Wednesday, June 28, 2017

A Big Nothing Burger: The FBI should stop investigating Jane Sanders, Bernie's wife and former president of Burlington College

The FBI is investigating Jane Sanders, former president of Burlington College and wife of Senator and former presidential candidate Bernie Sanders.

The heart of the matter, as I understand it, is this: Jane allegedly submitted a loan application on behalf of Burlington College that falsely represented that the College had secured millions of dollars in pledged financial donations. The college obtained the loan but the pledged donations did not materialize. The college then closed in 2016 under a mountain of debt.

This is a big NOTHING BURGER, and the FBI should shut this investigation down.

Let's assume for a moment that the allegation is true and that Jane falsely represented that the college had financial pledges and that the the college obtained a large loan based on that misrepresentation. That would be reprehensible but no more reprehensible than the millions of people who filled out so-called liars loans during the real estate bubble that burst in 2008.

We all remember that episode, accurately dramatized in the movie The Big Short. People were applying for loans to buy homes without proper documentation of their income and assets. Those homes were wildly overvalued; but real estate brokers, real estate appraisers, and the banks all colluded to make sure the loans were approved Corporate financiers then packaged those loans into asset backed securities (ABS), which were peddled to unwary investors, including pension funds. The ratings agencies glibly certified that the ABS were investment grade when in fact they were junk.

And then the real estate market collapsed in a flood of foreclosures, and the American economy nearly collapsed.

Did anyone go to jail for that huge speculative bubble? No, no one went to jail.

Even if we put Jane's conduct in the worst possible light (which I am not inclined to do), she did nothing that wasn't done by millions of Americans, including a lot of fat cats in the global financial industry.  If we aren't going to put the ratings-agency executives, the real estate brokers, and the fat cats from Goldman Sachs in jail, then let's leave Jane Sanders alone.

Apart from whether Jane filed a fraudulent loan application, there is a suggestion that she was an incompetent president of Burlington College and that the college closed last year due at least in part to her poor leadership. But that allegation is bogus as well.

Dozens of small private colleges have closed in the past three or four years, and dozens more are on the brink of closure. Even if Jane Sanders had sterling administrative and financial skills, it is doubtful she could have saved that little college. After all, Burlington only had a couple of hundred students.

Her detractors have collected negative assessments from disgruntled former Burlington faculty members, but let's face it. Colleges all over the country are on the brink of extinction, and the professors generally do nothing but moan, gripe and criticize.

I repeat, this is a big nothing burger. The FBI and the conservative media should get off Jane's back.

In the interest of full disclosure, I admit that I was a big fan of Bernie Sanders as my blog postings attest. I voted for him, and I was deeply disappointed when he wasn't named the Democratic nominee for President.

But I am over Bernie. In my opinion, he was cheated out of the Democratic nomination by Hillary Clinton, John Podesta, Debbie Wasserman Schultz and a gaggle of disreputable journalists. Remember when columnist Froma Harrop called Bernie a racist in an op ed essay? Bernie Sanders, who was arrested in a civil rights demonstration when Hillary was checking footnotes at Yale Law School. What an outrageous accusation!

After the way the Democratic Party treated him, Bernie should have quit the Democrats and started a third political party. I am hugely disappointed to see him working collegially with the people who treated him so disgracefully during the 2016 primary season.

Nevertheless, Jane does not deserve to have aspersions cast against her based on a loan application that might have been puffed up a bit.  The FBI and Fox News should leave her the hell alone.

Leave Jane the hell alone!


References

Alan Dershowitz. Dershowitz: Why the Sanders FBI bank loan investigation is dangerous territory. Fox News, June 28, 2017.


Froma Harrop. Bernie Sanders and Racism LiteSeattle Times, May 19, 2016.

Eli Watkins, Elizabeth Landers, and Will Cadigan. Bernie Sanders says reported investigation into his wife stems from 'pathetic attack. CNN, June 28, 2017.

Another Attorney General Jumps on Department of Education: Essay by Steve Rhode

North Carolina Attorney General Josh Stein has joined to voices of others from around the country who are disappointed the Department of Education has decided to delay the July 1, 2017 regulations that would have helped to protect students with federal student loans from fraudulent schools and colleges. See this.

Stein said, “Education is one of the best reasons I can think of to borrow money. But unfortunately, there are some in our world who take advantage of those who are vulnerable – and that includes student borrowers. As North Carolina’s Attorney General, protecting people, including students is my top priority.”

“That is why I find this news deeply troubling. The rules, which were to take effect on July 1, would protect student borrowers – delaying them is misguided and irresponsible.”

