Thursday, September 28, 2017

The Department of Education's Official 3-Year Student-Loan Default Rate is Baloney

During the First World War, it is said, the British military kept three sets of casualty figures: one set to deceive the public, a second set to deceive the War Ministry, and a third set to deceive itself.

Over the years, the Department of Education has released its annual 3-year student-loan default rate in the autumn, about the time the pumpkins ripen. And every year the default rate that DOE issues is nothing but bullshit. I can't think of another word that adequately conveys DOE's mendacity and fraud.

This year, DOE reported that 11.5 percent of the the 2014 cohort of debtors defaulted on their loans within three years and that only ten institutions had default rates so high that they can be kicked out of the federal student-loan program. That's right: among the thousands of schools and colleges that suck up student-aid money, only ten fell below DOE's minimum student-loan default standard.

Why do I say DOE's three-year default rate is fraudulent?

Economic hardship deferments disguise the fact that millions of people aren't making loan payments. First of all, DOE has given millions of student-loan borrowers economic-hardship deferments or forbearances that allow borrowers to skip their monthly loan payments.  These deferments can last for several years. 

But people who are given permission to skip payments get no relief from accruing interest. Almost all these people will see their loan balances grow during the time they aren't making payments. By the time their deferment status ends, their loan balances will be too large to ever pay back.

The colleges actively encourage their former students to apply for loan deferments in order to keep their institutional default rates down. And that strategy has worked brilliantly for them. Virtually all of the colleges and schools are in good standing with DOE in spite of the fact that more than half the former students at a thousand institutions have paid nothing down on their loans seven years after beginning repayment.

Second,  DOE's three-year default rate does not include people who default after three years.  Only around 11 percent of student borrowers default within three years, but 28 percent from a recent cohort defaulted within five years. In the for-profit sector, the five-year default rate for a recent cohort of borrowers was 47 percent--damn near half.

DOE's income-driven repayment plans are a shell game.  As DOE candidly admits, the Department has been able to keep its three-year default rates low partly through encouraging floundering student borrowers to sign up for income-driven repayment plans  (IDRs) that lower monthly loan payments but stretch out the repayment period to as long as a quarter of a century.

President Obama expanded the IDR options by introducing PAYE and REPAYE, repayment plans which allow borrowers to make payments equal to 10 percent of their discretionary income (income  above the poverty level) for 20 years.

But most people who sign up for IDRs are making monthly payments so low that their loan balances are growing year by year even if they faithfully make their monthly loan payments. By the time their repayment obligations cease, their loan balances may be double, triple, or even quadruple the amount the originally borrowed.

Alan and Catherine Murray, who obtained a partial discharge of their student-loan debt in bankruptcy in 2016, are a case in point. The Murrays borrowed $77,000 to obtain postsecondary education and paid back about 70 percent of that amount. But they ran into financial difficulties that forced them to obtain an economic hardship deferment on their loans.  And at some point they entered into an IDR.

Twenty years after finishing their studies, the Murrays' student-loan balance had quadrupled to $311,000!  Yet a bankruptcy court ruled that the Murrays had handled their student loans in good faith, and they had never defaulted.

DOE is engaged in accounting fraud. If the Department of Education were a private bank, its executives would go to jail for accounting fraud. (Or maybe not. Wells Fargo and Bank of America's CEOs aren't in prison yet.)  The best that can be said about DOE's annual announcement on three-year default rates is that the number DOE releases is absolutely meaningless.

This is what is really going on. More than half of the people in a recent cohort of borrowers have not paid down one penny of their student-loan debt five years into the repayment phase of their loans.  And the loan balances for these people are not stable. People who are not paying down the interest on their student loans are seeing their loan balances grow.

In short, DOE is operating a fraudulent student-loan program.  More than 44 million Americans are encumbered by student-loan  debt that totals $1.4 trillion.  At least half that amount--well over half a trillion dollars--will never be paid back.

Betsy DeVos' job is to keep the shell game going a little longer, which she is well qualified to do. After all, she is a beneficiary of Amway,  "a multi-level marketing company," which some critics have described as a pyramid scheme.

Betsy DeVos: The perfect person to oversee DOE's student-loan shell game

References

Paul Fain. Federal Loan Default Rates Rise. Insider Higher ED, September 28, 2017.

