Tuesday, December 27, 2016

Social Security offsets imposed on elderly student-loan defaulters: Heartless and Pointless

You can be young without money but you can't be old without it.
Tennessee Williams

If you are in your late 50s or early 60s, you've probably obtained an estimate for how much Social Security income you will receive when you retire. Most retired Americans depend on their Social Security checks to provide a significant amount of their overall retirement income. 

But if you defaulted on a student loan, you may not receive your full Social Security benefit. The government may deduct part of your Social Security income and apply the deduction to your unpaid student loans. 

A few weeks ago, the U.S. Government Accountability Office issued a lengthy report  (82  pages) on the government's Social Security offset activities. Here are some of the highlights.
  • In 2015, 173,000 Americans had their Social Security income offset due to defaulted student loans. This is a dramatic increase from 2002, when the government only applied offsets to 36,000 Social Security recipients (page 11).
  • Some Social Security recipients whose income was offset lived below the federal poverty guideline and others dropped below the poverty level after their Social Security checks were reduced (p. 27). In fact, as Senator Elizabeth Warren emphasized in a recent press release, "Since 2004, the number of seniors whose Social security benefits have been garnished below the poverty line increased from 8,300 to 67,300."
  • More than 7 million people age 50 and older still owe on student loans, and 870,000 people age 65 and older have student loan debt. Among student-loan borrowers age 65 and older, 37 percent are in default (figure 2, page 10).
  • The amount of money the government collects from Social Security offsets is small beer. The government  only collected $171 million from Social Security offsets in 2015, about one eighth the amount Hillary Clinton raised for her 2016 presidential campaign ($1.4 billion). 
  • Most of the money collected from Social Security offsets went toward paying fees and accumulated interest.  "Of the approximately $1.1 billion collected through Social Security offsets from fiscal year 2001 through 2015 from borrowers of all ages, about 71 percent was applied to fees and interest" (p. 19).
GAO also reported that several hundred thousand people who have experienced Social Security offsets are totally disabled and entitled to have their student loans forgiven, but only a minority of these people have applied for loan forgiveness (p. 31). Commendably, DOE has suspended offsets for people who are totally disabled whether or not they applied for loan forgiveness.  Unfortunately, the government treats the amount of the forgiven debt as taxable income (p. 31).

The GAO report is packed with additional information and findings, but the bottom line is this: The government is hectoring elderly and disabled student-loan defaulters even though the amount of money the government collects is a pittance. Most of the money collected goes toward paying down fees and accumulated interest and does not reduce the individual defaulters' loan balances.

In short, the Department of Education's Social Security offset practices is pointless. Elderly or disabled people who defaulted on their student loans and are surviving on their Social Security checks will never pay off their loans. 

Sandy Baum, a widely renowned expert on student loans, recommended in her recent book that the government stop offsetting the Social Security checks of defaulted student-loan debtors. Does anyone disagree? 

In fact, the government's Social Security offset practices strike me as an administrative form of sadism--the bureaucratic equivalent of small children who joylessly tear the wings off of insects.

Senator Elizabeth Warren has called for an end to the practice of garnishing student-loan defaulters' Social Security checks. Surely she can gather legislative support for a law that bans this practice. If she can't get that done, then Senator Warren is really not much of a consumer advocate.



References

Sandy Baum. Student Debt: Rhetoric and Realities of Higher Education Financing. New York: Palgrave-MacMillan, 2016.

Senator Elizabeth Warren Press Release, December 20, 2016. McCaskill-Warren GAO Report Shows Shocking Increase in Student Loan Debt Among Seniors

United States Government Accountability Office. Social Security Offsets: Improvement to Program Design Could Better Assist Older Student Borrowers with Obtaining Permitted Relief. Washington DC: Author, December 2016).



Wednesday, December 21, 2016

Department of Education's fumbling efforts to aid students defrauded by Corinthian Colleges: No relief for the Walking Dead

David Goldman wrote a  highly informative article for Bloomberg yesterday about the Department of Education's fumbling efforts to process Borrower Defense claims filed by people who claim they were defrauded by Corinthian Colleges. I am grateful to Steve Rhode for calling my attention to Goldman's article.

Essentially, here's the story. Corinthian Colleges filed for bankruptcy last year under a cloud of fraud allegations. In fact, the the State of California got a $1.1 billion judgment against Corinthian for its wrongdoing in that state. At the time it filed bankruptcy, Corinthian had 335,000 former students.

DOE has an administrative process whereby it will forgive the student loans taken out by students who were defrauded by for-profit institutions. So far, 82,000 former Corinthian students have filed those claims.  But DOE's process for reviewing those claims is slow. Goldman reported that so far only about 15,000 students have gotten debt relief through the Borrower Defense process.

DOE won't grant blanket forgiveness to all of Corinthian's former students, arguing that not all of them were defrauded.  But in fact, a high percentage were defrauded. As Goldman reported, "Department officials concluded that Corinthian engaged in 'widesperead placement rate fraud' for almost 800 programs at nearly every one of its more than 100 U.S. campuses."

 David Vladek, a former director of the Federal Trade Commission's consumer protection division, said this about Corinthian's former students: "These kids by and large have been scammed, and the Department of Education in some sense is continuing the harm by making them jump through hoops to get the relief to which they are entitled."

But it gets worse. Not only is DOE not processing loan-forgiveness claims quickly, it is actually employing debt collectors to hound Corinthian's former students, even though most of these students are entitled to have their loans forgiven.  Although DOE states on its web site that it will stop all loan collection efforts on Corinthian borrowers, that statement is not true.

Indeed, DOE's debt collection activities are a hell of a lot more efficient than their loan forgiveness process. As Maggie Robb, a consumer-rights attorney, observed, " When the Department of Education wants to collect money, it doesn't stop."

Goldman's story focused solely on Corinthian Colleges' former students, but there are hundreds of thousands of people who took out loans to attend for-profit colleges who have been scammed. I know one woman with a documented claim for fraud against DeVry University who filed a Borrower Defense claim with DOE last August and still hasn't gotten a response from DOE.

In short, people who have been defrauded by the for-profit college industry are the real life representations of the Walking Dead. Fraud victims have debt hanging over their heads, which DOE has not discharged; and if they default on their loans they are subject to abusive debt collection tactics, wage garnishment, income-tax offsets, and ruined credit. Many are continuing to make loan payments on debt they don't really owe; and most did not get fair value for their for-profit college experiences.

In DOE's defense, the Department is simply overwhelmed by the implosion of the for-profit college industry. It does not have the resources to process claims by Corinthian students or to even notify those students that they may be entitled to debt relief. ITT's closure and bankruptcy will bring a deluge of new claims, and other for-profits are sure to follow over the next few months. (Globe University and Charlotte School of Law, for example, have been accused of misrepresentation and many of their students will be filing Borrower Defense claims.)

