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

Monday, November 14, 2022

A Federal Court in Texas Blocks Biden's Student-Loan Forgiveness Plan. It May Be Years Before Student Debtors Know Whether the Plan is Legal

 President Joe Biden made a campaign pledge to forgive $10,000 in federal student loans. In August 2022, Biden announced that he would fulfill that pledge and offer $10,000 in student-loan forgiveness to anyone whose income is less than $125,000. People who received Pell grants while in college are eligible for $20,000 in student-debt relief.

Biden's Department of Education immediately began accepting applications for loan forgiveness. As of mid-November, 26 million college borrowers had filled out online applications.

Critics said that Biden was giving a benefit to people who don't need it. People who took out student loans to get a college diploma or a professional degree may very well be able to repay the debt. Critics also said that Biden is requiring blue-collar taxpayers who did not go to college to absorb the cost of loan forgiveness that benefited people who did go to college.

 Earlier this week, the Eighth Circuit Court of Appeals blocked Biden's program from being implemented nationwide.

Last week, in Brown v. Department of Education, Federal Judge Mark Pittman issued an important opinion on a challenge to Biden's student-loan forgiveness plan. Judge Pittman ruled that Biden's executive action was "unlawful" and vacated the entire program.

The Department of Education speedily appealed Judge Pittman's ruling to the Fifth Circuit Court of Appeals. The Fifth Circuit is generally considered a conservative or moderate court, and I think it is likely that the court will uphold Judge Pittman.

Other cases will be filed in the coming months, and other judges may rule differently from Judge Pittman. If so, the legality of President Biden's $400 billion giveaway will go to the Supreme Court.

I predict President Biden's ill-considered bonanza will ultimately go down in flames like a World War II fighter plane in a vintage war movie. 

Why?

First,  DOE's primary argument appears to be that no one can challenge Biden's giveaway because no one was injured by it--it's just free money. 

But that's absurd. The Congressional Budget Office calculates that the program will cost $400 billion, and a Wharton School analysis predicts it will cost about a trillion bucks. The consequences to American taxpayers are enormous.

As Judge Pittman observed:

[N]o one can plausibly deny that it is one of the largest delegations of legislative power to the executive branch or one of the largest exercises of legislative power without congressional authority in the history of the United States.

 Second, even Representative Nancy Pelosi, Speaker of the House, flatly said that President Biden does not have the legal authority to forgive a portion of student debt owed by more than 30 million people.  

People think that the President of the United States has the power for debt forgiveness. . . He does not. He can postpone, he can delay, but he does not have that power. That has to be [accomplished through] an act of Congress. 

Finally, the plaintiffs argued that DOE launched its giveaway in violation of the Administrative Procedure Act because it failed to comply with the notice-and-comment period that the APA required. That's an excellent argument. 

Betsy DeVos, President Trump's Education Secretary, lost dozens of lawsuits because DeVos's DOE tinkered with the federal student loan program without complying with the APA.  Many of those court decisions will be precedents in support of the plaintiffs challenging Biden's precipitous actions.

The federal student loan program is a trainwreck, and millions of Americans deserve relief from college loans they can never repay. But any relief program should be fair and motivated by sound public policy--not reckless handouts to cater to a political constituency.

Congress would take a giant step toward reforming the student loan program if it took just two words out of the Bankruptcy Code. Those two words are "undue hardship."

Honest but unfortunate college borrowers who are insolvent should have their student loans discharged through bankruptcy like any other nonsecured debt.  

Apparently, that simple and fair solution is too difficult for our politicians in Washington to grasp. Thus (with apologies to Eugene O'Neill), Biden's student-loan forgiveness fiasco begins a long day's journey into the dark night of protracted litigation in the federal courts. 




Sunday, March 13, 2022

How Screwed Up is the Federal Student Loan Program? We Can Tell You, But Then We'd Have to Kill You!

 Betsy DeVos, the Wicked Witch of the Midwest, was perhaps the most despised member of President Trump's cabinet. As Trump's Education Secretary, she coddled the for-profit college industry and (in my opinion) bungled the Public Service Loan Forgiveness (PSLF) program.

Nevertheless, in a speech delivered in November 2018, DeVos revealed to the nation just how totally screwed up the federal student loan program really is. She deserves some credit for that.

Here's what DeVos said:

  • The federal government holds $1.5 trillion in outstanding student loans, one-third of all national assets.
  • Only one in four federal student-loan borrowers were paying down the principal and interest on their debt.
  • Twenty percent of all federal student loans were delinquent or in default, which was seven times the delinquency rate on credit card debt.
  • The debt level of individual borrowers had ballooned between 2010 and 2018 because students were borrowing substantially more money.
  • The federal government's portfolio of outstanding student loans constituted 10 percent of our nation's total national debt.
Soon after giving this speech, DeVos engaged a private firm to determine just how bad the student loan crisis was. Jeff Courtney, a former JP Morgan executive, headed up this investigation, and here is what he found:

Although DOE calculated that it would eventually receive 96 cents of every student-loan dollar in default, in fact, it would only recover between 51 and 63 percent.

Courtney also found that DOE allows student-loan defaulters to sign up for new loans, which are used to pay off the defaulted loans. When that happens, the defaulted loans are categorized as paid in full when, in fact, they aren't paid off at all.

DeVos acknowledged that private businesses could not legally operate in this way. In fact, she said, if a private actor engaged in DOE's accounting practices, that person would "probably be behind bars." 

Of course, we know that Courtney's findings aren't the only evidence of DOE's financial skulduggery.  DOE has been putting distressed debtors into income-based repayment plans (IBRP) and counting the loans in these plans as performing loans.

