Monday, September 26, 2016

Department of Education strips the Accrediting Council for Independent Colleges and Schools (ACIS) of its accrediting authority: Does the Obama administration have a sinister motive for disrupting the for-profit college industry?

DOE drops the hammer on ACICS

Last week, the U.S. Department of Education announced that it is stripping the Accrediting Council for Independent Colleges and Schools (ACICS) of its accrediting authority. As Donald Trump might put it, this is a HUUGE deal.

ACICS is the biggest accrediting body for the for-profit college industry. As of last June, ACICS accredited 245 schools enrolling about 800,000 students. All those schools must be credentialed by an accreditation agency approved by DOE in order to obtain federal student aid money. So when DOE decertified ACICS, it put more than 200 for-profit institutions at extreme risk of closing.

Why did DOE take such drastic action against ACICS?

Why did DOE take this drastic action? DOE accuses ACICS of lax oversight of the  for-profit college industry. Two large for-profits filed for bankruptcy recently--Corinthian Colleges and ITT Tech; both companies were accredited by ACICS. Other for-profits have been investigated for fraud, misrepresentation, and high-pressure recruiting tactics.

The industry as a whole has notoriously high student-loan default rates. According to a Brookings Institution report, almost half of a recent cohort of for-profit students defaulted on their student loans within five years of beginning repayment. Ben Miller, a senior spokesperson for the Center for American Progress, approved of DOE's action: "With its lengthy track record of shoddy oversight--that has led to billions of dollars squandered--ACICS had abused the public's trust and could not be allowed to continue granting access to federal dollars."

What will happen to the 200 plus colleges and schools that were accredited by ACICS?

What will happen to the 200 plus for-profit colleges that are no longer accredited by a DOE-approved accrediting body? Assuming ACICS loses its appeal of DOE's decision, which seems likely, for-profit colleges will have 18 months to obtain accreditation by another DOE-approved accreditor.  That will be very difficult to do--especially for small for--profit colleges,  As one West Virginia educator explained: "There aren't thousands of accreditors that schools can go to, there's really just a handful. They all have very specific niches to fill." And those accrediting bodies will likely be deluged with applications from colleges that were formerly accredited by ACICS.

In short, the fall of ACICS will inevitably have a domino effect on for-profit colleges. Those that don't quickly become re-accredited by a DOE-approved agency will lose access to federal student-aid money and will collapse. When the colleges collapse, their students' studies will be disrupted. The vast majority of all for-profit students took out federal student loans to finance their tuition. If their college closes, they will have just two choices:  They can transfer to another institution that will take their former college's credits or they can apply to DOE to have their loans  forgiven under DOE's"closed school" exemption process.

Does DOE have a sinister motive in disrupting the for-profit college industry?

The Obama administration will say its drastic action against ACICS is a justified response to the accreditor's shoddy oversight of the for-profit college industry. And maybe that explanation is sincere.

But why did DOE wait until the waning days of President Obama's second term in office to act? I wonder whether DOE might be intentionally disrupting the for-profit college industry so that inside players can step in and scoop up some faltering for-profit colleges in order to reap huge profits.

When Corinthian Colleges filed for bankruptcy last year, DOE engineered a deal for a subsidiary of Educational Credit Management Corporation to buy some of Corinthian's operations. ECMC's unit bought 56 of Corinthian's campuses for only $24 million. Who benefited financially from that deal?

And Apollo Education Group, owner of the University of Phoenix, is being bought out by a consortium of equity groups led by Martin Nesbitt, President Obama's former campaign manager and president of the Obama Foundation.  Tony Miller, a former Deputy Secretary of Education,  will run the University of Phoenix. Cozy!

Time will tell us what is going on here. The for--profit college industry is a sleazy business, and I have argued repeatedly that DOE should shut it down. DOE's decision last week to strip ACICS of its accrediting authority is a big step toward doing just that.

But if we see more political insiders come in and buy struggling for-profits as Martin Nesbitt is doing with the University of Phoenix, that may be an indication, that DOE's death sentence for ACICS is nothing more than a calculated play to drive down the value of for-profit colleges so that powerful financial interests can scoop them up.

