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Writing Off Student Loans Is Only a Matter of Time

In her speech at the Democratic National Convention, Hillary Clinton exclaimed, “ Bernie Sanders and I will work together to make college tuition-free for the middle class and debt-free for all!” How she intends to do that remains something of a mystery, beyond higher taxes on “Wall Street, corporations, and the super-rich.” But it’s hard to imagine the student-loan industry and the burden of student debt getting any worse for taxpayers and borrowers than it is now.

A largely overlooked report released in February by the Government Accountability Office suggests that the Obama administration’s policies have exacerbated student debt, which equals nearly a quarter of annual federal borrowing. With only 37% of borrowers actually paying down their loans, the federal student-loan program more closely resembles the payday-lending industry than a benevolent source of funds for college.

As this newspaperreported in April, “43% of the roughly 22 million Americans with federal student loans weren’t making payments as of Jan. 1,” and a staggering “1 in 6 borrowers, or 3.6 million, were in default on $56 billion in student debt.” If student debt continues to skyrocket, the federal government may have to deal with as much as a $500 billion write-down when future defaults and loan-forgiveness programs are factored in.

In 2010, the Obama administration dispensed with the private intermediaries that had administered federal loans since the 1960s. It put in their place Direct Lending, a program administered by the Education Department. At the time, the Congressional Budget Officeestimated that Direct Lending would save $62 billion from 2010 to 2020. That didn’t happen. The program’s advocates failed to anticipate how two other Obama-backed college affordability initiatives—Income-Driven Repayment and loan forgiveness—would create a cataclysmic hit to the federal student-loan program’s finances.

There are more than 20 Income-Driven Repayment programs, but they all work essentially the same way. Students struggling financially can defer their payments. When no or limited payments are made, their balances grow. Today, over 20 million borrowers are watching their loan balances increase thanks to these programs. The average balance ballooned to approximately $25,000 in 2014 from $15,000 in 2004, according to the Federal Reserve Bank of New York,and has grown still larger since then.

But the most significant explosion in student debt might still come. In 2007 Congress passed the Public Service Loan Forgiveness Program, which allows borrowers who work for nonprofit organizations or government agencies to have their loans forgiven after 10 years. Students will be able to take advantage of this program for the first time in 2017. Yet no mechanism to evaluate who qualifies exists. Virtually every teacher, firefighter, social worker, police officer, doctor, or nurse who meets “their employer’s definition of full time” could have their loans forgiven.

The law will cost about $5 billion each year, according to the Congressional Budget Office. But very few close to the student-loan industry believe that the CBO’s assumption will pan out. The total student-loan portfolio is now $1.3 trillion, and the program grows by approximately $100 billion annually. If only 20% more borrowers default than the CBO expects, the Education Department could face at least a $100 billion loss on its existing pool of loans.

What can Congress do? First, it should demand that the CBO appropriately score the Income-Driven Repayment options. The federal government should at least use the same nonperforming loan standards they require of banks. Specifically, the Education Department should be required to “reserve” funds in anticipation of foreseeable and significant write-offs. Assuming 20% of current loans end up being written off, the department will end up writing off more than $20 billion annually.

The Direct Lending program should also start leveraging its immense power to price loans differently based on the success of students. It may also be necessary to change the model by which colleges and universities receive loan proceeds. Today, schools receive Title IV funds at the start of the semester and only have to return them if students drop out before completing 60% of a course. Instead, schools should receive a portion of loan proceeds to start and only receive additional funds if students graduate and pay down their loans.

Student debt is a public good, because higher education is a pathway to a stable, economically productive life. But the tsunami of nonpayment has already begun. If the promise of college is to hold up for generations to come, then Washington has to start pricing the risk it assumes when it underwrites $100 billion in loans annually.

Mr. Pianko is managing director of University Ventures, an investment firm focused on global higher education.


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Texas court ruling lets government keep contracts secret, inviting corruption to fester

A linchpin to government accountability lies in the old admonition to “follow the money.” But that’s an impossible task when the law says the government — and companies doing business with government — can legally hide the trail.

The fallout from a June 2015 ruling by the Texas Supreme Court is becoming painfully clear as key details of government contracts, once routine items of public disclosure, are instead being withheld as guarded state secrets.

A random sampling: Costs of a Kaufman County school district’s food service contract. The number of Uber drivers ferrying passengers around Houston. And, amusingly, in an anxiety-inducing sort of way, the amount the city of McAllen paid singer Enrique Iglesias for an hour-long outdoor concert to lead off its annual holiday parade last December.

All result from from a 7-1 opinion by the state’s highest court, made over the objections of Attorney General Ken Paxton’s office. The decision expanded the acceptable reasons for withholding information about contracts between government and private businesses.