There is really only one sensible solution: DOE should allow all people who borrowed money to attend for-profit colleges and who are insolvent to file for bankruptcy relief in the federal bankruptcy courts. Whether or not a a particular student debtor can prove fraud should be irrelevant. If they took out loans to attend a for-profit college, the odds are better than even that they were scammed or did not get fair value for their money.

Image result for walking dead'
Students who were scammed by for-profit colleges are the Walking Dead.

Note: All quotations come from Mr. Goldman's article.

References

David Goldman. The U.S. Government Is Collecting Student Loans It Promised to Forgive, Bloomberg News, December 19, 2016.

Tuesday, December 20, 2016

Charlotte School of Law loses access to federal student aid money: The beginning of the end for bottom-tier law schools?

In less than two weeks, Charlotte School of Law will lose all access to federal student financial aid money. CSL is a for-profit law school with an undistinguished reputation. According to Law School Transparency, an organization that gathers data on American law schools, only 46.3 percent of CSL graduates passed their bar exams in 2015. LST calculates that 50 percent of its 2014 freshman class had credentials so low that they were at extreme risk of failing the bar.  LST also reported that not a single one of CSL's 2015 graduates obtained a federal judicial clerkship, another indication of CSL's mediocrity.

The Department of Education's decision to deny student aid money to CSL is probably the school's death knell. Most of CSL's students must take out student loans to pay CSL's extremely high tuition--about $44,000 a year.

The American Bar Association had already found that the law school was out of compliance with the ABA's accrediting standards, but DOE did not pull the plug on CSL solely for that reason.

Rather, as DOE's press release explained, CSL was found to have made misleading statements about itself to prospective students:
"The ABA repeatedly found that the Charlotte School of Law does not prepare students for participation in the legal profession. Yet CSL continuously misrepresented itself to current and prospective students as hitting the mark," said U.S. Under Secretary of Education Ted Mitchell. "CSL's actions were misleading and dishonest. We can no longer allow them continued access to federal student aid."
Without federal student-loan money, CSL won't survive long. And if the school closes, that will be a good thing for the legal profession and all the potential students who might have borrowed money to attend this extremely lackluster institution.

Nevertheless, even if CSL closes, hundreds of the school's graduates will suffer. Most have borrowed a lot of money to attend CSL; few obtained jobs that made the financial investment worthwhile.

DOE needs to do more than just cut off funds from one lower-tier law school. It needs to allow graduates of CSL and similar bottom-feeder law schools to discharge their student loans in bankruptcy.

And then DOE needs to get busy and shut off student aid money to some other law schools that have low admission standards and that are not placing enough of their graduates in well-paying law jobs. Here are some schools DOE needs to examine:

North Carolina Central University
Southern University Law Center
Appalachian School of Law
Florida Coastal School of Law
Ave Maria School of Law
Arizona Summit Law School

LST calculates that  these schools admitted students with LSAT scores so low that 50 percent of their 2014 freshman class were at extreme risk of failing the bar exam.

And here are some more schools that bear watching:

Florida A & M University
Texas Southern
Mississippi College
Thomas M. Cooley Law School
Valparaiso University
St. Thomas University-Florida
University of North Dakota
Ohio Northern University
University of South Dakota
Barry University
University of La Verne

LST has identified these schools as ones that admit students with LSAT scores so low that 25 percent of their  entering 2014 classes were at extreme risk of failing the bar exam.

DOE and the ABA must work together to raise the overall quality of legal education in the United States.  As Kyle McEntee, writing for Law School Transparency, observed:
Charlotte School of Law is not the only law school operating shamelessly to the detriment of the legal profession. This school, like several dozen more, set large percentages of their students up to fail, leaving them with high debts, wasted time, no job, and no hope. It’s long past time for these schools to go.
ABA needs to rescind accreditation for some of these schools, and DOE needs to cut off federal funding for at least a dozen more law schools.

References

Law School Transparency. 2015 State of Legal Education.

Kyle McEntee. Will This Law School Close After Feds Cut Funding? Bloomberg News, December 19, 2016.

U.S Department of Education. Charlotte School of Law Denied Continued Access to Federal Student Aid Dollars. U.S. Department of Education press release, December 19, 2016.



Thursday, December 15, 2016

Defrauded students file debt-relief applications with the Department of Education: Bankruptcy courts can provide relief faster and more efficiently than DOE bureaucrats

When Betsy DeVos takes over as the new Secretary of Education next year, she will inherit one huge headache--thousands of pending applications for loan forgiveness from students who claim they were defrauded by various for-profit universities.

As Andrew Kreighbaum explained in a recent article for Inside Higher Ed, the Department of Education had received 80,000 loan discharge applications as of last October; and the total number has likely grown to at least 100,000.

So far, DOE has approved 15,694 applications for discharge from students who attended three campuses owned by the now defunct Corinthian Colleges system, but many more of Corinthian's former students are surely eligible for loan forgiveness based on fraud claims. After all, Corinthian has 350,000 former students.

And there are hundreds of other student borrowers who may file loan-forgiveness applications: students from ITT Tech Services, Globe University, Minnesota School of Business, and several more for-profits that closed after being accused of wrongdoing.

I. Problems with forgiving loans through the DOE administrative process

DOE has been extremely slow to process borrower defense applications; I know one young woman who filed her application in August based on a claim she was defrauded by DeVry University. She has yet to receive a response from DOE.

New federal regulations for processing borrower defense claims will become effective next summer, but there are several fundamental challenges that new regulations won't solve:
1. Tax consequences. First, all former for-profit student who have their student loans forgiven will have a one-time tax liability because the amount of their forgiven loans is considered taxable income by the IRS. 
2. Forfeiture of college credits. Under the current debt-relief program, students whose student loans are forgiven due to fraud will forfeit any credits they received from the institution they attended.

3. Insufficient DOE resources. Third, the Department of Education simply doesn't have the resources to process thousands of loan forgiveness claims in a timely manner, not to mention the thousands of new claims that will inevitably be filed as more for-profit colleges close their doors.
II Bankruptcy is a better way to process loan forgiveness applications

Fortunately, there is a solution to these problems; it's called the bankruptcy courts.

First, debtors whose student loans are discharged in bankruptcy will not suffer tax consequences for a forgiven loan because under current IRS rules forgiven debts are not taxable to an individual who is insolvent at the time the loan is forgiven.

Second, a student debtor who discharges student loans from a for--profit college through the bankruptcy process will not forfeit credits or degrees conferred by the college.

Finally, the bankruptcy courts clearly have the resources to process hundreds of thousands of bankruptcy petitions filed by distressed student-loan debtors. Filing an individual Chapter 7 action is relatively simple and does not require a lawyer.  Bankruptcy petitions could be routinely resolved in the bankruptcy courts, which have the expertise to weed out fraudulent or unworthy claims.

III. DOE has the authority to reinterpret the  "undue hardship" standard 

Critics might argue that my proposal is unworkable because anyone seeking to discharge student loans in bankruptcy must meet the "undue hardship" standard, a very difficult standard to meet.  But there is a solution for that challenge as well.