One thing we know for sure: Bill and Hillary Clinton are very close to the for-profit college racket. Bill, we remember, got paid nearly $18 million to serve as "Honorary Chancellor" of Laureate Education Group; and Hillary is tight with Goldman Sachs, which has an ownership interest in a for-profit education company.

Image result for bill clinton and laureate education

References

Lauren Camera. Education Department Strips Authority of Largest For-Profit Accreditor. U.S. New & World Report, September 2, 2016. Accessible at http://www.usnews.com/news/articles/2016-09-22/education-department-strips-authority-of-acics-the-largest-for-profit-college-accreditor

Paul Fain. Federal panel votes to terminate ACICS and tightens screws on other accreditors. Inside Higher Ed, June 24, 2016. Accessible at https://www.insidehighered.com/news/2016/06/24/federal-panel-votes-terminate-acics-and-tightens-screws-other-accreditors

Jake Jarvis. In wake of ACIS decision, a crisis for WV's for profit schools. Charleston Gazette-Mail, September 25, 2016. Accessible at http://www.wvgazettemail.com/news-education/20160925/in-wake-of-acics-decision-a-crisis-for-wvs-for-profit-schools

Ronald Hansen. Apollo Education sale 'golden parachute' could be worth $22 million to executives. Arizona Republic, March 8, 2016. Accessible at http://www.azcentral.com/story/money/business/2016/03/08/apollo-education-sale-executives-payout-22-million/81483912/

Rosiland S. Helderman and Michelle Ye He Lee. Inside Bill Clinton's nearly $18 million job as 'honary chancellor' ofr a for-profit college. Washington Post, September 5,  2016. Accessible at https://www.washingtonpost.com/politics/inside-bill-clintons-nearly-18-million-job-as-honorary-chancellor-of-a-for-profit-college/2016/09/05/8496db42-655b-11e6-be4e-23fc4d4d12b4_story.html

Abby Jackson. An embattled for profit education company partly owned by Goldman Sachs keeps downsizing. Business Insider, June 13, 2016. Accessible at http://www.businessinsider.com/for-profit-brown-mackie-shutting-down-2016-6

Patria Cohen and Chad Bray. University of Phoenix Owner, Apollo Education Group, Will Be Taken Private. New York Times, February 8, 2016. Accessible at http://www.nytimes.com/2016/02/09/business/dealbook/apollo-education-group-university-of-phoenix-owner-to-be-taken-private.html

John Sandman. Debt Collector ECMC Closes Deal for Corninthian College Campuses. Mainstreet.com, February 9, 2015. Accessible at https://www.mainstreet.com/article/debt-collector-ecmc-closes-deal-for-corinthian-college-campuses

Soyong Kim. Apollo teams with Washington insider for education deal. Reuters, January 12, 2016. Accessible at http://www.reuters.com/article/us-apollo-education-m-a-apollo-global-idUSKCN0UQ23W20160112




Saturday, September 24, 2016

Free bankruptcy attorneys for destitute student-loan debtors: Why the heck not?

The New York Times editorialized yesterday that tenants should have access to free attorneys when their landlords start eviction proceedings against them. As the Times put it, "There are few legal fights more lopsided than landlords suing to evict their lower-income tenants." The Times commended New York Mayor Bill de Blasio for his plan to provide municipal funding to hire legal help for the city's low-income tenants.

I agree with the Times; providing tenants with legal assistance when they face eviction would be a good thing. But let's expand that idea a bit. Why not provide free bankruptcy attorneys for destitute student-loan debtors?

After all, almost all college-loan borrowers who try to discharge their student loans in bankruptcy are too poor to hire lawyers to steer them through the bankruptcy process. And when they go to bankruptcy court, they almost always face a platoon of lawyers who argue that their student loans should not be discharged.

The debtor either faces government lawyers dispatched by the U.S. Department of Education or private attorneys hired by Educational Credit Management Corporation (ECMC) or  another federally authorized debt collector. For example, in the Acosta-Conniff bankruptcy case, now on appeal to the Eleventh Circuit, ECMC has six attorney to defend its interests. Six!

