Showing posts with label Department of Education. Show all posts
Showing posts with label Department of Education. Show all posts

Sunday, May 28, 2017

Department of Education executives pay themselves cash bonuses while federal student loan program goes to hell

At last the secret is out. The federal student loan program is out of control and millions of borrowers cannot pay back their loans. As the New York Times pointed out recently, student debtors are defaulting at an average rate of 3,000 a day--more than a million people went into default last year alone.

But the Department of Education hacks who oversee the student loan program have been paying themselves performance bonuses. James Runcie, Chief Operating Officer for DOE's student loan program, received $433,000 in bonuses; and then he resigned rather than testify before the House Oversight Committee about what the heck was going on in the student loan program.

And Runcie was not the only DOE executive to get bonuses. The National Association of Student Financial Aid Administrators (NASFAA) released a report earlier this month that provides some useful information about how DOE's bonus program works.

As the NASFAA report explains, the Federal Student Aid Office (FSA) set performance goals for the organization  and then basically assessed itself with regard to whether the office met those goals. According to NASFAA, "self-assessments are a common way to begin performance evaluations, but they are usually signed off on by a person or board with oversight responsibility."  The Federal Student Aid office, however, let its own evaluations stand "without pushback, oversight, or accountability, which often easily allows the organization to excuse away failure to meet goals and targets."

FSA's self-assessment program permitted senior executives to get bonuses if they excelled at their work. The program identified three categories of performance: "exceptional," "high results," or "results achieved." Note that there was not even a category for poor performance.

Senior people who scored "exceptional" or "high results" were eligible for bonuses; and not surprisingly, performance scores got higher and higher as the years went by. In FY 11,  "66 percent of  senior FSA leaders received an "exceptional" or "high results" performance rating that qualified them for bonuses. In FY 2015, 90 percent of senior administrators got those ratings.

Correspondingly, the percentage of eligible employees who only scored "results achieved," making them ineligible for bonuses, decreased from 34 percent to only 10 percent between FY 2011 and FY 2015.

Bottom line is this: In FY 2015, 89.8 percent of FSA senior administrators ranked high enough to get a cash bonus, and 89.8 percent of those administrators got cash bonuses. How big were the bonuses? I haven't seen a list showing bonus amounts and who got them. Huffington Post reported that that at least one bonus was $75,000.

No wonder Mr. Runcie resigned rather than answer questions before the House Oversight Committee. "I cannot in good conscience continue to be accountable as Chief Operating officer given the risk associated with the current environment at the Education Department," he is quoted as saying.


What the hell does that mean?  I have no idea. It must be one of those phrases Mr. Runcie learned when he was getting his MBA at Harvard.


James Runcie testifying about the student loan program


References  


Danielle Douglas-Gabriel. It's time to reform the financial arm of the Education Department, report says. Washington Post, May 16, 2017.


Adam Harris. Top Federal Student-Aid Official Resigns Over Congressional Testimony. Chronicle of Higher Education, May 24, 2017.

Shahien Nasiripour. Education Department Secretly Reappoints Top Official Accused of Harming StudentsHuffington Post, May 7, 2016.

National Association of Student Financial Aid Administrators. Improving Oversight and Transparency at the U.S. Department of Education's Financial Aid: NASFAA's Recommendations. (May 2017).

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

Tuesday, December 20, 2016

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

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

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

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

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

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

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

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

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

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

And here are some more schools that bear watching:

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

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

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

References

Law School Transparency. 2015 State of Legal Education.

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

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



Monday, September 26, 2016

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

DOE drops the hammer on ACICS

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

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

Why did DOE take such drastic action against ACICS?

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

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

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

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

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

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

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

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

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

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

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

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

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

Image result for bill clinton and laureate education

References

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

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

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

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

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

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

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

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

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




Tuesday, August 2, 2016

St. Catharine College of Kentucky is in receivership: More small colleges will close as federal oversight squeezes small liberal arts colleges out of business

Last month, St. Catharine College closed its doors for the final time. More than 100 faculty members and staff were laid off, and a federal court placed the college in receivership, which means a court-appointed overseer will manage the institution's assets on behalf of creditors.

