An Unusual Feat in Congress: Student Loan Bill Breezes On

WASHINGTON — Something pretty rare happened in Congress on Wednesday: it approved and sent to President Obama a major piece of public policy by an overwhelming bipartisan margin.

The feat was even more notable because the legislation, which created a new set of rates for federal student loans, is entwined with many of the issues that often divide Republicans and Democrats: the economy, the financial markets and the government’s role in lending. It passed by a vote of 392 to 31 in the House.

Representative Luke Messer, Republican of Indiana, praised the student loan deal as a triumph of both policy and politics.

“It’s a great victory for taxpayers, because taxpayers won’t be forced to subsidize student loan rates that are arbitrarily set by politicians,” Mr. Messer said. “This, I hope, opens the door to potential compromises on some of the other big issues that we have before us that we have to deal with in the next several months. This proves Washington can work.”

Despite such optimism, lawmakers had little choice but to find a path to a deal. Student loan rates doubled on July 1 because Congress could not come up with a plan to replace student lending laws that had expired.

Failing to act on a compromise before the end of this week would have left legislators heading home for a monthlong recess to face constituents already disillusioned over dysfunction and inaction in the Capitol. None wanted to face criticism that they were so inept that they could not protect middle-class families from paying double what they used to pay to borrow money for college.

Yet the vote, as encouraging as it was on the surface, raised the question of why Congress cannot find consensus on big issues more often. An overhaul of the nation’s immigration laws, which passed the Senate in June, is stymied as House Republicans struggle to come up with a plan that unites the disparate views in their caucus. Though some believe that revamping the immigration system is crucial to the future of their party, others denounce any pathway to citizenship for the 11 million unauthorized immigrants in the country as amnesty.

Efforts to overhaul the tax code seem similarly stuck as Democrats demand more revenue, an idea that Republicans portray as unacceptable. And the parties have found even less common ground on the budget, as many conservatives insist that any new spending resolution not include financing for Mr. Obama’s health care law.

“They don’t trust each other,” said Steve LaTourette, a former Republican congressman from Ohio and a close ally of Speaker John A. Boehner who decided to retire last year in large part because of his frustration with the dynamics on Capitol Hill. “Boehner doesn’t trust the president. The president doesn’t trust Boehner. And until they do trust each other, you’re not going to see anything big getting done.”

Passage of the student loan bill came the same day that House Republican leaders were forced to abruptly pull from the floor a $44.1 billion spending bill on transportation and housing because of a lack of votes. The bill had steep cuts that Republican moderates opposed. Community development block grants would have been cut in the coming fiscal year to $1.6 billion from $3.3 billion, a level lower than when the program began under President Gerald R. Ford.

Representative Hal Rogers, the Kentucky Republican who leads the Appropriations Committee, issued an unusual broadside after the bill was pulled, saying it was now clear that the House could not pass spending bills that complied with overall financing levels set in its own austere budget plan. That suggested tough times ahead for passing required spending bills, and some pointed out that even the student loan deal almost fell victim to the same fate that has doomed other big-ticket items in Congress.

“A few months ago, at least, it seemed like everybody expected a bill that connected student loan rates to Treasury rates would move ahead without any kind of trouble,” said Neal P. McCluskey, an education analyst at the Cato Institute. “And it was surprising when there was.”

The House passed a student loan plan in May. But Senate Democrats balked, saying that the borrowing rates it set were too high and would leave students and their families with too little protection from inflation and fluctuations in the financial markets. Then a coalition of liberal Democrats resisted any plan that linked rates to the financial markets, keeping a deal at bay for weeks.

Under the old federal student loan program, borrowers were offered a fixed rate. Under the new rate structure, which still drew opposition from nearly one-third of Senate Democrats when it passed last week, loans to undergraduates and graduate students, along with parents in the PLUS program, would be subject to a fixed rate plus the yield on the 10-year Treasury note.

Rates for loans taken out after July 1 of this year would be 3.9 percent for undergraduates, 5.4 percent for graduate students and 6.4 percent for those receiving PLUS loans. The rates are fixed over the life of the loan but would change for new borrowers each year.

In a compromise that pleased many Democrats who had initially been wary of using a rate that was subject to inflation and fluctuated with the markets, Congress set a cap on all loans: 8.25 percent for undergraduates, 9.5 for graduate students and 10.5 for PLUS recipients.