Currently, this country has thousands of unemployed lawyers.  As Joshua Wright reported recently, American law schools are turning out two attorneys for every available job. Why not put some of these unemployed law graduates to work defending student-loan debtors in the bankruptcy courts?

I will tell you why not. The Department of Education does not want anyone to discharge their student loans in bankruptcy. And when I say anyone, I mean anyone. In a 2013 case, DOE fought bankruptcy discharge for a quadriplegic who was working full time but who did not make enough money to pay his live-in caregiver and still pay off his student loans.

Lynne Mahaffie, a DOE Under Secretary, issued a letter in July 2015 outlining when DOE would not oppose bankruptcy discharge for distressed student-loan debtors; but that letter was misleading. In fact, DOE and its debt collectors fight almost every debtor who seeks to discharge student loans in bankruptcy. If DOE is going to oppose bankruptcy relief for a quadriplegic, then you know it is going to oppose relief for almost everyone.

DOE, Congress, and the higher education industry know that the whole corrupt, mismanaged, and wildly overpriced system of higher education in the United States would collapse without the student loan program; and the student loan program's continued existence depends on the fiction that students are paying back their loans.

In fact, they are not paying back their loans; but the government has largely managed to hide that fact from the public. If insolvent student-loan debtors were able to discharge their student loans in bankruptcy, millions of people would be entitled to relief. And if that were to occur, then it would be apparent to everyone that the federal student-loan program is itself bankrupt; and the program would collapse.

And Congress, DOE, and the higher education industry want to postpone the day of reckoning for as long as possible.

References

Editorial. A Right to a Lawyer to Save Your Home. New York Times, September 23, 2016, p. A26. Accessible at http://www.nytimes.com/2016/09/23/opinion/a-right-to-a-lawyer-to-save-your-home.html?_r=0

Lynn Mahaffie, Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings. CL ID: GEN 15-13, July 7, 2015. Accessible at https://www.ifap.ed.gov/dpcletters/attachments/GEN1513.pdf

Myhre v U.S. Department of Education, 503 B.R. 698 (Bakr. W.D. Wis. 2013). Accessible at http://www.wiwd.uscourts.gov/wiwb/Decisions/Decisions_rdm/2013/Myhre.pdf

Joshua Wright. The Oversaturated Job Market for Lawyers Continues, and On-The-Side Legal Work Grows. Economicmodeling.com, January 10, 2014. http://www.economicmodeling.com/2014/01/10/the-oversatured-job-market-for-lawyers-continues/

Thursday, September 22, 2016

Senator Elizabeth Warren grills Wells Fargo CEO John Stumpf. But hey, Liz: What have you done to help solve the student-loan crisis?

Senator Elizabeth Warren made headlines this week when she grilled Wells Fargo CEO John Stumpf at a Senate Banking Committee hearing. Unless you've been living under a rock, you know Wells Fargo employees were caught scamming customers by creating 2 million fake bank accounts without their customers' knowledge or approval.

In the wake of this scandal, Wells Fargo fired 5,000 low-level employees and refunded some money, but the company did not terminate the senior executive who supervised the unit where the fraud occurred. Wells Fargo's CEO John Stumpf made millions of dollars from these misdeeds because the scheme caused his stock to go up. But Stumpf isn't giving back any of his ill-gained profits.

So Stumpf was a sitting duck when Senator Warren began questioning him at the Senate Banking Committee hearing. "You should resign," Warren told Stumpf. "You should give back the money that you took while this scam was going on, and you should be criminally investigated by both the Department of Justice and the Securities and Exchange Commission."

Stumpf, of course, is lawyered up. He went into his flak-catcher crouch, continually repeating his talking points and saying he was sorry for Wells Fargo's misdeeds.

All great theater. Who doesn't enjoy seeing a transnational financial executive publicly humiliated? But what will come of all this drama? Nothing. Stumpf won't face criminal charges, and the Wells Fargo senior executives who profited from the fake-account scheme won't give back a penny of their loot.

Elizabeth Warren enjoys a great reputation as the champion of consumer rights and the friend of the little guy. But what tangible thing has she done to help working-class Americans? And more particularly, what has she done to ease the suffering of millions of student-loan debtors?