Paul Fain. Feds' data error inflated loan repayment rates on the College ScoreboardInside Higher Ed, January 16, 2017.

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

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).

Murray v. Educational Credit Management Corporation, Case No. 14-22253, ADV. No. 15-6099, 2016 Banrk. LEXIS 4229 (Bankr. D. Kansas, December 8, 2016), aff'd, Case No. 16-2838 (D. Kan. September 22, 2017).

Joe Nocera. The Pyramid Scheme Problem, New York Times, September 15, 2015.







Wednesday, September 27, 2017

A Scary Report From the Federal Reserve Bank: More Than Half of a Recent Cohort of Student-Loan Borrowers Did Not Reduce Their Debt by One Penny Over Five Years

Steve Rhode commented recently on a Federal Reserve Bank report published last July. As Mr. Rhode pointed out, the Feds reported that home ownership among young people declined by 8 percent over an 8-year period (2007 to 2015);  and the Feds concluded that a substantial reason for this decline is rising levels of student-loan debt.

The Fed report also observed that more young Americans are living with their parents than in previous years. In 2004, about one third of 23-25-year-olds lived with their parents. In 2015, 45 percent of people in this age bracket were living with mom and dad--a big increase.

These are alarming statistics, but the Fed's report also included information that is even scarier. More than half of student-loan borrowers in the 2009 cohort of borrowers had not paid down their student loans by even one penny five years after beginning repayment.

According to the Fed report, 59 percent of the 2009 cohort who owed $5,000 or less had not reduced their debt by even a dollar by 2014.  Well over half of people with very modest levels of student debt were delinquent on their loans, in default, or had failed to reduce their original loan balance by even a fractional amount.

Among people who owed between $50,000 and $100,000, 57 percent had not cut their student-loan debt by even a penny over five years. Among people owing $100,000 or more, 54 percent had made no progress on their loans during that time period.

The Fed report was commenting on a single cohort: people who took out student loans in 2009. But the repayment rates for more recent cohorts must be at least as bad. The Department of Education has been encouraging distressed borrowers to enter 20- and 25-year repayment plans, which lowers monthly payments. But in almost every case, the lower payments are not large enough to cover accruing interest, so most of the 6 million people in long-term, income-drive repayment plans are seeing their loan balances grow larger with each passing month.

And here's another scary tidbit of information. The Government Accountability Office reported in 2016 that half the people in income-driven repayment plans have been kicked out because they aren't abiding by the plans' eligibility rules.

In short, a perfect storm is brewing on the nation's economic horizon. Student loans are forcing more and more young people to postpone buying a house and to live with their parents.  Millions of people are making no progress at all toward paying off their student loans.

We can quantify some of the harm caused by the student-loan crisis, but other harms are difficult to measure. How many people have given up trying to get ahead because their student-debt grows larger with each passing month? How many have become cynical, despondent, or angry? How many of those masked antifa anarchists have student loans?

Steve Rhode put his finger on the only solution to the student-loan catastrophe. "Unless we tackle the growing problem of excessive student loan debt and allow those with unmanageable student loan debt to a fresh start in bankruptcy,"Mr. Rhode wrote, "the economic future of the days ahead is going to be less than it could have been."

Exactly. The only path out of this economic quagmire is through the federal bankruptcy courts.

The student-loan crisis is brewing into a perfect storm.

References


Zachary Bleemer, et al. Echoes of Rising Tuition in Students' Borrowing, Educational Attainment, and Homeownership in Post-Recession America. Federal Reserve Bank of New York Staff Report No. 820, July 2017.

Steve Rhode. Student Loan Debt Hurts Economy, Consumers, and Retirement Savings. Personal Finance Syndication Network, September 207.

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.



Student Loan Debt Hurts Economy, Consumers, and Retirement Savings, essay by Steve Rhode

When you live in a society like ours that is dependent on consumers to consumer goods and services, a reduction in the ability for growing sections of society to do their job and purchase stuff is going to lead to slower growth. That’s not good.

When growth slows there is less of a need for workers, jobs are cut, wages go flat, and life becomes tougher for many.

Historically, people accumulated wealth through homeownership and savings. When reaching the age of retirement the home could be sold and the equity created could be withdrawn. With less access to this type of wealth accumulation and the inability to save for retirement due to growing student loan debt, tragedy is on the horizon.