Representative Cathy McMorris Rodgers of Washington, the chairwoman of the House Republican Conference, said that while she was “disappointed it took as long as it did for us to get to this place on student loans,” she hoped that the legislation was a harbinger.

“I hope this is setting the stage for more bipartisanship and success on other issues,” she said.

Student Loan Debt Is a Drag on the Economy, Too

Consider Shane Gill, a 33-year-old high-school teacher in New York City. He does not have a car. He does not own a home. He is not married. And he is no anomaly: like hundreds of thousands of others in his generation, he has put off such major purchases or decisions in part because of his debts.

Mr. Gill owes about $45,000 in federal student loans, plus another $40,000 to his parents. That investment in his future has led to a secure job with decent pay and good benefits. But it has left him with tremendous financial constraints, as he faces chipping away at the debt for years on end.

“There’s this anxiety: what if I decided I wanted to get married or have children?” Mr. Gill said. “I don’t know how I would. And that adds to the sense of precariousness. There’s a persistent, buzzing kind of toothache around it.”

The Federal Reserve Bank of New York, in a new study, found that 30-year-olds with student loans were now less likely to have debts like home mortgages than 30-year-olds without student loans — even though most of those with student loans are better educated and can expect to earn more money over their lifetimes. The same pattern holds true for 25-year-olds and car loans.

“It is a new thing, a big social experiment that we’ve accidentally decided to engage in,” said Kevin Carey, the director of the Education Policy Program at the New America Foundation, a research group based in Washington. “Let’s send a whole class of people out into their professional lives with a negative net worth. Not starting at zero, but starting at a minus that is often measured in the tens of thousands of dollars. Those minus signs have psychological impact, I suspect. They might have a dollars-and-cents impact in what you can afford, too.”

The weak economy and tight credit standards remain the main culprits preventing young people just establishing themselves from making major purchases. But millions now face putting a substantial share of their take-home pay toward past debts rather than present needs. Student loan debt leaves them with less money for things like clothes and restaurant meals. And it is even more likely to suppress purchases of more expensive items that need to be bought with credit. A poor job market is compounding the problem: the educational debt burden of many so-called millennials has sharply increased even as they are being forced to get by on significantly less income than the previous generation — a decline of about 15 percent in real terms since 2000, with much of that drop coming from the recession.

According to calculations by the Pew Research Center, the measure of debt to income for households under the age of 35 has ballooned to about 1.5-to-1 in 2010 from about 1-to-1 in 2001. The composition of that debt has shifted, too: more is tied to student debts, and less to homes. “Having a lot of student loan debt makes it harder to qualify for a mortgage and harder to save for a down payment,” said Jed Kolko, the chief economist at Trulia.

With the interest rate on some federal student loans set to double on July 1, House Republicans and Senate Democrats have both put forward proposals to try to hold them down. Representative John Kline, Republican of Minnesota, has proposed tying the rate on several federal student loans to the government’s borrowing costs. Democratic senators, including Dick Durbin of Illinois, have made a similar proposal. Some have suggested going further: Senator Elizabeth Warren, Democrat of Massachusetts, has proposed letting students borrow at the same “discount rate” that the Federal Reserve charges to banks, currently 0.75 percent.

Student loan debt is not only constraining young adults, but also, at least in the near term, holding back the recovery itself, some economists say. The shadows might remain even as the economy picks up, by making young workers more cautious when it comes to decisions about their careers and their finances. Millennials might end up buying less expensive homes or more often choosing to rent than previous generations.

“The debt is shifting how much young people can spend, and it can also be a powerful psychological thing as well,” said Selma Hepp, an economist at the California Association of Realtors.

On the other side of the equation, many college graduates now in their 20s and early 30s should eventually be able to make up for lost ground. Students who take on debt to pay for higher education commit themselves to paying off huge sums, but they usually lift their lifetime earnings by substantial amounts. And they are in a better position to insulate themselves against economic bad times, given the profound rewards the job market provides to the college-educated.

Indeed, the economy is far more punishing to workers without a college degree. The college-educated earn, on average, 80 percent more than those who only completed high school, a premium that has widened over the last 30 years. Unemployment rates for the less educated are higher, too.