I'll tell you what Warren has done--she's done nothing.  She's all blather. In fact, I don't think Warren even understands the student-loan crisis. She charged awhile back that the government is making "obscene" profits from the student-loan program, but that's not true. The government would be making a profit on the loan program if borrowers were paying back their loans, but they are not. As the Wall Street Journal reported recently, 40 percent of student-loan borrowers aren't making payments on their loans.

Here are some things Senator Warren could propose that would help relieve the suffering of distressed student-loan debtors.

Legislation banning the government from garnishing the Social Security checks of elderly student-loan debtors who defaulted on their loans. Around 155,000 Americans are having their Social Security checks dunned right now, causing real hardship for these people.

And how much money does our government collect from this disreputable practice? Probably less than the Secret Service spends guarding President Obama on just one of his Hawaiian vacations. Why doesn't Senator Warren use her bully pulpit to stop the government from going after elderly student-loan debtors who are living off their Social Security checks?

Wholesale relief for student-loan borrowers who were ripped off by the for-profit college industry. Senator Warren joined 22 other Democratic Senators in a letter to Secretary of Education John King asking the Department of Education to grant broader relief to the 35,000 students who were enrolled at one of ITT Tech campuses when ITT closed and filed for bankruptcy. But that letter is almost completely incoherent and doesn't  propose real relief.

DOE should forgive the loans of all the people who took out student loans to pay for ITT programs. Giving former students longer to file for loan forgiveness under DOE's "closed school" regulations (as the Democratic Senators proposed) does not go nearly far enough.

Amending the Bankruptcy Code to allow distressed student-loan debtors to discharge their federal student loans in bankruptcy like any other nonsecured debt. Senator Warren co-sponsored a bill to make private student loans dischargeable in bankruptcy, but private loans are only a small part of the overall student-debt crisis--only about 10 percent of total outstanding student-loan debt. The bill does nothing about reforming the Bankruptcy Code to allow distressed student-loan debtors to discharge their federal student loans in bankruptcy.

Conclusion; Senator Elizabeth Warren is a phony

Senator Elizabeth Warren is a phony. She hasn't accomplished anything significant to help solve the student-loan crisis. It is true she supports a bill to make private student loans dischargeable in bankruptcy, but such a law--if passed--is small potatoes.

Let's face it. Although Warren portrays herself as a progressive fighting for overburdened student-loan debtors, she will never do anything that would threaten the core interests of the higher education industry. After all, there are 114 colleges and universities in Warren's state of Massachusetts; and most of the professors and administrators who work at those colleges voted for her.

Those colleges and universities have to have federal student-aid money to survive. They are like crack addicts waiting for their next federal fix. Warren can talk all she wants about helping student-loan debtors, but she won't do anything that upsets the status quo. And real reform of the Bankruptcy Code to allow people to discharge their federal loans in bankruptcy would definitely upset the status quo.

Image result for elizabeth warren wells fargo


References

Anne Gearan and Abby Phillip. Clinton to propose 3-month hiatus for repayment of  student loansWashington Post, July 5, 2016. Accessible at https://www.washingtonpost.com/news/post-politics/wp/2016/07/05/clinton-to-propose-3-month-hiatus-for-repayment-of-student-loans/?hpid=hp_special-topic-chain_clinton-loans-11pm%3Ahomepage%2Fstory

Ashlee Kieler, Senators Introduce Legislation to Make Private Student Loans Dischargeable in Bankruptcy. Consumerist, March 12, 2015.   Accessible at https://consumerist.com/2015/03/12/senators-introduce-legislation-to-make-private-student-loans-dischargeable-in-bankruptcy/

Jena McGregor. 'You should resign': Elizabeth Warren excoriates Wells Fargo CEO John Stumpf. Washington Post, September 20, 2016. Accessible at https://www.washingtonpost.com/news/on-leadership/wp/2016/09/20/you-should-resign-elizabeth-warren-excoriates-wells-fargo-ceo-john-stumpf/