Student loan debt is hurting an entire generation of consumers who are setup for financial failure at this point.

The easy access to student loans has led to a growing for-profit private student loan industry that since 2009 has been drawing in many through loans and co-signing. Private student loans exploded with the advent of the for-profit schools. As an example, read Navient Knew Loans Were Garbage When They Saddled Students With Them. Yet the current Department of Education under Secretary Betsy DeVos seems resistant to crack down on protections from these schools.

Federal government student loans have been a blessing for many to obtain funds to attend higher education but they have been a curse as well. Schools who were qualified to receive federal funds looked at that easy money as a way to make an easy sale of a student into a seat regardless of the ability of the student to benefit from the loan and school.

Data published by the Federal Reserve Bank said, ” findings are consistent with American youth having accommodated tuition shocks not by forgoing schooling, but instead by amassing more debt.”
The Federal Reserve Bank of New York goes on to say, “Further analysis demonstrates that the tuition hike and student debt increase, despite leaving higher educational attainment unchanged, can explain between 11 and 35 percent of the observed approximate eight percentage-point decline in homeownership for 28-to-30-year-olds over 2007-15 for these same nine cohorts. The results suggest that states that increase college costs for current student cohorts can expect to see a response not through a decline in workforce skills, but instead through weaker spending and wealth accumulation among young consumers in the years to come.”

At the same time as homeownership has been declining, kids are living with their parents at an increasing rate.


As a society nothing good is going to come from lower amounts of wealth accumulation, and weaker spending.

Unless we tackle the growing problem of excessive student loan debt and allow those with unmanageable student loan debt to have access to a fresh start in bankruptcy, the economic future of the days ahead is going to be less than it could have been.

Steve Rhode


This article appeared on the Personal Finance Syndication Network web site and also on The Get Out of Debt Guy site. Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve here.

Friday, September 22, 2017

Student-Loan Debtors Desperately Need Bankruptcy Lawyers

Too many Americans are going to court without lawyers. As Lauren Sudeall Lucas and Darcy Meals noted in an essay in The Conversation, 80 to 90 percent of people in some states are litigating their cases without attorneys, even when their opponents have legal counsel. In Georgia, the authors assert, courts heard 800,000 cases last year involving self-represented litigants.

Lucas and Meals maintain the United States has "far too few lawyers," but I disagree. As Paul Campos and others have written, there has been a downturn in the legal-services market; and law schools are churning out thousands of new attorneys who graduate with six-figure student loans and no job prospects.

The United States has enough lawyers; in fact, we have too many. The problem is this: practicing lawyers are not representing middle-class people and the poor.

Why? Because most Americans can't afford to pay an attorney to guide them through protracted litigation.  Lawyers leave law school with an average debt load of $140,000; and they must make at least $100,000 a year just to service their student loans. Consequently, attorney fees are too high for most Americans to pay.

Student debtors desperately need lawyers

Lucas and Meals didn't mention the plight of student-loan debtors, but this is a special class of people who need good bankruptcy attorneys. In 2012, Jason Iuliano wrote an important law-review article in which he reviewed bankruptcy filings in 2007. Iuliano found that 238,446 student-loan debtors filed for bankruptcy in 2007, but only a few hundred filers even attempted to discharge their student loans. This is unfortunate because Iuliano estimated that 39 percent of the student borrowers who filed for bankruptcy that year "would have been good candidates to obtain relief."

Remarkably, a few student debtors have gotten their student loans forgiven in the bankruptcy courts  even though they were not represented by a lawyer. Richard Precht in Virginia and Jaime Clavito in California filed adversary actions against the Department of Education and obtained stipulated discharges of their student loans without going to trial. These are amazing victories.

Self-appointed experts assert again and again that student loans cannot be discharged in bankruptcy, but this is not true. In recent years, several people have wiped out their student loans in the bankruptcy courts. Moreover, without a doubt, the federal bankruptcy judges are becoming more sympathetic to distressed student borrowers; and the courts are increasingly willing to rule in favor of student-loan debtors when the Department of Education or one of its rapacious debt collectors opposes bankruptcy relief.

What needs to be done?

As I said, the United States has plenty of lawyers, but not enough of them are concerned about justice for the poor. Dozens of public advocacy groups joined lawsuits in support of transgender students who demanded the right to choose their toilet facilities, which is commendable. But 20 million Americans are being crushed by student-loan debt, and very few lawyers have come to their aid.