But that is not correct. Approximately 9 million student borrowers are in IBRPs, and their monthly payments are not large enough to pay accruing interest. Thus, IBRP participants see their loan balances grow with each passing month, even when they make regular monthly loan payments. 

In fact, all 9 million IBRP participants are in default--if default means never paying off the debt.

In recent months,  Congressional members have been asking DOE to disclose the actual cost of the federal student loan portfolio, but Education Secretary Miguel Cardona hasn't been forthcoming.

Here is the essence of the matter. DOE knows the federal student loan portfolio is a trainwreck, but it hopes to keep the catastrophe a secret for as long as possible.  

It's like that old joke about the  CIA and classified information: We can tell you the truth about the student-loan program, but then we'd have to kill you.

Sources

Betsy DeVos. Prepared Remarks by U.S. Secretary of Education Betsy DeVos to Federal Student Aid's Training Conference. November 27, 2018. [The DOE link to this speech  was either taken down or obscured.]

Betsy revealed just how screwed up the federal student loan program really is.



Tuesday, May 4, 2021

Independent expert predicts student loan program will lose a half trillion bucks: Is he right?

 In 2018, Education Secretary Betsy DeVos hired Jeff Courtney, a former JP Morgan executive, to do a forensic analysis of the federal student loan program.  DeVos suspected the program was generating huge losses. 

In fact, in November 2018, DeVos said publicly that only one in four student borrowers were paying down both principal and interest on their debt. She also acknowledged that 20 percent of all federal student loans were either delinquent or in default.

Mr. Courtney's analysis confirmed Secretary DeVos's suspicions. Courtney concluded that roughly one-third of the Education Department's student-loan portfolio will never be paid back. That's about a half-trillion-dollar loss.

The Department of Education rejects Mr. Courtney's conclusions. DOE says his "analysis used incomplete, inaccurate data and suffered from significant methodological shortcomings . .  . ."

Maybe. But we don't need a sophisticated economic model to know that the federal student-loan program is underwater.  We know that 8 million student borrowers are in income-based repayment programs and are making payments too small to pay down their loans' principal plus accruing interest.

So, that is 8 million student debtors who will never pay back their loans. That fact alone should dispel any notion that the federal student loan program is solvent.

Policymakers on the left and on the right can continue arguing about the student-loan crisis as if it were merely a political issue.  But it is not--it is an economic calamity for millions of distressed student-loan debtors. 

We know for sure that burdensome student-loan debt is hindering young Americans from buying homes, having children, and saving for their retirement.  Granting partial student-debt relief, as some politicians propose, will do little to relieve widespread suffering.

In my view, the way to address the student-loan mess is for Congress to amend the Bankruptcy Code to allow insolvent student borrowers to discharge their loans in bankruptcy like any other consumer debt.

Congress also needs shut down the Parent PLUS program, which has a high default rate, particularly among minority and low-income families. 

And Congress must put some realistic cap on the amount of money students can borrow for their college education. It is insane for private colleges to peg their tuition rates at $25,000 a semester. They can only get away with this highway robbery because students can take out federal loans to finance their studies.

Mr. Jeff Courtney believes one-third of student-loan dollars will never be paid back. If Congress doesn't address the college-loan crisis forthrightly and very soon, the losses will be much higher than that.

Bard College: Tuition is $56,000 a year







Monday, February 22, 2021

Politicians want $50,000 in student-debt relief: A good idea?

 Top Democrats, led by Senators Chuck Schumer and Elizabeth Warren, are calling on President Joe Biden to forgive student-loan debt up to $50,000 per person. 

According to the plan's proponents, $50,000 in debt relief would wipe out all college-loan debt for 36 million Americans. That would be an impressive achievement.

Moreover, forgiving $50,000 in student debt would particularly benefit women and people of color, who take on more debt on average than men and non-minority students. Under one interpretation of the proposal, parents who took out Parent Plus loans might also get relief.

Without a doubt,  student-loan forgiveness on this scale would be expensive. The federal government would be writing off  $1 trillion in student debt. But, as then Education Secretary Betsy Devos admitted more than two years ago, only one out of four federal-loan borrowers are "paying down both principal and interest" on the loans.  Writing all this debt off in one fell swoop would merely recognize reality.

Some policy experts argue that writing off all student debt--about $1.7 trillion--would be good for the American economy. In a 2018 report, researchers at the Levy Economics Institute of Bard College wrote that wholesale student-loan forgiveness would boost the Gross National Product by $86 billion to $108 billion a year over ten years. Released from their student loans, millions of Americans would see an immediate increase in their disposable income, permitting them to buy homes, save for retirement, purchase consumer goods, and start families.

So what's my take on the Schumer-Warren proposal? I think any action that gives meaningful relief to millions of struggling college borrowers is a good thing.  So if the choice is between the Schumer-Warren plan and no plan, I support the Schumer-Warren initiative.

But wiping $1 trillion of student debt off the government's books is no panacea for the student-loan crisis. 

First, there is the issue of fundamental fairness. Millions of Americans made enormous sacrifices to get through college with no debt--often working at part-time jobs to make ends meet. Millions more lived frugally in the years after graduation to pay off their student loans.

Somehow it seems unjust to reward people that borrowed to attend college when so many people worked extra hard to avoid debt or to pay it off quickly.

Second, for our government to wipe out a trillion dollars in college loans is an implicit admission that the college experience is not worth what the universities are charging. President Biden should not forgive a trillion dollars in student debt without insisting that the universities reform their operations.

What reforms are most urgent. In my view, colleges should stop grinding out expensive and often worthless graduate degrees. When Congress passed the GRAD Plus Act, it allowed people to borrow the entire cost of graduated education, no matter what the price.  As we might have expected, universities raised the price of their graduate degrees. They ginned out new programs: MBAs, Master's degrees in public administration, graduate degrees in gender and ethnic studies, and so on.

