Showing posts with label Betsy DeVos. Show all posts
Showing posts with label Betsy DeVos. Show all posts

Thursday, June 15, 2017

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

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

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

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

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

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

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

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

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



Judge Virginia Phillips' decision

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

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

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

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


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


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

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

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

So what's going on?

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

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

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

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

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

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


References

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

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

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

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

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

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

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

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




Tuesday, June 6, 2017

Department of Education is slow to forgive loans of student borrowers defrauded by Corinthian Colleges: State Attorneys General urge DOE to move more quickly

Yesterday, nineteen state attorneys general and the Director of the Hawaii Office of Consumer Protection delivered a letter to Betsy DeVos, U.S. Education Secretary, urging the Department of Education to quickly process fraud claims brought by former students of Corinthian Colleges.

The state AGs asked DeVos to approve "swift automatic group discharge" to students in Corinthian cohorts where fraud has been found. Alternatively, the AGs asked DeVos to process individual fraud claims faster.

Corinthian Colleges closed and filed for bankruptcy in 2015, leaving behind more than 350,000 former students who took out loans to pay Corinthian's tuition. Many of these student borrowers were induced to attend Corinthian through fraud, and the nineteen AGs claim there are defrauded Corinthian students in all 50 states.

So far, DOE has discharged 27,000 borrowers from their federal loan debt, but that number is a small fraction of the former students who are entitled to debt relief. Thousands have filed "borrower defense" claims, asking DOE for loan forgiveness, but DOE is not processing these claims quickly. Meanwhile, many Corinthians students are still paying on their loans or defaulted and are subject to having their wages garnished and their credit ruined.

According to the state AGs, DOE notified 23,000 Corinthian student borrowers in January that their loan forgiveness applications had been approved and that "forgiveness should be completed within the next 60-120 days." It's been nearly 180 days since that announcement, and these loans have still not been discharged.

What's going on?

I think the Department of Education is simply overwhelmed by the meltdown of the student loan program. Almost half the people in a recent cohort of students who attended for-profit colleges defaulted within five years. According to a recent article in the Wall Street Journal, half the students who attended more than 1,000 colleges and schools have not paid down one dime of their student loans seven years after their repayment obligations began.

In addition, the first beneficiaries of the Public Service Loan Forgiveness Program will be eligible for debt relief before the end of this year, and DOE has no idea how many people are eligible to have their loans discharged under that program.

Personally, I think Secretary DeVos should adopt the AGs' suggestion and grant swift automatic group discharges to all Corinthian students who were in DOE's "Designated Fraud Cohorts." Or better yet, I think DOE should forgive the loans of all 350,000 former students.

Admittedly, there are probably some people who completed a Corinthian program and actually got a good job, but I'll bet there aren't many. Undoubtedly, the default rate for Corinthian students is extraordinarily high largely due to the fact that Corinthian's students did not get well-paying jobs at the conclusion of their studies.

I recognize there are risks associated with a mass loan forgiveness program. If all 300,000 of Corinthian's former students are granted a discharge, then ITT Tech's former students will ask for blanket loan forgiveness. ITT Tech also closed and filed for bankruptcy, and it has 200,000 former students.

It is shocking to contemplate, but millions of Americans will never pay back their student loans. In addition to the for-profit college students, there are the law graduates who accumulated mountains of debt and can't find law jobs. And then there are the poor saps who got liberal arts degrees from expensive liberal arts colleges; many of them will never pay back their loans.

The 19 state AGs are right to urge Secretary DeVos to grant automatic group discharges for thousands of former Corinthian students. But Corinthian Colleges is the tip of the iceberg. Millions of student borrowers will never pay back their loans, and the ultimate loss to taxpayers will be in the billions.



References

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

Tamar Lewin. Government to Forgive Student Loans at CorinthianNew York Times, June 9, 2015, p. A11.

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).


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

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

Saturday, June 3, 2017

Betsy DeVos should resign as Education Secretary and Trump should replace her with a junkyard dog

Betsy DeVos should resign as Secretary of Education in the Trump administration. I say this for two reasons:

First, Ms. DeVos is too nice a person to be President Trump's Secretary of Education.


No matter what you think of her politics or her education philosophy Betsy DeVos is not a toxic person. She did not deserve to be shut out of a public school, as District of Columbia protesters tried to do shortly after she took office.

And she did not deserve to have students boo her and turn their backs on her when she spoke at a college graduation exercise this spring. If I were her, I would tell the whole wide world to stick the Secretary of Education's position where the sun doesn't shine and go home to Michigan and spend time with my grandchildren.

Second. Betsy DeVos knows next to nothing about higher education policy.

The federal student loan program is in meltdown, destroying the lives of millions of people and undermining the integrity of higher education. Numerous small private liberal arts colleges are on the verge of closing; law schools are admitting students of a lower and lower quality, and huge swaths of the for-profit college industry are defrauding their students--or, at the very least, they are gouging their customers. The federal student loan program bears a big share of the blame for this dismal state of affairs.