Josh Mitchell. More than 40% of Student Borrowers Aren't Making PaymentsWall Street Journal, April 7, 2016. Accessible at http://www.wsj.com/articles/more-than-40-of-student-borrowers-arent-making-payments-1459971348

Secretary of Education John B. King Jr. A Message from the Secretary of Education to ITT Students. Accessible at http://blog.ed.gov/2016/09/message-secretary-education-itt-students/

Sen. Warren Questions lack of Private Student Loan Relief Options. Senator Warren Website, July 31, 2014. Accessible at https://www.warren.senate.gov/?p=press_release&id=591

Letter to the Honorable John King, Secretary of Education, from 23 Democratic Senators, September 15, 2016. Accessible at https://www.insidehighered.com/sites/default/server_files/files/9_15_16%20ITT%20Tech%20ED%20Letter%20(1).pdf

Dawn McCarty and Shahien Nasirpour. ITT Educational Services Files for Bankruptcy After ShutdownBloomberg, September 16, 2016. Accessible at http://www.bloomberg.com/news/articles/2016-09-16/itt-educational-services-files-for-bankruptcy-after-shutdown-it6byu6t

Jena McGregor. 'You should resign': Elizabeth Warren excoriates Wells Fargo CEO John Stumpf, Washington Post, September 20, 2016. Accessible at

Reuters. ITT Educational Services Files for Bankruptcy After Aid CrackdownInternational New York Times, September 17, 2016. Accessible at http://www.nytimes.com/2016/09/18/business/itt-educational-services-files-for-bankruptcy-after-aid-crackdown.html?_r=0


Marian Wang. Q & A: Elizabeth Warren on Spiraling Student Debt  and What Should Be Done About ItPro Publica, May 20, 2014. Accessible at https://www.propublica.org/article/qa-elizabeth-warren-on-spiraling-student-debt-and-what-should-be-done-about

Alia Wong. When Loan Forgiveness Isn't EnoughAtlantic Monthly, June 15, 2015. Accessible at http://www.theatlantic.com/education/archive/2015/06/government-corinthian-college-loan-plan-problems/395513/

Tuesday, September 20, 2016

ITT Tech files for bankruptcy, leaving more than 35,000 students in the lurch. 23 Democrat Senators ask the Department of Education to give ITT students special assistance

ITT Educational Services, a for-profit corporation operating more than 130 vocational and technical training schools, filed for bankruptcy earlier this month. The Department of Education shut off student aid money to ITT in late August, and the corporation quickly collapsed.

ITT's bankruptcy left  about 35,000 students in the lurch.  Most of them took out federal student loans to pay ITT's extraordinarily high tuition, and none of them will be able to complete their studies. DOE Secretary John King sent a message to these students telling them they had just two options: transfer their credits to other institutions or file for loan forgiveness under DOE's "closed school"forgiveness regulations.

On September 15, 23 Democratic Senators sent Secretary King a letter asking DOE to grant ITT's former students special assistance. The letter is slightly incoherent, which is understandable given the fact that 23 politicians had to agree on the text. Nevertheless, the Senators articulated several specific requests for relief.

Extending the eligibility guidelines for total student-debt relief for ITT's former students. First, the Senators want DOE to loosen the eligibility requirements for ITT students who file for total loan forgiveness under DOE's "closed school" relief regulations.  Under current DOE guidelines, ITT's former students can apply for debt relief under DOE's "closed school" procedures if they were enrolled at ITT at the time it closed or withdrew from ITT up to 120 days prior to closure.

The Democrats asked Secretary King to expand the 120-day window to a little more than two years. If King grants this request, any student who withdrew from ITT on or after March 1, 2014 will qualify to have their ITT student loans forgiven under DOE's "closed school" discharge process.

Preservation of ITT's student records. The Senators also asked DOE to preserve all of ITT's documents and records that might be relevant to an ongoing investigation of ITT's  activities or that could be helpful to students seeking to get their loans discharged..

Explore legal authority to automatically discharge ITT students' federal loans.  Finally, the Senators urged DOE to determine its authority to automatically discharge student loans of ITT    students and to consider discharging loans of all students who don't transfer their ITT credits to another institution within three years and who are otherwise eligible for a "closed school" discharge.

