Easy college loans could be next 'mortgage crisis'

The parallels to the mortgage lending boom pre-2007 are eerie. People are qualifying for large loans with no regard to their ability to pay. For borrowers, there's no income check, no need to verify employment, and no disclosure of how much other debt they've taken on.

Welcome to the booming field of college loans 2012. As reported earlier this month in a joint investigation by the nonprofit news organization ProPublica and The Chronicle of Higher Education, the federal government gave out $10.6 billion last year in Parent Plus loans, which average about $11,000 per student per year. Adjusted for inflation, that's $6.3 billion more than in 2000. Just under a million families signed on for Parent Plus loans last year -- almost twice as many as in 2000.

The U.S. Department of Education, which runs this particular program, should not be in the business of knocking down families into poor credit and poverty. Yet, Parent Plus loans -- like the no-money-down mortgages of a few years back -- appear to run the risk of that very outcome.

The journalists' report tells the story of a woman making $25,000 a year in 2000 who took out $17,000 in loans for her daughter to attend NYU. Today, with fees and interest, the mother owes $33,000. Her credit has been so badly damaged that she can't qualify for a loan to send a second daughter to college. Student loan debt for Americans, as a whole, now exceeds credit card debt.

This tale of easy credit for people with little means is all the worse when you consider that one in five Parent Plus loans went to students who also received Pell Grants -- need-based financial aid for households with incomes under $50,000 that don't have to be repaid.

Is there a role for the Department of Education to tighten this lending? Should the department perform better credit checks on families? The answer to that question depends in part on your faith in the future. Lending to the parents of bright young students could give them the opportunity they need to step up the social ladder.

But there's also a gloomier prospect -- and another parallel to the mortgage disaster. The housing bubble inflated because people counted on housing prices to continue climbing skyward. With similar sunny optimism, families have been depending on graduates to emerge into careers with steadily growing paychecks.

Yes, college graduates earn 75 percent more, on average, than their peers with high school degrees. But that's if they can find a job. Some estimates say that 54 percent of recent college graduates are unemployed or underemployed -- meaning, they would prefer to work more hours or could take on more responsibility.

Another problem with Parent Plus is it allows colleges to keep raising tuition and fees. The bill for bigger student centers, fancier dorms, and higher faculty and administration salaries is being shifted onto middle- and working-class families. Colleges often steer families toward Parent Plus loans -- some include the loans in financial aid award letters -- when the colleges could be giving students a break on tuition.

Surely, colleges believe that families will safeguard their finances and forgo a loan that puts them at risk of defaulting. But is that asking too much of parents, who may be excited about an acceptance from a child's dream school? Pride and easy credit are a dangerous combination. I wouldn't want to deny a child the chance at an education that might mean everything to his or her future. Upward mobility is hard enough in this country -- and getting tougher all the time.

Yet the Department of Education and colleges need to close this lending spigot. Strict lending rules aren't punitive. They're just good sense.

This essay was first published in Newsday.

Public schools lack independence to analyze cost-savings

Lately, everyone seems to be offering ideas about how to save money in the public schools. People familiar with business or even household budgets look at the problem and want to apply a little common sense. One of the most popular suggestions: Cut the number of superintendents down to one each for Nassau and Suffolk counties, for a potential savings of more than $25 million.

That may sound like a lot, but it would amount to just one-third of 1 percent of the $7.5 billion that Long Island's 124 school districts spend each year. Even so, it's clear that residents are ready for some sign of good-faith reductions from schools.

Decreasing the number of superintendents gained wattage last week as Gov. Andrew M. Cuomo addressed crowds around the state and talked about how much these school leaders are paid. He says that 40 percent make $200,000 or more.

Teachers' raises, "steps" (built-in longevity raises) and credits for coursework - which add up to increases of about 6 percent a year - also have Long Islanders reaching for their budget shears. So do the cadres of assistant superintendents, directors, assistant directors, principals, assistant principals - and on and on.

Per-pupil costs reach $23,000 in some Long Island districts, more than double the national average of $10,259. So, yes, Long Island's school costs appear fat. That's why it's surprising that study groups charged with finding savings always come up with so little.

Take the years-long initiative by Nassau County school districts to consolidate non-classroom operations. Albany gave the districts a $1-million grant to figure out how to save money, in part by jointly bidding contracts. The study group looked at student busing, school inspections and cell-phone use. It spent half its grant money - and came up with a mere $760,000 in potential economies. Early estimates were $5 million in savings a year. What a disappointment.

Then there's the Suffolk County study that was supposed to save money through pooled health insurance. A consultant concluded that the reduction would amount to two-tenths of 1 percent of current costs. That useless exercise was funded by a $45,000 state grant.

