The Student Debt Crisis

Student debt is a very real crisis in America and a growing concern in nations like the UK. When I graduated from law school in May 2013 I had borrowed a staggering $138,943. This original principal amount paid for my total cost of attendance, which included: tuition, fees, and housing. It should be noted; I even had a graduate program scholarship worth several thousand dollars that reduced the amount I had to borrow.

The intensity of a professional degree makes working during the school year very difficult. The summers are reserved for unpaid internships, which are the number one way students land jobs upon graduation. After all, the goal of this highly expensive education is to end up practicing law and making enough money to repay said debt.  

Unlike many students, I managed to graduate from my undergrad debt free with the aid of scholarships and summer jobs and had even saved enough to travel Europe for the summer after commencement. Additionally, I not only earned an LL.B. degree, but also two LL.M.s, which means my total cost of attendance on average, per year, was less than $30,000. I do not mind repaying what I borrowed, but the hyper interest and fees the government levied seems outrageous to say the least. Not to mention it being a super tax on poor students who borrowed to improve their lot and their family’s lot in life. See tax burden chart for Delta County.

Sitting two and a half years after graduation, my debt burden has grown to $231,930.[1] Difficulty with the bar exam and the lingering effects of the financial crisis on the legal services industry has made finding a job in law incredibly challenging. The tenuous realities of the economy were noted when the Federal Open Market Committee (FOMC) opting to keep the Fed rate at 0%-0.25% - where they have been for the seven years since the financial crisis.[2]

While it may seem insane, the interest rates on my student loans range from 8.5% to 9.5%. Tack on fees and that is how the principal has grown by 60% in 2.5 years! As of 8 Dec. 2015, even the bank prime loan interest rate was 3.25%.[3] Although the Federal Reserve has no direct role in setting the prime rate, many banks choose to set their prime rates based partly on the target level of the federal funds rate--the rate that banks charge each other for short-term loans--established by the FOMC.[4]

The Fed has kept interest rates low to making capital easier to acquire. While student interest rates are over 10-times higher than the Fed rate, the fact that the loans are originated from a government lender has made raising the capital to earn a degree much easier.

Unlike other loans, student loans cannot be included in a bankruptcy. This means that if a graduate encounters a financial hardship, such as long-term unemployment, health related hardships, or general changes in the industry or world which effects entering the labor force, there is no recourse for restructuring and setting aside certain obligations. It should be noted, that law does permit setting aside some student loan obligations for permanent disabilities which did not exist at the time of the origination of the loan.

The Fed’s goals are maximum employment and an inflation rate of 2%.[5] The FOMC looks to any Federal Unemployment Rate of 5% or less per annum as full national employment. This is regardless of the Labor Force Participation Rate, which sheds light on the discouraged workers and long-term unemployed who are no longer filing for unemployment benefits.

Congress has created income-based debt repayment schemes to help those who are struggling to make the minimum monthly amounts. While this scheme has helped reduce the monthly repayment costs, the interest continues to accrue at an alarming rate. This is harmful to the borrower, because the reason for borrowing was because the borrower was poor. Maintaining high rates of interest for the term of the loan means an original $138,943 loan over a 30 year period means $281,648 will have been paid in interest. However, the repayment scheme for those facing financial hardship is even worse, as forbearance rolls unpaid interest into the principal. Thus, my Dec. 2015 re-adjusted student debt obligation of $231,930 will turn into $702,070 over a 30 year period, with $470,140 being additional interest. All in all, an original principal amount of $138,943 will, over a 30 year term, generate $751,788 in interest income for the U.S. government.

The other scheme Congress has is what is called the 10 year plan. This plan allows for debt forgiveness to occur after 10 years of working for the government or a non-profit entity. The policy purpose being that these jobs pay less than the private sector and would be challenged for the debtor to repay the burden. The other policy idea is to encourage smart, but non-wealthy students to earn graduate and post-graduate degrees. For forgiveness to be effective, in addition to the above, there must be 120 consecutive minimum payments made to the Department of Education.

