TRUMP, CHRISTIE, EDUCATION, AND STUDENT DEBT

Did anyone else notice Governor Chris Christie’s expression as he stood behind Donald Trump on Super Tuesday evening? Perhaps he wasn’t feeling well. Or perhaps he was discovering more than he wanted to know about the man he’d endorsed for the presidency of the United States.

Monday night before the big primaries, Christie had told his New Jersey radio audience, “I am the highest level endorser that Donald Trump has had. I’m the person with the most experience in governing that is in his circle.” He said that there was “absolutely no question” that Trump listens to him.

Self-Delusion

“I’ve known him personally for 14 years,” Christie continued. If so, he should ask himself why Trump would listen to him. Now that Christie has dropped out of the primary race, why isn’t he just the latest addition to the Republican front-runner’s list of “losers”? That’s Trump’s world — winners (like him) and losers (like Sen. John McCain). Besides, Trump prides himself as an outsider who disdains almost anyone associated with government.

Maybe Christie will be an exception to Trump’s loser rule. The day after Super Tuesday, a Fairleigh Dickinson University PublicMind poll found that the dominant word that New Jersey voters used to describe their governor was “bully.” The next most frequent adjective was “arrogant.” Maybe Trump sees those as redeeming qualities. Perhaps he sees a bit of himself in the New Jersey governor.

Political Death Spiral

There’s another possible explanation for the odd look on Governor’s Christie’s face Tuesday evening: unhappy realization. The New Jersey “bully” had become a Trump “tool.” He’d played all-in with his political career and the impact was swift and certain.

Christie’s former national finance co-chair, Meg Whitman, slammed him:

“Chris Christie’s endorsement of Donald Trump is an astonishing display of political opportunism. Donald Trump is unfit to be president. He is a dishonest demagogue who plays to our worst fears. Trump would take America on a dangerous journey. Christie knows all that and indicated as much many times publicly. The governor is mistaken if he believes he can now count on my support, and I call on Christie’s donors and supporters to reject the governor and Donald Trump outright. I believe they will. For some of us, principle and country still matter.”

According to the Fairleigh Dickinson poll, after endorsing Trump, Christie’s New Jersey statewide approval rating dropped from 33 percent to 27 percent.

Desperate Measures

Christie said that he didn’t agree with Trump on everything, but he did on taxes, job creation, and strengthening America’s leadership in the world. How does he know where Trump stands on anything? The only Trump “positions” on those issues are sound bites that produce audience applause, not substantive debate. His positions change constantly — even on whether he knows certain people.

For example, on Sunday morning, he told Jake Tapper at CNN that he didn’t even know who David Duke, the grand wizard of the Ku Klux Klan, was:

“Just so you understand, I don’t know anything about David Duke…I know nothing about David Duke. I know nothing about White Supremacists. And so you’re asking me a question about people that I know nothing about….I just don’t know anything about him.”

The next day, Trump said he didn’t hear Tapper’s question: “I was sitting in a house in Florida, with a bad earpiece. I could hardly hear what he’s saying.”

Anyone who buys that explanation deserves everything that Trump is selling.

On more substantive policy issues, Trump is all over the map. He says whatever gets him through the moment. He says whatever his audience wants to hear. For Republican primary voters supporting him, substance has yielded to anger that has created a cult of celebrity. They cheer empty words.

Actions v. words

But glimmers of Trump’s real self emerge from his actions. Here’s an example of Trumpism at work. Last fall, he decried the government for making money on student loans. In a November 2915 forum in Iowa, he added that too many graduates are “borrowed up, and they can’t breathe, and they get through college and the worst thing is, they go through that whole process and they don’t have any job.” If elected, Trump said he planned “do something very big with student loans” — including providing refinancing “for people who have loans who literally can’t do anything.”

“Something very big.”

What could it be? Something “great”; something “huge.” Maybe there’s a clue in Trump University.

It used a Wall Street address that implicated New York registration requirements. As Steven Brill reported last November, “New York State law requires that anything calling itself a university must apply, be vetted, have all instructors vetted and then be certified, none of which Trump did. Despite repeated warnings from state education regulators beginning in 2005, Trump persisted in operating out of 40 Wall St. until winding down operations in 2010.”

Before folding, the “University” was renamed the “Trump Entrepreneur Initiative.” It didn’t offer degrees. The course of study began with free seminars on insider real estate moneymaking techniques. It encouraged attendees to purchase additional sessions — up to one-on-one mentoring packages costing $35,000. It left many “students” in debt.

Measuring Success

But Trump’s program made money for Trump. According to Brill’s examination of public records, “Trump University collected approximately $40 million from its students – who included veterans, retired police officers and teachers – and that Trump personally received approximately $5 million of it, despite his claim, repeated in our interview, that he started Trump University as a charitable venture.”