Second, we need to close down the Parent PLUS program, which has driven millions of moms and pops to the verge of poverty by taking out loans for their children's education that they can't discharge in bankruptcy.

In my view, it would be wiser to loosen the restrictions on bankruptcy relief for overburdened student debtors. People who took out student loans and obtained good jobs with their college degrees should pay back their loans. People whose lives were ruined by student debt could get a fresh start in the bankruptcy courts.

Surely all Americans can agree that postsecondary education should improve the quality of people's lives. College degrees that leave people with no job and massive student debt should not be subsidized by the federal government.

Let's forgive $1 trillion in student debt: The rubes will love us for it!



Monday, February 1, 2021

Young v. Grand Canyon University: Eleventh Circuit rules doctoral student is not compelled to arbitrate his claim against a for-profit university

 Donrich Young enrolled in a doctoral program at Grand Canyon University based on his understanding that he could finish the program by taking 60 credit hours. However, he didn't complete his degree in 60 hours and was forced to pay for three additional research-continuation courses.

Young sued Grand Canyon for breach of contract, intentional misrepresentation, and violations of the Arizona Consumer Fraud Act. But Young had signed an arbitration agreement that forced him to arbitrate his claims rather than file a lawsuit.

An Obama-era federal regulation prohibited for-profit colleges from requiring their students to arbitrate their disputes. Grand Canyon argued for a tortured interpretation of this rule, and it convinced a federal judge to buy it.  Thus, the court dismissed Young's lawsuit and required him to arbitrate his beef with Grand Canyon.

On appeal, however, the Eleventh Circuit reversed. It began by stating that the regulation was "poorly written." Nevertheless, in the appellate court's view, the regulatory language clearly prohibited Grand Canyon from forcing Young to arbitrate his breach-of-contract and misrepresentation claims.

Indeed, in the Eleventh Circuit's view, "common sense" confirmed that Young's interpretation of the regulation was correct.

We need not dwell on the Eleventh Circuit's analysis of regulatory language. The critical point is this: Obama-era regulations prohibited for-profit schools from enforcing arbitration clauses that bar students from suing for breach-of-contract or misrepresentation.

Unfortunately, Education Secretary Betsy DeVos rolled back the Obama rules to allow for-profit schools to force their students to sign arbitration agreements. As David Halperin wrote last July:

Predatory schools love forced arbitration — a secret proceeding with a paid corporate rent-a-judge — and class action bans, because those things make it harder for a ripped off student to obtain a lawyer, afford a legal process, get justice before an impartial decision-maker, and create precedents and expose information that could help future students.

It will be interesting to see whether President Biden will reinstate the ban on arbitration clauses that the Obama administration commendably instituted.  Let us hope so because mandatory arbitration has been the chief way that unscrupulous for-profit colleges have protected themselves from being sued by their students for fraud and misrepresentation.

References

David Halperin. 

For-Profit Colleges Race To Block Students From Suing Them. Republic Report, Jul 20, 2020.  https://www.republicreport.org/2020/for-profit-colleges-race-to-block-students-from-suing-them/.

Young v. Grand Canyon University, 980 F.3d 814 (11th Cir. 2020).



Saturday, October 3, 2020

Leary v. Great Lakes Educational Loan Services: Bankruptcy judge slaps student-loan servicer with a $378,000 contempt sanction

 A few weeks ago, Bankruptcy Judge Martin Glen slapped a huge contempt penalty on Great Lakes Educational Loan Servicers--$378,629.62! Why? Because Great Lakes repeatedly refused to comply with Judge Glen's directives in a student-loan bankruptcy case.  

Leary v. Great Lakes Educational Loan Servicers: The facts

In 2015, Sheldon Leary filed an adversary action in a New York bankruptcy court, seeking to discharge over $350,000 in student-loan debt. He amassed this debt to pay for his three children's college education (p. 1). 

 Mr. Leary represented himself and properly served Great Lakes, his student-loan servicer. He didn't know, however, that he needed to sue the U.S. Department of Education as well. Great Lakes passed Mr. Leary's complaint on to DOE, but neither DOE nor Great Lakes answered Mr. Leary's lawsuit. In fact, Great Lakes forwarded fifteen pleadings to DOE, but neither DOE nor Great Lakes made an appearance in Judge Martin's court for quite some time (p. 3).

In 2016, Mr. Leary obtained a default judgment against Great Lakes for failing to respond to his lawsuit, and Judge Glen discharged Leary's student-loan debt.  DOE ignored this judgment and sent Mr. Leary two letters threatening to garnish his wages (p. 5).

More than four years after filing his lawsuit, Leary moved to reopen his adversary proceeding and asked Judge Glen to find Great Lakes in contempt. Great Lakes still did not respond, and on April 29, 2020, Judge Glen held the loan servicer in contempt and assessed sanctions against it for $123,000.

Great Lakes did not pay this assessment, and Judge Glen held a second contempt hearing last August. At this hearing, Great Lakes made several arguments to avoid sanctions. First, it argued that it could not be held in contempt because it had not acted in bad faith. Judge Glen rejected this defense. Whether or not Great Lakes had acted in bad faith, the judge reasoned, it had ignored "clear and unambiguous" court orders and had not diligently tried to comply with them (p. 9). 

Great Lakes also argued that it transferred its loan processing job to another collection agent after Mr. Leary's lawsuit was filed, thus relieving itself of the obligation to respond to court pleadings. But that fact, the judge ruled, did not relieve Great Lakes from its duty to comply with court orders in Mr. Leary's lawsuit (p. 5).