All DOE needs to do to ease the path to bankruptcy relief for insolvent student-loan debtors with fraud claims is to write an official letter expressing its view that every insolvent debtor who attended a for-profit college that has been found to have acted fraudulently meets the undue hardship standard.

In essence, such a letter would be a a revision of DOE's letter issued on July 7, 2015, giving the Department's interpretation of the "undue hardship" rule. In all likelihood, the bankruptcy courts would defer to DOE's revised interpretation of "undue hardship" and begin discharging student loans routinely.

Of course, DOE would also need to direct the various student-loan guaranty agencies to stop opposing bankruptcy relief for any insolvent debtor with a fraud claim against a for-profit college.

Easing the path to bankruptcy relief for distressed debtors who took out student loans to attend dodgy for-profit colleges will cost taxpayers billions. But most of the people who took out these loans will never pay the money back anyway. Almost 50 percent of the people who took out loans to attend for--profit colleges default on those loans within five years. Others enter into income-driven repayment plans that lower monthly payments, but according to the Government Accountability Office, about half the people who begin these plans are kicked out for failing to verifying their income on an annual basis.

So let's begin cleaning up the mess our government created when it began shoveling federal student-aid money to  the rapacious for-profit college industry. Let's shut these colleges down and wipe out the student-loan debt accumulated by millions of victims of massive fraud. Incoming Secretary of Education Betsy DeVos will have the authority to grant relief to these victims by easing the path toward bankruptcy. Let's hope this is what she does.

Incoming Secretary of Education Betsy DeVos


References

Andrew Kreighbaum. Activists and borrowers call on Obama administration to provide debt relief to defrauded students. Inside Higher Ed, December 14, 2016.

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). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults

Lynn Mahaffie, Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings. CL ID: GEN 15-13, July 7, 2015.

Eric Rosenberg.You Need to Know How Student Loan Forgiveness Is Taxed.  Studentloanhero.com, July 18, 2016.

US. Government Accounting Office. Federal Student Loans: Education Needs to Improve Its Income-Driven Repayment Plan Budget Estimates. Washington, DC: U.S. Government Accounting Office, November, 2016.







Monday, December 12, 2016

University of Pennsylvania demotes Shakespeare and Colby-Sawyer College eliminated its English major: We don't need no stinkin' Shaksespeare

Students at the University of Pennsylvania recently removed a portrait of William Shakespeare from a prominent place in the building that houses the English Department. They dumped Shakespeare's mug in the Department Chair's office and replaced it with a photo of Audre Lorde, a black female writer.

Jed Esty, chair of Penn's English Department, apparently approved. "Students removed the Shakespeare portrait and delivered it to my office as a way of affirming their commitment to a more inclusive mission for the English Department," he wrote benignly.

In the same spirit of tolerance, Esty also wrote this:"We invite everyone to join us in the task of critical thinking about the changing nature of authorship, the history of language, and the political life of symbols." I have no idea what that means.

Meanwhile, at approximately the same time, Colby-Sawyer College in New London, New Hampshire, eliminated its English major altogether. Colby-Sawyer has seen its enrollment drop from 1,500 students four years ago to just 1,100 today and has had a budget shortfall for the last three years.

What is the significance of these two unrelated events?

The lunatics are running the asylum. First, regarding the University of Pennsylvania, it is worth noting that it was students, not the faculty, who decided to take Shakespeare's portrait down and replace it with the image of an author of their own choosing.

There was a time when the faculty determined the curriculum and focus of a university department based on the common assumption that the faculty knew what was is doing.

But no more. Now the students dictate to the professors what is worth studying. Let's read more Audre Lorde and less Shakespeare, the Penn students decreed. And perhaps that's just as well. The English professors at Penn may not know any more about Shakespeare than the students.

The liberal arts are dead. Second, I think recent events at the University of Pennsylvania and Colby-Sawyer are signs that liberal arts education is dead.  A liberal arts degree has become incredibly expensive even as its purpose becomes ever more difficult to articulate. Colby-Sawyer, for example, is experiencing annual budget shortfalls and shrinking enrollment. In the years to come, fewer and fewer young people will be willing to borrow $100,000 or more to attend a tiny liberal arts college in an obscure New England town. Even at the University of Pennsylvania,  a prestigious university located in Philadelphia, fewer students can be expected to take out student loans to read a book by Audre Lorde.

Liberal arts advocates pitch the notion that they are educating students to live rich and meaningful lives. But they know that's not true.

In fact, when Robert Oden, a former liberal-arts college president, was asked whether Colby-Sawyer will survive, he gave this disingenuous answer. "I do not know enough to say yes," Oden replied coyly.  "It's a highly regarded liberal arts college that has discovered a niche that distinguishes it."

The niche that distinguishes it! Oden did not identify which niche Colby-Sawyer fills, but perhaps it is this: Colby-Sawyer is one of the only liberal arts colleges in the United States that does not have a major in English.

References

Rob Wolfe. Colby-Sawyer Eliminates Five Majors to Stay Afloat. Valley News, December 9, 2016.

Olivia Sylvester. Students remove Shakespeare portrait in English dept., aiming for inclusivity. Daily Pennsylvanian, December 11, 2016.

Sunday, December 11, 2016

Pam Hunt, debt striker, begs Obama to forgive all student loan debt of former Corinthian Colleges students: Let's hope the President responds

When Barack Obama steps down from the presidency next month, he will leave a huge mess behind for the next president to clean up. 43 million Americans hold student loans, and almost half of them can't pay them back.

Most desperate among the victims are the hapless souls who attended for-profit colleges. Many were enticed to enroll by high-pressure and even fraudulent recruiting tactics. Most paid far too much for their educational experiences, and few obtained jobs that paid well enough to justify their educational investments.

Under pressure from state and federal regulators, some for-profit colleges are closing and filing for bankruptcy. Corinthian Colleges, with 350,000 former students, filed for bankruptcy last year. ITT Tech filed for bankruptcy a few months ago, and Dade Medical College filed a bankruptcy-type action in Florida after it closed under allegations of corruption. Global University lost all federal funding earlier this month and will likely close.

Unfortunately, most of the students who attended these ne'er-do-well colleges are still liable on their student loans.  The federal government has processes in place for students to obtain loan forgiveness if they can show they were enticed to take out loans through fraud. But the process is slow. In late September, Senator Elizabeth Warren wrote the Department of Education a letter, specifically complaining about the Department's failure to provide speedy relief for Corinthian students.

Earlier this week, Pam Hunt, a former Corinthian Student, appealed directly to President Obama to forgive the student-loan debt of all Corinthian students. "We're appealing to you this one last time," Hunt said. "Please forgive these debts before you leave office."

President Obama should head Hunt's plea, but he probably won't. Secretary of Education John King raised two objections to Hunt's proposal. First, King said, it is not clear that fraud occurred on every Corinthian campus. Second, he said that Corinthian students should testify individually that they were victims of fraud.