St. Catharine's leaders blamed its closure on the U.S. Department of Education. DOE put the college on its "Heightened Cash Scrutiny" list, subjecting it to more onerous regulation of its federal financial aid money.  College administrators said DOE's move was unjust and forced the college to close.

St. Catharine is one of 517 colleges and universities on DOE's latest "Heightened Cash Scrutiny" list, which includes proprietary schools, a few public universities,  about 40 foreign institutions, and quite a few small liberal arts colleges like St. Catharine.  Not all these schools will  close in coming years, but some of them will.

For example, Shimer College is on the list; Shimer only has about 100 undergraduates. How long do you think Shimer will last? Pine Manor College, a small school in Brookline, Massachusetts, is also on the list. Pine Manor had about 500 students in the fall of 2015; and the total cost of attendance (tuition, room and board, etc.) is $43,000. How healthy do you think Pine Manor is?

Small liberal arts colleges all over the United States will be closing at an accelerating rate in the coming years.  The cost of attendance is simply too high at these little schools. Of course, most small private colleges are now discounting their tuition rates for entering freshmen--on average, first-year students are only paying about 50 percent of the sticker price.  But slashing tuition fees has not lured enough customers for many small colleges to keep their enrollments up.

I don't know enough about St. Catharine's situation to determine whether DOE treated the college unfairly. DOE may have had good reasons for putting St. Catharine on its "Heightened Cash Scrutiny" list. But it is fair to say that DOE's intensive meddling in college affairs has increased administrative costs for American colleges and universities.  Small institutions--colleges with less than a thousand students--simply can't afford the mounting costs of complying with federal mandates.

For a major public university, new  DOE mandates are manageable.  The University of Texas, for example, can hire additional administrators to comply with federal regulations; and it has a battalion of lawyers who can draft updated university policies to comply with new federal regulations that are spewed out of Washington.

But the little colleges simply can't afford the cost of complying with ever more intrusive federal regulations--FERPA, the Clery Act, Title IX, Section 504, etc.  And one by one, small liberal arts colleges will begin closing.

I foresee the day when American higher education will consist of three sectors: 1) secular public institutions, for-profit colleges, and elite private colleges and universities that have large endowments. Small liberal arts colleges, once a respected and important segment of American higher education, will soon be a thing of the past.

St. Cathrine Chapel.jpg
St. Catharine College is in receivership



References

Paul Fain. St. Catharine College Placed in Receivership. Inside Higher Ed, July 28, 2016. Accessible at https://www.insidehighered.com/quicktakes/2016/07/28/former-st-catharine-college-placed-receivership

Rick Howlett. St. Catharine College Closes Its Doors For the Final Time. WFPL, August 1, 2016. Accessible at http://wfpl.org/st-catharine-college-shutters-doors/

Kelly Woodhouse. (2015, November 25). Discount Much? Inside Higher Ed. Accessible at: https://www.insidehighered.com/news/2015/11/25/what-it-might-mean-when-colleges-discount-rate-tops-60-percent?utm_source=Inside+Higher+Ed&utm_campaign=389f6fe14e-DNU20151125&utm_medium=email&utm_term=0_1fcbc04421-389f6fe14e-198565653




Thursday, June 2, 2016

St. Catharine College and Dowling College are closing: "After us, the deluge."

After us, the deluge.  I care not what happens when I am dead and gone.

Marquise de Pompadour

Just this week, two small colleges announced they are closing: St. Catharine College, a Catholic institution in Kentucky; and Dowling College, a private school in Long Island.  

Clearly, a lot of small private colleges are in trouble. Last autumn, Moody's Investor Service predicted a sharp increase in the number of college closures, forecasting that 15 would close in 2017. I think Moody's is far too optimistic. By 2017, I think we will see three or four colleges shutting down every month.