“These delayed rules were hard-fought and sound consumer protection measures born out of the problems that other attorneys general and I have seen plague student borrowers time and time again.”

The delayed protections include: 

  • Prohibiting schools from forcing students to pursue complaints in arbitration rather than in court; 
  • Prohibiting schools from requiring students to waive participation in class action lawsuits; and 
  • Providing automatic relief and group relief for defrauded federal student loan borrowers in certain circumstances, including following legal actions by state attorneys general. 
Delaying the rules is a win for for-profit schools that provide a poor result and a loss for student loan debtors who have their futures financially damaged.

Steve Rhode

Steve Rhode

Get Out of Debt GuyTwitter, G+, Facebook


This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

About Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. 

Tuesday, June 27, 2017

Bethune-Cookman University reports $17.8 million operating loss as administrators' salaries go up

Bethune-Cookman University, a Florida HBCU, reported an operating loss of $17.8 million in its most recent tax return. That's a 12-fold increase over the previous year, when it reported a budget deficit of only $1.5 million.  Fitch Ratings downgraded the school's bond rating for the second time in six months. B-CU's bond rating now hovers just above junk status.

Should B-CU tighten its belt and cut expenses to deal with this crisis? Hell no!

According to the Daytona Beach News-Journal, salaries jumped from $41.5 million to $49.2 million in just one year.

Here are the details, quoted verbatim from the Daytona Beach News-Journal article:
  • Salaries at the school jumped nearly $8 million, from $41.5 million to $49.2 million, accounting for a large chunk of the increased expenses.
  • The school's top leadership took away a combined $2.69 million in compensation--an average of $207,000 for each of the 13 [executive] employees. The previous year, its leadership took in $1.4 million, an average of $175,000 for only eight top executives.
  • While his base pay was lowered, [President Edison] Jackson received a raise of $40,000 when additional compensation was factored in, giving him a total salary of nearly $410,000.
  • Fifty employees were paid at least $100,000, up from only eight in the previous year.

And there's more. B-CU borrowed $7 million from its endowment funds, about 13 percent of the total. Five million dollars of that amount was to pay--you guessed it--administrative expenses. Meanwhile, its investments suffered a 11 percent loss, even though the stock market was going up.

In short, it appears that B-CU's senior administrators are giving themselves raises while the school's budget deficit spirals out of control.

You may remember that Bethune-Cookman made the news recently when many of its students turned their backs on Secretary of Education Betsy DeVos and booed her when she spoke at the university's spring graduation exercise.

Isn't it remarkable how college students turn their anger on external parties instead of examining the competence of their own institution's leadership? Most of Bethune-Cookman's students have taken out student loans to finance their studies at a university that apparently does not know how to manage its own financial affairs. B-CU's students booed the wrong person at last spring's graduation exercises. They should have been booing President Edison Jackson.


References

Erica L Green. Bethune-Cookman Graduates Greet Betsy DeVos with Turned Backs. New York Times, May 10, 2017.

Scott Jaschick. Large, Growing Losses at Bethune-Cookman. Inside Higher Ed, June 26, 2017.

Seth Robbins. Tax documents show B-CU losses mounting to $17.88 million. Daytona Beach News-Journal, June 24, 2017.

Valerie Straus. Booing students at Betsy DeVos's commencement speech told to shut up or get diplomas sent in mail. Washington Post, May 10, 2017.

California bans government-funded travel to Texas. Frankly, my dear, Texans don't give a damn.

In a fit of governmental lunacy, the California legislature passed a law last year banning government-funded travel to any state that discriminates against LGBT people.  As of this week, eight states are on California's travel-ban list: Alabama, Kansas, Kentucky, Mississippi, North Carolina, South Dakota, Tennessee, and Texas. 

As a former Texas who is proud to have received a law degree from the state's flagship university, I feel quite confident in saying that Texans don't give a damn.  Ken Paxton, the Texas Attorney General, jokingly remarked that California probably imposed the travel ban to reduce the number of Californians who visit Texas and decide to relocate. 

In fact, 600,000 Californians moved to Texas over the last decade, while only 350,000 Texans moved to California. Between 2009 and 2014, California suffered a net population loss of nearly 1 million people; and Texas absorbed more California emigrants than any other state.

California's travel ban is a display of cultural arrogance equal to that displayed by the British Empire toward India during the days of the Raj. Texas, after all, is not a cultural backwater. It has the nation's second largest economy, and its cities are as culturally diverse as Los Angeles. Houston, which will soon pass Chicago to become the nation's third largest city, has a thriving gay community and even elected a lesbian mayor. 