King is ignoring the fact that the for-profit college industry is riddled with corruption and fraud, and has victimized millions. DOE doesn't have the resources to deal with these victims on a case-by-case basis, and many for-profit students aren't sophisticated enough to file administrative actions anyway. After all, more than half of the people in income-driven repayment plans are not certifying their income on an annual basis, which is a requirement for remaining in these plans.  Few Corinthian students have applied for loan forgiveness under DOE guidelines, even though almost all are probably entitled to relief.

Hunt is right. DOE should forgive all student loans taken out by Corinthian students. And it should forgive all student debt taken out by ITT Tech students, Global University students, and students who attended Dade Medical College.

After all,whether DOE forgives these loans or not, most of these loans won't be paid back. It is in the national interest to give all victims of the for-profit college industry a fresh start.

Pam Hunt: "Please forgive these debts before you leave office."

References

Andrew Kreighbaum. New Call for Debt Relief Before Obama Leaves. Inside Higher Ed, December 6, 2016.

Tamar Lewin, "Government to Forgive Student Loans at Corinthian Colleges," New York Times, June 8, 2015.

US. Government Accounting Office. Federal Student Loans: Education Needs to Improve Its Income-Driven Repayment Plan Budget Estimates. Washington, DC: U.S. Government Accounting Office, November, 2016.

Michael Vasquez. Dade Medical College sets in motion plan to sell assets. Miami Herald, November 18, 205.

 

Friday, December 9, 2016

Globe University will probably file for bankruptcy. Why can't students who took out loans to attend Globe get bankruptcy relief as well?

Globe University/ Minnesota School of Business is collapsing like a house of cards. Last September, a Minnesota judge ruled that Globe/MSB violated Minnesota consumer protection laws, and the Minnesota Office of Higher Education began the process of barring it from doing business in the state of Minnesota.

In October, the U.S. Department of Education ordered Globe to stop enrolling students, and this month, DOE cut off all federal student-aid funding to Globe.  Globe cannot survive without federal student aid money; and its seems likely it will file for bankruptcy in the near future.

Bankruptcy is a good thing for failing colleges.  In fact, several higher education institution filed for bankruptcy during the last two years, including: Corinthian Colleges, ITT Tech Services, Anthem College, and Dowling College.  Bankruptcy will allow Globe to shut down operations in an orderly manner and ensue that its creditors are treated fairly and equitably.

If Globe/MSB files for bankruptcy, it will be required to list its assets. Those assets will likely include loans it made to its own students. Kyle McCarthy, writing for the Huffington Post in 2014, reported that 42 percent of Globe's students had private loans; and some of these loans were originated by Globe University, Minnesota School of Business, or Terry Myhre, the owner of Globe University.

Ironically,  Globe University has easy access to the bankruptcy courts, where it will be able to shed some if not all of its debt; but Globe's students who file for bankruptcy will find it almost impossible to get relief from their debts to Globe. And this is true in spite of the fact that a judge found that Globe had committed fraud.

Why is this? Because private student loans issued by for-profit colleges, like federal student loans, cannot be discharged in bankruptcy unless the debtor can show that repaying the loans will cause "undue hardship," a very difficult standard to meet.

Obviously, this is a grave injustice. In my view, students who took out loans from for-profit colleges that committed fraud should have all their student loans automatically forgiven: federal loans, private loans, and loans issued by the college themselves.

Terry Myhre, owner of Globe University, receiving an award from the Daughters of the American Revolution


References

Christopher Magan. Fraud ruling threatens Globe U, Minnesota School  of Business with closure. Twin City Pioneer Press, September 8, 2016.

Judge Orders Globe University, Minnesota School of Business to Stop Fraudulent Marketing. KSTP Televsion News, September 10, 2016.

Kyle McCarthy. Globe University: Profiting Off the Backs of Students and Taxpayers. Huffington Post, January 23, 2014.

Shahlen Nasiripour. Corinthian Colleges Files for Bankruptcy. Huffington Post, May 5, 2015.

Andrew Skurria. Dowling College Files for Chapter 11 Bankruptcy. Wall Street Journal, November 29, 2016.

U.S. Department of Education. Globe University, Minnesota School of Business Denied Access to Federal Student Aid Dollars. U.S. Department of Education press release, December 6, 2016.

Tuesday, December 6, 2016

The Department of Education denies student-aid money to Globe University and Minnesota School of Business: Surely the end is near for Globe/MSB

The Department of Education announced this week that it is suspending Globe University and Minnesota School of Business from participating in the federal student aid program. Last September a Minnesota judge ruled that Globe and MSB had fraudulently marketed their criminal justice programs, and the Minnesota Office of Higher Education began the process of revoking the schools' authorization to operate.

Globe and MSB had over 9,000 students as recently as 2010, but enrollments plummeted after the Minnesota Attorney General's Office began investigating the institutions. According to a news story, students spent as much as $80,000 to obtain degrees in criminal justice, but these degrees did not lead to jobs as Minnesota police or probation officers. Apparently, the schools' programs were not accredited by the Minnesota Board of Peace Officer Standards and Training.

 It is hard to see how Globe and MSB can continue to operate without as steady infusions of federal student-aid money. Together the two schools received more than $50 million in federal aid money for the 2014-2015 academic year.  Earlier this year, DOE cut ITT Tech off from federal student-aid money, and that institution closed and filed for bankruptcy shortly thereafter. It seems likely that Globe University and MSB will be closing soon--perhaps within a few weeks.

It is good to see DOE and state attorneys general going after for-profit institutions that prey on unwary students. Without a doubt, vigorous enforcement actions will force a lot of shady institutions to close.

But hundreds of thousands of students have taken out billions of dollars in federal student loans to attend for-profit institutions, and their student loans are not automatically forgiven if the institution they attended is found liable for fraud. Although DOE has a closed-school loan forgiveness program and a process whereby students can seek loan forgiveness if they were defrauded by the college they attended, both processes are cumbersome and slow.

In my view, all students who attended a for-profit college should have their student loans automatically forgiven if the college they attended is found liable by a competent court of defrauding students  or violating consumer protection laws. Of course, discharging all these student loans would be a huge hit for taxpayers, but it is not fair for students who were lured into taking out loans to receive substandard training or education from sketchy for-profit colleges to be burdened by debt they simply will never be able to pay.




References

Christopher Magan. Fraud ruling threatens Globe U, Minnesota School  of Business with closure. Twin City Pioneer Press, September 8, 2016.

Judge Orders Globe University, Minnesota School of Business to Stop Fraudulent Marketing. KSTP Televsion News, September 10, 2016.

U.S. Department of Education. Globe University, Minnesota School of  Business Denied Access to Federal Student Aid Dollars. US. Department of Education Press Release, December 6, 2016.