All these recommendations are commendable but they are far too timid. After all, as the Senators attested in their letter, DOE shut off ITT's funding based on serious concerns about "ITT Tech's deceptive practices, dubious educational quality, and financial integrity."

As reported in Bloomberg News, the U.S. Securities and Exchange Commission sued ITT for fraud in 2015, and the Consumer Financial Protection Bureau sued the company in in 2014, "accusing it of overstating students' job prospects and potential salaries and then pushing them into high-cost private loans that were likely to default." Both suits are still pending.

ITT has enrolled thousands of students over the years. Many of these students--my guess is most of them--received little or no economic benefit for their ITT tuition dollars.

I'm sure ITT can point to some students who completed their ITT studies and found good paying jobs, but I think for every success story  there is surely one or more students who  got no economic benefit from their ITT studies and wound up heavily in debt.

One thing is certain. The for-profit college industry is imploding, and DOE needs a comprehensive process for assisting students who attended one of the collapsing for-profit schools.  Several years ago, Professor Robert C. Cloud and I proposed a change in the Bankruptcy Code that would allow anyone who accumulated student-loan debt from attending a for-profit college and who is insolvent to receive a bankruptcy discharge of student-loan debt without having to show "undue hardship."

In other words, we argued that student debt acquired to attend a for-profit college should be treated like any other unsecured debt, which would make it readily dischargeable in bankruptcy. In my view, this proposal makes more sense than for DOE to deal with each collapsing for-profit college on an ad hoc basis.

Let's see if our U.S. Senators have the courage to offer broader relief for for-profit college students than the tepid proposals contained in the Democratic Senators' recent letter.


References


Richard Fossey, Robert C. Cloud, R. (2011). From the cone of uncertainty to the dirty side of the storm: A proposal to provide student-loan debtors who attended for-profit colleges with reasonable access to the bankruptcy courts. Education Law Reporter, 272, 1-18.

Secretary of Education John B. King Jr. A Message from the Secretary of Education to ITT Students. Accessible at http://blog.ed.gov/2016/09/message-secretary-education-itt-students/

Letter to the Honorable John King, Secretary of Education, from 23 Democratic Senators, September 15, 2016.

Dawn McCarty and Shahien Nasirpour. ITT Educational Services Files for Bankruptcy After Shutdown. Bloomberg, September 16, 2016. Accessible at http://www.bloomberg.com/news/articles/2016-09-16/itt-educational-services-files-for-bankruptcy-after-shutdown-it6byu6t

Reuters. ITT Educational Services Files for Bankruptcy After Aid Crackdown. International New York Times, September 17, 2016. Accessible at http://www.nytimes.com/2016/09/18/business/itt-educational-services-files-for-bankruptcy-after-aid-crackdown.html?_r=0

Friday, September 16, 2016

Tax Consequences for Student-Loan Borrowers in Income-Based Repayment Plans: Insanity

The student loan crisis grows worse with each passing day. As the Wall Street Journal noted recently, total student-loan indebtedness is more than five times what it was just 20 years ago, and one out of four borrowers is behind on repayment or in default.

But American universities survive on federal student aid money; they are like addicts waiting on their next fix. Tuition rates continue to go up: Yale announced a tuition hike to nearly $50,000 a year!

The Obama administration knows the student loan program is out of control, but the only thing it can think of to do is roll out income-based repayment plans (IBRPs) that stretch borrowers' payments out for 20 or 25 years.  More than 5 million people are in these plans now, and the Department of Education wants 7 million in them by the end of next year. I think there will be 10 million people in these plans by the end of 2018.

IBRPs reduce borrowers' monthly payments because borrowers' payment terms are based on a percentage of their income--not the amount they borrowed. In Obama's latest two IBRP plans--PAYE and REPAYE--borrowers pay 10 percent of their adjusted gross income for 20 years.

But this is insanity. For most borrowers in PAYE and REPAYE, monthly payments are not large enough to cover accruing interest, and total indebtedness actually grows larger over the years as  accruing interest gets added to the amount that was originally borrowed.