Trump claims to have surveys showing a 98 percent satisfaction rate — “better than Harvard” — and is confident that he will win all of the pending lawsuits involving the now defunct “university” bearing his name. But perhaps what really bothers him about the government “making money on student loans” is that the money should be going to him instead.

By the way, because Trump University and its successor Trump Enterprise Initiative failed, maybe that makes him a loser, too.

GAME-CHANGER?

Almost overnight, a persistently sad situation finally has many legal educators squirming. And rightly so.

The problem has been years in the making, as has been the profession’s unwillingness to address it. Federal funding mechanisms have combined with lack of accountability and non-dischargeability in bankruptcy to block the effective operation of market forces in legal education. Well-intentioned policies have gone terribly awry; they actually encourage misbehavior among many law school deans.

As law student debt soared into six-figures, calls for change produced the equivalent of catcalls from the “voice of the profession” — the ABA. Its latest Task Force report on the subject should embarrass anyone associated with it, including the House of Delegates that approved it. As the profession’s echo chamber convinced itself that all was well, hope for meaningful change was leaving the building.

But as it did four years ago, The New York Times has now aimed its spotlight on one of the profession’s dirtiest secrets.

The Paper of Record Speaks

In January 2011, The New York Times’ David Segal wrote a series that exposed the cynical gamesmanship whereby law schools inflated their recent graduates’ employment statistics. Through the deepening Great Recession, the profession still generated 90-plus percent employment rates for recent graduates. How? By counting every short-term, part-time, and non-JD-related job as if it were a position that any law graduate would want. Part-time greeters at Wal-mart, temporary baristas at Starbucks, and associates at Cravath were all the same in the eyes of that metric: employed.

The ugly truth surprised many prospective law students, but not the ABA, which had approved the schools’ misleading reporting methods. It turned out that within nine months of graduation, only about half of all new J.D.-degree holders were obtaining full-time long-term (defined as lasting a year) jobs that required bar passage. Within two years of the Times’ expose’, the ABA succumbed to public embarrassment and required law schools to detail their employment outcomes.

And It Speaks Again…

The overall full-time long-term JD-required employment rate has barely budged since the new age of transparency began, but law school tuition and resulting student debt have outpaced inflation. As applications to law school plummeted, many deans responded by increasing acceptance rates to keep student loan revenues flowing.

So now the focus has shifted from full disclosure to flawed funding, and the Times has entered the field of battle:

— On August 25, it published my op-ed on the law school debt crisis and the ABA”s feeble response. It went viral.

— On October 24, the Times’ lead editorial was “The Law Student Debt Crisis.” It, too, went viral.

— On October 26, the first page of the Times’ business section completed the trifecta with “Study Cites Lower Standards in Law School Admissions.” The article discusses Law School Transparency’s report documenting that bottom-feeder schools are exploiting unqualified applicants.

And Still the Naysayers Resist…

Previous posts discussed two letters-to-the-editor responding to my August 25 Times piece — one from a law professor at Texas A&M; the other from Northeastern’s dean. There’s no need to review them here. The latest Times’ editorial is generating similarly defensive vitriol from some law professors and deans who are determined to defend the indefensible.

For example, Professor Frank Pasquale at the University of Maryland School of Law (where the full-time long-term JD-required employment rate for 2014 graduates was 57 percent) fears that the Times’ October 24 op-ed will accelerate privatization:

“Private lenders are sure to be pleased by the editorial,” Pasquale writes at Balkanization. “Law school loans are lucrative for them because of extremely low student loan default rates for law school borrowers… The stage is now set for a bootlegger/baptist coalition: as prohibitionists cut off the flow of federal loans, private lenders line up to take their place.”

But The Naysayers Are Wrong…

Pasquale offers a clever turn of phrase, but his premise is incorrect. The widespread use of deferral and income-based repayment programs means that the default rate is not the most meaningful measure of whether a loan will be repaid. Actual repayment rates are. Depending on the school, repayment rates can be pathetic.

Professor Bill Henderson at Indiana University Maurer School of Law doesn’t share Pasquale’s confidence that private lenders would step into any breach that the loss of federal funds created. Henderson also notes, correctly, that private loans don’t come with deferral and IBR options that have kept nominal default rates low as non-repayment rates have surged:

“[P]rivate lenders would need to be confident that loans would be repaid. That likelihood is going to vary by law school and by law student, raising the cost of lending.”

Precisely correct. As I’ve suggested previously, tying the availability of law school loans to school-specific employment outcomes could allow the market begin exercising its long-denied power to correct the situation. It could also mean big trouble for marginal schools.

How About Holistic?

Pasquale also chides the Times for its narrow-minded approach: “[T]he paper’s biased view of higher education in general is inflecting its take on law schools. We can only hope that policymakers take a more holistic approach.”