As of now, California's travel ban only applies to eight states; but there will surely be more. Kentucky, for example, was put on the travel-ban list because it passed a religious freedom statute. But 19 other states have adopted similar laws. Why single out Kentucky?

Let's face it. In the eyes of California's progressive politicians, the entire country is benighted compared to the Golden State. Why doesn't California Attorney General Xavier Becerra, who put Texas on the travel-ban list, make a clean sweep and ban state-funded travel anywhere in the United States except Boston and New York City?

No one in California wants to visit flyover country anyway, and people in flyover country will do just fine even if they receive fewer visitors from California.


Frankly, my dear, I don't give a damn if you don't want to visit Texas.


References

John Daniel Davidson. California's travel ban messes with Texas. The Federalist, June 27, 2017.

Phillip Reese. Roughly 5 million people left California in the last decade. See where they went. Sacramento Bee, 2017.


Monday, June 26, 2017

Trump should fire Betsy DeVos as Secretary of Education for gross incompetence. If Trump fails to act, Congress needs to do whatever is necessary to drive her from office

Let us take our minds off Russia for just a moment and focus on a massive economic problem that affects millions of Americans: the collapsing student loan program. Forty-three million Americans now hold about $1.4 trillion in student loan debt, and a lot of that money will never be paid back. 

As the New York Times recently reported, borrowers defaulted at the rate of 3,000 a day last year; and a total of more than 8 million people are in default. Default rates are highest in the for-profit college industry; five-year default rates in this sector are almost 50 percent.

The Department of Education is trying to keep default rates down by pressuring borrowers into income-driven repayment plans, but that tactic isn't working. Nearly half the people who sign up for those plans drop out within three years; and a lot of defaulting borrowers don't even bother to sign up.

In short, the federal student loan program is a train wreck, a catastrophe, an unmitigated disaster. 

As President Trump's Secretary of Education, it is Betsy DeVos's job to address the student-loan crisis; but in a series of wrongheaded decisions, DeVos has demonstrated that she is either grossly incompetent or in bed with the sleazy for-profit college industry. President Trump must fire her immediately, and if he does not, then Congress needs to bring all its forces to bear to drive her from office.

Here is a brief list of DeVos's fumbling misbehavior:

First, she hired consultants from the for-profit industry to give her advice, which is like a hiring a burglar to be a bank guard.

Second, she canceled the Obama administration's order that restrained loan processors from slapping huge fees on student-loan defaulters who quickly brought their loans back into repayment status.

Third, she is overhauling the Department of Education's new regulations for processing borrowers' applications to have their student loans forgiven based on claims of institutional fraud. This bureaucratic delay tactic will leave thousands of defrauded college borrowers in limbo for months and even years.

And finally, DeVos blocked implementation of a Department of Education directive banning for-profit colleges from forcing students to sign mandatory arbitration clauses as a condition of enrollment.

In my view, allowing the for-profit colleges to continue including mandatory arbitration clauses in their student enrollment documents is DeVos's most outrageous decision. Mandatory arbitration clauses bar students from suing their institution for fraud and prevent students from banding together to file class actions suits against colleges that engage in massive fraudulent behavior.

About a year ago, the Century Foundation urged the Department of Education to require the for-profits to stop including mandatory arbitration clauses in their enrollment documents, and two for-profits--University of Phoenix and DeVry University, publicly agreed to abandoned them voluntarily.

Numerous commentators have criticized the use of mandatory arbitration agreements when they are used by corporations to insulate them from lawsuits. Just within the last year, two courts have struck down mandatory arbitration clauses that for-profit education providers tried to enforce. In one case, a university's arbitration agreement required California students to arbitrate their claims in Indiana!

Since taking office, DeVos has shown herself to be a stooge for the for-profit college industry. If she knowingly does the bidding of this shady racket, then she behaving reprehensibly. If she is acting on the industry's behalf out of ignorance, then she's grossly incompetent.

But her motivations don't matter. Betsy DeVos has got to go. If Trump doesn't fire her soon, then federal legislators should join in a bipartisan call for her removal. Americans deserve a competent Secretary of Education who will act in the public interest, not the interests of the venal for-profit college industry. 

References

Patricia Cohen. Betsy DeVos's Hiring of For-Profit College Official Raises Impartiality Issues, New York Time, March 17, 2017. 

Danielle Douglas-Gabriel. Trump administration rolls back protections in default on student loans. Washington Post, March 17, 2017.

Seth Frothman & Rich Williams. New data documents a disturbing cycle of defaults for struggling student-loan borrowers. Consumer Financial Protection Bureau, May 15, 2017. 

Tariq Habash & Robert Shireman. How College Enrollment Contracts Limit Students' Rights. Century Foundation, April 28, 2016.