It is true that borrowers who faithfully make loan payments for 20 years will have the remaining loan balance forgiven, but the amount of forgiven debt is considered taxable income by the IRS.  In fact, a Wall Street Journal article advised borrowers to start saving their money to pay the tax bill they will receive when they finish paying off their loans.

Alan Moore, a financial planner who was quoted n the WSJ, made this chilling observation: "If you don't save enough money for the tax bill, all you are accomplishing is swapping your student-loan debt for a debt to the IRS." Moore advised student-loan borrowers to open a segregated account to save for their eventual tax bill and not to invest that money too aggressively due to the risk of a bear market.

Higher Education insiders chant the mantra that people who get college degrees make more money than people who don't go to college. But that is not true for everyone. And that trite observation does not justify forcing millions of people into 20- and 25-year repayment plans that terminate with big tax bills that come due just about the time most Americans hope to retire.

References  

Anne Tergesen. Six Common Mistakes People Make With Their Student Loans. Wall Street Journal, September 12, 2016. Accessible at http://www.wsj.com/articles/six-common-mistakes-people-make-with-their-student-loans-1473645782

Yale Financial Aid Budget Will Meet Term Bill Increase. Yale News, March 9, 2016. Accessible at http://news.yale.edu/2016/03/09/yale-financial-aid-budget-will-meet-term-bill-increase

Thursday, September 15, 2016

ITT Tech's former students announce a strike against student loan payments: Who will notice?

Several years ago, U.S. Post Office workers threatened to strike, but the public didn't care. I recall a cartoon with two images: The first image depicted a sleeping Post Office employee covered with cobwebs and was labeled "Post Office Employee at Work." The second image, which depicted the same sleeping Post Office worker, was labeled "Post Office Worker on Strike."

The cartoon's message was clear. If Post Office employees went on strike and refused to deliver the mail, no one would notice.

I think ITT Technical Institute's former students will get a similar ho-hum reaction to their announcement that they are on strike and refusing to make their student-loan payments. Who will notice?

After all, almost 50 percent of students who took out student loans to attend a for-profit college default on those loans within five years of beginning repayment. Some former for-profit students are making loan payments under income-contingent repayment plans, but most of these borrowers are making payments so small that they aren't even paying off their loans' accruing interest.

So a student-loan strike, like a postal worker strike, is basically a non-event.

That is not to say that ITT Tech's former students don't have real grievances. ITT has more than 40,000 students on 130 campuses. When  it closes tomorrow, all of ITT's students will be left in the lurch. Who can blame them for refusing to make payments on their student loans?

Students who are enrolled at ITT at the time it closes are eligible for  a "closed school" discharge of their federal student loans. According to Inside Higher Ed, about a thousand ITT students have applied for a "closed school" discharge. But why should they be forced into an administrative process to get their loans forgiven? Why doesn't the Department of Education simply forgive the loans of everyone who was enrolled at ITT at the time of its closure or who withdrew from their ITT studies within the last six months?

And, as I've said before, why doesn't DOE admit that a high percentage of the people who enrolled at ITT over the years did not get good value for their tuition dollars and forgive the student loans of all ITT's former students?

That would be a fair thing to do but damned expensive. That's why most of ITT's former students will be on the hook for their student-loan obligations even if their ITT studies were a complete waste of their time.

Image result for student loan debt strike



References

Ashley Smith. ITT Tech Students Launch Debt Strike. Inside Higher Ed, September 15, 2016. Accessible at https://www.insidehighered.com/quicktakes/2016/09/15/itt-tech-students-launch-debt-strike?utm_source=Inside+Higher+Ed&utm_campaign=c72eec25d2-DNU20160915&utm_medium=email&utm_term=0_1fcbc04421-c72eec25d2-198565653&mc_cid=c72eec25d2&mc_eid=1b70c08403

Ashley Smith. The End for ITT Tech. Insider Higher Ed. September 7, 2016. Accessible at https://www.insidehighered.com/news/2016/09/07/itt-tech-shuts-down-all-campuses

Wednesday, September 14, 2016

The Department of Education shuts down ITT Tech: No lifeboats for ITT's former students

In one of Patrick O'Brian's novels on life in the 19th century British Navy, a British fleet attacks a flotilla of Barbary pirates, who are in armed galleys rowed by Christian slaves. A British ship sails into the galleys at full speed, ramming one galley and cutting it in half.