How about a holistic approach that permitted educational debtors to discharge their private loans in bankruptcy? In that case, Pasquale’s “stage” would no longer be “set for a bootlegger/baptist coalition” whereby “prohibitionists cut off the flow of federal loans [and] private lenders line up to take their place.” Private lenders wouldn’t rush to make fully dischargeable loans to students seeking to attend marginal schools that offered little prospect of employment generating sufficient income to repay them.

How About A Constructive Suggestion?

Policymakers could revise the federal loan program to tie student funding at a school to that school’s employment outcomes for recent graduates. In fact, it could do that while preserving deferral and IBR programs. Add dischargeability of educational debt in bankruptcy and you have the beginnings of a holistic recipe for hope.

In that respect, Professor Henderson notes: “I have faith that my legal colleagues would do a masterful job solving the problems of higher education.”

Based on the profession’s track record to date, I fear that my friend’s sentiment reflects a triumph of hope over reality. But his key message is right on target: If the profession does not put its own house in order soon, someone else will.

Marginal law schools exploiting market dysfunction may have triggered the current round of scrutiny, but outside interveners will not limit their systemic fixes to the bottom feeders. Deniers of the ongoing crisis can persist in their positions, or they can propose solutions, as I have.

The Times has pulled a loose thread on the entire legal education establishment’s sweater.

The Most Unfortunate Comment Award to Date

The words seem so innocuous — “federally guaranteed student loans.” But what do they mean when someone actually defaults and the government has to make good on its guarantee? A recent article in The New York Times provides the answer.

A brief review of the business model

This post is the latest in what became my unintended series on the law school business model. It began with The Wall Street Journal’s misrepresentation in a lead op-ed piece. The Journal claimed that Congress made student loans non-dischargeable in 1976 because of widespread abuse. That is, graduates benefited from government loans and then declared bankruptcy on the eve of lucrative careers to avoid their debt. There’s no delicate way to put this: The WSJ was perpetuating a thirty-five-year-old myth.

Then I considered law schools that offer tuition discounts in the form of merit scholarships. There’s no mystery there: a secretive process of awarding money facilitates an individualized approach to pricing that maximizes tuition revenues while enhancing a school’s U.S. News ranking.

Most recently, I turned to yet another element of the current law school business model: raising the list price of tuition while reserving the flexibility to move lower as needed to attract particular candidates.

Follow the money

Now consider the source of all that tuition money. Some people are able to pay their own way, regardless of the cost. But they’re in the minority. Matt Leichter reports that the 44,000 law graduates in the class of 2010 took on $3.6 billion in debt, up sharply from $3.1 billion only two years earlier. The number is climbing as tuition goes up.

The chances that recent graduates will secure a job requiring a law degree are about 50-50. Although others will get non-legal jobs that pay reasonably well, the ranks of new lawyers with loans they can’t afford to repay is growing.

So what?

Students now have an income-based repayment (IBR) option for federal loans; that may afford some relief. But as Professor William Henderson explains in “The Law School Tuition Bubble,” two problems arise. First, dedicating fifteen percent of income for the requisite twenty-five years of a total IBR plan is akin to a permanent tax on the already low incomes of those lawyers. Forget about saving for retirement or funding their own kids’ higher education.

Second, those IBR participants who make it all the way to the end of the twenty-five years will have their remaining loan balances forgiven. That will add more debt that that the federal treasury will bear — for anyone who worries about such things.

Default

For recent graduates with limited job prospects, IBR is better than nothing. But some will default on their loans, just as their predecessors have. This poses no problem for law schools; they’ve already collected their tuition money and don’t have to return it.

Default poses no problem for lenders, either. That’s because educational debt is not dischargeable in bankruptcy, except in rare cases that satisfy the “undue hardship” requirement.

Moreover, the federal guarantee kicks in for private lenders, at which point the government foots the bill. But that’s not the end of the story. As the Times article explains, the newest growth industry is student loan debt collection. Last year, the government paid more than $1.4 billion to debt collection organizations it hired to track down student defaulters.

A Most Unfortunate Comment

For anyone who doubts that this is unapologetic intergenerational exploitation of the young by the old, consider these comments from Jerry Ashton, a consultant for the debt collection industry and the winner of the most Unfortunate Comment Award to date:

“As I wandered around the crowd of NYU students at their rally protesting student debt at the end of February [2011], I couldn’t believe the accumulated wealth they represented – for our industry. It was lip-smacking.”

Ashton included a photograph of several students to which he added these details: “a girl wearing a t-shirt emblazoned with the fine sum of $90,000, another with $65,000, a third with $20,000 and over there a really attractive $120,000 was printed on another shirt.”

Someday this will all come crashing down. I fear that people like Ashton — and merger/acquisitions specialist Mark Russell, who described student loans as the debt collection industry’s “new oil well” — will make money on that event. too. Shame on them. Shame on all of us.