 

Saturday, December 3, 2016

California bar exam pass rate hits 32-year low, but law-school graduates who fail the bar exam must still pay off their student loans

Last July, 7,737 people sat for the California bar exam, and only 3,332 test takers passed--a 43 percent pass rate. A total of 4,405 people--57 percent of test takers--failed the exam, the lowest pass rate since 1984.

In all 50 states, J.D. graduates cannot practice law until they pass a bar exam pass.  Thus, the 4,405 law graduates who failed the California bar exam last July suffered a major setback in their professional careers.

They also suffered a financial catastrophe. The average J.D. graduate leaves law school with more than $100,000 in student-loan debt; and that debt must be paid regardless of whether the graduate passes a bar exam or ever gets a job as a lawyer. Without a doubt, a majority of the people who failed the California bar exam last July have student-loan debt.

Obviously, the risk of failing the bar is not equally distributed among test takers. People who graduate from ABA accredited law schools have higher pass rates on the California bar exam than people who attended a law school that is only accredited by the state of California. Sixty percent of test takers who graduated from out-of-state ABA accredited schools passed the July bar exam, while only 21 percent of people who attended state-accredited schools passed.

And people who fail the bar exam the first time they take it have a lower pass rate than overall test takers if they retake the exam. Among exam repeaters, only 17 percent passed the California bar exam last July. Pretty bad odds.

The California bar exam results are just another indication that the future for many law-school graduates is bleak. The legal job market has less than six  lawyer's job for every ten new law graduates, and it offers no law jobs for graduates who cannot pass the bar. People who graduate high in their class from a prestigious law school such as Harvard or Stanford are eminently employable, but people who graduate in the bottom half of their class or who attend bottom-tier law schools may never obtain a job that will justify the student-loan debt they piled up to get a law degree.
So if you are thinking about going to law school, here's my advice.  Read Paul Campos' book titled Don't Go to Law School (Unless). And heed Campos' warning; unless you have family connections or are admitted to a top-tier law school, you probably should not take out student loans to pursue a legal career.

And if you went to law school, can't find a law job, and are unable to pay off your student loans, you should consider bankruptcy. But if you go that route and try to get your law-school loans discharged, you must educate the bankruptcy judge about the terrible job market for lawyers.

Now if we can just find a job.


References

Paul Campos. Don't Go to Law School (Unless). 

Kyle McEntee. Law Grads Still Face Tough a Job Market. Bloomberg  Law, May 4, 2016.

Noam Scheiber. An Expensive Law Degree and No Place to Use It. New York Times, June 17, 2016.

Ann Yarbrough. Bar exam pass rate dips to 32-year low. California Bar Journal, December 2016.


Friday, December 2, 2016

Sandy Baum's new book on student debt contains some good ideas

In the past,  I have been critical of Sandy Baum's work on the federal student-loan program. In my view, she sometimes drastically understated the enormity of the student-loan crisis. But her new book, titled Student Debt: Rhetoric and Realities of Higher Education Financing, contains some good ideas, which I endorse.  Here are some of her most important recommendations:

"Don't Garnish Social Security Payments." I have long argued that the federal government should stop garnishing the Social Security checks of elderly student-loan defaulters. Baum agrees. As she put it, it is one thing for the government to garnish wages of student-loan defaulters or scoop up defaulters' tax refunds, but "[f]urther diminishing the living standards of senior citizens . . . with no potential for labor market earnings who are struggling to make ends meet on their Social Security payments is quite another thing." Bravo.

Stop giving private lenders special protection in the bankruptcy courts. In 2005, Congress amended the Bankruptcy Code to make private student loans nondischargeable in bankruptcy unless the borrower could show "undue hardship," the same standard that applies to federal student loans. This is wrong.

As Baum observed, "[t]here is no good reason for the government to sanction these unsecured loans as student loans or to grant them any special provisions, particularly . . ., protection from bankruptcy proceedings." This is an eminently sensible observation, and other respected policy commentators agree with Baum on this.

Treat student loans like any other unsecured debt in bankruptcy. I have argued for years that student loans should be treated like any other unsecured debt in bankruptcy and that the "undue hardship" provision in the Bankruptcy Code should be repealed or at least interpreted far more humanely. 

I was heartened to read that Baum, a leading expert on the federal student loan program, agrees with me on this point. Indeed, reforming bankruptcy laws to allow distressed student-loan debtors relief from oppressive student loan debt is the key to reforming the entire student loan program.

Other reforms Baum proposes. Baum made some other good points in her book. For example, some limits should be placed on the amount of money people can borrow to fund their college studies; and some limit needs to be placed on the amount of interest that can accrue on student-loan debt. She also said limits should be placed on the amount elderly people can borrow to fund their studies since they won't work long enough to pay off enormous amounts of student-loan debt.

Baum makes other good points in her book. But the reforms I've listed here are critical.  If the policy makers aren't going to listen to me (and so far they have not), then perhaps they will listen to Sandy Baum.

References

Sandy Baum. Student Debt: Rhetoric and Realities of Higher Education Financing. New York: Palgrave-MacMillan, 2016. 

Department of Education miscalculates cost of income-driven student-loan repayment plans: More accounting fraud

The Obama administration touts long-term, income-driven repayment plans (IDRs) as a good solution for overburdened college borrowers who are struggling to pay back their student loans.  About 5.3 million borrowers are in IDRs now, and the Department of Education (DOE) hopes to enroll 2 million more borrowers in these plans over the next year.

IDRs allow borrowers to make student-loan payments based on their income, not the amount they borrowed, and to stretch the loan repayment period out from 10 years to 20 or even 25 years.

IDRs lower borrowers' monthly payments, which is a good thing. And, if IDR borrowers faithfully make their monthly loan payments for the entire repayment term (20 or 25 years), any remaining unpaid debt is forgiven.

And therein lies the big problem with IDRs. Many IDR borrowers are making payments so low that their payments do not cover accruing interest. Thus a substantial percentage of people in IDRs are seeing their loan balances grow over time--not shrink, even when they are making all their monthly payments on time. Many people in IDRs will never pay off the principal of their debt, which means that their student-loan debt will ultimately be forgiven with the forgiven amount being absorbed by taxpayers.

DOE regularly calculates the cost of IDRs to taxpayers,  but according to a report issued last month by the U.S. Government Accountability Office, DOE has seriously miscalculated those costs. GAO estimates that  $352 billion in federal student loans is being paid through IDRs for the 1995 through 2017 cohorts.  Of that amount, $137 billion--39 percent--will not be repaid (GAO report, p. 51). This is nearly double DOE's estimate of 21 percent.