Betsy DeVos knows next to nothing about the student loan crisis. She has shown no capacity to deal with this enormous problem, and she has already made a number of missteps. For example, she hired some empty suits from the for-profit sector to advise her--the wrong move, in my opinion.

Trump needs to hire a junkyard dog to run the Department of Education

President Trump needs to gracefully accept DeVos' resignation, praise her extravagantly in a tweet message, and then appoint a junkyard dog to replace her.

By junkyard dog, I don't mean a vicious person or an unethical person; I mean a tough person.  The next Education Secretary needs to be tough enough to confront the for-profit college industry, tough enough to handle higher education's legions of lobbyists, and tough enough to get rid of the student loan guaranty agencies that have amassed billions of dollars in cash hounding distressed student loan debtors.

The next Secretary of Education needs to be tough enough to tell the public the truth about the student loan crisis, which is this: Millions of people have taken out student loans they will never pay back.

What a junkyard dog do if  appointed Education Secretary?


  • First, the Consumer Financial Protection Bureau's 2013 report, A Closer Look at the Trillion, needs to be updated. How many people have defaulted on their loans, and how many are delinquent? How many are not making payments because their loans are in deferment or forbearance? How many are in income-driven repayment plans (IDRs) and making monthly payments so low that their payments don't cover accruing interest?
  • Second, the new Secretary should endorse the Democrats' bill to protect student loan defaulters from having their Social Security checks garnished.  This is a small matter in terms of the overall student loan crisis, but symbolically, such a move would signal that the Trump administration is not completely heartless.
  • Third, the Education Secretary should cancel the performance bonus program for DOE's student-loan bureaucrats. James Runcie, Chief Operating Officer for the student loan program, received $430,000 in bonuses--an outrage. The new Secretary of Education should fire everyone who got a performance bonus.
  • Fourth, the DOE Secretary needs to streamline the process whereby students who file administrative claims based on the closed-school rule or the so-called borrower defense can have their claims resolved quickly.
  • Fifth, DOE's junkyard dog should dismantle all the student loan guaranty agencies, starting with Educational Credit Management Corporation. While the termination process is taking place, DOE should stop paying the agencies' attorney fees to hound suffering student borrowers in the bankruptcy courts.
  • Sixth, the Secretary of Education, as junkyard dog, should revise Lynn Mahaffie's 2015 letter outlining when DOE will not oppose bankruptcy discharge of student loans to clarify to the federal courts that DOE supports a bankruptcy discharge of student loans under the same terms that apply to other unsecured consumer debt.
Obviously, any Secretary of Education who attempts to carry out the agenda I outlined will need to be tough as a junkyard dog. Betsy DeVos is not a junkyard dog, and I mean that as a compliment to her.


The next Secretary of Education should be a junkyard dog.
References

Lauren Camera. Protesters Disrupt DeVos School Visit. U.S. News & World Report, February 10, 2017.


Rohit Chopra. A closer look at the trillion. Consumer Financial Protection Bureau, August 5, 2013.

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




Tuesday, May 2, 2017

The Department of Education Fumbles the Public Service Loan Forgiveness Program

The Public Service Loan Forgiveness Program: The Best Option for Student borrowers With Six-Figure Debt

A few years ago, law professor Paul Campos wrote an advice book for people thinking about going to law school. If you borrow a lot of money to go to a second- or third-tier law school and graduate in the bottom half of your class, Campos warned, you probably won't make enough money to pay back your loans.

In such event, Campos advised, your only viable option is to get a job in the public sector and enroll in the Public Service Loan Forgiveness Program (PSLF). If you go that route, you will make monthly payments on your student loans for ten years based on a percentage of your income. When you've made 120 payments, the balance of your loan debt will be forgiven.

Campos's advice is good for anyone who is buried by student loans. If you racked up $100,000 or more in student loans and can't find a good job in the private sector, the PSLF program may be your only viable option. It is the financial equivalent of the last train out of Paris in the movie Casa Blanca. If Rick doesn't get on that train before the Nazis arrive, he's doomed.

The Department of Education Fumbles the PSLF Program: Is Betsy DeVos Out of Her Element?

Congress created the PSLF program in 2007, and the Department of Education has been promoting it ever since. DOE has instructed  PSLF participants to send their Employment Certification Forms (ECF) to FedLoan Servicing, DOE's approved PSLF processor, on an annual basis to verify they are in fact employed by a public service organization. More than half a million people are enrolled in the PSLF program, confident that their indebtedness will be cancelled after 10 years of public service employment..

But now it seems DOE may be reneging on its PSLF obligations. The American Bar Association sued DOE for not living up to its PSLF commitments, and DOE recently answered that law suit. In essence, DOE denied it had any obligation to honor FedLoan Servicing's decision to certify public service employment.

This is shocking. As Steve Rhode said in his blog about this development, "People who have worked ten years in jobs assuming their loans would be forgiven are potentially going to get some nasty surprises."

