When Is A Default Not A Default?

AboveTheLaw (ATL) had a post today entitled "The Student Loan Bubble: Only Stupid People Will Be Surprised When It Bursts".  The post derives from this Huffington Post article that details the massive and sudden increase in student loan debt from from 440 B to 550 B since 2008 - a 25% increase over three years.  I would also be really remiss if I did not point out that LawSchoolTuitionBubble (LSTB) has been calling attention to this for some time and his most recent post on it suggests that the total numbers may be even greater.

No More Subsidized Stafford Loans - Debt Bill

I just wanted to call attention to this aspect that was part of the Debt Ceiling Bill that has now been signed into law - and as reported by AboveTheLaw - no more subsidized interest for grad student loans after July 2012.
For law students, the big one here is probably the Subsidized Stafford Loan - which usually makes up $8,500/year of the typical loan package.  You used to have the interest subsidized while you were in school - and for 6 months afterword.  Now the interest subsidization is gone, gone gone.

What's the impact going to be on law students?  Well, the Stafford Loan rate is currently 6.8%, and loan disbursements take place at the start of the year.  Consequently, by the September after graduation, the accumulated principal and interest would be: 8.5K *(1.068)^3 + 8.5K *(1.068)^2 + 8.5K *(1.068) = 10355+9695+9078= $29,128.  Subtracting out the $25,500 in principle, we get $3,628

Consequently, for almost all students, law school just got $3,628 more expensive.

Here's another thing that is interesting and illustrates the declining support for education in the U.S. (before the subsidized interest loan was eliminated) the $8,500 limit had remained unchanged since at least 1995 - I still remember $8,500 being my subsidized amount at that time.  This is in spite of the cost of going to law school literally TRIPLING (taking inflation into account) over that time period.  Thus, the subsidized part has become a lesser and lesser percentage of the loan burden over that time.

If it wasn't already apparent, going to law school AT THIS TIME is a truly rotten deal for almost all law students.  Only about 1 in 20 really make it work.  It used to be a pretty decent deal, but the economics of the situation have truly changed.  It may change back some day, but it won't for at least several years.

Why The ABA Accreditation Committee Won't Lead - Part 1 - The Problem

There's a great article on AboveTheLaw with regard to the bi-partisan heat that is currently being put on the ABA's law school accreditation committee with regard to their failure to regulate legal education in a meaningful way.  The ATL article exposes as bunk much of the ABA's response to Senator Grassley's questions and raises a couple of pointed issues.

However, the author and many commentators that have entered the practice of law more recently might be able to more readily understand the accreditation committee's response with the benefit of a little context. In this post, we will take a look at the context of the problem - and then look at some aspects for fixing it in the next post.

Increasing Return on Education Dollars

Paul Krugman's article in Sunday's New York Times is generating a lot of talk.  Krugman points out that a lot of jobs considered "white collar" are subject to automation and are currently being outsourced.  From this point he extrapolates that "education is not the answer", but instead the answer is to give more bargaining power to unions.  

Over at Restoring Dignity To The Law, J-Dog emphasizes that although increasing education may have led to a better life 40 years ago, the same may not hold true now.  He also mentions that education has shrinking economic returns.  Over at Law School Tuition Bubble, Matt also references the article.

Is Krugman right?  Should we just encourage our kids to be janitor with strong unions instead of going to college?  More below.

Public Unions And Competition

Most people are aware that the Wisconsin Governor has taken on the Wisconsin public unions.  The Governor wants to take away the rights of unions representing government employees to ask for more than the rate of inflation as an increase in salary.  Also, they would have to pay more for their health insurance and more toward their pensions.  Finally, government jobs would no longer be able to force anyone who gets hired to automatically join the union and pay union dues.  The Wisconsin situation raises a whole host of issues and there is a lot of misinformation on both sides.  Let's take a closer look below.

"Restoring" The Middle Class - Promise or Threat?

It's pretty well known that the middle class is shrinking in this country.  Usually, when politicians cite the shrinking middle class, they are implying that most people are getting poorer - possibly that the "elite" are somehow actively campaigning to drain the middle class to turn more Americans into wage slaves.  Both parties seem to use this rhetoric - Democrats use the shrinking middle class to justify additional spending on social programs.  Republicans use the shrinking middle class to justify stances on taxes and immigration.

The issue has become intensely politicized, but let's take a look at some fundamental data and we may see something really interesting going on!

Which Is Better - Stimulus or Austerity?

Here's an interesting article comparing the ongoing responses to the fiscal crisis that started in 2008 - both the European response and the American response.  The American response has primarily been one of stimulus - the government is taking on additional debt to provide a stimulus to the public sector.  Conversely, the European response has primarily been one of austerity - cutting government workers and programs and raising taxes.  Let's take a look at the likely outcomes of these policies - and how these may impact your investments in the future.

Game On!

Wow.  The Presidential Commission on Reducing the Public Debt released its draft proposal today and it really puts a lot of options on the table.  Here's a New York Times article summarizing some aspects of the plan.  This could be the start of a very large discussion that changes the fundamental operating parameters of tax-and-spend government.  Or else it could be a flash in the pan like President Bush's bi-partisan, blue-ribbon tax panel in 2005.

Will the new proposal actually be the catalyst for serious change - or will it operate much like the Bush panel - proposing great, practical ideas that are really for the best long term interest of the country, but get summarily ignored because politicians don't want to risk telling voters that they will actually have to pay for the benefits that they are getting?  Let's take a look below.

Social Security Part 2 - Comparison To The Market

This is Part 2 of a 2-part series on Social Security.  In Part 1, we took a look at how the harder you work, the less you get on a percentage basis from Social Security.  In Part 2, we will take a look how your "return" on your Social Security "investment" compares with what you could get in the market.

Social Security Part 1 - Work Less, Get More!

Let's say you are a very hard worker and you manage to earn $106,800 this year (which happens to be the limit for Social Security) you pay 6.2% of your income in Social Security tax ($6,621.60).  On the other hand, someone else works part time (leaving them with plenty of free, enjoyable time) and only earns $9,132 for the year.  They also pay Social Security tax of 6.2% on their income which is $566.18.  Let's assume that both individuals work at the same amount, adjusted for inflation, during the 35 years of their working lives.  Did you know that when it comes time for retirement, the lesser-working person will receive Social Security payments of around $8,218.8/year - about 14.5 times the amount they paid each year in tax - and the harder-working person will receive payments of about $30,672/year - only about 4.6 times the amount that they paid each year in tax?  To put it another way, the lesser-working person gets more than three times the amount of benefit from each dollar of Social Security taxes they pay than the harder working person does!

This is Part 1 of a 2-part series on Social Security.  In Part 1, we will take a look at how the harder you work, the less you get from Social Security.  In Part 2, we will take a look how your "return" on your Social Security "investment" compares with what you could get in the market.

Regulation Of the Law School Loan Market Is Needed

As reported on Above The Law, and the National Law Journal, the ABA is lobbying President Obama to allow law students to convert their private student loans to federal student loans.  As federal student loans, the loans will be eligible for a hardship deferrment of up to three years.  That's a great benefit to law students struggling to find a job, but it doesn't solve the problem and a more extensive reform is needed.  More after the break.

WSJ Article - Americans Feel Increasingly Disheartened

In an absolutely excellent article in today's Wall Street Journal, Peggy Noonan nails a trend that I have felt growing for some time now, but have not previously been able to but words to.  It's an important trend that impacts lawyers and will impact the amount of legal work available (and thus employment opportunities) in the future.  More after the jump.