For example, my Department of Education minimum payment is set at $2,760 per month. Assuming I follow the 30% Rule[6], the economic idea that a maximum of only 30% of a person’s income should go to rent or mortgage payments, I’d need to earn at least $4,667, presuming my rent was near the Denver, Colorado average of $1,400 per month.[7] This seems entirely doable, since that would be $56,000 per annum. After subtracting $33,120 for the yearly student loan minimum repayment and $16,800 for total rents, also don’t forget taxes, which between state and federal would be about $11,356. Add these three items up and each year you are going in red by at least $5,276. All this assumes you are not eating, commuting, having to buy clothes, or pay for emergencies.

The reality is that a person would need to earn over $100,000 in their government or non-profit job for ten years to survive financially. Even at $100,000, a borrower in my shoes would really just be surviving, as utilities, food, heath expenses, clothing, costs of children or dependents, insurance, etc. adds up very quickly, even if you are as frugal as someone who survived the Great Depression.

A problem for many policy makers is what if a young person goes off to law school or med school or engineering or business school and wants to come back to a poorer, rural region to serve the legal or medical or business needs of a small community. This debt burdened professional is not working for the government or a non-profit, thus one repayment play is off the table. Yet, should these communities be entitled to professionals who would serve the needs of that region? Often debt saddled student-borrowers are forced to work in the cities, leaving a void in poor, rural areas, where incomes wouldn’t be high enough to make payments, live, and support a family. 

I would like to see a plan that throws back the obligation to the original principal amount, then ties repayment to income and the Fed Rate. Considering the policy that student loans help smart, but poor students achieve careers in the learned professions which in turn helps elevate families to higher income brackets, thus leading to more tax generation. It is also a matter of fairness not to use forbearance provisions to hike up the aggregate repayment amount. High interest on loans is essentially a tax on poorer students who had to borrow to attend professional schools. The interest also punishes hard work and success by rewarding these borrowers less than their wealthier cohort who may make less, but would have more disposable income to spend, adding to the national GDP. Creating ways to allow for greater social mobility is a good idea; however using these methods to punish those who seek a better life seems highly unethical.

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[1] U.S. Dept. of Education, Loan Servicing. Navient-SallieMae Account of Matthew Soper. 29 Nov. 2015 Print.

[2] Neate, Rupert. “Federal Reserve keeps interest rates unchanged but hints at December rise.” The Guardian 28 Oct. 2015. Web. 7 Dec. 2015.

[3] Federal Reserve System. Selected Interest Rates -- H.15. 8 Dec. 2015. Web. 9 Dec. 2015.

[4] Federal Reserve System. FAQ – Credit, Loans, Mortgages. 2 Aug. 2013. Web. 9 Dec. 2015.

[5] Neate, Rupert. “Federal Reserve keeps interest rates unchanged but hints at December rise.” The Guardian 28 Oct. 2015. Web. 7 Dec. 2015.

[6] See: http://www.bloomberg.com/bw/articles/2014-07-17/housings-30-percent-of-income-rule-is-near-useless accessed 9 Dec. 2015.

[7] See: http://www.denverpost.com/business/ci_29013199/average-metro-denver-apartment-rent-drops-5-downtown accessed 9 Dec. 2015.

Society must protect those who are being exploited by human trafficking

Saturday was the 150th Anniversary of Congress passing the 13th Amendment to the US Constitution abolishing slavery.

The final House vote was 119 to 56, with all Republican members voting for abolition of slavery, and 16 Democrats breaking with their party to move the resolution to the states for ratification.

Today, human trafficking is the fastest growing business of organized crime, and the third largest criminal enterprise in the world. Involuntary prostitution, forced labor, other forms of slavery, and forced harvesting of human organs are the main offences within the term human trafficking.

On Tuesday, the Republican led Congress once again took up fight to end slavery in all its forms. The House passed 12 measures aimed at ending human trafficking in the US. Unlike the vote of 1865, this year’s votes drew a little more support from the Democrat ranks.