GAO concluded that DOE has miscalculated the costs of IDR for several reasons:
  • DOE did not differentiate among different IDR programs when calculating costs, in spite of the fact that some IDRs are more generous toward borrowers than others.
  • DOE originally assumed that no one in GRAD PLUS programs would participate in IDRs, even though GRAD PLUS borrowers are eligible to participate. In fact, a lot of unemployed or underemployed people with graduate degrees are opting for long-term, income based repayment plans as the only way to manage their enormous debt.
  • DOE assumed that all IDR participants would recertify their income annually, which is a requirement for continued IDR participation.  In reality, more than half of IDR participants are not recertifying their income on an annual basis, causing those individuals to be ejected from their income-drive repayment plans.
  • DOE's cost analyses assumed that people in standard repayment plans would not switch to IDRs (GAO report, p. 37), but the Obama administration is actively encouraging borrowers to switch to IDRs. Currently, 40 percent of all federal student-loan dollars are now being  repaid through some sort of IDR (GAO report, p. 8).
The GAO also observed that DOE has made repayment projections based on the assumption that monthly payments would increase as borrowers' incomes go up over the years. But, as GAO pointed out, it is "challenging" to predict how much IDR borrowers' income will change over time and how much of their original loan balances will ultimately be forgiven and charged to taxpayers.

Jason Deslisle, a fellow at the American Enterprise Institute, said this about the GAO report: "Really what the GAO is saying is that the Obama administration's expansion of this [IDR] program has been done without good information about the effects."  And Alexander Holt, a policy analyst at New America, said the report shows "insane incompetence" on the part of DOE. 

But in essence, DOE is engaged in accounting fraud. We really don't know what it costs taxpayers to herd millions of student borrowers into IDRs, and DOE doesn't want us to know.

And you know what? DOE doesn't care what it costs. All it is doing is maintaining the charade that the federal student loan program is under control when in fact millions of Americans have student-loan debt they will never pay back.

References

Andrew Kreigbaum. GAO Report finds costs of loan programs outpace estimates and department methodology flawed. Inside Higher Ed, December 1, 2016.

US. Government Accounting Office. Federal Student Loans: Education Needs to Improve Its Income-Driven Repayment Plan Budget Estimates. Washington, DC: U.S. Government Accounting Office, November, 2016.





Wednesday, November 30, 2016

Betsy DeVos, Trump's choice for Secretary of Education, has the power to ease the suffering of student-loan debtors

Betsy DeVos, Donald Trump's choice for Secretary of Education, has no experience in higher education, and that may be a good thing for student-loan debtors.

Most commentators on the student-loan crisis are insiders who want to maintain the status quo regarding the federal student loan program. The universities depend on regular infusions of student-loan money, which enables them to raise their tuition prices year after year at twice the rate of inflation.

But DeVos has no ties to higher education at all, and thus she has the capacity to look at the student-loan catastrophe from a fresh perspective. In fact, DeVos has the power to do one simple thing that could potentially bring relief to millions of distressed student-loan debtors.

Under current bankruptcy law, debtors cannot discharge their student loans in bankruptcy unless they can show that repaying the loans will cause them "undue hardship."  In nearly every case, the Department of Education and the student-loan guaranty companies argue that student-loan debtors should be denied bankruptcy relief under the undue hardship standard.

Instead, they routinely demand that distressed college borrowers enroll in long-term income-based repayment plans that can last for 20 or even 25 years.  And DOE and its debt collectors make this demand even when debtors' income is so low that they pay nothing or next to nothing under the terms of these plans.

Here are some examples:
  • In the Edwards case, decided last spring, Educational Credit Management (ECMC) argued that Rita Gail Edwards, a woman in her mid-50s, should pay $56 a month for 25 years to service a debt of almost a quarter of a million dollars! 
  • In the Roth case, ECMC opposed bankruptcy relief for Janet Roth, an elderly woman with chronic health problems who was living on Social Security income of less than $800 a month. Instead, ECMC wanted Roth to enter a long-term repayment plan even though ECMC conceded that Roth's income was so low that she would pay nothing under the plan. 
  • In the Abney case, DOE wanted Abney, a 40-year-old father of two, to enter a 25-year income-based repayment plan. Abney was living on $1200 a month and was so poor he couldn't afford a car and rode a bicycle to get to his job.
In essence, DOE and the debt collectors maintain that almost no one is entitled to discharge their student loans in bankruptcy and that everyone should be placed in long-term, income based repayment plans.

What if Secretary DeVos simply decreed that DOE and the loan guaranty agencies will stop pushing long-term repayment plans in the bankruptcy courts and would consent to bankruptcy discharges for people like Roth, Edwards, and Abney? (Incidentally, in all three cases, the bankruptcy courts rejected the creditors' arguments and discharged the student loans in their entirety.)

By consenting to bankruptcy discharges for people like Abney, Edwards and Roth, the Department of Education would signal to the bankruptcy courts that it supports a less harsh interpretation of the "undue hardship" standard. That would open the door for thousands of people of distressed debtors to file bankruptcy to discharge their student loans.

Some people might argue that my proposal would unleash a flood of bankruptcy filings that would undermine the financial integrity of the federal student loan program. But let's face facts. People like Roth, Edwards and Abney would never have paid back their student loans, and placing them in 25-year repayment plans that would have obligated them to make token payments that would have done nothing more than maintain the cynical fiction that their loans weren't in default.

Wouldn't it be better for DOE to be candid about the student-loan crisis and admit that millions of people will never pay back their loans? Wouldn't it be better public policy to allow honest but unfortunate debtors to get the fresh start that the bankruptcy courts are intended to provide?

Betsy DeVos is fresh on the scene of the student-loan catastrophe. Let's hope she brings some fresh thinking to the U.S. Department of Education.


Mark http://www.nytimes.com/2016/11/23/us/politics/donald-trump-president-elect.html?action=click&contentCollection=Opinion&module=RelatedCoverage&region=EndOfArticle&pgtype=article

Saturday, November 26, 2016

American Bar Association begins cracking down on mediocre law schools: Too little, too late

After waking from a long slumber, the American Bar Association is finally cracking down on mediocre law schools. A few days ago, the ABA censured Valparaiso University School of Law and placed Charlotte School of Law on probation. According to the ABA, both schools had violated ABA standards requiring law schools to only admit students who are likely to pass the bar exam.

This is not the first time that ABA has censured a mediocre law school. Last summer, the ABA's accrediting unit recommended against  accrediting the newly organized University of North Texas School of Law and cited Ava Maria Law School for failing to comply with ABA quality standards. Like Charlotte and Valparaiso, UNT and Ava Maria received ABA raspberries for low admission standards.

But the ABA's sanctions against four mediocre law schools is too little and too late. The job market for lawyers has imploded; and law chool admission applications have plunged. Many second- and third-tier law schools have had to lower their admissions standards just to fill empty seats; consequently, a lot of law schools are graduating a high number of students who will have difficulty passing their bar exams.

Law School Transparency (LST), a watchdog organization that monitors law school admission standards and bar pass rates, identified a great many law schools that have very low admission standards. LST constructed a model for determining when law school admission standards are so low that students run the risk of failing the bar, and it found a high number of law schools with dicey admission standards.