Where is the Southern Poverty Law Center? Where is the ACLU? Where are the legal aid clinics? Why haven't these agencies joined the fight to bring debt relief to deserving student borrowers?

Just a few able and committed lawyers could completely change the legal landscape for student-loan debtors. I estimate that 25 or 30 competent lawyers, defending a few clients in several federal circuits, could persuade the federal courts to reinterpret the "undue hardship" standard that has been applied so harshly against desperate student borrowers over the years.

In my view, the federal courts are willing to ruling in favor of student borrowers who file bankruptcy if only they are presented with good legal arguments. Many--perhaps most--bankruptcy judges are liberal minded. They know it is their job to provide a fresh start to "honest but unfortunate" debtors. Moreover, I think many are offended by the way the Trump administration has handled the student-loan catastrophe; or at least they would be offended if they were educated by student-loan debtors' attorneys.

The bankruptcy courts provide the best avenue for relief for distressed student-loan debtors

It is time to face harsh facts. Millions of Americans have committed financial suicide by taking out student loans they can't pay back. The student loan program has driven legions of people out of the national economy, preventing them from buying homes, getting married, or saving for their retirement.

Congress has not done anything to provide relief. In fact, the House of Representatives recently approved a bill that will make it almost impossible for defrauded student debtors to sue the for-profit colleges that swindled them. The Department of Education, now run by the wicked witch of the east, Betsy DeVos, is doing everything it can to advance the venal interests of the for-profit college industry.

The bankruptcy courts provide the only hope for relief from oppressive and unpayable student-loan debt. Good lawyers need to represent oppressed student debtors in the bankruptcy courts, educating the judges about the Tenth Circuit's Polleys decision, the Seventh Circuit's Krieger decision, the Eighth Circuit Bankruptcy Appellate Panel's Fern decision, and the Ninth Circuit BAP's Roth decision. The judges need to understand that federal case law now often favors the student-loan debtor.

In sum, we have enough attorneys; but we do not have enough lawyers who are willing to go toe-to-toe against the U.S. Department of  Education, the debt collectors, and the sleazy for-profit college industry.

Betsy DeVos: No friend to student-loan debtors


References

Richard Fossey. Why students need better protection from loan fraud. The Conversation, August 24, 2017.


Jason Iuliano. An Empirical Assessment of Student Loan Discharge and the Undue Hardship Standard. 86 American Bankruptcy Law Journal 495-525 (2012).

Lauren Sudeall Lucas and Darcy Meals. Every year, millions try to navigate US courts without a lawyer. The Conversation, September 21, 2017







Thursday, September 21, 2017

Does Citizens Bank routinely make student loans to people attending non-approved foreign colleges?

Awhile back, I posted an essay on Decena v. Citizens Bank, a bankruptcy court case that was decided last year in New York. Lorelei Decena had borrowed $161,000 to attend St. Christopher's College of Medicine in Senegal, West Africa. At the time Decena was studying at St. Christopher's, the school was not on the Department of Education's approved schools list.

After graduating, Ms. Decena returned to the United States to pursue a medical career. To her dismay, she discovered that her St. Christopher medical degree did not qualify her to take her medical boards exams in the U.S.; and she filed for bankruptcy.

As almost everyone knows, student loans cannot be discharged in bankruptcy unless the debtor can meet the "undue hardship" standard articulated in 11 U.S.C. sec. 523 of the Bankruptcy Code. The undue hardship standard applies not only to federal student loans but to private student loans as well. This is a very difficult standard to meet, and some courts have applied it harshly.

Fortunately, for Ms. Decena, the bankruptcy court ruled that her loans from Citizens Bank were not covered by the undue hardship rule because St. Christopher's College of Medicine was not on the Department of Education's approved schools list when she studied there. Thus her student loans could be discharged in bankruptcy like any other consumer loan.  A great victory!

A few days ago, I was contacted by another New Yorker who had borrowed about $160,000 in student loans from Citizens Bank to attend a medical school in Great Britain. This school, like Decena's school, was not on DOE's approved schools list when he attended. And somewhat like Decena, this New Yorker discovered that his overseas medical degree does not qualify him to practice medicine in New York.

