may have suffered from methodological problems that caused them to underestimate differences in student characteristics or to focus only on the best charter schools rather than a representative sample. Many studies find that charter schools perform worse than public schools. (See here, here, here, here). Experiments with K-12 privatization in Sweden produced similarly unimpressive results decades ago.
Sunday, April 15, 2018
Edward Kleinbard in the Los Angeles Times: Tax policy is a bore, until they take your Social Security and Medicare away (Michael Simkovic)
Edward Kleinbard (USC; former head of the Joint Committee on Taxation) writes in the Los Angeles Time
"[B]udget deficits — how much spending exceeds revenues — are extremely large and growing at a disturbing rate. The nonpartisan Congressional Budget Office estimates that the 2019 deficit will be just shy of $1 trillion. That is a roughly 50% jump in the deficit from its 2017 level — extraordinary, considering we're in good economic times.
Tax cuts do not pay for themselves — not the Trump tax cuts, nor in any other case in modern U.S. practice. So we face only two possible courses of action: Either we tax ourselves more, or we dismantle the social safety net (in particular, Social Security, Medicare and Medicaid) that protects Americans from destitution or disability. Which is the right direction for our country to pursue?
One political movement has its answer at the ready: Slash the safety net.
Five fellows at the conservative Hoover Institution recently laid bare in a Washington Post opinion piece how the Tax Cut and Jobs Act of 2017 was just the first step in a two-step dance. The full tango goes like this: Note that our deficits are unsustainable. Blame "entitlement spending" (code for Social Security and Medicare) rather than tax cuts. Demand cuts to social spending on the pretext that some imaginary iron laws of reduced tax collections and deficit concerns require it.
This agenda aims to asphyxiate the working class through the dismantling of the social insurance programs on which most Americans rely. But the tax tourniquet is a political creation, not an economic necessity. When compared with wealthy peer economies, the United States today already is the lowest-taxed country as a percentage of GDP. The tax cuts going into effect this year will reduce federal tax collections still further, to levels substantially below the 50-year average of federal tax revenues as a percentage of GDP.
There is no law of economics that says record-low tax revenues are the prerequisite to a thriving economy. What we actually need, like it or not, are more tax revenues to fulfill our promises to support our fellow citizens. To do so does not require any radical ideas or bankrupting the middle class. We can raise several trillion dollars of new revenue over the next decade with some straightforward moves. . . .
Tax policy is a bore, until they come to take your Social Security and Medicare away. Yes, our federal budget deficit trajectory is unsustainable, but the reason is not profligate or unexpected social spending. Tax Day is as good as any other to reflect soberly on the price our country will pay for systematically undertaxing itself."
It should be noted that Larry Summers and other critics of the 2017 tax reforms predicted these large deficits.
Friday, April 13, 2018
New study finds that Texas lawyers generally remain satisfied with careers even after the recession (Michael Simkovic)
A new survey study by Milan Markovic and Gabriel Plicket finds that Texas lawyers generally remain fairly satisfied after the 2008 recession. However, satisfaction varies by income, practice setting and status.
"In this article we used data from a large cross-sectional sample of Texas lawyers to examine lawyers’ career dissatisfaction in the post-recession period. Our results show that most practicing lawyers regard their careers as satisfying and that factors such as income, practice setting, class rank, and remaining law school debt affect career dissatisfaction whereas attorneys’ demographic characteristics, practice areas, and firms’ size do not. The economic recession may have impacted the legal profession, but the overall incidence of dissatisfaction remains low, and many of the factors that impacted lawyers’ assessments of their careers prior to the recession continue to be salient."
The study is interesting as a purely descriptive analysis, and consistent with studies using After the JD data such as Ronit Dinovitzer, Bryant G. Garth & Joyce S. Sterling, Buyers’ Remorse; An Empirical Assessment of the Desirability of a Lawyer Career, 63 J. Legal Educ. 211 (2013).
One of the more interesting findings is that satisfaction seems to increase with experience, although this raises questions about attrition from the sample (i.e., who leaves the practice of law?).
I think more caution is generally advisable when interpreting cross-sectional data about satisfaction and would have preferred less causal language. I think a longitudinal study with fixed effects would have supported stronger inferences about what drives lawyer satisfaction.
For example, the study notes that law firm partners are more satisfied than law firm associates and suggests that this is because partners have more autonomy. That's plausible, but it's also possible that law firm partners are on average more satisfied than associates because the associates who are the least satisfied leave the law firm, while those that are the most satisfied are better suited to law firm work and therefore are more likely to be offered an opportunity to join the partnership. With a cross-sectional analysis, it's hard to know which (or how much of each) of these factors could be driving differences in satisfaction.