For most young workers, gaining a college degree remains well worth it in the long run, even if it delays some purchases in the near term. “For an individual going to college and ending up with a lot of debt — you’re still better off,” said Chris G. Christopher of the forecasting firm IHS Global Insight. There might, however, be a slice of young workers who paid huge sums for degrees that prove less valuable on the job market, saddled by a debt burden that could end up holding them back for decades.

Mr. Gill said his education remained a vital investment, even if the debt overhang has for now put white picket fences or a condo with a gleaming view out of reach. “Sometimes I think: ‘What if I were to buy an apartment?’ ” he said. “It is like asking: ‘What am I going to do when I first land on the moon? What’s the first thought that I will have when I see Earth from outer space?’ ”

Your Money: For Student Borrowers, a Tax Time Bomb

This potential tax bill is a byproduct of federal efforts, including the newly expanded income-based repayment program, that allow you to limit the monthly payments on most federal loans to what you can afford to pay. There’s a formula that uses your income to determine your payment. Then, the federal government forgives any remaining balance, usually after 10 to 25 years.

The catch comes with the forgiveness, since you generally have to pay income taxes on any forgiven debt (unless you were in a program for teachers or worked in a public service job, in which case the taxes go away). For many people, especially those who finished graduate or professional school with six figures of debt, the tax bill could be well into the five figures. And when it comes, you are supposed to pay in full, immediately.

Figuring out just how many people will be in this situation — and just how high the tax bill could be — is a tough task, and not many experts have tried it.

Sorting it all out begins with the repayment programs themselves. Some people signed up for income-contingent payments back in the 1990s. The income-based program came along more recently, and the Obama administration then tweaked it to make it more generous by shortening repayment periods and adjusting the formula used in figuring out the monthly bill.

As of Oct. 31, about two million people had applied for income-based repayment, according to Education Department figures. About 1.3 million had low enough income and high enough debt payments under standard repayment plans to qualify for reduced payment under the terms of the program. Another 440,000 applications were still pending.

In the 2011-12 school year alone, more than 10 million people took out the popular federal Stafford student loans, according to the College Board’s Trends in Student Aid report. Cooper Howes, a Barclays analyst, estimated in a report earlier this month that more than half of all borrowers would be eligible for payment reductions because of their incomes.

If you or your children are borrowers and the income-based repayment program is new to you, you should consult the Project on Student Debt’s ibrinfo.org site, which is about as clear as this complicated topic can get. The Education Department’s site is worth a thorough look, too, as is the New America Foundation’s income-based repayment calculator. I’ve stuffed the Web version of this column with links to these and other pertinent information sources.

Trying to pinpoint the scope of the looming tax issue starts to get more complicated pretty quickly. Not all eligible students will sign up for income-based repayment, since some will not hear about it, will ignore it when they do, will assume or be told (incorrectly) that they can’t qualify or will worry that there is some kind of catch. For those who sign up, it’s awfully hard to predict how many will eventually have some debt forgiven a couple of decades from now.

But Jason Delisle, who has written extensively about the income-linked repayment programs as director of the federal education budget project at the New America Foundation, points to an Office of Management and Budget effort that took a stab at it. The O.M.B. assumed that 400,000 borrowers from 2012 through 2021, each with a beginning average loan balance of about $39,500, would each eventually receive loan forgiveness of about $41,000. Yes, you read that right. The forgiven debt will be more than the original balance, albeit many years later.

At $41,000 of loan forgiveness, the federal tax bill could easily be over $10,000 depending on your tax bracket. There are also state income taxes to contend with, depending on where you live.

But the numbers can go much higher. Stephanie Day earned her bachelor’s degree in her 40s after a divorce, intending to enter the field of social work. She finished in the depths of the recession and could not find work, so she returned to school to get a master’s in psychology to bolster her credentials.

Even then, the jobs available near her home in Seattle were slim, so she moved to a town on the border of New Mexico and Texas for a position there. One home invasion and 12 months of misery at being apart from her children later, she’s now back in Seattle and paying just $30 each month on her $80,000 or so in debt via the income-based repayment plan.