Finally, Great Lakes argued that sanctions were not warranted because Mr. Leary had not been hurt by its five years of noncompliance with court orders.

But Judge Glen didn't buy that argument either. In fact, he pointed out, Great Lakes' inaction had significantly injured Mr. Leary by causing him to suffer "aggravation, pain and suffering, negative credit ratings, loss of sleep, worry and marital strain" (footnote 11).

Judge Glen:  Great Lakes was "grossly negligent"

In short, Judge Glen ruled, Great Lakes' inaction had been "grossly negligent" and "really much worse" (p. 1). As for Great Lakes' claim that its legal department was unaware that it was a named party in Mr. Leary's lawsuit, the judge found this argument "unbelievable[e]" (p. 11).

The judge ordered Great Lakes to pay most of its sanction to DOE, in an amount sufficient to pay off Mr. Leary's student-loan obligations. Thus, in the end, Leary got the relief he sought in 2015.  

Judge Glen did not find it necessary to hold DOE in contempt, but he did not find the agency blameless. As he noted in a footnote:

It should not be lost on anyone . . . that DOE's inaction with respect to Mr. Leary--especially when DOE had knowledge at multiple steps along the way that Great Lakes was ignoring its obligations to Mr. Leary as a named defendant in the adversary proceeding--is disappointing to say the least.

Another example of DOE arrogance and heartlessness

Judge Glen's decision fingered Great Lakes as the bad guy in the Leary case, but he found DOE's conduct to be "highly questionable" (footnote 4). As the judge pointed out, Great Lakes "sat by, regularly monitoring Mr. Leary's bankruptcy docket until his case was closed and Great Lakes could return his student loans to normal servicing status" (p. 10).

Obviously, DOE's lawyers knew what Great Lakes was doing and made no objection. It is hard to escape the conclusion that DOE allowed Great Lakes to flout Judge Glen's orders and thereby circumvent Mr. Leary's bankruptcy action.

 Great Lakes' behavior and DOE's complicity are despicable. All this shameful conduct must have been approved at the top levels of Betsy DeVos's administration. I say again, Secretary DeVos should be impeached.


References

Leary v. Great Lakes Educational Loan Services, Case No. 15-11583, Adv. Proc. No. 15-01295, 2020 WL 5357812 (S.D.N.Y. Sept. 8, 2020).

Saturday, May 9, 2020

Income-Based Repayment Plans for Student Debtors: Flushing Money Down the Toilet

Congress has been dropping "helicopter money" into the national economy--adding significantly to the national debt, which now exceeds $25 trillion.

That's a lot of money for our grandchildren to pay back. My own grandkids are ambivalent about this situation. My four-year-old says he thinks he can do it if his dad will increase his allowance, but my six-year-old doesn't think it's fair for him to pay for his ancestors' wars in the Middle East.

Now let's look at another economic crisis our grandchildren will pay for--the federal student-loan program.

According to the U.S. Department of Education's own numbers, approximately 43 million Americans have student-loan debt totaling $1.5 trillion.  And, if DOE can read its own balance sheet, it will see that it has basically given up on collecting about a third of that debt.

As of the first quarter of this year, 8.1 million student borrowers are in income-driven repayment plans (IDRs). By the very terms of those plans, these borrowers make loan payments based on their income, not the amount they borrowed. Under most of these plans, borrowers at similar income levels make the same sized monthly loan payments regardless of whether they owe $20,000, $50,000, or $100,000.

Virtually everybody in an IDR is making payments so low that the underlying debt grows larger due to accrued interest--interest that is capitalized.  In other words, virtually no one in an IDR is going to pay off his or her student loans.

How much money are we talking about? DOE's recent report tells us that a half-trillion dollars ($507 billion) are owed by people in IDRs.  In fact, 400,000 people in IDRs owe $200,000 or more.  And--inexplicably--300,000 student debtors are in IDRs who owe less than $5,000.

As Education Secretary DeVos publicly acknowledged in late 2018, the federal government carries student-loan debt on its books as performing loans, which a commercial bank could not do. In fact, she made the astonishing admission that outstanding student loans make up 30 percent of all federal assets!

But in fact, at least 8.1 million student loans are not performing. On the contrary, the IDR programs were designed in such a way that borrowers never pay them back.  

Education Secretary Betsy DeVos announced last year that she was hiring McKinsey & Company, a private consulting firm, to determine just how big the student-debt debacle really is.  So far, she has released no report.

But we don't need a high-priced consulting firm to tell us what is going on. The student-loan program is bankrupt. And while Betsy DeVos sails along on her private yacht, DOE lawyers are hounding desperate student-loan borrowers through the bankruptcy courts, demanding that they be put into IDRs. Those IDR plans can last for as long as a quarter of a century, and virtually no one in such a plan will ever pay off their student-loan debt.



References

Ferguson, Adam. When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany. New York: Public Affairs Publishing (2010) (originally published in 1975).

Tuesday, May 5, 2020

Betsy DeVos sued for seizing student borrowers' paychecks in violation of the CARES Act: "We don't care. We don't have to."

Betsy DeVos, President Trump's Education Secretary, doesn't just think she's above the law. She IS above the law.

A few days ago, the National Consumer Law Center filed a class-action suit against Betsy DeVos and the U.S. Department of Education asking a federal judge to stop DeVos and DOE from garnishing student borrowers' paycheck in violation of the CARES Act.

Congress passed the CARES Act, you may recall, in response to the coronavirus pandemic, and the law explicitly put a temporary moratorium on collection efforts against student debtors who are in default.