Wednesday, April 11, 2018
In the Guardian, Fordham's Zephyr Teachout argues that members of Congress let the CEO of Facebook off easily and essentially treated his hearing as an opportunity to curry favor with him. Teachout writes:
"It was designed to fail. It was a show designed to get Zuckerberg off the hook after only a few hours in Washington DC. It was a show that gave the pretense of a hearing without a real hearing. It was designed to deflect and confuse.
Each senator was given less than five minutes for questions. That meant that there was no room for follow-ups, no chance for big discoveries and many frustratingly half-developed ideas. Compare that to Bill Gates’ hearing on Microsoft, where he faced lawyers and staff for several days . . . By design, you can’t do a hearing of this magnitude in just a couple of hours.
The worst moments of the hearing for us, as citizens, were when senators asked if Zuckerberg would support legislation that would regulate Facebook. . . . By asking him if he would support legislation, the senators elevated him to a kind of co-equal philosopher king . . .
Teachout goes on to argue that Facebook's wealth, power, disregard for individual privacy, ability to manipulate public perceptions and refusal to take responsibility for accuracy of the content it presents makes it a "danger to democracy."
"Facebook is a known behemoth corporate monopoly. It has exposed at least 87 million people’s data, enabled foreign propaganda and perpetuated discrimination. We shouldn’t be begging for Facebook’s endorsement of laws, or for Mark Zuckerberg’s promises of self-regulation. We should treat him as a danger to democracy and demand our senators get a real hearing. . . .
Zuckerberg strikes me as reliably self-serving. That doesn’t make him that interesting as the CEO of a corporate monopoly; it makes him a run-of-the-mill robber baron. . . [Senators should not] treat him as a good-hearted actor with limited resources, instead of someone who is making monopoly margins and billions in profits."
In fairness to Mr. Zuckerberg, traditional media organizations also often exhibit a disregard for privacy, manipulate public perceptions and refuse to take responsibility for the [in]accuracy of the information they publish and the harm it causes. Too many journalists and and editors invest the bare minimum in fact checking (often nothing), and prioritize entertainment value and "virality" over economic or political significance. The established press too often write preconceived stories full of selective quotes or facts while disregarding contradictory information, refuse to print corrections, elevate the status of those willing to supply "helpful" quotes, and retaliate against those who point out their errors.
This irresponsible behavior is made possible by defamation laws that make it virtually impossible for the press to incur liability unless it can be proved that they knowingly and intentionally lied with the specific goal of destroying an individual's reputation--which is virtually impossible.
Facebook may have contributed to the unexpected outcome of the last election, but so did other media organizations. Mainstream media organizations gave one candidate billions of dollars of free publicity (hundreds of millions more than his rivals) mainly because his provocative statements--delivered with the practiced timing of a "reality" TV star--were entertaining and boosted their readership, and therefore their revenues.
This is what happens when competitive market pressures encourage media organizations to see their role as packaging advertising rather than as supplying accurate information. Facebook may play the same game, only with better technology.
This does not mean that Facebook should get a free pass. But we should not use Facebook as a scapegoat to avoid talking about problems with the media landscape that are systemic and that would persist even if Facebook disappeared tomorrow.
UPDATE: This article was corrected on 4/15/2018 to note that media organizations provided billions worth of free coverage, not just tens of millions.
Tuesday, April 10, 2018
Jake Brooks in NY Times: Direct Federal Student Lending Should Provide Insurance to Students and Public Investment in Education (Michael Simkovic)
John Brooks of Georgetown's excellent Op Ed is available here.
Brooks calls to task some of the questionable and alarmist narratives that have been coming out of nominally liberal think tanks (which are funded by foundations linked to the private student loan industry and purveyors of ed-tech of dubious value), noting that Direct Lending, IBR and debt forgiveness can benefit both students and taxpayers. He also notes the dangers of the new PROSPER act and graciously linked to Friday's post about how small the direct budgetary impact of student loans is when viewed in context.
Brooks notes that some Democrats have been advancing a traditionally Republican privatization agenda. Jeff Sachs has similarly taken Obama and Clinton to task for underinvestment in basic and essential public services and infrastructure, noting that by the numbers they invest only marginally more than Republicans. Brooks argues that because of IBR, Obama deserves more credit, and that this important legacy of his presidency should be preserved.