These are some of LST's most startling findings from its 2015 report on law schools' admission standards for their 2014 entering classes:
  • Seven law schools had admitted students with qualifications so low that 50 percent of their freshman classes ran an extreme risk of failing the bar exam. Those schools included Southern University Law Center, a historically black institution; and Arizona Summit and Florida Coastal, two for-profit law schools.
  • Twenty-six law schools had admission standards so low that 25 percent of their entering classes were at extreme risk of failing the bar.  Texas Southern, another historically black law school, is on that list, along with several regional public institutions, including North Carolina Central University, Ohio Northern University, and Southern Illinois University.
  • Twenty-nine law schools had admission standards so low that 25 percent of their entering classes ran a very high risk of failing the bar exam. Among this number were John Marshall Law School, a for-profit institution; Widener University, a private school; and University of Arkansas at Little Rock, a public institution.
It is the ABA's responsibility to monitor law schools' quality standards, and it fell down on the job. In fact, an advisory panel for the Department of Education recently recommended that the ABA's authority to accredit more law schools be suspended for a year--an astonishing rebuke to a very powerful professional organization.

But even if the ABA gets serious about enforcing quality standards at the nation's law schools, thousands of law-school graduates have already been seriously injured. On average, an individual graduates from law school with $140,000 in student-loan debt; and there are now two newly minted attorneys for every available law job.

Some law graduates have sued their law schools for misrepresentation, arguing they were lured into enrolling based on misleading job placement rates that the law schools disseminated. So far, these suits have been unsuccessful. Thomas M. Cooley Law School and Thomas Jefferson Law School, for example, successfully defended lawsuits filed by their graduates.

A number of law school graduates have filed bankruptcy in an attempt to discharge their student loans. Some have been successful or at least partly successful--the Barrett case and the Hedlund case. Others have lost their adversary lawsuits: Mark Lilly and Mark Tetzlaff.

In my view, people who graduated from second- and third-tier law schools with mountains of debt and no law job should seriously consider filing bankruptcy. But if they pursue this course, they must educate the bankruptcy judge about the terrible job market for lawyers and the high debt load that most law graduates now carry.

As the crisis in legal employment becomes more evident, I think bankruptcy judges will become more and more sympathetic toward law school graduates who are burdened by heavy debt loads and don't have law jobs. I think judges might be particularly sympathetic to debtors who graduated from second- and third-tier law schools given the terrible job prospects for these people.

As I said, educating the bankruptcy judge is critical. The data collected by Law School Transparency is a good place to look for data that will help bankruptcy judges understand the absolutely desperate plight of many recent law scool graduates.

References

Barrett v. U.S. Department of Education, 545 B.R. 645 (Bankr. N.D. Cal. 2016).

Paul Fain. Federal panel votes to terminate ACICS and tightens screws on other accreditors. Inside Higher Ed, June 24, 2016.

Andrew Kreighbaum. ABA Censures Law School. Inside Higher Ed, November 22, 2016.

Andrew Kreighbaum. ABA Tighens Up. Inside Higher Ed, August 31, 2016.


Friday, November 11, 2016

Tiny liberal arts colleges are dead. They just don't know it. 15 small-college presidents meet in New York City.

My father was a fighter pilot in the Army Air Corps in December, 1941, stationed at Clark Field in the Philippines. He often told this story about his introduction to World War II.

About two weeks before the Japanese attacked Pearl Harbor, my father told me, his commander called all the young airmen together for a meeting.

"Make out your wills and get your affairs in order," the commander told the pilots. You are not dead yet, but most of you will be soon."

And the commander was right. My father's P-40 fighter plane was bombed on the ground when the Japanese attacked Clark Field a few hours after the Pearl Harbor attack. Six months later, my father  was captured on the Bataan Peninsula, along with the entire American  army. He experienced the Bataan Death March and spent the rest of the war in a Japanese concentration camp. Two thirds of his fellow prisoners died while in captivity.

I thought of my father's story as I read an article about a recent meeting of 15 presidents of the nation's smallest liberal arts colleges, which took place in New York City last June. All  15 presidents represented institutions with 800 students or fewer.

Rick Seltzer of Inside Higher Ed reported on the meeting, from which I gathered the presidents concluded that their colleges are doing a great job educating young people. The problem, from the presidents' perspective, is poor public relations; the public simply does not realize just how neat and special these colleges are.

Thomas O'Reilly, president of Pine Manor College (about 450 students), said this about his institution: "We're small enough that we can work with a handful of students, and if it works for them, it can be quickly spread across the rest of the programs we're offering.. If it doesn't we can quickly stop--just as importantly--without having made a major investment."

OK, I got it. Small liberal arts colleges are nimble, and that's why they're special.

Mariko Silver, president of Bennington College, another micro institution, said the nation was  focused overmuch on scaling up higher education without appreciating the small colleges. "One of the things that I feel makes American higher education the envy of the world is a real diversification of institution types--an ecosystem."

Nice talking points, Mariko! Everyone in higher education likes to be reassured that American colleges are the envy of the world.

But in fact, the tiny liberal arts colleges are on the verge of extinction. A few small liberal arts colleges will survive and even thrive: those with large endowments or sterling reputations like many of the small liberal arts colleges in New England. And small colleges that excel in nursing or health care will probably be fine.

But tiny colleges with 800 students are fewer cannot long survive, in my opinion. As my father's commander might have put; they are dead and just don't know it.

 I don't say this with any pleasure. The microbrew college presidents are probably right to say there is a distinct value to receiving a liberal arts education at a small college. But the economics of higher education today simply won't allow the small liberal arts colleges to survive. In 2015, Moody's Investor Service predicted that college closings would triple by 2017.

And Moody's prediction is too conservative. Of the 15 colleges represented at the New York City meeting last June, I predict half will close within five years. Shimer College, for example, has fewer than 100 students. Who thinks it will still be open in 2022? Shimer is in Chicago. I'm surprised Shimer's president could afford to travel to New York City.

Apart from all the other challenges small liberal arts college face, they simply can't survive in a world of ever increasing state and federal regulations. And here's an example.

In a case decided by the Second Circuit Court of Appeals last May, Michele Dziedzic sued SUNY Oswego for sexual discrimination under the Civil Rights Act of 1964 because she was transferred from the paint department to the plumbing department. The plumbing department, in her view, was "less prestigious" than the paint department, which she maintained was an elite unit. Dziedzic also said she had suffered from a hostile working environment due to sexual jokes and racy pictures that she was forced to endure when she collected her mail from a mailbox in the men's locker room.

I am not belittling Ms. Dziedzic's grievances. She may very well have been transferred to the plumbing department for nefarious reasons, and being forced to visit the men's locker room to collect her mail may have been humiliating.

But is this a federal case that must travel to the Second Circuit Court of Appeals? The suit may not have cost Ms. Dziedzic much; she represented herself. But SUNY Oswego was represented by four lawyers!

How many suits like that could an institution like Shimer College or Pine Manor College endure? Not many.

At my own institution, I signed a form awhile back certifying that I had read a safety memo informing me that it is dangerous for university students or employees to text on their cell phones while walking on campus. I imagine this memo was spawned by some state or federal safety regulation. How much did my university spend warning students and employees not to walk while texting?