According to the NCLC, the Department of Education, either directly or indirectly, kept on garnishing paychecks in defiance of federal law.  Elizabeth Barber, the lead plaintiff, makes $12.89 per hour working as a home health care aide. She says DOE garnished her paycheck, even though the CARES Act gave her a six-month reprieve from making student-loan payments.

This isn't the first time DeVos and her DOE cowboys have been accused of ignoring the law. Just last fall, Judge Sallie Kim held DeVos and the Department of Education in contempt for failing to stop collection efforts against student borrowers who had attended one of the Corinthian Colleges.  Judge Kim had enjoined DOE from trying to collect from those students, but the agency did not abide by her order. Judge Kim fined DOE $100,000 for its wrongful collection efforts.

DeVos reminds me of Ernestine, Lily Thomlin's telephone-operator character in those Saturday Night Life sketches from the 1970s.  When people complained about their telephone service, Ernestine's response was, "We don't care. We don't have to. We're the phone company."

Betsy DeVos apparently doesn't care about downtrodden student-loan debtors. When participants in the Public Service Loan Forgiveness Program applied for student-debt relief, her agency denied 99 percent of the applications.

And now, NCLC says, DeVos and DOE have violated the CARES Act, continuing to collect on student-loan defaulters in open violation of a law that Congress passed less than two months ago.

I don't get it. DeVos is either astonishingly incompetent, or she just doesn't give a damn.


We don't care. We don't have to. We're the Department of Education.




Sunday, May 3, 2020

Rodger Love v. U.S. Department of Education: Betsy DeVos wears no clothes (metaphorically speaking)

According to Urban Dictionary, "The Emperor Wears No Clothes," is a phrase "often used in political or social contexts for any obvious truth denied by the majority despite the evidence of their eyes, especially when proclaimed by the government."

This metaphor came to mind as I read the adversary complaint filed in Love v. U.S. Department of Education.  Rodger Love is asking a Kansas bankruptcy court to discharge his student loans--both federal and private.

As Mr. Love said in his complaint, he "has no hope of paying back the loans, and they have created a noose around [his] neck for the remainder of his economically productive years."

Mr. Love is clearly right. He is 47 years old. Although he is employed full-time, he "does not anticipate receiving substantial raises or promotions in the future." Nevertheless, Love is saddled with $167,000 in student loan debt, apparently to study at Washburn University, where he did not obtain a degree.

He now owes far more than he actually borrowed.  Love took out $29,000 in federal loans and $68,000 in private loans--totally just $97,000. The balance of his debt--about $70,000--is mostly accumulated interest.

Indubitably, Betsy DeVos's Department of Education will oppose a student-loan discharge for Mr. Love. DOE will probably argue that Mr. Love has not done enough to maximize his income--no matter what he has done to improve his financial circumstances. 

If Mr. Love eats a hamburger at McDonald's twice a month, DOE will say he hasn't been frugal.  And no matter what the court records reveal, DOE will almost certainly argue that Mr. Love has not handled his student loans in good faith.

But that will be government bullshit, already packaged in DOE lawyers' canned legal briefs.

I'll bet you dollars to donuts that DOE will tell the bankruptcy judge that Mr. Love should sign up for a 25-year repayment plan.  But, as he pointed out in his complaint, he will be 72 years old before he finishes a 25-year plan.  And since the payments won't cover accruing interest, he will owe more than he owes right now when the plan terminates in 2045.  And whatever amount is forgiven will be taxable to him as earned income.

That's nuts. Why does DOE continue, year after year, to oppose bankruptcy relief for student-loan debtors who are clearly at the end of their rope?

One reason.  DOE forces desperate debtors into long-term repayment plans so it can pretend that mountains of student debt are loans in good standing. But that is not true. Billions of dollars in outstanding student loans is not collectable.

If Education Secretary Betsy Devos believes DOE's opposition to student-loan bankruptcy helps maintain the solvency of the federal student loan program, she is the emperor who wears no clothes.  That stance defies the naked truth, which is this: Forty-five million Americans have outstanding student loans, and at least half of it will never be paid back.

References

Love v. U.S. Department of Education, Case No. 13-41680 (Bankr. D. Kan. Jan. 28, 2020) (complaint).

Hey, Betsy--put some clothes on!


Thursday, April 30, 2020

Massive student-loan forgiveness is now a mainstream idea: Even Al Jazeera is on board

Around 45 million Americans owe a total of $1.6 trillion in student loans, and approximately 20 million of those debtors are not paying them back.  Betsy DeVos, President Trump's Education Secretary, admitted more than a year ago that only one out of four student borrowers was paying down principal and interest on their federal loans. "In the commercial world," DeVos observed, "no bank regulator would allow this portfolio to be valued at full, face value."  

So why not just forgive all this festering debt--debt that is preventing struggling Americans from buying homes, having children, or saving for their retirement?

That notion is now a mainstream idea in American politics. Senator Bernie Sanders got the ball rolling when he called for wiping out all this debt.  Senator Elizabeth Warren proposed something slightly less radical--forgiving student debt up to $50,000.  And Joe Biden, the Democrats' presumptive nominee for the Presidency, wants to forgive all debt owed by individuals who attended a public university or a historically black college (HBCU).

Even Al Jazeera, an Arabic-focused news organization, based in Qatar, wants to forgive all federal student loan debt.  America is experiencing its worst economic crisis since the 1930s, Al Jazeera reporters pointed out, and the U.S. needs to prioritize relief  for "people, not profit." Al Jazeera calls for canceling all student loan debt, which would "help those hit hard by the coronavirus pandemic to "rebuild their futures."

Writing off all federal student debt is not a crazy idea, especially, as I just said, a bunch of it isn't being paid back anyway. But does Congress have the political will to do it? I don't think so.