I don't know what to make of DOE's response to the ABA's lawsuit. If the PSLF program collapses, Betsy DeVos's credibility as the Secretary of Education, already compromised by her ties to the for-profit industry, will be completely destroyed.

To paraphrase  Walter Sobchak's remark to Donny in The Big Lebowski, "Betsy, you may be out of your element." DOE may come to its senses and straighten out the PSLF mess; in fact, I think that will probably happen.  But the political consequences of this episode will reverberate for a long time.

"Donny, you're out of your element."
References

Stacy Cowley. Student Loan Forgiveness Program Approval Letters May Be Invalid, Education Dept. Says. New York Times, March 30, 2017.

Steve Rhode. Public Service Loan Forgiveness Program Teeters With Unmitigated Disaster. Personal Finance Syndication Network, PFSyn.com, May 2, 2017.

Friday, April 21, 2017

Trump Administration Cancels Grace Period and Adds on Big Student Loan Collection Charges: Article by Steve Rhode

This excellent essay by Steve Rhode appeared earlier on the Personal Finance Syndication Network, PFSyncom and on Mr. Rhode's web site titled Get Out of Debt Guy.  contains a variety of good advice and information about all manner of consumer debt problems, including student loans. You can learn more about Steve Rodes here.

******
If the recent position by the Department of Education under the Trump administration is any indication of what is to come for federal student loan debtors, watch out.

On March 16, 2017 the Department of Education rolled back protections and policies impacting those who hold FFEL federal student loans. The most recent numbers say about 4.2 million loan holders are in default on these loans at this time. Millions will be impacted by this policy change effective immediately as FFEL loan holder default.

The Obama administration had issued guidance in 2015 that when someone defaulted on a FFEL student loan that they had 60 days to bring the loan back into compliance and current and avoid the tacked on collection charges of up to 16% of the loan balance. This could be accomplished through programs such as the student loan rehabilitation program. It would all debtors to get back on track without exploding their student loan balances with massive collection costs beyond the already unaffordable amounts due.

Under the Obama administration policies, “A guaranty agency cannot charge collection costs to a defaulted borrower who, within the 60-day period following the initial notice, enters into a repayment agreement, including a rehabilitation agreement, and who honors that agreement.” – Source

The rationale given for this clarification was the distinction between a debtor who defaulted but intended to repay and one who was not going to make arrangements and thus cost significantly more to collect from. If a debtor defaulted and then entered into a repayment arrangement what would justify 16% of the loan balance in collection costs? Nothing.

But this policy of giving defaulted FFEL loan holders a grace period to get back on a payment plan goes back to the 1980s and 1990s. This was not an Obama policy.

In 1986, the Department of Education adopted regulations to establish the procedures for referring defaulted debt, which include giving the debtor notice of the proposed offset and an opportunity to avoid the offset by entering into a satisfactory repayment agreement. This policy was restated in 1992 when the then Department of Education said “the borrower could avoid the adverse consequences (report of the default status of the debt, liability for collection costs, and further collections actions) by making a timely agreement to repay the debt voluntarily.”

That’s all changed now. According to the “Dear Colleague” letter that was just released, the Trump Department of Education is withdrawing those policies and so debtors who default on FFEL student loans will have no grace period and will now face large collection fees to be immediately tacked on to the loan balance due. In essence, those who can least afford the default will be penalized and have no incentive to rehabilitate their loans. – Source

The Betsy DeVoss Department of Education says the reason to roll back these rules and policies is because there was an insufficient public comment period when the policies were put into place. Does anyone really believe the FFEL student loan debtors would argue against such a policy? It leaves you wondering why the policy could not have been left in place during a new public comment period and then a decision made. To me it sure seems like a Ready-Fire-Aim approach at dealing with student loan collections and student loan debtors in trouble.

But then of course, the immediate and obvious beneficiary of such a position is going to the be collectors and guaranty agencies who administer those loans.

What do you think? Comment below.

Steve Rhode

Get Out of Debt GuyTwitter, G+, Facebook

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

Friday, April 7, 2017

3,000 people a day are defaulting on student loans and Betsy DeVos rewards the student loan indusry. You broke our hearts, Betsy!

Yesterday, the New York Times published an editorial scolding Secretary of Education Betsy DeVos for allowing the student-loan servicers to slap a 16 percent penalty on student borrowers who default on their loans.

 And let's remember this: That 16 percent penalty is not 16 percent on the amount borrowed; its 16 percent on the unpaid balance plus accumulated interest.  Millions of debtors have their student loans in forbearance or deferment for years while their debt grows due to accruing interest. Thus, when they default, they may owe double, triple, or even quadruple what they borrowed. The 16 percent penalty is calculated by the total debt--not just the original loan amount.

And the lenders apply that penalty even when debtors immediately start the process of bringing their loans back into good standing. That stinks.

Secretary of Education DeVos made a big mistake when she caved in to the student-loan industry at the expense of struggling student debtors. I can think of only two explanations. Either she doesn't know what she's doing or she's in the pocket of student loan guaranty agencies and their collection agents.