Monday, April 9, 2018
Pepperdine’s law school recently made an error when submitting enrollment data to U.S. News.com. Pepperdine contacted U.S. News promptly after uncovering the error and submitted corrected data in time for U.S. News to use the corrected data in its ranking. Although the erroneous data was more positive than the corrected data, no reasons have been given to believe that Pepperdine intentionally sought to deceive U.S. News.
I know and respect Paul Caron, the current Dean of Pepperdine. While we don’t always agree on technical or political issues, the notion that he would intentionally commit fraud—and then immediately correct his error—is outlandish. (In the interest of disclosure, Leiter Reports joined a network of legal education blogs that Paul organized, but Leiter Reports and Caron’s blog, TaxProf, often compete and advance different perspectives. I have vocally criticized some of the research covered on TaxProf blog.).
Nevertheless, U.S. News punished Pepperdine by making it an “unranked” law school this year. Those who are not familiar with the reasons for this move in the rankings might mistakenly believe that Pepperdine fell outside the top 100. According to analyses by Bill Henderson and Andy Morriss, if not for the penalty imposed by U.S. News, in all likelihood Pepperdine’s rank this year would have risen from 72 to between 64 and 62.
Unranked status could have an adverse impact on Pepperdine’s enrollments and finances. It is punitive, unnecessary, and perhaps even counter-productive in that it might discourage honest self-reporting of mistakes. A more reasonable and compassionate approach would be to let Pepperdine off with a warning, and report the incident without changing the rankings, for example by including a footnote in the ranking explaining the misreporting. U.S. News is a private business, but because of its virtual monopoly on rankings, enjoys quasi-regulatory authority.
Some of Pepperdine’s competitors might rejoice at Pepperdine’s misfortune, believing that admissions and enrollment are a zero-sum game. They are making a mistake.
The lesson of the last decade is that law schools rise and fall together far more than they benefit from each other’s hardship. What U.S. News does to Pepperdine this year, it could one day do to any law school that makes a mistake, even if it honestly and reasonably attempts to correct it.
Healthy competition between law schools can promote innovation and efficiency, and be good for students and research productivity. But we should be careful that competition does not erode our ability to act cooperatively in pursuit of shared beliefs and shared values of fairness and due process.
Sunday, April 8, 2018
Friday, April 6, 2018
Many alarmist narratives suggest that federal student loans are going to lead to a fiscal crisis for the federal government unless loan limits are capped, interest rates are increased, and debt forgiveness is curtailed. These hyperbolic claims are implausible. Higher education is a tiny fraction of the federal government’s spending and of the U.S. economy (around 3 percent of each). Moreover, education spending is a boon to the economy--boosting employment, earnings, growth and tax revenues.
The federal government spends 4 trillion per year and growing—mostly on the military, healthcare, and social security. That’s $200 trillion dollars in net present value, discounted at 2% in perpetuity. The whole U.S. economy is worth roughly 5 times that much. Household net worth is close to $100 trillion. The federal student loan portfolio is only about $1.3 trillion. Student loans may look big on the federal government’s balance sheet, but the federal government’s balance sheet asset are small to begin with relative to the size of the government and the size of the economy.
Even with Income Based Repayment (IBR) with partial loan forgiveness, borrowers pay some interest and principle, so the loss rates on these programs are nowhere near 100%. Several analyses by the GOA and DOE peg the net subsidy rate on these programs as negative by a few billion (i.e., the programs are slightly profitable for the government), with the possibility of eventually becoming positive by a few billion per year (i.e., the programs could become slightly subsidized). These studies do not take into account the fiscal benefits of higher tax revenues, they only look at the net present value (NPV) of interest and principal payments. The estimated annual subsidy rates are around 0.3% or negative 0.3% or less of the size of the portfolio.
Different assumptions could produce different results. But you would need some pretty extreme assumptions to get to the point where losses on student loans could move the needle. Nations that are no more productive than the United States—and where the returns to higher education are lower—have fully funded higher education with public dollars (i.e., grants and direct institutional subsidies, not student loans) for decades while maintaining a lower debt to GDP ratio than the United States. A grant is the equivalent of a loan with a 100 percent loss rate, since no funds will be repaid except in the form of higher tax revenue.
The direct budgetary impact of federal student loans as a pure lending program—that is, the net present value of all funds dispersed and all fees, interest, and principal collected—is tiny. Viewed in context, whether the student loan program is slightly profitable or slightly subsidized, its direct costs are approximately zero.