Ms. Day has run the numbers and can foresee a situation where the government will forgive more than $100,000 of her debt, given that her unpaid balance keeps growing thanks to the low payments. And while she expressed dismay that so few people were aware of the tax bill in their future, she does not necessarily mind paying it. “I think it’s perfectly fair,” she said. “I guess I’m old school.”

Your Money: For Student Borrowers, a Tax Time Bomb

This potential tax bill is a byproduct of federal efforts, including the newly expanded income-based repayment program, that allow you to limit the monthly payments on most federal loans to what you can afford to pay. There’s a formula that uses your income to determine your payment. Then, the federal government forgives any remaining balance, usually after 10 to 25 years.

The catch comes with the forgiveness, since you generally have to pay income taxes on any forgiven debt (unless you were in a program for teachers or worked in a public service job, in which case the taxes go away). For many people, especially those who finished graduate or professional school with six figures of debt, the tax bill could be well into the five figures. And when it comes, you are supposed to pay in full, immediately.

Figuring out just how many people will be in this situation — and just how high the tax bill could be — is a tough task, and not many experts have tried it.

Sorting it all out begins with the repayment programs themselves. Some people signed up for income-contingent payments back in the 1990s. The income-based program came along more recently, and the Obama administration then tweaked it to make it more generous by shortening repayment periods and adjusting the formula used in figuring out the monthly bill.

As of Oct. 31, about two million people had applied for income-based repayment, according to Education Department figures. About 1.3 million had low enough income and high enough debt payments under standard repayment plans to qualify for reduced payment under the terms of the program. Another 440,000 applications were still pending.

In the 2011-12 school year alone, more than 10 million people took out the popular federal Stafford student loans, according to the College Board’s Trends in Student Aid report. Cooper Howes, a Barclays analyst, estimated in a report earlier this month that more than half of all borrowers would be eligible for payment reductions because of their incomes.

If you or your children are borrowers and the income-based repayment program is new to you, you should consult the Project on Student Debt’s ibrinfo.org site, which is about as clear as this complicated topic can get. The Education Department’s site is worth a thorough look, too, as is the New America Foundation’s income-based repayment calculator. I’ve stuffed the Web version of this column with links to these and other pertinent information sources.

Trying to pinpoint the scope of the looming tax issue starts to get more complicated pretty quickly. Not all eligible students will sign up for income-based repayment, since some will not hear about it, will ignore it when they do, will assume or be told (incorrectly) that they can’t qualify or will worry that there is some kind of catch. For those who sign up, it’s awfully hard to predict how many will eventually have some debt forgiven a couple of decades from now.

But Jason Delisle, who has written extensively about the income-linked repayment programs as director of the federal education budget project at the New America Foundation, points to an Office of Management and Budget effort that took a stab at it. The O.M.B. assumed that 400,000 borrowers from 2012 through 2021, each with a beginning average loan balance of about $39,500, would each eventually receive loan forgiveness of about $41,000. Yes, you read that right. The forgiven debt will be more than the original balance, albeit many years later.

At $41,000 of loan forgiveness, the federal tax bill could easily be over $10,000 depending on your tax bracket. There are also state income taxes to contend with, depending on where you live.

But the numbers can go much higher. Stephanie Day earned her bachelor’s degree in her 40s after a divorce, intending to enter the field of social work. She finished in the depths of the recession and could not find work, so she returned to school to get a master’s in psychology to bolster her credentials.

Even then, the jobs available near her home in Seattle were slim, so she moved to a town on the border of New Mexico and Texas for a position there. One home invasion and 12 months of misery at being apart from her children later, she’s now back in Seattle and paying just $30 each month on her $80,000 or so in debt via the income-based repayment plan.

Ms. Day has run the numbers and can foresee a situation where the government will forgive more than $100,000 of her debt, given that her unpaid balance keeps growing thanks to the low payments. And while she expressed dismay that so few people were aware of the tax bill in their future, she does not necessarily mind paying it. “I think it’s perfectly fair,” she said. “I guess I’m old school.”

National Law Student Pro Bono Mandate Not Likely

It appears that a New York-style pro bono requirement for law students won't be going national anytime soon.

New Jersey Governor Chris Christie Calls Law Student an ‘Idiot

The team at has an interesting opportunity for individuals looking for an in-house position with a growing tech company. If you’re interested in joining a top tech company to utilize the skills you’ve gained thus far, check out the position below.