But it doesn't really matter why she did it. After all, Fredo Corleone didn't know what he was doing when he betrayed his brother Michael in Godfather II. But Michael didn't cut Fredo any slack. Remember what Michael said? "I know it was you, Fredo – you broke my heart – you broke my heart!"

 As the Times noted in its editorial, 3,000 people a day in the government's direct lending program defaulted on their student loans last year--about a million people. That's a lot of people having penalties slapped on their loan balances--that's a lot of suffering that Betsy DeVos could have stopped.

It is now clear: student debtors can't look to the Trump administration for assistance. The bankruptcy courts are their only hope.

I know it was you, Betsy--you broke my hear, you broke my heart!

References

Editorial. The Wrong Move on Student Loans. New York Times, April 6, 2017.




Monday, March 20, 2017

Trump administration cozies up to for-profit college industry: "I was wrong, I know, I know"



But I want you to know that I was wrong, I know, I know
I just wanna say that I was wrong, I know, I know
Well, I want you to know that I was wrong, I know, I know
And I just wanna say that I was wrong, I know, I know

I Was Wrong
  David Labuguen, Nathan Esquite, Zachary Hannah 

Patsy Cline gave one of the greatest lyrical apologies in music history when she sang, "I'm sorry, so sorry that I was such a fool." And of course about half of all country music songs are sung by some guy who says he's sorry for cheating on his girlfriend.

But for my money, the all- time best musical apology was sung by Arizona. So I want you to imagine me singing "I just want you to know that I was wrong, I know, I know."


I was willing to give Donald Trump and Betsy DeVos the benefit of the doubt regarding the student-loan crisis. I naively hoped Trump and DeVos would view this catastrophe with fresh eyes and take action to relieve massive suffering. 


But I was wrong.

Trump's Department of Education cozies up to for-profit college industry

Last week, Trump's Department of Education rolled back protections afforded to people who defaulted on their bank-based federal loans (the FFEL program). The Obama administration had instructed debt collectors not to assess penalties against FFEL defaulters if they entered a rehabilitation program within 60 days of default.


That relief is now off the table, and debt collectors are free to slap defaulters with a 16 percent penalty on the principal and accrued interest of defaulted bank-based loans.


And the New York Times reported that DeVos's Department of Education recently hired Robert Eitel to be a paid member of a "beachhead" team that advises DOE on regulatory matters. Mr. Eitel is taking an unpaid leave of absence from his job as vice president for regulatory legal services at Bridgepoint Education, Inc., a for-profit college company that operates Ashford University and the University of the Rockies.


As the Times reported, the Securities and Exchange Commission is currently investigating Bridgepoint to determine whether the company violated the 90 percent rule that requires for-profits not to receive more than 90 percent of their revenue from the federal student aid program. Attorneys generals in California and Massachusetts are also investigating Bridgepoint,


And there have been more allegations of wrongdoing against Mr. Eitel's employer. Last September, Bridgepoint reached  a $31.5 million settlement with the Consumer Financial Protection Bureau to resolve allegations that Bridgepoint deceived students into taking out private loans that were more expensive than advertised. And in 2014, Bridgepoint reached a $7.5 million settlement to resolve charges against it brought by the Iowa attorney general.


And now Bridgepoint's chief legal counsel is a paid consultant for DOE. And DeVos also hired Taylor Hansen, a former for-profit lobbyist, to join DOE's beachhead team. (According to Bloomberg News, Hansen resigned his DOE post last Friday.)


Is Betsy DeVos in the for-profit industry's pocket?

This stinks, and it is a strong sign that Betsy DeVos, Trump's new Secretary of Education, is in the for-profit college industry's pocket.

The for-profit industry is betting that Trump will reduce the regulatory pressure on it, and for-profit stocks have soared since Trump took office. Bridgepoint's stock is up 40 percent. DeVry Education Group's stock is also up 40 percent and Grand Canyon Education's stock rose by 28 percent.

I think we can conclude that the Obama administration's strict regulation of the for-profit industry has come to an end. And to be strictly accurate, Obama's DOE did not get serious about cracking down on the for-profits until the last two years Obama was in office.

Bottom line is this. The for-profit industry will continue to exploit unsophisticated Americans who are only trying to better themselves by investing in post-secondary education.  This sleazy industry's track record is terrible, and the 5-year default rate for people who borrowed to attend for-profit schools is almost 50 percent!

Bankruptcy may be the only option for overburdened student-loan debtors

Millions of student-loan borrowers are now drowning in debt, which includes the penalties and interest tacked on to the amounts they borrowed. Based on recent events, they can expect no relief from Betsy DeVos's Department of Education.

God help the people who took out student loans to enroll in worthless for-profit programs that did not lead to good jobs.  President Trump apparently has no sympathy for these people--even though he claims them as his core constituency.