For more information about the International effort to fight modern day slavery, please visit the UN Office of Drugs and Crime, Human Trafficking Section.

Freedom is consistently in peril, and society must protect those who are being exploited.
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M Soper, "Society must protect those who are being exploited by human trafficking," GJ Sentinel (Online) 2 Feb 2015 http://www.gjsentinel.com/opinion/articles/email-letters-february-2-2015 accessed 5 Feb 2015. 

Shouldn’t the ‘minimum-wage’ include compensating unpaid interns?

Loaded with optimism and student loans, the law grad sees the advertisement that reads: Democratic member of the Senate Committee on the Judiciary seeks law clerk for Fall 2014, full time, unpaid.

Presuming that law grad did not have a trust fund or wealthy parents to subsidize the inflated cost of living for Washington, DC, working for the powerful on Capitol Hill would be outside consideration.

How in the world can those who tout raising the minimum wage get by without paying at least the minimum for assistance?

Before scratching your head too much, let’s look at the economic and legal dynamics involved in this

White House internship programme. 2011 Getty/McNamee.

conundrum.

During President Barak Obama’s 2014 State of the Union Address, he asked Congress to pass the Harkin and Miller bill and raise the federal minimum wage from $7.25 to $10.10 per hour. The President went one step further by unilaterally signing Executive Order 13659 which raises the wage of federally contracted workers to $10.10 per hour.

Perhaps it should be noted here that White House interns are not paid. Yet these are highly sought after positions that see young brains fulfilling a full time position for six months to a year.

According to a 2012 Intern Bridge survey, more than half of all post-undergrad and grad-school internships and traineeships are unpaid. Many students desperately really on these work related experiences to land higher paying career type jobs.

In the years since the 2007-08 Financial Crisis, unpaid internships and traineeships have become the new norm. Many companies were unable to pay new workers during the crisis and new workers were eager just to gain experience.

The wave of unpaid internships in the private sector came to a skidding halt in June 2013 when a federal district court in New York held in Glatt et al. v. Fox Searchlight Pictures, Inc. that the company had violated the Fair Labor Standards Act by not paying for “benefits received.”

The Department of Labor has developed a six-part test, based on Supreme Court case law relating to railroad company’s trainees, to determine whether for-profit companies must pay interns.

In short, in order for a private business to meet Labor’s standards, the internship must be wholly for the benefit of the intern and not the employer – that’s a pretty tough to satisfy.

According to The 2013 Student Survey, a graduate who had a paid internship experience makes a medium starting salary of $51,930, compared with $35,721 for those who had an unpaid internship experience.

Law firms are also willing to pay for new associate’s experiences and connections to judges and lawmakers through clerkships. Many firms will pay a 20% bonus on top of a starting salary.

President Obama announces a $10.10 hourly minimum wage
during the 2014 State of the Union Address. USAToday.

With some of the highest paid first-year associates earning just over $160,000, why are we worrying about the President and his Congressional cronies not paying their clerks?

Firstly, if it was the private sector, it would be illegal under the pay-for-benefits test.

Secondly, with the average law school debt in America hovering around $150,000, it is very difficult for a newly minted grad to go a year without a pay check, no matter how amazing the potential bonus, from the potential job, might be. Unless, of course that grad has the coveted silver-spoon in the mouth, in which case, even a minimum wage would be offensive to the privileged elite.

This is not a Democrat vs. Republican issue; instead, this is a remnant of the old Governmental privilege which must go away. Currently, only the better-off people in society get to undertake such unpaid positions. The less fortunate must take paid positions that don’t come with connections.

If the President and Congress want everyone to be paid a proper wage, then shouldn’t “everyone” include the currently unpaid staff?

Legal & political aspects of military intervention in Syria

Should the US attack Syria? Has Assad used chemical weapons against his own people? Would US intervention violate public International law?