Position: Corporate Counsel

Description: This Silicon Valley-based Technology Company is seeking to hire a Corporate Counsel with 4+ years of large firm experience. The candidate will report directly to the Senior Vice President & General Counsel and be responsible for negotiating and drafting various technology agreements; conducting due diligence for acquisitions; counseling business units regarding regulations and legal compliance matters; researching issues and drafting transactional documents where precedents may not exist; and managing outside counsel for specific transactions or company related matters as required by the General Counsel.

Location: Silicon Valley, California

This opportunity is brought to you by Lateral Link Director Brandi Barnes, a recruiter covering California. To apply for this opportunity, please register at . You can also reach out to Brandi directly via email at bbarnes@laterallink.com. If you are a Lateral Link member already, see position #8627.

Back in May 2011, we informed our readers about a lawsuit brought forward by Jacoby & Meyers, a personal injury and litigation firm made famous by its ridiculous television commercials. In that suit, the PI magnates contested an ethics rule which barred non-lawyers from being able to stake a claim in the ownership of law firms. They want lawyers to be able to run their firms like real businesses, outside investors and all.

After all, that pesky ethics rule no longer exists down under in Australia, and in England, people can now add “legal services” to their grocery lists. But as we noted in Morning Docket, “America’s Most Familiar Law Firm” took a bit of a blow in New York yesterday when one of its lawsuits challenging the ban was dismissed.

Let’s take a look at what happened….

Continue reading “New York Says ‘No’ (For Now) to Non-Lawyer Firm Ownership”

You’ve probably heard the same advice as I have about participating in meetings — speak up at least once during every meeting. Otherwise, people will wonder why you’re even there — are you engaged in the discussion? Do you even understand what’s going on? Are you nursing a hangover again? What’s the deal?

Now, some of you have absolutely no problem speaking up at meetings. In fact, maybe you’re a little too “good” at it. This post isn’t for you. For those of you who don’t realize you babble on too much in meetings, there will be a different post dedicated to the likes of you, entitled: “When Everyone in the Room Has Ceased Making Eye Contact with You, It’s Time to Shut Up.”

Others of you are shy about speaking up in larger groups, especially in front of a lot of senior people. You feel pressured to come up with something brilliant, and often end up not saying anything at all because you don’t think your ideas are worthy of public utterance. Or sometimes, you really can’t seem to think of anything to contribute….

Continue reading “Moonlighting: How Watching Game Shows Can Help You in Meetings”

Justice Scalia speaking last night at Wesleyan University.

Last night, Justice Antonin Scalia delivered the prestigious Hugo Black Lecture at Wesleyan University, speaking in the university’s Memorial Chapel before a packed house. Wesleyan is an uber-liberal school — the basis for the movie PCU, about a very Politically Correct University — and Justice Scalia’s visit was preceded by campusprotests. But I was pleasantly surprised by how respectful and appreciative the audience was of Justice Scalia’s deeply thoughtful and persuasive remarks; the protests during his speech were minor and clustered near the end.

I trekked up to Middletown from New York City to attend the lecture. What did Justice Scalia have to say? And what did the protests entail?

Continue reading “Justice Scalia Goes to Wesleyan”

New Jersey Governor Chris Christie

Much to the dismay of students, faculty, and alumni, the Camden campus of Rutgers University School of Law will soon be merging with Rowan University, and doing away with the Rutgers name. Up until now, our coverage of the pending merger has been limited to Morning Docket entries. But last night, during a town hall meeting held by New Jersey Governor Chris Christie, the debate got interesting.

In what is being referred to as “the most-heated town hall clash of the year,” Christie reportedly got into a shouting match with a current Rutgers Law – Camden student. Harsh words were exchanged, and the scene ended with the law student being escorted from the meeting by police.

Who is this law student, and what was said? Let’s delve into the details….

Continue reading “New Jersey Governor Chris Christie Calls Law Student an ‘Idiot’”

Tags: Chris Christie, Christopher Christie, Law Schools, New Jersey, Rowan University, Rutgers Law, Rutgers Law - Camden, Rutgers School of Law, Rutgers School of Law - Camden, Rutgers University School of Law, Rutgers University School of Law - Camden, William Brown

0 Comments

Permalink  |  View Entire Page