What's going on? Several things.

Small colleges have priced themselves out of their markets. First, many small non-elite colleges have priced themselves out of their markets. Tuition has been rising every year for the past 20 years, and even obscure little colleges now charge students from $30,000 to $35,000 a year, just for tuition. For years, students and their parents passively submitted to yearly tuition hikes; but no more. Mom and Pop aren't willing to pay $100,000 for Suzie or Johnny to get a bachelor's degree from an undistinguished private college.

It's true that small private colleges are heavily discounting their tuition--almost 50 percent for first-time freshmen. And it is true that students can take out student loans to pay for their college tuition. But families are not sure whether they will get a tuition discount big enough to fit their budgets or whether they are getting as good a discount as another family gets. They've lost trust in the integrity of the admission process.

And young people have finally begun reading the newspapers and are waking up to the fact that student-loan debt can be a financial death sentence for graduates who don't quickly find good jobs. They have become wary about enrolling at a little college named after a saint they've never heard of. Who in the hell is Saint Scholastica  anyway?

Onerous federal regulations have raised operating costs. So price is a factor.  But there is another reason why small colleges are closing. Federal regulation has become too onerous for small schools to manage. They simply cannot afford to comply with ever more burdensome regulations that spew out of the Department of Education.  The Department's 2011 "Dear Colleague" letter on sexual harassment triggered a flurry of new college regulations, policies, and training programs to meet DOE's heightened standards for complying with Title IX. DOE's new transgender restroom rules will cost colleges money, and the rules will be a real headache for the little religious colleges that pride themselves on their traditional moral values.

Here's an example of how colleges are being subject to more and more federal regulation. Virginia Tech suffered a horrible tragedy when a deranged gunman massacred more than thirty students in 2007. The University was sued for negligence after the incident, but the Virginia Supreme Court ruled that Virginia Tech was not liable under Viginia tort law.

But the Department of Education concluded that Virginia Tech violated the Clery Act in the way it alerted students about an ongoing threat and assessed a fine against the University. The fine wasn't large compared to Virginia Tech's overall budget, but the University spent a lot of money defending against DOE's charge, and it will spend even more trying to make sure it does not run afoul of the Clery Act again.

Virginia Tech is big enough and rich enough to deal with DOE's mandates, but hundreds of small colleges don't have the resources for dealing with the ever growing complexity of the federal regulatory environment.

St. Catharine College is a case in point. It got squeezed by DOE, which held up its federal student aid money based on some technical issue. The college sued but apparently didn't get relief. This week it announced its closure, which it said was triggered by DOE sanctions.

Small liberal arts colleges are headed for extinction and there is no way to revive them.  Small colleges have implemented all sorts of strategies to keep their enrollments up and maintain their revenues. Many have tried to reinvent themselves by hiring marketing firms to enhance their images and juice their enrollments.

By and large, this strategy has failed. Let's face it: hiring a marketing firm to design an edgy college logo or a catchy slogan is no remedy for the massive problems facing the nation's small liberal arts colleges.

I don't see any way to revive the small liberal arts college. Their tuition rates are too high, and offering heavy discounts has not lured middle class students to return in large numbers.

Moreover, the Department of Education does not care whether it is regulating small colleges out of business. The DOE minions probably gave each other high fives when they heard St. Catherine is closing its doors.

Nor is there any way for colleges to walk away from their total dependence on federal student aid and the federal regulations that come with it. The colleges drank the Kool Aid of federal student-loan money, and their is no antidote.

If you are a college administrator or a professor and you are nearing retirement, perhaps you don't care about the demise of liberal arts colleges. As Marquise de Pompadour put it: "After us the deluge.  I care not what happens when I am dead and gone." But a young person with a new Ph.D. would be a fool to try to build a career by taking a job at a small liberal arts college. 