Regardless of the answers to these questions, an upcoming vote on Capitol Hill illustrates how foreign affairs are as much about domestic politics, as it is about International relations.

Syrian President Bashar  al-Assad and his wife, Amsa.

President Obama has played a brilliant game of chess against the Republicans. How you might ask?

Prudently, the President is wise in asking for a Congressional vote. It is a tough decision and vesting everyone in the decision process is smart.

Politically, a Congressional vote on Syria puts the Republicans on record prior to the 2014 mid-term

elections, which makes such a vote all the more sensitive and strategic.

The Constitution does not require the President to ask Congress’ permission to engage the armed forces in hostilities. War making powers are shared jointly between the Executive and Congress.

Is military action against Syria legal under public International law?

Under the UN Charter, states may only use force in two instances: self-defence or when the Security Council has authorized force to maintain or restore international peace and security.

Here, Syria has not attacked American citizens, assets, or allies; nor has the Security Council authorized the use of force. The Syrian government is merely engaging in an internal conflict to suppress rebels.

Additionally, Customary International law would allow Syrian government officials, such as Bashar al-Assad to be prosecuted for crimes against humanity and the use of chemical weapons, even though Syria has not become a party to the Genocide, Torture, or Ban on Chemical Weapons conventions.

Regardless of International conventions and customs, US law recognizes the ratified treaties at taking the same status as federal law. This means, the UN Charter, as a treaty, is tantamount to federal law. Congress is free to override federal law by adopting resolutions. So under an American law analysis, Congress can do whatever the hell it wants, so long as that action doesn’t violate the Constitution.

The notion that Congress must pre-approve military action is erroneous. Article I, Section 8 of the Constitution grants Congress a non-specific power to ‘declare war.’ However, of the 130 plus times military action has been taken abroad, Congress has only declared war 5 times.

US President Barak Obama with Speaker John Boehner (left).

Under the Presidential War Powers Act, President Obama, as commander-in-chief, may introduce the military to hostilities without Congressional notice for a period of 60 days. The Act goes on to mention that hostilities must comply with: (i) declaration of war, (ii) statutory authority, or (iii) national emergency. Additional time for hostilities is granted upon Congressional approval.

Here, President Obama would be allowed to introduce the military into foreign involvement without Congressional approval.

Why ask Congress for permission if President Obama doesn't legally need it?

Remember the mid-term elections are fast approaching. A Congressional vote on Syria puts the Republicans on record prior to the 2014 elections, which makes this vote highly political. This is why Speaker John Boehner, a supporter of Syrian intervention, isn't making this a partisan vote – he needs to ensure Republicans are re-elected.

Politically, the issue of Syria is dividing the Republican Party into the Paul Republicans (non-interventionists) and the McCain Republicans (the war-hawks).

Here in Western Colorado, Congressman Scott Tipton announced he would be voting ‘no’ during a town hall meeting recently in Durango.

Both of Colorado’s US Senators, Mark Udall and Michael Bennet, are vacillating over how to vote regarding Syrian intervention to punish the use of chemical weapons.

Meanwhile, on the International stage (remember, I said foreign affairs was only partly about domestic politics), Russian President Vladimir Putin has asked the US to present evidence before the UN Security Council that the Assad government was responsible for the chemical weapons attack.

If the US proceeds without a UN Security Council resolution, then legally this action would be pre-emptive self-defence or a unilateral enforcement an International custom (the ban on chemical weapons). Both concepts would dramatically expand the Bush precedent.

Targeted Syrian assets.

Recently, in Stockholm, President Obama said, “My credibility isn't on the line, the whole international

community's credibility is on the line, Congress' credibility is on the line.”

Actually, Mr President, your credibility is on the line, as you’re the one proclaimed Syria used chemical weapons and that the US should take punitive action.

While the White House has gotten the entire International community in a frenzy, one thing is for certain, if the US strikes Syria, no longer will President Obama be able to blame the results on the George Bush Administration.