The decision in Boeing vs. Paxton stems from the giant aircraft manufacturer’s claim that disclosing financial information about its contract with the inland Port of San Antonio could give an edge to its business competitors.

That opinion, a reversal of two lower court rulings, is a dramatic reinterpretation of financial disclosure exemptions originally meant to protect the contract bidding process.

“It’s one of the worst rulings ever to come out of the Texas Supreme Court,” said open government attorney Joe Larsen, a board member for the Freedom of Information Foundation of Texas, in an interview with the Texas Tribune. “If there’s a place where corruption can fester, it’s here.”

To be clear: This is not a matter of protecting business trade secrets from unfair exposure. Provisions for protecting proprietary information existed in the Texas Public Information Act prior to the Boeing decision.

“Open government people realize there are some things business should protect,”former Deputy Texas Attorney General Bill Cobb told the Houston Chronicle in May. “But there is clear direction and standard on what you have to do to prove that.” The new decision, he said, “blew a hole” in state public disclosure laws.

This should be a matter of bipartisan concern, and there are encouraging signs of bipartisan action in the next state legislative session.

State Rep. Terry Canales, D-Edinburg, who took notice of the issue with the furor over McAllen’s refusal to disclose Iglesias’ performance fee, is reportedly contemplating whether to introduce corrective legislation specifically targeting entertainment contracts or taking a broader approach to the exemptions. And a spokesman for Rep. Giovanni Capriglione, R-Southlake, is also said to be working with open records advocates on a remedy to restore at least some of the transparency the ruling has cost.

More legislators on both sides of the aisle need to pay attention. Public accountability matters, and transparency is where accountability starts.

In their own words

“It’s one of the worst rulings ever to come out of the Texas Supreme Court. If there’s any place where corruption can fester, it’s here.” — Joe Larsen, open government advocate and board member, Freedom of Information Foundation of Texas

“The court opened the floodgates on this one. It blew a hole in the Texas Public Information Act.” — Bill Cobb, former Texas deputy attorney general under then-Attorney General Greg Abbott


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Tighter Restrictions Are Losing In The Battle Over Voter ID Laws

The struggle over who can vote on Election Day is becoming more heated in courtrooms, judges’ chambers and statehouses across the country, paralleling the intensity of the presidential race. And at the moment, the side that wants fewer voting restrictions seems to be winning.

The battle began in earnest after 2010, when several Republican state legislatures began tightening identification requirements on voters. It has reached a new level in the 2016 election, when voters in 17 states faced new restrictions that ranged from photo ID requirements to cutbacks on early voting and same-day registration. Republicans said the laws were necessary to prevent fraud; Democrats and voting rights advocates said the restrictions were really designed to reduce participation by minority groups and young voters who traditionally support Democrats.

“It’s the biggest rollback of voting since Jim Crow,” said Jonathan Brater, an attorney at NYU Law’s Brennan Center for Justice, which compiled the list of restrictions.1

But in just the past few weeks, several of these laws have been blocked or overturned by federal judges. On Monday, a District Court judge issued a preliminary injunction against a voter ID law in North Dakota. In the previous 10 days, the 5th U.S. Circuit Court of Appeals ruled that the ID law in Texas violated the Voting Rights Act, a panel of the 4th U.S. Circuit Court of Appeals struck down a law in North Carolina, and a District Court judge in Wisconsin ruled that elements of the law there were unconstitutional. There is also major voting-law litigation ongoing in Alabama, Arizona, Georgia, Kansas, Ohio and Virginia.

Things are taking such a rapid turn that, while we were on the phone early this week, Brater was still deciphering the ruling fresh from North Dakota.

The legal fight has become a significant issue in the presidential race. Hillary Clinton has spoken forcefully against the voter ID laws in speeches and op-ed articles. “They’re doing everything they can to stop black people, Latinos, poor people, young people, people with disabilities from voting,”she said in Houston earlier this year.

On Tuesday, Donald Trump warned that the election would be “rigged” against him, and he cited as an example the court decisions throwing out voter ID laws. “If you don’t have voter ID, you can just keep voting and voting and voting,” he told The Washington Post. (As the Post pointed out, however, that kind of fraud almost never happens.)

The proliferation of these laws was spurred, in part, by the Supreme Court’s 2013 decision in Shelby County v. Holder, which declared key sections of the Voting Rights Act unconstitutional. This decision effectively eliminated the requirement that certain states with a history of racial discrimination in voting to clear changes to their election laws with the federal government. “The gutting of the Voting Rights Act certainly emboldened states to push forward with these restrictions,” Brater said. It also made it easier to pass new restrictions in places that had previously been covered by the pre-clearance requirement, such as North Carolina and Texas.

But 2013 wasn’t the beginning. The court’s decision merely “gave a green light to efforts that were already underway,” Ari Berman, a writer at The Nation and author of “Give Us the Ballot: The Modern Struggle for Voting Rights in America,” told me.