References

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

Lyndsey Layton. Virginia Tech pays fine for failure to warn campus during 2007 massacre. Washington Post, April 16, 2014. https://www.washingtonpost.com/local/education/virginia-tech-pays-fine-for-failure-to-warn-during-massacre/2014/04/16/45fe051a-c5a6-11e3-8b9a-8e0977a24aeb_story.html

Kellie Woodhouse. Closures to Triple. Inside Higher Education, September 28, 2015. Accessile at https://www.insidehighered.com/news/2015/09/28/moodys-predicts-college-closures-triple-2017

Wednesday, April 13, 2016

Feds will forgive student loans of disabled borrowers: Doing the right thing in the right way (cutting through red tape)

The Department of Education announced this week that it will write customized letters to 387,000 disabled student-loan borrowers to inform them they are eligible for loan forgiveness. Good for the feds. DOE regulations authorize student-loan forgiveness for borrowers who are permanently disabled, but most people eligible for forgiveness don't apply. In fact, according to an Inside Higher Ed article, almost half of all disabled borrowers (179,000) are in default!

I applaud DOE for doing the right thing and reaching out to people who are entitled to have their student loans forgiven. This is a stark and pleasing contrast to the Department's position in Myhre v. U.S. Department of Education, when DOE opposed bankruptcy discharge for a quadriplegic debtor whose expenses exceeded his income because he had to pay a full-time caregiver to feed, dress, and bathe him.

Apparently, DOE is going to streamline the loan-forgiveness process for disabled borrowers. According to an article by Jillian Berman in Marketwatch:
The borrowers identified by the Department won’t have to go through the typical application process for receiving a disability discharge, which requires sending in documented proof of their disability. Instead, the borrower will simply have to sign and return the completed application enclosed in the letter.
DOE is to be commended for cutting through red tape to forgive these loans.  Perhaps this streamlined approach can be expanded to include student-loan borrowers who were defrauded by the college they attended--particularly students who attended one of the Corinthian Colleges institutions. Thousands of former Corinthian students have applied for loan forgiveness, but the administrative process has been tedious.

This latest development provides more evidence of the massive suffering experienced by millions of distressed student-loan borrowers. Nearly 400,000 of them are permanently disabled!

References

Jillian Berman. Why Obama is forgiving the student loans of almost 400,000 people. Marketwatch.com, April 13, 2016. Accessible at http://www.marketwatch.com/story/why-obama-is-forgiving-the-student-loans-of-nearly-400000-people-2016-04-12

Friday, April 8, 2016

Artist burns student loan records at private university in South America: What a cool idea!

A friend recently sent me an article from The Guardian about an artist using the name Fried Potatoes (Papas Fritas in Spanish) who sneaked into the vault of Universidad del Mar, a private university in Chile, and burned all the documents pertaining to the university's student loans.  Yep, a half billion dollars in student debt went up in smoke.

What a cool idea!

Of course, destroying all loan documents pertaining to private college loans would be impossible in the United States. There are literally millions of student-loan documents in the U.S. involving hundreds of for-profit colleges. Most are in electronic format and the government  maintains records of these debts, since the government guarantees all loans issued through the federal student-loan programs.

Still, some variation of this idea is worth considering. Let's start with Corinthian Colleges, which filed for bankruptcy last year and now has a $1.2 billion judgment against it for false advertising and misleading lending practices. A California judge ordered Corinthian to pay most of the judgment ($820 million) as restitution to former students who were victimized by its scam. The bulk of this money represents federal loans students took out to pay their tuition bills at one of Corinthian's campuses.

But of course Corinthian doesn't have the money to pay the judgment. At the time it filed for bankruptcy, it claimed to have only $20 million in assets--about one sixtieth of the total California judgment.

Department of Education regulations allow students to apply for loan forgiveness if they were students at a college that closed or if they were defrauded by the college they attended. Thousands of Corinthian alums have applied for relief under these regulations.