After all, the straightforward solution to this crisis would be to simply allow overwhelmed debtors to discharge their student loans in bankruptcy. Bills have been introduced in Congress that would accomplish just that, but those bills have gotten nowhere. 

I've said this before, and I will repeat it. Congress should allow insolvent Americans to file for bankruptcy and discharge their student loans like any other consumer debt: credit cards, car loans, and business obligations. 

And all Congress needs to do to accomplish this sweeping reform is to remove two words from the U.S. Bankruptcy Code: "undue hardship." It is the "undue hardship" language, after all, that the federal courts have interpreted so harshly, and which has denied bankruptcy relief to millions of honest student-loan debtors.

Of course, if Congress abolished the "undue hardship" standard, it would need to appoint a lot more bankruptcy judges to deal with a torrent of bankruptcy filings. And the judges would need to make sure that people who have the financial wherewithal to repay their loans don't fraudulently apply for bankruptcy relief.


In my view, calls to wipe out all student debt are irresponsible because politicians know this is never going to happen. Bankruptcy reform provides an orderly and fair way to give unfortunate student debtors a fresh start while guarding against fraud. 





Wednesday, April 29, 2020

Coronavirus bailouts for the casinos but nothing for harried student-loan debtors: Let'em eat cake!

Congress turned on the money spigot last month and spewed out cash to millions of people and businesses that were hurt by the coronavirus pandemic.

The airlines are getting bailout money, the casinos are eligible for aid, and corporations are accepting loans they don't needAutoWeb, for example, got a $1.4 million federal loan and gave its CEO a $1.7 million bonus one week later.

Meanwhile, millions of Americans are burdened by federal student loans they can't repay.  More than a year before the coronavirus outbreak, Education Secretary Betsy DeVos publicly admitted that only one out of four student borrowers were paying down both principal and interest on their federal loans.  One out of five borrowers, DeVos disclosed, were delinquent on their debts or in default.

Now, with the unemployment rate hovering near 15 percent, and millions of hourly workers out of a job, college-loan debtors are struggling more than ever.

And what has the Department of Education done to assist harried student debtors? Not much.

DOE is giving college-loan borrowers a six-month deferment from making their monthly payments, and it won't assess interest on outstanding loans during that time. DOE has also temporarily stopped seizing wages, Social Security benefits, and tax refunds of people who defaulted on their federal student loans.

In other words, the Trump administration is shoveling big bucks to corporations, while it throws a few crumbs to college-loan borrowers.

Here's an illustration that shows just how meaningless the Trump administration's response to the student-loan crisis has been.

Laurina Bukovics borrowed $20,000 more than 30 years ago to obtain a bachelor's degree from Wisconsin University. Through the years, she made regular monthly loan payments except during times when DOE gave her deferments or forbearances due to her financial difficulties.

Over 25 years, Bukovics repaid $29,000 on her student loans—140 percent of what she borrowed. Nevertheless, by the time she showed up in bankruptcy court, her student-loan debt had grown to $80,000—four times what she had received from the federal loan program.

How much relief does a six-month moratorium on loan payments give to people like  Ms. Bukovics, who have been burdened by student debt for their entire adult lives and have seen their loan burdens double, triple, or even quadruple?

Hardly any relief at all.  The federal government has poured out trillions to alleviate the financial crisis that was triggered by the COVID-19 virus.  But much of this money has gone to corporations and businesses. 

When corporations ask the feds for money to help them get through the coronavirus pandemic, the government responds by saying, "Where do we send the check?"

On the other hand, when beaten-down student-loan debtors try to discharge their student debt in bankruptcy, the federal government almost always opposes relief. Ms. Bukovics, for example, was unemployed while she was in bankruptcy and living temporarily with a friend. She had no car, and she was so impoverished that she qualified for food stamps and Medicaid.

And what was the response by the Department of Education's debt collector to Ms. Bukovics's plight?  ECMC opposed bankruptcy relief because it believed Bukokvics was spending too much money on food.


Betsy DeVos's summer home




Saturday, March 14, 2020

President Trump waives interest on student loans "until further notice": Woefully inadequate relief for distressed student-loan borrowers

In yesterday's speech on the coronavirus crisis, President Trump announced he is temporarily waiving interest on all federal student loans.

"I've waived interest on all student loans held by federal government agencies ... until further notice," Trump said in his speech "That's a big thing for a lot of students that are left in the middle right now. Many of those schools have been closed."

I appreciate President Trump's effort to assist distressed student borrowers, but yesterday's action is totally inadequate.  Millions of distressed student borrowers need broad and immediate relief, and a temporary waiver of interest offers almost no help at all. 

Around 45 million Americans have outstanding student loans totaling $1.6 trillion.  For many college-loan debtors, interest has already accrued, causing their loan balances to double, triple, and even quadruple.  Temporarily waiving interest on that debt is almost meaningless.

Besides, I think President Trump may have overestimated the Department of Education's ability to implement his moratorium.  Adjusting interest costs for 45 million student borrowers is no small task. Many student debtors have more than one student loan, and these loans have varying interest rates. (In fact, I met a woman yesterday who has five separate student loans.)We're probably talking about interest adjustments on more than 100 million individual loan agreements.

Frankly, I don't think Betsy DeVos's DOE is up to the job. DOE completely botched the Public Service Loan Forgiveness Program, denying 99 percent of the applications for PSLF debt relief. Last year, a federal judge ruled that DOE had managed the program arbitrarily and capriciously and in violation of the Administrative Procedure Act.