Magno v. The College Network, Inc.. (Cal. Ct. App. 2016).

Morgan v. Sanford Brown Institute, 137 A.3d 1168 (N.J. 2016).

News Release. Apollo Education Group to Eliminate Mandatory Arbitration Clauses. May 19, 2016.


Thursday, June 15, 2017

Federal court orders the Department of Education to rule on Everest College student's request for debt cancellation: Sarah Dieffenbacher v. Betsy DeVos

Dieffenbacher v. U.S. Department of Education: A Student Borrower seeks debt relief on grounds of fraud

From 2007 to 2012, Sarah Dieffenbacher attended Everest College-Ontario Metro, a for-profit college located in Ontario, California. She took out $50,000 in federal student loans to fund her studies.

In March 2015, Dieffenbacher filed a "borrower defense" application with the U.S. Department of Education, petitioning to have her loans cancelled on the grounds that Everest had engaged in fraudulent conduct in violation of California law.

In August 2015, Dieffenbacher defaulted on her loans. Educational Credit Management Corporation, her loan servicer, sent her a notice stating that it intended to begin garnishing her wages.

Dieffenbacher filed a timely objection and a request for a hearing. This objection consisted of a 29-page letter accompanied by 254 pages of exhibits. These exhibits included Diefenbacher's sworn statement and records from the California Attorney General's Office showing documented misconduct by Everest and its parent company, Corinthian Colleges.

On January 20, 2017, Dieffenbacher's attorney received a letter from the Department of Education stating that DOE was denying Dieffenbacher's objection to having her wages garnished. DOE said its decision was conclusive and that Dieffenbacher's only recourse was to file a lawsuit in federal court.

This Dieffenbacher did. In her lawsuit, Dieffenbacher claimed that DOE's decision was arbitrary and capricious and violated the Administrative Procedure Act.

Without admitting fault, DOE filed a motion to remand Dieffenbacher's case back to the Department so that its decision could be "reconsidered and re-issued in a way that would not be arbitrary, capricious, or contrary to law."

Judge Virginia Phillips' decision

Last week, Judge Virginia Phillips, a California federal judge, denied DOE's request for a voluntary remand. In Judge Phillips' view, the Department "[had] not established a substantial or legitimate concern guiding its request for a remand."

The judge pointed out that Dieffenbacher's application for loan forgiveness had been pending for more than two years and that the Department had made contradictory arguments about what it intended to do.

Indeed, Judge Phillips' suggested that the Department of Education was attempting to get Dieffenbacher out of court so that it could garnish her wages. "The Department's request for remand appears to be an attempt to evade judicial review so that it can retain the ability to garnish [Dieffenbacher's] wages without a conclusive ruling as to the enforceability of her loans," the judge observed. "Under such circumstances, the remand request appears both frivolous and in bad faith" [emphasis supplied].

Judge Phillips concluded her opinion by ordering DOE to rule on Dieffenbacher's loan cancellation application within 90 days. If the Department fails to comply, the judge added, she would proceed to hear Dieffenbacher's claims on the merits.

The Dieffenbacher case: More Evidence of the Department of Education's Stall Tactics

The Dieffenbacher case is the latest example of the Department of Education's efforts to avoid dealing with student borrowers' legitimate applications for loan forgiveness.

In the Price case, which I wrote about recently, DOE took six years to rule on a University of Phoenix graduate's application for loan forgiveness based on her claim that Phoenix falsely certified that she had a high school diploma when she began her studies. Ultimately, DOE disallowed the claim. A federal court in Texas countermanded DOE's ruling and discharged the debt.

Last January, DOE sent a letter to 23,000 former students at Corinthian Colleges, assuring them that their loans had been approved for cancellation and that the loans would be forgiven within the next 60 to 120 days. Almost six months later, DOE has not kept its promise, which prompted a protest letter from 19 states' attorneys general.
So what's going on?

I think Betsy DeVos's DOE pencil pushers have added up the costs associated with discharging students loans under DOE's own rules and regulations and have found those costs to be enormous. DOE is trying to put the brakes on its administrative loan forgiveness process. The Department announced this week that it is rewriting the "borrow defense" regulations that Dieffenbacher relied on.

BUT IT IS TOO LATE. DeVos's efforts to slow down the loan forgiveness process will not withstand scrutiny in the federal courts, as the Price case and the Dieffenbacher case demonstrate.

The Consumer Financial Protection Bureau said in a recent report that eight million student borrowers are in default, with nearly 1.2 million defaulting in 2016 alone. As CFPB pointed out, people are defaulting at the rate of 2 borrowers every minute!