The galley slaves are chained to their oars and cry out for help as their galley begins to sink. But the British ship sails on, leaving the slaves to drown. One of the British officers is so upset by the incident that he commits suicide.

Which brings me to the Department of Education's recent decision to cut off federal student-aid funding for all students enrolled on the campuses of ITT Educational Services. ITT had been subjected to a number of state and federal investigations, but DOE's decision to shut off the spigot of federal money was a death sentence for ITT. Within a few days after DOE's action, ITT shut its doors.

If all the allegations against ITT are true, this for-profit institution deserved to be shut down. But what about ITT's 45,000 current students, most of whom took out loans to pay their ITT tuition? What about the thousands of former ITT students who are trying to pay back their student loans? Will DOE offer these poor folks any relief?

Apparently not. DOE Secretary of Education John B. King Jr., issued a letter to ITT students offering them two options, which I quote:
1. If you are currently or were recently enrolled at ITT, you may be eligible to have your federal student loans for your program at ITT discharged. Your federal loan debt will be wiped away and you will have the option of restarting your education somewhere new. . . .
2. If you wish to continue to complete your program at a different school--especially if you are close to graduating--you may be eligible to transfer your credits. It is important to note that transferring your credits may limit your ability to have your federal loans discharged. Closed school discharge may be an option if you enroll in a different program that does not accept your ITT credits.
In short, King gave ITT students two choices: Current ITT students or students who recently withdrew from ITT (within 120 days before ITT closed) can apply to have their loans discharged. Other students can try to transfer their ITT credits to other institutions, which may or may not accept them.

In my view, King's letter is very much like sinking a pirate galley and allowing the poor galley slaves to drown.

Let's face facts. Most of the students who attended for-profit colleges got a substandard educational experience. Many former students claim to be victims of high-pressure recruiting tactics and misrepresentations about the quality of the programs that were offered. Almost half of a recent cohort of for-profit college students defaulted on their loans within 5 years of beginning repayment. All the problems in the for-profit college sector were plainly laid out in Senator Tom Harkin's Senate Committee report that was released several years ago.

The for-profit college sector is collapsing. Corinthian Colleges filed for bankruptcy, University of Phoenix has seen its enrollments drop by half, Stock prices in the for-profit college industry have plummeted.

There is only one fair thing for DOE to do. All students who attended a for-profit college that closed or has been found guilty of widespread fraud or misrepresentation should have their student loans discharged. I repeat--all students. And these discharges should be administered en masse without requiring for-profit students to go through a burdensome administrative process.

This won't happen of course, because releasing  for-profit college students from their student loans would cost the federal government tens of billions of dollars. But again I say, let's face facts. Most of these students were ripped off by the for-profit college industry and most will never pay back their loans anyway.

But Secretary King prefers to behave like the nineteenth century British Navy. DOE is sinking the bad guys but allowing innocent victims to drown, chained down like galley slaves by massive student-loan debt.




References

Patrick Gillespie. University of Phoenix has lost half its students. CNN Money, March 25, 2015. Accessible at http://money.cnn.com/2015/03/25/investing/university-of-phoenix-apollo-earnings-tank/

Secretary of Education John B. King Jr. A Message from the Secretary of Education to ITT Students. Accessible at http://blog.ed.gov/2016/09/message-secretary-education-itt-students/

Brian Stoffel.  Stocks to Watch in For-Profit Colleges. Motley Fool, June 9, 2015. Accessible at http://www.fool.com/investing/general/2015/06/09/stocks-to-watch-in-for-profit-colleges.aspx

United States Department of Education. Increased Oversight of ITT and the Impact on Students.  Accessible at http://blog.ed.gov/2016/08/increased-oversight-of-itt-and-the-impact-on-students/

United States Health, Education, Labor and Pension Committee. For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. July 2012. Accessible at: http://www.help.senate.gov/imo/media/for_profit_report/PartI.pdf