College borrowers who have been driven into default on their student loans now have only one avenue for relief: the bankruptcy courts. As the bankruptcy courts become better educated about the student-loan crisis, I think we can expect more compassionate decisions by bankruptcy judges. So let us turn our eyes toward the bankruptcy courts because struggling student-loan debtor have no other place to turn.

Robert S. Eitel of Bridgepoint Education: On DOE's ""beachhead" team


References

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

Patricia Cohen. For-Profit Schools, an Obama Target, See New Day Under Trump. New York Times, February 20, 2017.

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

 Shahien Nasiripour. , Betsy DeVos Hands Victory to Loan Firm Tied to Advisor Who Just Quit. Bloomberg News, March 20, 2017.



Thursday, March 9, 2017

Dear Secretary Betsy DeVos: Please do the right thing and allow distressed debtors to discharge their student loans in bankruptcy

Dear Secretary DeVos:

You have been Secretary of Education for about  a month, so you know the federal student loan program is in shambles.

Eight million borrowers are in default, millions more aren't making payments while interest accrues on their debt, 5.6 million people have signed up for income-driven repayment plans and are making payments so small that their debt is negatively amortizing even though they are faithfully making regular payments.

Obviously, there are dozens of things the Department of Education can do to address this crisis, but you can easily do one thing to help alleviate mass suffering and it is this: Please direct DOE and all its student-loan debt collectors to stop opposing bankruptcy relief for distressed student-loan borrowers.

In 2015, Deputy Secretary Lynn Mahaffie issued a letter stating DOE and its debt collectors would not oppose bankruptcy relief for student-loan debtors if it made no economic sense to do so. But in fact, both the Department and its agents oppose bankruptcy relief in almost every case.

And here are just a few examples:
  • In Myhre v. U.S. Department of Education, the Department opposed bankruptcy relief for a quadriplegic who worked full time but could not make student-loan payments and still pay the full-time caregiver he needed to dress him, feed him, and drive him to work.
  • In Abney v. U.S. Department of Education,  DOE urged a bankruptcy court to put a destitute student borrower into a long term payment plan even though the debtor was living on $1200 a month and was so poor he could not afford to drive a car and was riding a bicycle to work.
  • In Roth v. Educational Credit Management, ECMC fought an elderly woman's efforts to shed her student loans even though the woman had a monthly income of less than $800 a month and suffered from several chronic health problems.
  • In Edwards v. Educational Credit Management Corporation, ECMC argued to an Arizona bankruptcy judge that a 56-year-old counselor who owed $245,000 in student loans should be put in a 25-year repayment plan whereby she would make token payments until she was 81 years old!
Some of these cases were decided before Mahaffie's 2015 letter and some were decided after, but the dates are immaterial. DOE and its agents almost always oppose bankruptcy relief for student-loan debtors, no matter how desperate their circumstances.

In fact, DOE's position is essentially this: NO STUDENT DEBTOR IS ENTITLED TO BANKRUPTCY RELIEF. Instead, everyone should be placed in income-driven repayment plan  (IDR) that can last for 20 or even 25 years.

But you could change DOE's position simply by signing your name to a single letter. That letter should say that DOE and its debt collectors will no longer oppose bankruptcy relief for student debtors who cannot pay back their college loans and still maintain a minimal standard of living. And DOE will no longer argue that IDRs are a reasonable alternative to bankruptcy relief.

If you did that, hundreds of thousands of insolvent college-loan borrowers could discharge their student debt in bankruptcy and get a fresh start--a fresh start the bankruptcy courts were established to provide.

Your advisers may argue that the IDR program offers college borrowers a reasonable way to ultimately pay off their student loans, but that's not true. Do you think Rita Edwards would have ever paid back the $245,000 she owed the government by making payments of $81 a month in an IDR as ECMC proposed in her bankruptcy case? Of course not.

Do you think Janet Roth would have ever paid back her student-loan debt of $90,000 if she had been put in an IDR that would have set her monthly payments at zero due to her low income? No, and it was absurd for ECMC to have made that argument in Roth's bankruptcy case.

The stark reality is this. Millions of student borrowers have seen their loan balances double, triple and even quadruple due default fees and accruing interest. Putting these people into 20 and 25-year repayment plans that only require them to make token payments is insane.

Secretary DeVos, you could eliminate so much suffering if you would simply write a letter stating that DOE will no longer oppose bankruptcy relief for people like Myhre, Edwards, Roth, Abney and millions of other people in similar circumstances who will never pay back their student loans.

Please do the right thing.

References

Abney v. U.S. Department of Education, 540 B.R. 681 (Bankr. W.D. Mo. 2015).

Annual Report of the CFPB Student Loan Ombudsman. Consumer Financial Protection Bureau, September 2016.

Ann Carrns. How to Dig Out of Student Loan Default. New York Times, October 21, 2016.

Rohit Chopra. A closer look at the trillion. Consumer Financial Protection Bureau, August 5, 2013.

Edwards v. Educational Credit Management Corporation, Adversary No.. 3:15-ap-26-PS, 2016 WL 1317421 (Bankr. D. Ariz. March 31, 2016).