In recent years, the U.S. Department of Education has issued "Dear Colleague" letters that dictate how colleges manage their restrooms and their student grievance procedures.  Each of these "Dear Colleague" letters imposes a financial burden on coleges and uniersities.

And the colleges don't push back on the ever tightening noose of federal regulation because they are all addicted to federal student aid money.

I will be sorry to see the small liberal arts fade away like old soldiers. But I feel sorrier still for students who take out student loans to attend these dying institutions--institutions that may well be closed before their graduates pay off their student loans.


References

Dziedzic v. State University of New York at Oswego, 648 Fed.Appx. 125 (2d Cir. 2016).

Rick Seltzer. Leaders consider future of tiny liberal arts colleges. Inside Higher ED, November 11, 2016.

Kellie Woodhouse. Moody's predicts college closures to triple by 2017. Insider Higher ED, September 28, 2015.





Thursday, November 10, 2016

The student loan crisis and the first 100 days: Please, President Trump, provide bankruptcy relief for distressed student-loan debtors

Hillary Clinton lost the presidential election, and we can throw her promise of a tuition-free college education in the ashcan. Meanwhile, the student loan crisis grows worse with each passing month.

Eleven million people have either defaulted on their loans or are delinquent in their payments. More than 5 million student-loan debtors are in long-term income based repayment plans that will never lead to loan payoffs.Several million student borrowers have loans in deferment or forbearance while interest continues to accrue on their loan balances.

Soon we will have a new president, and an exciting opportunity to look at the federal student loan program from a fresh perspective. What can President Trump do to bring relief to distressed college-loan debtors. Here are some ideas--respectfully submitted:

FIRST, TREAT THE WOUNDED.

President Trump can do several things quickly to alleviate the suffering.

Stop garnishing Social Security checks of loan defaulters. More than 150,000 elderly student-loan defaulters are seeing their Social Security checks garnished. President Trump could stop that practice on a dime. Admittedly, this would be a very small gesture; the number of garnishees is minuscule compared to the 43 million people who have outstanding student loans. But this symbolic act would signal that our government is not heartless.

Streamline the loan-forgiveness process for people who were defrauded by the for-profit colleges. DOE already has a procedure in place for forgiving student loans taken out by people who were defrauded by a for-profit college, but the administrative process is slow and cumbersome. For example, Corinthian Colleges and ITT both filed for bankruptcy, and many of their former students have valid fraud claims. So far, few of these victims have obtained relief from the Department of Education.

Why not simply forgive the student loans of everyone who took out a federal loan to attend these two institutions and others that closed while under investigation for fraudulent practices?

Force for-profit colleges to delete mandatory arbitration clauses from student enrollment documents. The Obama administration criticized mandatory arbitration clauses, but it didn't eliminate them. President Trump could sign an Executive Order banning all for-profit colleges from putting mandatory arbitration clauses in their student-enrollment documents.

Banning mandatory arbitration clauses would allow fraud victims to sue for-profit colleges and to bring class action suits. And by taking this step, President Trump would only be implementing a policy that President Obama endorsed but didn't get around to implementing.

Abolish unfair penalties and fees. Student borrowers who default on their loans are assessed enormous penalties by the debt collectors--18 percent and even more. President Trump's Department of Education could ban that practice or at least reduce the penalties to a more reasonable amount.

PLEASE PROVIDE REASONABLE BANKRUPTCY RELIEF FOR DISTRESSED STUDENT-LOAN DEBTORS.

The reforms I outlined are minor, although they could be implemented quickly through executive orders or the regulatory process. But the most important reform--reasonable access to the bankruptcy courts--will require a change in the Bankruptcy Code.

Please, President Trump, prevail on Congress to abolish 11 U.S.C. 523(a)(8) from the Bankruptcy Code--the provision that requires student-loan debtors to show undue hardship as a condition for discharging student loans in bankruptcy.

Millions of people borrowed too much money to get a college education, and they can't pay it back. Some were defrauded by for-profit colleges, some chose the wrong academic major, some did not complete their studies, and some paid far too much to get a liberal arts degree from an elite private college. More than a few fell off the economic ladder due to divorce or illness, including mental illness.

Regardless of the reason, most people took out student loans in good faith and millions of people can't pay them back. Surely a fair and humane justice system should allow these distressed debtors  reasonable access to the bankruptcy courts.

President Trump can address this problem in two ways:

  • First, the President could direct the Department of Education and the loan guaranty agencies (the debt collectors) not to oppose bankruptcy relief for honest but unfortunate debtors--and that's most of the people who took out student loans and can't repay them.
  • Second, the President could encourage Congress to repeal the "undue hardship" provision from the Bankruptcy Code.
Critics will say that bankruptcy relief gives deadbeat debtors a free ride, but in fact, most people who defaulted on their loans have suffered enough.from the penalties that have rained down on their heads.

More importantly, our nation's heartless attitude about student-loan default has discouraged millions of Americans and helped drive them out of the economy. President Trump has promised middle-class and working-class Americans an opportunity for a fresh start. Let's make sure that overburdened student-loan debtors get a fresh start too.

References

Natalie Kitroeff. Loan Monitor is Accused of Ruthless Tactics on Student Debt. New York Times, January 1. 2014. Accessible at http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html?_r=0

Stephen Burd. Signing Away Rights. Inside Higher Ed, December 17, 2013. Available at https://www.insidehighered.com/views/2013/12/17/essay-questions-mandatory-arbitration-clauses-students-profit-higher-education

Andrew Kreighbaum, Warren: Education Dept. Failing Corinthian StudentsInside Higher Ed, September 30, 2016. Accessible at https://www.insidehighered.com/quicktakes/2016/09/30/warren-education-dept-failing-corinthian-students

Senator Elizabeth Warren to Secretary of Education John B. King, Jr., letter dated September 29, 2016. Accessible at https://www.warren.senate.gov/files/documents/2016-9-29_Letter_to_ED_re_Corinthian_data.pdf

Ashley A. Smith. U.S. Urged to Deny Aid to For-Profits That Force Arbitration. Inside Higher Ed, February 24, 2016. Available at: https://www.insidehighered.com/quicktakes/2016/02/24/us-urged-deny-aid-profits-force-arbitration?utm_source=Inside+Higher+Ed&utm_campaign=183bc9e3a3-DNU20160224&utm_medium=email&utm_term=0_1fcbc04421-183bc9e3a3-198565653

U.S. Department of Education. U.S. Department of Education Takes Further Steps to Protect Students from Predatory Higher Education Institutions. March 11, 2016. Accessible at http://www.ed.gov/news/press-releases/us-department-education-takes-further-steps-protect-students-predatory-higher-education-institutions?utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery&utm_term=

U.S. General Accounting Office. Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Borrowers. GAO-14-866T. Washington, DC: General Accounting Office. http://www.gao.gov/products/GAO-14-866T