Some Colleges Stepping Up to Ease Students' Debt Burden
Nearly 100 colleges, mostly liberal arts schools, are offering their graduates help with loan repayments, the Wall Street Journal reported today. The federal government provides more than $100 billion to students to attend college every year. Schools are paid from this vast pool, and students are on the hook to pay it back — creating a growing burden for many and a drag on the economy when crushing student debt suppresses spending on other things. Now, with programs like the one at Adrian College in Michigan and several other private colleges, there is a growing movement for schools to share some of that burden. The schools are offering a variant of this guarantee through an Indiana company called LRAP Association Inc. The company sells programs similar to insurance policies to schools for an average of about $1,300 per student, said LRAP President Peter Samuelson. (Subscription required.)
Commentary: Pension Crisis Too Big for Markets to Ignore
Unfunded pension obligations have risen to $1.9 trillion from $292 billion since 2007, according to a Bloomberg News commentary on Monday. Credit ratings firms have begun downgrading states and municipalities whose pensions risk overwhelming their budgets. New Jersey and the cities of Chicago, Houston and Dallas are some of the issuers in the crosshairs, according to the commentary. Morgan Stanley says that municipal bond issuance is down this year in part because borrowers are wary of running up new debts to effectively service pensions. It’s no coincidence that pensions’ flight from safety has coincided with the drop in interest rates. That said, unlike their private peers, public pensions discount their liabilities using the rate of returns they assume their overall portfolio will generate. In fiscal 2016, which ended June 30, the average return for public pensions was somewhere in the neighborhood of 1.5 percent. Corporations’ accounting rules dictate the use of more realistic bond yields to discount their pensions’ future liabilities. Put differently, companies have been forced to set aside something closer to what it will really cost to service their obligations as opposed to the fantasy figures allowed among public pensions, according to the commentary.
Analysis: Defaults Increase on Risky Auto Loans, but It's Not Likely to Be Next Housing Bubble
An increase in the delinquency of risky auto loans probably won’t send the U.S. economy into the doldrums the way the mortgage crisis did in 2008-09, but it will likely pinch car sales, the Washington Post reported today. Borrowers are falling behind on most subprime car loans, but deep subprime consumers — those with credit scores below 550 — have deteriorated the fastest, according to a report by Morgan Stanley. Just like mortgages, many of those loans have been packaged into bonds — “securitized,” in Wall Street parlance — and sold across the world to investors searching for yields in the wake of the financial crisis. Car loans were one of the best performing assets during that period. Still, said Kevin Barker, a specialty finance analyst at PiperJaffray, the troubled auto loans are not likely “to create a financial crisis or cause major disruptions in financial markets.” He cites several reasons for this: First, the car loan market, at $1.1 trillion, is a fraction of the $10 trillion U.S. mortgage market, according to the Federal Reserve. And auto loans are much shorter in length than 30-year mortgages, making it easier to spot trouble and prevent big losses from developing over many years. “The credit cycle is short, so you will know pretty quickly when things start to improve,” Barker said. “You get hit and recover. It doesn’t take years and years and years.”
Religious Health Systems, Facing ERISA Liability, Pin Hope on Justices
The U.S. Supreme Court on Monday took up an employee-retirement dispute that threatens to expose religious-affiliated, nonprofit health care systems to billions of dollars in retroactive penalties rooted in the protection of pensions, Law.com reported on Monday. Lisa Blatt of Arnold & Porter Kaye Scholer, who is representing the health systems, argued that three federal appellate courts were wrong to conclude that the hospital networks’ retirement plans were not entitled to exemption from the federal Employee Retirement Income Security Act, or ERISA. The employee-retirement law, protecting employee assets, sets minimum standards for most voluntarily established pension and health plans in private industry, including rules to ensure the accountability of plan fiduciaries. The plans for religious-affiliated health systems have been exempted as “church plans” for three decades, but class actions on behalf of affected employees are challenging those claimed exemptions.
ASM Spotlight: This ASM Session Addresses Compensation, Exculpation for Lawyers, Technological Malpractice, False Oaths and More. What Is Ethics Jeopardy?!
Listen to Prof. Nancy Rapoport describe the interactive session in which attendees will use their smartphones to vote on whether our "Jeopardy" contestants correctly answer ethics questions involving (mis)use of social media, ownership of passwords, lying lawyers, exculpation for lawyers, technological malpractice, false oaths, ABI trivia, and everyone's favorite: compensation.
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New on ABI’s Bankruptcy Blog Exchange: Wells Fargo Faulted for Extensive Discrimination in Review
Wells Fargo engaged in an "extensive and pervasive pattern" of discriminatory and illegal lending practices for years, the OCC said in slashing a key rating of how the bank serves communities, according to a recent blog post.
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