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

Myhe v. U.S. Department of Education, 503 B.R. 698 (Bankr. W.D. Wis. 2013).

Roth v. Educational Credit Management Corporation490 B.R. 908 (9th Cir. BAP 2013). Available at http://cdn.ca9.uscourts.gov/datastore/bap/2013/04/16/RothV%20ECMC%20opinion-FINAL%20AZ-11-1233.pdf

Matt Sessa. Federal Student Aid Posts Updated Reports to FSA Data Center. U.S. Department of Education Office of Student Aid, December 20, 2016.

Sunday, February 12, 2017

St. Joseph's College is closing: Is the bell tolling for small liberal arts colleges?

St. Joseph's College, which was founded in 1889, is  shutting its doors in May. Officials cited several reasons for  closing: fierce competition for students, accreditation problems and increased federal regulation. St. Joseph's president, Robert Pastoor, said the college will need $100 million to reopen; and the college's friends and alumni are hoping to raise the funds.

Students organized a vote of no confidence against Pastoor and four other college leaders, but St. Joseph's decline and fall may not have been their fault. Small liberal arts colleges are in a precarious position all over the United States. The U.S. Department of Education has 500 colleges on its heightened-cash-monitoring watch list; and many of the schools on that list are small liberal arts colleges.

St. Joseph's, with only 900 students, just didn't have the resources to successfully navigate its way through rough financial waters. St. Catharine College, another small Catholic liberal arts college, announced it is closing less than a year ago. Like St. Joseph's, St. Catharine College cited increased federal regulation as one of the factors that brought it down.

By and large, the higher education community is made up of liberal Democrats; and almost no one protested the deluge of regulations that came out of the Department of Education during the Obama administration. Public universities, large private universities, and institutions with healthy endowment funds have been able to weather the tightening regulatory environment. Indeed, they have no choice. Virtually no college or university can survive without regular infusions of federal student aid money--and that money comes with regulatory strings attached.

Without question, many small liberal arts colleges are going to be squeezed out of existence over the next few years due to the same challenges that St. Joseph's and St. Catherine faced. Those that survive will have this profile:
  • Tuition rates below their competition; 
  • Strong academic programs that lead to good jobs such as jobs in medicine, health sciences, or criminal justice; 
  • High teaching standards; and
  • Endowment funds to buffer economic stress.
Many college and university leaders deplore the appointment of the new Secretary of Education, Betsy DeVos.  You can probably count DeVos's higher-education supporters on the fingers of one hand.

But maybe college leaders should give DeVos a chance to address the financial crisis in higher education before attacking her. If she acts sensibly to trim the thicket of federal regulation, it is quite possible that more small liberal arts colleges will survive.

And surely that would be a good thing.



References

Meredith Colias. Rensselaer stunned after announcement of St. Joseph's closure. Chicago Post-Tribune, February 10, 2016.

Alexandra Kruczek & Alexis Moberger. St. Joseph's College president will call it quits in May. WLFI.com, February 9, 2017.

Another Small Private Closes Its Doors. Inside Higher Ed, June 1, 2016. Accesible at https://www.insidehighered.com/quicktakes/2016/06/01/another-small-private-closes-its-doors-dowling-college?utm_source=Inside+Higher+Ed&utm_campaign=a0fafeb056-DNU20160601&utm_medium=email&utm_term=0_1fcbc04421-a0fafeb056-198564813

Paul Fain. The Department and St. Catharine.  Inside Higher Ed, June 2, 2016. Accessible at https://www.insidehighered.com/news/2016/06/02/small-private-college-closes-blames-education-department-sanction?utm_source=Inside+Higher+Ed&utm_campaign=3d1c6eed79-DNU20160602&utm_medium=email&utm_term=0_1fcbc04421-3d1c6eed79-198565653


Friday, February 10, 2017

President Trump and the Democrats: Washington DC has become a kindergarten

A few moments ago, I watched a video showing protesters blocking Secretary of Education Betsy DeVos from entering a public school--a school where she was scheduled to attend a meeting with educators. The video clip wasn't long but I saw one guy shouting at her and I saw someone trying to block Secretary DeVos's vehicle as she was being driven away.  You should watch this video.

In only a matter of weeks, Washington DC has turned into a giant kindergarten. I suppose President Trump bears part of the blame. He has a distressing tendency to lash out at his detractors with tweet messages that only give his most unreasonable critics publicity and credibility. I wish he would take the high road and simply ignore his hysterical attackers.

But I blame the Democrats for plunging political discourse to the level of a playschool.  The Democrats behaved like children during the nomination process for President Trump's cabinet choices. Why did they do that, knowing that the President had the votes to get them all confirmed?

It would be hard to choose the chief tantrum thrower, but I give my vote to Senator Elizabeth Warren. She showed a shocking level of immaturity when she insinuated on the floor of the Senate that Jeff Sessions, one of her colleagues, is a racist.