Obviously, this fellow has a very good argument that his student loans can be discharged in bankruptcy in the same manner as Ms. Decena's loans.  He contacted Citizens Bank and was told that the bank had sold the loan to a debt collection company.  He then wrote the debt collector and enclosed a copy of the Decena case. So far, no response.

What's going on here? Is Citizens Bank routinely making student loans to people enrolled in overseas medical schools?  And is it lending money to people attending foreign schools that are not on the Department of Education's approved schools list?

Although it is not well known, the Department of Education gives out student loans for Americans to attend foreign colleges and universities; and there are universities from all over the world on DOE's approved schools list.  Some of these institutions are foreign medical schools.

In my view, the government should not be lending money for people to study at foreign universities. The United States has plenty of colleges. Moreover, post-secondary enrollments are in decline in the U.S.; and there are lots of empty seats at American institutions.

And I don't think private banks should be lending money to people so they can study at foreign medical schools, particularly when it is unclear whether a foreign medical degree qualifies graduates to practice medicine in the U.S.

But if our government and the banks are going to continue the reckless practice of handing out student loans for people to study in foreign countries, then the people who accept those loans should be able to discharge their student debt in bankruptcy if they discover that their foreign degrees are worthless to them.



References

Decena v. Citizens Bank, 549 B.R. 11 (Bankr. E.D.N.Y. 2016).

Note: Citizens Bank appealed the bankruptcy court's decision to a federal district court, arguing that it had not received proper service of the lawsuit. The district court vacated the bankruptcy court's ruling based on a technicality without disturbing the underlying rationale of the bankruptcy court's decision in favor of Ms. Decena. Citizens Bank v. Decena, 562 B.R. 202 (E.D.N.Y. 2016).










Thursday, September 14, 2017

Birmingham-Southern cuts tuition in half: Making a virtue of necessity


I'm a Methodist, Methodist 'tis my belief
I'm a Methodist till die
Till old grim death comes a knockin' at the door
I'm a Methodist till I die.

Methodist Pie
sung by Red Foley and others

Birmingham-Southern College, a Methodist school in Alabama, is slashing its tuition price by half.  Current tuition: $35,840. Next year's tuition: $17,650.

Linda Flaherty-Goldsmith, BSC's president, put a positive spin on this development. "The marketplace spoke, and we listened," Flaherty-Goldsmith said in a prepared statement. "Students and families are telling colleges all across the United States--and they're telling us--that encountering a high published price is a real barrier to a high-quality education.  We want to make sure that the best and brightest students have access to the kind of personalized, challenging, hands-on educational experience that BSC provides."

Forgive me for being cynical, but that statement sounds like bullshit from the public relations department. For one thing, BSC isn't really cutting its net tuition rate. Ninety percent of BSC students were already paying less than the sticker price. In fact, college officials admitted that next year's net tuition price will be about what students are paying this year.

Basically, BSC has been doing what almost all small private colleges have been doing--jacking up the posted tuition rate and then cutting the real cost in half by granting scholarships and grants.

As Flaherty-Goldsmith admitted, this strategy isn't working. Families were scared off by BSC's sticker price, a price that only about 10 percent of BSC students were actually paying.

I wish BSC well, but I don't think slashing published tuition rates will bump up enrollment. Small colleges across the United States have tried all sorts of gimmicks to attract more students, but a third of all private institutions with enrollments under 3,000 ran deficits last year.

Colleges have tried advertising campaigns, "signature" academic experiences, study abroad opportunities, and online instruction to lure students through the door, but many are losing the battle to remain solvent.

Let's face facts. How many students are willing to pay $35,000 a year or even $17,000 a year to get a liberal arts degree from an undistinguished small college in Birmingham, Alabama?Apparently not very many.

There was a time when a college's religious affiliation was a draw for some American families. Back in the 1950s, some Methodists sent their children to Methodist schools, and Catholics sent their sons and daughters to Catholic colleges.

But that time is long past.  It is getting harder and harder to articulate what it means to be a Methodist college as opposed to a Catholic college or even a publicly funded institution. 

And it is getting more and more difficult to explain the value of a liberal arts education to a fragmented culture in which all values are relative and Eurocentric values are particularly suspect.

As I say, I wish BSC well. But small liberal arts colleges are becoming increasingly irrelevant, and the high tuition that most of them charge has accelerated their decline.