But the administrative process for resolving these claims has been tedious, and so far only a small number of ex-Corinthian students have had their loans forgiven.

Why doesn't the Department of Education do what Papas Fritas did and just dissolve the debt? Of course, DOE wouldn't need to actually burn all those loan documents, although I'm sure a bonfire would be personally satisfying to Corinthian's former students. But the loans could be forgiven by government fiat. And that is what DOE should do.

After all, Corinthian's former students will never pay back those student loans. In fact, almost half of all students who attended for-profit colleges eventually default on their federal student loans. Wouldn't it be easier and more just for the government to simply decree that any student who took out federal loans to attend a for-profit college will have those loans forgiven if the college is found guilty of fraud or misrepresentation?

Of course it would, but DOE will never take that straightforward step because the amount of money involved is enormous. It would rather deal with student claims through a cumbersome administrative process, knowing that most students won't go to the trouble of filing a claim.

And here's a better idea. Given the high levels of fraud, misrepresentation, price-gouging and totally worthless educational experiences connected with the for-profit college industry, I think we should simply allow anyone who took out student loans to study at one of these shyster for-profit institutions to discharge those loans in bankruptcy under the same standards that apply to other unsecured debt. In other words, people who are otherwise qualified for bankruptcy relief should have their student loans discharged through the routine process of a bankruptcy filing without the need of filing an adversary proceeding.

Image result for crowd around bonfire

References

Jonathan Franklin. Chile students' debts go up in smoke. The Guardian, May 23, 2014. Accessible at http://www.theguardian.com/world/2014/may/23/chile-student-loan-debts-fried-potatoes

Matt Hamilton. Corinthian Colleges must pay nearly $1.2 billion for false advertising and lending practices. Los Angeles Times, March 23, 2016. Accessible at http://www.latimes.com/local/lanow/la-me-ln-corinthian-colleges-judgment-false-advertising-20160323-story.html

Saturday, March 12, 2016

Predatory for-profit colleges and mandatory arbitration clauses in student contracts: Secretary of Education John B. King Jr. wants to stop for-profits from trying to escape accountability for abuse

In a March 11 press release, the Department of Education announced it is taking steps to protect students from predatory colleges. It's about time. The Obama administration has had seven years to clean up the for-profit college industry, and it has accomplished virtually nothing.

According to the press release, Acting Secretary of Education John B. King Jr. wants to stop colleges from forcing students to sign arbitration agreements that effectively insulate the colleges from liability for their wrongdoing. As DOE explained:
Forced arbitration provisions used by many schools in their enrollment agreements – often buried in the fine print – effectively prevent students from seeking redress for harm caused by their school and hide wrongdoing from the Department and the public. Such agreements often bar students from bringing their legal claims in a group, making it financially impossible for individual students to challenge schools. Some agreements require disputes to be filed in secret tribunals where little or no records are kept; some prohibit students from speaking about the claims they file. The Department will discuss with negotiators how to end such outrageous practices.
 DOE also wants to "incorporate crucial elements of state consumer protection laws" in new regulations. This too is a good thing. But why did DOE wait so long?

And why is DOE seeking to enact reforms through a "negotiated rulemaking process"? These reforms should be nonnegotiable.  All for-profit colleges should be subject to state consumer-protection laws, and all for-profits should be barred from forcing students to sign arbitration clauses that protect the colleges from liability for fraud and wrongdoing.

The next presidential election is eight months away. I predict nothing will get done regarding predatory for-profit colleges before Barack Obama leaves office. And we haven't hear a a peep out of Hillary about cracking down on this sleazy industry. No wonder young voters have rejected her.