This avalanche of efforts to enact voting restrictions was really triggered a decade earlier, after the 2000 election, the chad debacle in Florida and the Supreme Court decision in Bush v. Gore. Many politicians came to a fateful realization. “In a very close election, the rules of the game matter,” said Richard Hasen, a professor of law and political science at the University of California, Irvine, who runs Election Law Blog. “So there was more litigation and more attempts to manipulate the system.” During the George W. Bush administration, the first strict voter ID laws were introduced in Indiana and Georgia.

The movement gathered further momentum after the 2008 election. “The effort to try to restrict the electorate really intensifies after Barack Obama’s election, because I think lots of Republicans were really scared,” Berman said. Scared not only of the election of the first black president, but that the record levels of turnout among young voters and voters of color in 2008 would become a “new normal.”

This momentum has led to ID laws that are of substantially different character from the early ones. They’ve gotten stricter. Rather than requestingan ID at the polls, new laws often require one. And in some cases the required ID must be a specific type of photo ID.

But now, it seems, some may have gone too far, outstripping their justification as checks on voter fraud, and being called out as racially discriminatory by the courts. In the North Carolina decision, Judge Diana Gribbon Motz wrote: “In response to claims that intentional racial discrimination animated its action, the State offered only meager justifications.” And in the Texas case, the 5th Circuit, one of the country’s most conservative, found that the law there discriminated against black and Hispanic voters.

Beyond the constitutional question, do these voting restrictions have a practical effect on voter turnout? In 2012, my boss Nate Silver found that the academic literature on this question was in broad agreement: Voter ID laws “seem to decrease turnout by about 2 percent as a share of the registered voter population.”

Indeed, a 2014 Government Accountability Office report, one of the most cited pieces of research on this topic, looked at two states (Kansas and Tennessee) that added voter ID requirements, compared with a handful of states that did not. It found, essentially, that the requirements depressed turnout somewhere between 2 and 3 percentage points.

But none of the academic studies available to Silver in 2012 measured the disparate impact on Democratic and Republican voters — in other words, none measured the “effectiveness” of these laws in suppressing certain subsets of the electorate. So he took it upon himself, performing some calculations and finding “some detrimental effect” of these laws on Democrats.

And now new research, with the aid of additional hindsight and data, suggests the disparate impact of these laws might be bigger than previously thought. A paper forthcoming in the Journal of Politics, titled “Voter Identification Laws and the Suppression of Minority Votes” and written by a trio of political scientists, finds that, in the presence of strict ID laws, the predicted gap in participation between black and white voters in general elections increases from 2.9 points to 5.1 points, and in primaries increases from 2.5 points to 11.6 points. A similar result holds for the gap between Latino and white voters. More starkly, they find “that voter ID laws skew democracy toward those on the political right.”

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“The enactment of strict voter ID laws tends to double or triple the gap in turnout between whites and racial and ethnic minorities,” Zoltan Hajnal, a political scientist at the University of California, San Diego, and one of the paper’s authors, told me.

The paper is only able to come to these sharp conclusions as a result of the proliferation of stricter voting laws. The paper draws on data from the 2010, 2012 and 2014 elections, for example — elections with strict ID laws in place in more than one or two states, increasing its sample size from that in earlier studies.

Although there’s lots of evidence that minorities are less likely to have the required identification, the exact mechanism driving the results isn’t yet well understood. It might be that some voters are going to the polls and being turned away, some might not go to the polls at all, some might not think they have the required ID when they in fact do, and some may have a sense, given a history of racially exclusionary laws, that they are not welcome at the polls.

Could these laws change the outcome of the election? Some of the states with new voting restrictions are high on FiveThirtyEight’s list of likely tipping points: Ohio, North Carolina, Virginia, Wisconsin.

But even if we have evidence of a widening gulf in the electorate, we don’t know how that will play out on Election Day. “We don’t have a lot of conclusive evidence about how these laws have affected an electoral outcome,” Hajnal said.

“Turnout is a really hard nut to crack,” Hasen said. Indeed, a 2009 paper in the Election Law Journal concluded that, when it came to turnout effects, “the data are not up to the task of making a compelling statistical argument.”

But perhaps this is the wrong question to ask. “The right question is: ‘Is the state making it harder for people to register and vote for any good reason?’” Hasen said.

Proponents of voter ID laws typically offer several reasons. The laws may curb voter impersonation fraud, they say, or instill a sense of confidence in the fairness and proper functioning of the system. But impersonation fraud is all but nonexistent, with research revealing only 31 cases in over a billion ballots cast since 2000 — about 0.000003 percent. And a 2008 paper in the Harvard Law Review found no relationship between voters’ perceptions of fraud and their likeliness to vote and, further, no increase in confidence for voters under strict ID laws.