Also last year, a California federal judge held Secretary DeVos and DOE in contempt for not abiding by the judge's order to stop trying to collect on student loans taken out by people who had attended schools operated by the now-defunct Corinthian Colleges. I don't think DeVos and her crew intentionally disregarded the judge's order. I think they simply don't know what they are doing.

If DOE cannot manage its routine responsibilities, how can it manage adjustments on student loans held by 45 million people?

As Steve Rhode wrote a few days ago, "People in denial about the impact of COVID-19 may be adequately protected with emergency savings, good health insurance, and paid time off of work. But those of us who work in hourly paid jobs are at a very high risk of having finances slaughtered by this virus."

Mr. Rhode's observation is particularly applicable to college students and former college students.  A lot of people with substantial student-loan burdens are working in temporary jobs that pay low wages. In the coming weeks, these jobs are going to be lost as the public stops eating out, shopping, and traveling. The people who held these lost jobs are going to be unable to service their student loans, and many of them will default.

Giving overburdened student debtors a temporary break from the interest on their loans is like putting a bandaid on a compound fracture (a hackneyed analogy, I admit).  President Trump and Congress need to take far more drastic action.

Specifically, Congress must revise the Bankruptcy Code to allow insolvent student-loan debtors to discharge their student loans in bankruptcy.  

Ultimately, our politicians will be forced to confront the fact that the student-loan program is a colossal disaster, and the coronavirus epidemic is going to make it worse. Now is a good time to do what needs to be done. And what needs to be done is bankruptcy reform.







Wednesday, March 11, 2020

Calvillo Manriquez v. Devos: Judge Sallie Kim holds U.S. Department of Education in contempt for failing to abide by her injunction in the Corinthian Colleges case

Corinthian Colleges, a for-profit chain of colleges, went bankrupt in 2015 under a shower of fraud accusations. More than 100,000 former students filed claims with the U.S. Department of Education, seeking relief from federal student loans they took out to attend the defunct chain’s schools.

Corinthian students maintained that they were lured to attend the school by the college chain's job placement rates, which turned out to be inflated. Initially, DOE granted full relief to some claimants.

In 2017, however, DOE unilaterally changed the way it processed these claims and only granted partial relief from student loans under a formula that calculated the income of borrowers who had been enrolled in Corinthian programs. A group of former Corinthian students sued DOE for arbitrarily changing the rules and Judge Sallie Kim certified the lawsuit as a class action.

Judge Sallie Kim issues a preliminary injunction against DOE

While this litigation was ongoing, Judge Kim issued a preliminary injunction against DOE, ordering the agency to “cease all efforts to collect debts from Plaintiffs” (Calvillo Manriquez v. DeVos, p. 538). Corinthian appealed Judge Kim’s preliminary injunction to the Ninth Circuit Court of Appeals, and Judge Kim stayed all proceedings while the appeal was pending.

Later, the student plaintiffs filed a motion asking Judge Kim to lift the stay and enforce her injunction. Judge Kim then ordered DOE to file a report regarding the status of its compliance with her injunctive order.

DOE filed a “Compliance Report,” in September 2019, admitting that it had erroneously sent a notice to 16,034 borrowers that student-loan payments were due. In response to that notice, more than 3,000 borrowers made one or more payments on their student loans.

According to Judge Kim, DOE did not notify any of the borrowers that it had made a mistake and did not issue refunds to borrowers who had made payments in violation of the preliminary injunction. (p.538)

Moreover, in violation of Judge Kim’s injunctive order, DOE “provided adverse reports to credit reporting agencies for 847 Corinthian borrowers and collected on the loans of 1,808 Corinthian borrowers through wage garnishment or offsets from tax refund[s].” (pp. 538-39).

Judge Kim finds DOE in contempt of her preliminary injunction

After hearing the evidence, Judge Kim held DOE in contempt. In her order, the judge wrote:
[T]here is no question that [DOE] violated the preliminary injunction. There is also no question that [DOE’s] violations harmed individual borrowers who were forced to repay loans either through voluntary action or involuntary methods (offset from tax refunds and wage garnishment) and who suffered from the adverse credit reporting. Defendants have not provided evidence that they were unable to comply with the preliminary injunction, and the evidence shows only minimal efforts to comply with the preliminary injunction. The Court therefore finds Defendants in civil contempt. (p. 540)
Judge Kim then fined DOE $100,000.
The Court finds that a monetary sanction of $100,000 paid by [DOE], to a fund held by Plaintiffs’ counsel, is the best method to remedy [DOE’s] wrongful acts. Given that there are over 16,000 borrowers who have suffered damages from [DOE’s] violation of the preliminary injunction and given that there may be some administrative expenses to remedy the harm, the Court finds the amount reasonable. (p. 540)
Conclusion

Calvillo Manriquez v. DeVos is simply one more sign that the U.S. Department of Education holds distressed student debtors in contempt and Judge Kim’s contempt order was certainly appropriate.

Nevertheless, the $100,000 fine that Judge Kim issued against DOE is totally inadequate to get DOE’s attention.  A $100,000 fine is just pocket change to DOE Secretary Betsy DeVos—probably less than the annual maintenance costs on her yacht.  And $100,000 distributed to the 16,000 Corinthian students who were injured by DOE’s conduct amounts to only about eight bucks apiece.

Corinthian Colleges filed for bankruptcy nearly five years ago, and some of the plaintiffs were injured earlier than that. Five years is too long to wait for justice. The Department of Education should be ordered to forgive all student-loan debt acquired by students who attended for-profit colleges that have been found guilty of fraud and deception.  In other words, all the poor souls who attended Corinthian Colleges should have their student loans forgiven in their entirety.

References

Calvillo Manriquez v. DeVos, 411 F. Supp. 3d 535 (N.D. Cal. 2019).