References

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=

Sunday, March 6, 2016

Rising Student-Loan Default Rates and Ridiculously High Tuition Costs: The Big Short

We live in an era of fraud in America. Not just in banking, but in government, education, religion, food, even baseball... What bothers me isn't that fraud is not nice. Or that fraud is mean. For fifteen thousand years, fraud and short sighted thinking have never, ever worked. Not once. Eventually you get caught, things go south. When the hell did we forget all that? I thought we were better than this, I really did
Mark Baum (played by Steve Carell)
The Big Short 

The Big Short, the Academy-Award winning movie on the home-mortgage crisis of 2008, shows movie goers how greedy banking institutions created a housing bubble that burst in a shower of home foreclosures and trillions of dollars in financial losses.

A similar bubble has emerged in the federal student-loan program. And although the housing bubble is more complicated than the student-loan bubble, there are some eerie similarities between the collapse of the housing market a few years ago and the student-loan crisis. For example:

Hiding risk. The Big Short includes a scene in which  Mark Baum, a skeptical investment banker played by Steve Carell, quizzes a representative of one the bond rating agencies--Moody's or Standard & Poor. The rating-agency representative admits that  the agency gives mortgage-backed securities  the highest rating--AAA--even  though the agency knows that many of the instruments are packed with risky home mortgages that are headed for foreclosure.

Something similar is happening in the federal student-loan program. Although the Department of Education recently announced that student-loan default rates went down last year--especially in the for-profit sector, that's not really true.  The for-profits have been aggressively signing up their former students in economic-hardship deferment programs that excuse borrowers from making loan payments without being counted as defaulters.

When we look at the five-year default rates in the for-profit sector, the numbers are scary. Almost half the people who took out student loans to attend a for-profit institution default within 5 years of beginning the repayment phase on their loans. And two years after beginning the repayment phase, 3 out of 4 of these students are seeing their loan balances go up--not down--due to accruing interest that is not being paid down.

In short, about half the people who take out student loans to attend for-profit colleges don't pay back their loans. Clearly, this sector of the student-loan program is a train wreck.

Unsustainable rising costs.  As many people still remember, the cost of housing went up rapidly during the early 2000s, with people buying homes and flipping them for huge profits over a matter of months or even weeks. Everybody was making money in real estate--until the housing market collapsed.

Similarly, America has seen college tuition costs rise faster than the inflation rate for many years. The cost of attending law school, obtaining an MBA, or studying at an elite private college has gone through the roof.  I graduated from University of Texas Law School in 1980 and only paid $1,000 a year in tuition. If I enrolled at UT Law School today, it would cost me 36 times as much--$36,000 a year for Texas residents!

Of course, these tuition hikes can't be justified any more than the dizzying cost of a split-level home in Coral Gables, Florida in 2005.  And of course, those costs must eventually come down.  Already, law school enrollments have plummeted and the schools have lowered admissions standards to attract students.  And the elite private colleges are now giving huge discounts on their posted tuition rates; the average freshman now pays about half the college's sticker price.

Hidden costs and fees. Finally, the home mortgage bubble was fueled by greed and fraud. The bankers who packaged mortgage-backed securities were not taking any risks--they took their fees from the transaction costs.  The banking industry was selling toxic financial instruments to gullible investors, including pension funds and people invested in mutual funds.

Similarly, the college industry is charging a gullible public more than a liberal arts degree is worth, and the suckers enroll because, hey, going to Barnard or Brown or Amherst must be a good investment. And the colleges aren't assuming any risks. Their pliant students are borrowing from the federal student loan program, and the government guarantees the loan. Ivy League U doesn't care if its graduates default on their loans any more than Goldman Sachs cared what happened to the investors who bought their mortgage-backed securities.

And the fees! People who default on their loans get assessed huge collection fees and penalties. People are routinely going into the bankruptcy courts trying to discharge student-loan debt that is two or even three times the amount they borrowed due to accrued interest, penalties, and fees.

So if you haven't seen the Big Short, go see it. And as you watch this riveting drama, think about the student-loan program. A bubble is about to burst at a college near you.


Image result for the big short movie

"I thought we were better than this."

Thursday, February 25, 2016

Loan forgiveness for college students defrauded by for-profit colleges: Why not simply allow defrauded students to take bankruptcy?