These studies are plainly approaching the question the wrong way. They seem to eliminate from the outset any possibility that would cause a friend or ally to forfeit cash. For example, the Nassau County group declined to consider using the county attorney's office for legal work, preferring instead to continue paying outside lawyers "experienced" in school law. As if the county attorney couldn't gain adequate experience within a short time.

People inside the school community, who are invariably leading these studies, just aren't independent enough to ask the hard questions. But outsiders are rarely invited in. Instead, those outside the school corridors are essentially told: You don't understand the requirements and pressures on schools. And outsiders are never trusted with essential information to make smart decisions. If you've ever tried to read a school budget, you know what I mean.

We need some sort of hybrid, an independent study group with insider knowledge, like the 2006 state Berger Commission on hospital closings. Budgets are tight. It would be wonderful to find the $1.5 billion in school savings that Gov. Cuomo has targeted without sacrificing music or art, accelerated programs or special education resources, late buses or athletic programs. Maybe that's impossible. Anyone with a novel approach, please drop me an e-mail. This problem needs all the brainpower Long Islanders can bring to bear.

First published in Newsday

The lure of money for nothing

My dad lost some of his retirement money in the past year's market crash -- which I hope is now behind us, but I'm as much in the dark as anyone. I was silently critical of him, at first, when he told me about his situation. He had left money in stocks -- probably too much for his age (77) and what the financial advisers call his tolerance for risk. After his loss, he moved more money into bonds. He kept some in stocks to try to capture the "upside" -- more investment jargon -- as the economy recovers. But I would soon discover more sympathy for my dad's investment strategy.

Our college savings eroded last year too, even though it was in a slow-growing fund. I was looking at the numbers online last week and wondering why we seemed to have the worst of both worlds: neither the security of bond investments, nor the growth of stocks. I should say here that we have two of those 529 plans -- one for each daughter -- which are run (in most cases, I think) by the chief financial officers of the states where they're available. So, I hadn't had much involvement with choosing where the money was invested, beyond typing in my daughters' expected dates of graduation, 2015 and 2017, and then crossing my fingers and hoping the money will be there. But as I was tooling around on the 529 site, I looked at the range of investment options. One aggressive fund is paying much better than the two I had. So, I moved the money. I can't even believe I'm admitting this -- I am so not a gambler, especially with precious dollars we're setting aside for our kids' future. I was nervous, but not so nervous that it stopped me. I kept thinking about how we're just paying our bills every month, just kind of matching the income and out-go. We're making sacrifices here and there -- cutting down on dinners out and music lessons in the summer. Why should I let this investment fund rob us of what amount we're able to set aside? As I see it, my savings were far worse off than if I had tucked them into a shoebox and stuck it in the back of the closet.

I wanted to risk a little reward.

So far, the new investment is working. I haven't quite recovered our losses, but almost. I'm checking the numbers daily, and it's kind of fun to feel that I've made a good decision, and to look forward to a better total tomorrow. It's addictive. You might say I'm hooked.

So, now I'm telling myself that I'll leave the money in the aggressive fund just until I cover our losses. I guess I'm betting that the world economy has bottomed out.

Anxious all the time

This economy is making me anxious all the time. It doesn't seem as though it should -- my husband and I are two of the lucky ones who have jobs, and our employers seem to be doing OK. No, it's not really my personal situation that has me anxious. It seems like something in the air. First of all, the sheer number of people laid off is astounding -- 663,000 people lost jobs in March alone, and 3.3 million since October. Those are U.S. Bureau of Labor Statistics numbers, so they're probably an under-count. The BLS tends to miss informal work arrangements, people who are discouraged and have stopped looking for work, those who would work more hours if they could, and people who used to have higher-paying jobs.

Every time I think of that number -- 663,000 -- I try to picture all of those people out of work. I really can't. First I come up with a vague image of a tractor rusting in a Midwestern field. Then I picture empty Long Island Rail Road seats as Wall Streeters stay home instead of commuting into NYC. And then I think of how hard it is to be home when you want to work, how much tension it creates.

The other cause of my anxiety is that I feel poorer because of what has happened to my retirement and college savings. We are still shoveling money into these funds, and I have no idea whether that's a foolish thing or not. One theory is that we are "buying low" right now. But is my 401(k) administrator really purchasing stocks? The last time I looked, much of the money had been shifted into bonds. Doesn't this mean that I have "locked in my losses?" I know that I should be more diligent, and maybe take over control of this account myself. But I really don't have any expertise in that. I just signed up to be a journalist in this life. Now, I'm supposed to be picking stocks? Or what? No retirement for me! It's overwhelming.

I can't even get into the college savings stuff. Each of my daughters' accounts has lost about $3,000. What happened to the "magic of compound interest" theory that I was raised on? It's not there any more! There is no more magic. I keep wondering how much debt I will be saddling my children with -- and here's the really crazy part. They are both still in grade school.

Like I said, this anxiety thing is insidious.