In my mind, it is too late to ratchet back tuition rates. The small colleges' former clients are drifting toward community colleges, trade schools, and regional public universities. Their customers have departed, and they are not coming back.

And I don't feel sorry for the small colleges that are dying. I feel sorry for the schmucks who took out student loans to pay BSC's sticker price.

BSC president Linda Flaherty-Goldsmith


References

Associated Press. Birmingham-Southern cutting tuition, fees next fall. Seattle Times, September 13, 2017.

Rick Seltzer. Birmingham-Southern Cuts Tuition in Half. Inside Higher Ed, September 13, 2017.



Tuesday, September 12, 2017

Betsy Devos deserves a Congressional censure: It's nothing personal, Betsy; but you are a disaster

Betsy DeVos, President Trump's Secretary of Education, is a disaster. Month after month, she makes decisions to aid the for-profit college industry at the expense of students who have been swindled by the institutions they attended.

As David Halperin said in a recent essay, DeVos' embrace of predatory for-profit colleges is "breathtaking."  Halperin's indictment of DeVos' performance is comprehensive, and you should read it. Here are a few of the highlights of DeVos' reckless malfeasance:

She rolled back an Obama-era regulation that prohibits the for-profits from inserting mandatory arbitration clauses in their student enrollment agreements.  These clauses prevent defrauded students from suing the colleges that defrauded them and usually prohibit students from banding together to file class action lawsuits.

She set aside a procedure for processing so-called "borrower defense" claims, whereby students can get their student loans discharged on the grounds that they were defrauded by the college they attended.

Under her leadership, the Department has failed to failed (as of July 2017) to process even one of the 65,000 fraud claims that students have filed, including claims filed by students who attended Corinthian Colleges and ITT Tech--two for-profits that filed bankruptcy under a dense cloud of fraud allegations.

DeVos' Department of Education canceled an information-sharing agreement with the Consumer Financial Protection Bureau, an act so irrational that Steve Rhode was prompted to ask whether she was "nucking futs."

DeVos cannot be impeached, because the Constitution only allows impeachment of a cabinet official for "high crimes and misdemeanors;" and I don't think DeVos has done anything criminal. But she certainly deserves to be censured by Congress for conduct that is blatantly contrary to the public interest.

 Wouldn't it be grand if the U.S. Senate formally censured her in a bi-partisan expression of righteous indignation? In my mind's eye, I see Mitch McConnell, Senate Majority Leader, hand-delivering a formal Senate censure resolution.

Perhaps Mitch would borrow a line from The Godfather as he tenders DeVos a blistering condemnation of her public stewardship. "It's not personal, Betsy," McConnell would intone, 'but you're a disater."

It's not personal, Betsy.

References

Collin Binkley. Student-loan forgiveness has halted under Trump, records show. Chicago Tribune, July 27, 2017.

David Halperin. DeVos Embrace of Predatory For-Profit Colleges is Breathtaking. Huffington Post, September 10, 2017.

Andrew Kreighbaum. Few solutions for defrauded borrowers. Inside Higher Ed, June 26, 2017.

Steve Rhode. Is Betsy DeVos Nuckin Futs With Break From Student Loan Debtor Protections? The Debt Out of Debt Guy, September 



Monday, September 11, 2017

The Student-Loan Catastrophe: Postcards From the Rubble. On sale at AMAZON.COM for $13.50




For many Americans, student loans are a necessary evil. The average incoming college freshman understands little of the long-term impact of repayment plans. With millions defaulting on their loans, there’s no doubt about it: the federal student loan program is a bubble—it’s just that no one knows when it will burst. But when it does, it could be a disaster akin to the 2008 real estate crash.

In this series of revelatory essays, author and professor Richard Fossey delves into the political muck to deliver hard truths about the federal student loan program. In-depth analysis sheds light on just how pervasive the crisis is and what average loan holders can do about their balances.

With unique insight and no-holds-barred honesty, Fossey brings readers tales from the front lines of the student loan crisis. Learn about the heartless Social Security garnishment of senior citizens who default on their loans and the link between suicide and student loans.

Whether you’re in search of cautionary tales to share with your college student or seeking solutions to your own mounting student loan debt, The Student Loan Catastrophe: Postcards from the Rubble is your guide to stability in the face of an uncertain future.

Thursday, September 7, 2017

Terrific essay by Steve Rhodes: Is Betsy DeVos Nuckin Futs With Break From Student Loan Debtor Protections?