Two things must be done to bring the federal student loan program under control. First, the federal government must stop sending student aid dollars to for-profit colleges, which have shockingly high student-loan default rates.

Second, Congress must amend the Bankruptcy Code to allow distressed student borrowers to discharge their student loans in bankruptcy like any other unsecured consumer debt.

But Betsy DeVos's Department of Education refuses to face reality while it stalls for time. In the end, this approach is going to enrage millions of student borrowers. These borrowers are also voters, and they will vote for any politician who promises real debt relief to the legions of student borrowers who will never pay back their loans.

References


Dieffenbacher v. U.S. Dep't of Educ., ED CV 17-342-VAP (KK) (C.D. Cal. June 9, 2017).

Seth Frotman & Rich Williams. New data documents a disturbing cycle of defaults for struggling student loan borrowers. Consumer Financial Protection Bureau, May 15, 2017.

Andrea Fuller. Student Debt Payback Far Worse Than BelievedWall Street Journal, January 18, 2017.

Andrew Kreighbaum. Court Orders Education Department to End Delay in Ruling on Loan Discharge. Inside Higher ED, June 9, 2017.

Andrew Kreighbaum. Education Department to hit pause on two primary Obama regulations aimed at for-profitsInside Higher ED, June 15, 2017.

Andrew Kreighbaum. State AGs Want Action on Student Loan DischargeInside Higher Ed, June 6, 2017.

Lisa Madigan, Illinois Attorney General. Letter to Betsy DeVos, US. Secretary of Education, June 5, 2017.

Price v. U.S. Dep't of Educ., 209 Fed. Supp. 3d 925 (S.D. Tex. 2016). [Link is to U.S. Magistrate's opinion, which was affirmed by a U.S. District Judge.]
 


Sunday, June 11, 2017

The for-profit college industry is shrinking: It's time to shut this sleazy sector down

We've known for a long time that the for-profit college industry is a cancer infecting the higher education community. Senator Tom Harkin's committee report, published in 2012, told us that.

The cost of attending a for-profit college is far higher than the cost of enrolling at a public college. Completion rates are low, job prospects for attendees are often bleak. Some for-profits spend more on recruiting than they do on instruction.

 And student-loan default rates at the for-profits are quite high. Forty-seven percent of the 2009 cohort of for-profit college borrowers defaulted on their loans within five years.

Here are the 5-year cohort default rates for selected for-profit colleges, as reported by a 2015 Brookings Institute paper:
  • University of Phoenix-Phoenix campus: 45 percent
  • DeVry University-Illinois: 43 percent
  • Ashford University: 47 percent
  • Kaplan University-Davenport campus: 53 percent
And of course these figures understate the number of for-profit college students who are not repaying their loans because many non-defaulters have their loans in deferment or forbearance and are not making their monthly loan payments.

But the good news is this: the for-profit college industry is shrinking. When the Harkin report came out five years ago, for-profit colleges enrolled 13 percent of all college and university students. In the spring semester of 2017, that figure had dropped to 5 percent. For the industry as a whole, for-profit enrollments dropped 10 percent between spring 2016 and spring 2017.

Part of this drop can be attributed to aggressive enforcement of consumer protection laws by state attorneys general and better regulation by the U.S. Department of Education. In the last two years alone, Corinthian Colleges and ITT Tech closed and went bankrupt. Together these institutions had a half million former students.

Moreover,  potential students are becoming more wary of aggressive for-profit college recruiters. This may explain why enrollments are plummeting at several well-established for-profit colleges, such as University of Phoenix and DeVry.

Now, while the for-profit college sector is shrinking, is the time to shut this sleazy industry down. I think the for-profits are hoping the Trump administration will be friendly to their interests, allowing them to get back on their feet.

But let's  hope the industry is wrong. If President Trump implements policies that reinvigorate the for-profit college industry, it will be the biggest mistake of his administration--far bigger than his goofy dinner conversation with FBI Director James Comey.


The for-profits are shrinking, shrinking!


References

Associated Press. Enrollment is tanking at University of Phoenix, DeVry, and other for-profit colleges, Los Angeles Times, September 22, 2016.

Paul Fain. Enrollments Continue to Slide at For-Profits and Community Colleges. Inside Higher Ed, May 24, 2017.

Tamar Lewin. Senate Committee Report on For-Profit Colleges Condemns Costs and Practices. New York Times, July 29, 2012.

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default ratesWashington, DC: Brookings Institution (2015).

U.S. Senate Committee on Health, Education, Labor and Pensions. For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. 112 Congress, 2d Session, July 30, 2012.