But the indirect budgetary and economic benefits of student loans are huge. Federal student loans help finance higher quality and more economically valuable higher education and boost the size of the educated work force. Better education increases earnings, reduces unemployment, and facilitates economic growth and innovation. Around 30 to 40 cents of every extra dollar earned because of higher education goes into the U.S treasury’s coffers through income and payroll taxes, which account for the overwhelming majority of federal revenue.
The real crisis in higher education is that the government is underinvesting in it.
Thursday, April 5, 2018
Sunday, April 1, 2018
As usual, Larry Solum (Georgetown) has a funny April Fool's joke entry. (I'm not sure this gag will be as successful as the one from 2010, which led to people, especially students, asking me for the article Larry described for years afterwards!)
UPDATE: And in the spirit of the day, several readers call my attention to this amusing piece by Columbia's David Pozen.
Thursday, March 29, 2018
...at least until she got cornered by the (very polite) questioner. Of course, Prof. Wax's comments attempted to violate the confidentiality of African-American students at her school, who, like all students, are entitled not to have their academic performance broadcast to the world by a faculty member.
Wednesday, March 28, 2018
Tuesday, March 27, 2018
Dangerous new bill could hurt taxpayers and make financing education more expensive (Michael Simkovic)
Higher Education could soon become substantially more expensive to finance. The federal government may reduce how much it lends to its most profitable borrowers—graduate and professional students—undermining the financial strength of the federal student lending program and reducing competition in the market for student loans. Borrowers could lose an important safety net that limits federal student loan repayments if student incomes are lower than expected. Public sector and non-profit employers could struggle to recruit and retain educated workers as a wage subsidy is eliminated and public-sector compensation becomes even less competitive with the private sector. For-profit lenders and dodgy for-profit online education programs could see huge financial benefits.
- Cap federal Graduate PLUS loans
- Scale back Income-Based Loan Forgiveness
- Eliminate Public Student Loan Forgiveness (PSLF)
- Open federal student loans to for-profit and online programs with questionable track records
Capping Graduate PLUS loans hurts taxpayers. A recent analysis by the Department of Education and the Government Accountability Office found that Graduate PLUS loans are the most profitable in the Federal government’s portfolio, even after accounting for the costs of debt forgiveness.
Figure 13 of the study shows that PLUS loans and unsubsidized Stafford loans make money for the government, after accounting for the cost of income driven repayment.
PLUS loans charge the highest interest rates in the government’s portfolio—often more than private lenders would charge similar borrowers. However, federal student loans come with a safety net that caps repayments as a fraction of a borrower’s income if the borrower’s income remains low relative to debt service payments for an extended period of time and eventually forgives the remaining balance. Risk averse borrowers may find this safety net attractive—public and private student loans are difficult to discharge in bankruptcy.
The Income Based Repayment safety net enables the federal student loan program to compete with private lenders, reducing borrowing costs even for those who opt for private sector loans. The government’s profits from graduate and professional student borrowers help defray the costs of subsidizing other borrowers more heavily.
Figure 5 of the GAO study shows Graduate Plus Loans in Income-Driven Repayment have the lowest subsidy rate of any loan program—that is, graduate and professional students repay more of their loans.
The GAO/DOE study has several limitations that overstate the costs and understate the benefits of these programs. If Graduate PLUS loans are curtailed, the federal student loan program will become less profitable and therefore more politically vulnerable to future cuts. The bill also threatens to undermine the performance of federal student loans by opening the floodgates to funding of low quality for-profit online programs.
Private lending is more volatile than federal lending. Private lending has an unfortunate tendency to become unavailable when it is most needed. During the recession of 2008-2009, private student loan origination volumes plummeted even as demand for education surged. Capping loans to graduate students could lock prospective students from poor and middle-class families out of graduate and professional school if they have the misfortune of graduating college during a recessionary credit crunch—precisely when the opportunity cost of pursuing more education is lowest because the labor market is weakest.
Limiting debt forgiveness could make federal student loans more “profitable” as a pure lending program but could have much larger costs to taxpayers if eliminating this safety net reduces investment in human capital.
The U.S. is already dramatically underinvesting in and overtaxing higher education, as demonstrated by the high public and private returns to education. The public returns to investment in higher education are greater than the expected returns to the stock market or bond market because we have a shortage of high skilled, highly educated labor. The proposed policy changes are bad for students, and they also threaten to undermine the long run economic growth and fiscal health of the United States.
Friday, March 23, 2018
Thursday, March 22, 2018
Well-known for his treatises and textbooks in both constitutional law and legal ethics, he taught for a quarter-century at the University of Illinois, then at George Mason University, and, most recently, at Chapman University. There is an informative obituary from the ABA Journal here.