This terrific essay by Steve Rhode first appeared on Consumer Debt Guy blog site on September 6, 2017.
***
By Steve Rhode on September 6, 2017
   
The Consumerist is reporting the Department of Education has terminated its cooperation with the Consumer Financial Protection Bureau in dealing with student loan servicer problems.
“DeVos accuses the Bureau of not living up to its end of agreements established in 2011 and 2013, by doing too much to hold loan servicers accountable.”
“DeVos suggests that actions taken by the CFPB to rein in shoddy student loan servicers and collectors only confuses borrowers.
“The Department takes exception to the CFPB unilaterally expanding its oversight role to include the Department’s contracted federal student loan servicers,” DeVos wrote. “The Department has full oversight responsibility for federal student loans.”
However, the Department’s ability to root out fraud was thrown into question last week, when the agency appointed former for-profit college executive Julian Schmoke to run the Department’s enforcement division.
While Schmoke currently works as a high-ranking director at a community college in Georgia, he spent several years working for DeVry University, a college that has been repeatedly accused of fraud by both federal and state authorities.”
“The claim that the CFPB ‘unilaterally’ expanded its oversight role over servicers and collectors of federal student loans is unfounded,” Persus Yu, director of the National Consumer Law Center’s Student Loan Borrower Project, said in a statement.
“Education is now trying to stop the CFPB from handling loan-related complaints, but Education’s failures are what led Congress to give the CFPB authority to help students,” Yu said. “DeVos is prioritizing the interests of predatory for-profit schools, debt collectors, and troubled student loan services over the interests of student loan borrowers.”

This recent action and the fact the Department of Education has not approved Borrower Defense claims leads me to wonder where is any proof the Department of Education gives a damn about student loan debtors.

Tuesday, September 5, 2017

Many small liberal arts colleges are closing: Don't borrow money to attend an institution that is struggling to survive

Many small liberal arts colleges are on the brink of closing, making them a poor risk for people struggling to decide where to get their liberal arts degrees. Last year, one-third of colleges with enrollments below 3,000 students ran operating deficits, which is a very bad sign.

Even these schools' chief financial officers, who have every incentive to paint a rosy picture, are worried. According to the Wall Street Journal, only about half the CFOs at private, nonprofit colleges rated their institutions as being financially stable.

Small liberal arts schools are trying all sorts of strategies to survive. Some, like Holy Cross College in Indiana, have sold real estate to get cash infusions. Others, like Wheelock College in Boston and Shimer College in Chicago, have merged with larger institutions. And some, like Sweet Briar, are sending out distress calls to alumni, hoping cash infusions from wealthy patrons will keep them afloat awhile longer.

But the handwriting has been written on those ivy-covered walls; small liberal arts colleges have no long-term future. Some may limp along by selling real estate or drawing down their endowments, and some may continue to exist in an altered form by merging with stronger institutions. But the small, free-standing, liberal arts college is dead.

What are the implications of this shake up in the higher education industry? First, if you are shopping for a college, do not take out student loans to obtain a liberal arts degree from an obscure, private college that may be extinct before your student loans are repaid. How will you feel if you are still writing monthly student-loan payments ten years after your beloved alma mater closes its doors?

And college administrators and trustees should think about the ethical implications of continuing to recruit students when all the insiders know that their college is on its last legs. Is it morally right for a college with a string of annual budget shortfalls to hire an advertising firm to lure new students?

Of course, small colleges have the right to fight for survival and to try various strategies to meet their operating budgets. But the time must come when terminally ill institutions, like terminally ill hospital patients, must face reality.

A small college can keep itself alive from month to month with regular infusions of student-loan funds and Pell Grant money, just like a comatose patient can live from day to day by being fed intravenously.

But the day finally arrives when it is apparent that a dying institution is only postponing the inevitable by rolling out new schemes to raise cash or lure more students. And that day has come for dozens and dozens of small, private, liberal arts colleges.



Melissa Korn. Some Cash-Strapped Private Colleges Cut Programs, Sell Assets. Wall Street Journal, August 31, 2017.

Rick Seltzer. Shimer Will Become Part of North Central College. Inside Higher Ed, May 27, 2016.

Rick Seltzer. The Future of the Tiny Liberal Arts College. Inside Higher Ed, November 11, 2016.