A lot of people are upset about Donald Trump being our President. I understand that. But disappointment is no reason for political leaders to jettison civility in public discourse. What will that accomplish?

Furthermore, I believe there is bipartisan support around solving several important public policy problems. As I have already written, surely everyone from Senator Mitch McConnell to Congresswoman Nancy Pelosi can agree that the government should not be garnishing the Social Security checks of elderly student-loan defaulter.s  And if I'm right about that, why can't Republicans and Democrats unite around the McCaskill-Warren bill to stop that practice?

Over my lifetime, I have dealt with a lot of people who behaved boorishly toward me, tried to bully me, or behaved deceitfully toward me; and those people upset me. But I learned that I was always better off to retain my dignity and to respond to unprofessional behavior in a reasonable and straightforward manner.

Trump's detractors  seem to think that behaving like kindergarten children is the appropriate way to show their dissatisfaction with the 2016 election results. But they are wrong. If the Democrats don't pull themselves together and begin to behave like grownups, this nation is headed for real trouble--and I don't mean just political trouble.




Wednesday, February 8, 2017

Congressional Democrats should pressure DeVos to clean up the student-loan collection business

Democrats are critical of Betsy DeVos, President Trump's new Secretary of Education, but one concern is particularly valid, which is this: DeVos has business ties with a student-loan debt collector.

Those ties, which were explained in a Washington Post article are complicated. Here is what the Post said:
Education Secretary nominee Betsy DeVos and her husband have extensive financial holdings through their private investment and management firm, RDV Corporation. . . .

RDV is affiliated with LMF Portfolio, a limited liability corporation listed in regulatory filings as one of several firms involved in a $147 million loan to Performant Financial Corp., a debt collection agency in business with the Education Department.

Twenty-three percent of Performant's revenue is directly tied to its dealings with the Education Department, which had 14 contracts worth more than $20 million with the company in fiscal 2016.
According to the Post, Performant lost a recent contract bid with the Department of Education and is protesting DOE's decision with the Government Accountability Office.

DeVos's complicated ties with a student-loan debt college company is a legitimate worry to Democrats because as Secretary of Education, "DeVos would be in a position to influence the award of debt collection, servicing and recovery contracts, in addition to the oversight and monitoring of the contracts." In addition, the Post article points out, DeVos will also "have the authority to revise payments and fees to contractors for rehabilitating past-due debt--all of which has Senate Democrats concerned."

Senator Elizabeth Warren criticized DeVos because DeVos has no experience in higher education. "As Education Secretary," Warren charged, "Betsy DeVos would be in charge of running a $1 trillion student loan bank. She has no experience doing that." In fact, Warren correctly observed, "Betsy DeVos has no experience with student loans, Pell Grants, or public education at all."

Like Senator Warren, most Senate Democrats senators opposed DeVos to be Secretary of Education primarily on the ground that she has no experience in higher education, which is true. But I think a bigger concern is the fear that DeVos won't regulate the for-profit college industry aggressively and that she won't monitor the government's debt collectors, including the student loan guaranty agencies, which have a ruthless record of collection activities against distressed student loan debtors.

I confess I did not take DeVos's ties with a debt collection agency into consideration during the nomination process. I thought, perhaps naively, that DeVos's lack of experience in higher education might be a plus, since she could look at the student loan program with fresh eyes.

And perhaps she will. But the Democrats can smoke her out by moving aggressively for transparency and an accounting in the student-loan collection business and calling for a reduction in the collection fees and penalties the debt collectors are slapping on defaulted student loans.

Senator Warren could lead the charge by holding hearings on the activities of the student loan guaranty agencies: Educational Credit Management Corporation and the others. The Century Foundation reported that four of these agencies, which are nonprofit organizations, each hold $1 billion in assets.

If Secretary DeVos does not move aggressively to rein in the for-profits and clean up the debt collection business, then the Democrats will have a legitimate charge against her. The best way to see how DeVos will handle her new responsibilities is to hold hearings and introduce legislation to clean up the student loan industry.

If DeVos opposes legitimate calls for reforming the federal student loan program, then the Democrats are right about her.

References

Danielle Douglas-Gabriel. Dems raise concern about links between DeVos and debt collection agency. Washington Post, January 17, 2017. 

Eugene Scott. Warren grills DeVos: 'I don't see how she can be the Secretary of Education.' CNN, January 18, 2017.

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/

Monday, January 23, 2017

A Bipartisan Solution to the Student Loan Crisis: What if Betsy DeVos and Senator Elizabeth Warren Worked Together to Craft A Fix?

At the conclusion of Betsy DeVos's Senate hearing last week, Senator Elizabeth Warren refused to shake DeVos's hand. If this is a sign of enmity between Senate Democrats and the Trump administration over education policy, this is a scary development for distressed student-loan debtors.

Millions of borrowers are drowning in student loan debt--now pushing $1.4 trillion dollars. Eight million have defaulted, and millions more are teetering on the edge of default. Now is the time for Republicans and Democrats to work together.