The Seaquest: Betsy DeVos's yacht



Sunday, January 19, 2020

Trump Administration is "woke" to the student-loan crisis: What can it do in 2020?

Love 'em or hate 'em, student-loan debtors owe a debt of gratitude to Bernie Sanders and Elizabeth Warren for putting the student-loan crisis on the front burner of national politics. Liz proposes to forgive the first $50,000 of student debt if she is elected President. Bernie says--what the hell--let's forgive it all.  That's $1.6 trillion!

Meanwhile, as the Democrats offer to help college borrowers, Trump’s Department of Education (DOE), led by Education Secretary Betsy DeVos, is doing everything it can to alienate a very large constituency--45 million student-loan debtors.  

But last month, the Trumpers became "woke" to the student-loan catastrophe.  As reported by the Wall Street Journal's Josh Mitchell and Andrew Restuccia, the Trump administration is considering some relief options, including allowing borrowers to shed their student-loan debt in bankruptcy.

According to the WSJ, the Trump administration is mulling a policy adjustment whereby DOE "would essentially decline to contest borrowers’ requests before [bankruptcy] judges to have their student loans canceled.” The beauty of this proposal is Trump could make this adjustment without congressional approval.

Better than that, Trump could claim that he is only following the policy announced by the Obama administration in 2015 when DOE's Lynn Mahaffie said in a letter that DOE would not oppose bankruptcy relief for student borrowers if it did not make economic sense to do so.

Of course, DOE never followed that policy. Instead, it has allowed Educational Credit Management Corporation to oppose virtually every student debtor’s petition to shed student-loan debt in the bankruptcy courts.  And this has been DOE’s practice under both the Obama and the Trump administration.

All President Trump needs to do to grant significant relief to college debtors is tell ECMC to fire its battalions of lawyers and file formal non-opposition documents when worthy student debtors seek to discharge their student loans in bankruptcy.

Undoubtedly, a few unscrupulous people would try to use the bankruptcy courts to shed debt they have the means to repay and which they should repay. But filing a fraudulent bankruptcy claim is a federal crime, and the bankruptcy judges know how to sniff out deceitful claims.

If Trump were to follow through with this proposal, we will need a lot more bankruptcy judges because millions of people would be entitled to bankruptcy relief.  Where will we get the money?  Let’s take the cash that DOE is funneling to ECMC and its lawyers and use it to hire some judges. 

Pretty simple really.  

"What do you say, Betsy? Let's tell ECMC to piss up a rope."




Monday, November 18, 2019

Pew Foundation says one out of four student-loan borrowers default within 5 years: But we already knew that.

The Pew Foundation issued a report recently with this snoozer title: Student Loan System Presents Repayment Challenges.  Really? That's like saying that icebergs posed a challenge to the Titanic.

The Pew Foundation's most interesting finding--picked up by the media--was this: Almost one out of four student-loan debtors default on their loans within five years.  But this should not be a shocker. Looney and Yannelis reached basically the same finding five years ago in their report for the Brookings Institution. These researchers reported that the five-year default rate for the 2009 cohort of borrowers was 28 percent (p. 49, Table 8).

And the Pew study probably understates the crisis. The report itself acknowledged that for-profit colleges were underrepresented in its study (p. 5), and we know that almost half of the students who attend for-profit colleges default within five years.

Most importantly, the Pew study did not address the "challenge" faced by more than 7 million college borrowers who are in income-based, long-term repayment plans (IBRPs). IBRP participants are not paying off their student loans even though they are in approved repayment programs. Why? Because people in IBRPs aren't making monthly payments large enough to pay down loan accruing interest, and this interest is capitalized and rolled into their loans' principal.

As much as it pains me to say this, Education Secretary Betsy DeVos gave a clearer picture of the student-loan crisis than the Pew Foundation.  A year ago, DeVos publicly acknowledged that only one out of four student borrowers are paying down principal and interest on their loans and that 43 percent of student loans are "in distress."

For me, the most disappointing thing about the Pew report was its tepid, turgid, and tedious recommendations for addressing the student-loan crisis, which I will quote:
  • Identify at-risk borrowers before they are in distress . . .
  • Provide [loan] servicers with resources and comprehensive guidance . . .
  • Eliminate barriers to enrollment in affordable repayment plans, such as program complexity . . .
Thanks, Pew Foundation. That was really, really helpful.

Note that the Pew Foundation said nothing about bankruptcy relief for distressed college borrowers, tax penalties for borrowers who complete their IBRPs, or the government's shameful practice of garnishing elderly defaulters' Social Security checks. Moreover, Pew said nothing about the Education Department's almost criminal administration of the Public Service Loan Forgiveness program.  And we didn't read anything about the out-of-control cost of higher education.

Let's face it.  College leaders, the federal government, and so-called policy organizations like the Pew Foundation refuse to acknowledge that the federal student-loan program is destroying the lives of millions of Americans. Instead, they are content to tinker with a system that is designed to shovel money to our bloated and corrupt universities.

America's colleges are addicted to federal money. Like a drug addict hooked on Oxycontin, they must get their regular fixes of federal cash.  After all, they've got to fund the princely salaries of college administrators and lazy, torpid professors.

Like first-class passengers on the Titanic who were sipping champagne when their ship hit an iceberg, the higher education industry thinks the flow of student-loan money will go on forever.  But a crash is coming.

Unfortunately, the people who created the student-loan crisis will be the ones floating away in the lifeboats--living off their cushy pensions and obscene retirement packages. The people who were exploited by the federal student-loan program, like the third-class passengers on the Titanic, will go down with the ship.

Lifeboats reserved for college presidents and DOE senior administrators