What if Secretary of Education DeVos and Senator Warren cooperated to solve the student loan crisis? Thinks what they could achieve.

Here's a plausible scenario:

1. During the first month of the Trump administration,  Secretary of Education DeVos calls a press conference to announce that the federal government will stop garnishing Social Security checks of elderly student-loan defaulters.

At the press conference, Secretary DeVos is flanked by several U.S. Senators, including Senators Warren, Bernie Sanders, and Lamar Alexander. Senator Warren announces she will introduce legislation barring the government from garnishing Social Security checks of student-loan defaulters.

2. Next, DeVos issues a directive to DOE bureaucrats, ordering them to speed up the process for processing so-called "Borrower Defense" claims by students who are trying to get their student loans discharged on the grounds that their colleges defrauded them.

DOE responds quickly, and thousands of debtors who were scammed by shady for-profit colleges get their loans discharged. Warren and her Senate compadres issue press releases praising DeVos's action.

3.  Shortly thereafter, DeVos tells reporters that she agrees with the Obama administration's stance on arbitration clauses in student enrollment documents. The for-profits routinely require their students to sign these clauses, which forces students to arbitrate their fraud claims in unfriendly forums.  The Obama administration said it opposed these clauses but did not do anything to stop them from being used.

DeVos says, as of the day of her announcement, DOE will not allow any for--profit college to participate in the student-loan program that forces students to sign coercive arbitration agreements. Senators Warren and Senate Democrats applaud DeVos's step.

4.  In spring of 2017, Senator Warren holds Senate hearings on the student loan guaranty agencies, which rake in millions of dollars in fees from collecting student loans. Warren points out that four of these agencies have each amassed $1 billion in unrestricted assets, even though they are non-profit companies. She subpoenas the agencies' records and learns that the guaranty agencies' CEOs are paid millions in salaries and benefits for harassing destitute student borrowers.

DeVos testifies at Warren's Senate hearing, pledging DOE will do what it can to rein in the debt collectors.  DeVos makes good on her pledge by terminating its contract with Education Credit Management Corporation, perhaps the nation's most ruthless student-loan debt collector.

5. A bill passes Congress that disbands the student-loan guaranty agencies and abolishes all fees and penalties that have been applied to defaulted student loans over the past 20 years. President Trump signs the bill.

6. With bipartisan support and Trump's blessing, another bill is approved by Congress to amend the Bankruptcy Code to eliminate the restriction on discharging private student loans in bankruptcy.

Trump signs these bipartisan student-loan reform bills and give the bill-signing pens to Senator Warren. Senator Warren then shakes Secretary DeVos's hand.


What will it take for Senator Warren to shake Betsy DeVos's hand?
References

Paul Crookston. Betsy DeVos Hearing Ends with Handshakes — Except from Elizabeth Warren. National Review, January 18, 2017.

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

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/

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=

Tuesday, January 17, 2017

Inside Higher Ed asked Higher Education Insiders to Pose Questions to Betsy Devos: Madeleine Kunin and Wick Sloan Win Stupid Question Award

Betsy DeVos, Donald Trump's choice for Secretary of Education, faces questions from a Senate Committee this week. Inside Higher Ed contacted several higher education "experts" and asked them to pose their own questions to Ms. DeVos.

Most of the questions were what you would expect. Several people asked DeVos hypothetical questions designed to find out if the financial status quo for higher education for higher education will change under the Trump administration.

Some of the questions, however, were down right stupid. In fact, I give the Stupid Question Award jointly to Madeleine Kunin, former governor of Vermont and deputy secretary of education under President Clinton, and Wick Sloane, an instructor at Bunker Hill Community College.

Here is Ms. Kunin's question:
"Do you support public education and the mission of the department?"
Madeleine Kunin
 I assume Kunin wants a yes or no answer.  So what do think DeVos will say--No, I don't support public education?

Governor Kunin's question was inane, but Wick Sloane's question was just as wacky.  Here's Sloan's question.
"How quickly will you put in place a federal free and reduced-price lunch program for eligible low-income college students?"
Oh yes, and Sloane also suggested the federal government should provide free bus fare and subway passes to low-income college students. Of course that would be in addition to the $150 billion the federal government doles out every year in Pell Grants, student loans, and work-study money.

Interestingly, none of the insiders asked DeVos whether she supports reasonable access to bankruptcy for student borrowers who are overwhelmed by their college-loan debt.

None asked whether the government should stop offsetting Social Security checks to elderly student-loan defaulters.

None asked whether DOE should ban for-profit colleges from putting arbitration clauses in their enrollment documents--clauses that prevent defrauded students from filing lawsuits against the colleges that bilked them.

None asked whether DOE would streamline the loan forgiveness process for students who attended for-profit colleges found guilty of defrauding their students

No, the tone of most questions from higher education insiders across the spectrum of interests was simply this: "What's in it for us?"

References



Andrew Kleighbaum. Experts offer questions they hope to see asked of Trump's education secretary pickInside Higher Education, January 17, 2017.


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.







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