The Department of Education is revising the regulations for handling student-debtor requests for debt relief. Under present regulations, student-loan borrowers  are eligible for debt relief if they can show they were victims of misrepresentation by the institution they attended.

But the old regulations are cumbersome, and DOE has been swamped by debt relief requests after Corinthian Colleges closed last year. Corinthian had 350,000 students or former students.

Apparently, the Department of Education is proposing some sort of hearing process where students who claims to be fraud victim can confront the colleges that lured them into enrolling and taking out student loans.

But how will that work? All the for-profit colleges have teams of lawyers, and the defrauded students who confront them at hearings will likely  have no lawyer at all.  That's a crumby idea.

Second, DOE is contemplating some kind of statute of limitation that would bar a student's fraud claim if not filed by some yet-to-be-defined time limit. Another crumby idea. Student-loan creditors can pursue student-loan defaulters any time they want--30 years after a loan was incurred if they choose. That's because there is no statute of limitation on debt collection of a student loan. So why should students be restricted by a time limit to file misrepresentation claims?

Third, the proposed regulations are cumbersome legalese that many students won't understand. Here is a sample of proposal's text:
For loans first disbursed prior to July 1, 2007, the borrower may assert as a defense to repayment, any act or omission of the school attended by the student that relates to the making of the loan or the provision of educational services that would give rise to a cause of action against the school under applicable State law.
Got that?

If the Department of Education were willing to face facts, it would admit that millions of students who enrolled at for-profit colleges have valid misrepresentation claims.  The for-profit industry as a whole has a 5-year default rate of 47 percent--strong evidence that many of the programs the colleges offered did not lead to well-paying jobs.

Rather than construct an elaborate, expensive, and unworkable administrative process for sorting out student fraud claims, the Department of Education should simply allow all students who attended a for-profit college and who are now broke to discharge their student-loan debts in bankruptcy without having to meet the "undue hardship" standard that currently applies to student-loan debtors in the bankruptcy courts. In other words, an insolvent student-loan debtor who attended a for-profit college should be able to discharge student-loan debt in bankruptcy like any other nonsecured debt.

After all, the bankruptcy courts have the expertise and the resources to sort out valid bankruptcy claims from invalid ones.  But DOE won't expedite the loan forgiveness process because it knows that millions of people took out student loans for worthless college experiences. If every student who was huckstered by a for-profit college obtained student-loan debt relief, the cost of loan forgiveness would amount to hundreds of billions of dollars.

References

Michael Stratford. Obama Crackdown on College Fraud. Inside Higher Ed, February 9, 2016. https://www.insidehighered.com/news/2016/02/09/education-department-creates-new-office-crack-down-fraud-colleges?utm_source=Inside+Higher+Ed&utm_campaign=8bca58981a-DNU20160209&utm_medium=email&utm_term=0_1fcbc04421-8bca58981a-198565653

Michael Stratford. New Criteria For Debt Relief. Inside Higher Ed, February 17, 2016. Available at: https://www.insidehighered.com/news/2016/02/17/us-plan-would-cancel-federal-loans-borrowers-misled-their-colleges?utm_source=Inside+Higher+Ed&utm_campaign=60a80c3a41-DNU20160217&utm_medium=email&utm_term=0_1fcbc04421-60a80c3a41-198565653

Kelly Field, "U.S. Has Forgiven Loans of More Than 3,000 Ex-Corinthian Students, Chronicle of Higher Education, September 3, 2015. Accessible at: http://chronicle.com/article/US-Has-Forgiven-Loans-of/232855/?cid=pm&utm_source=pm&utm_medium=en

Tamar Lewin, "Government to Forgive Student Loans at Corinthian Colleges," New York Times, June 8, 2015. Accessible at: http://www.nytimes.com/2015/06/09/education/us-to-forgive-federal-loans-of-corinthian-college-students.html?_r=0

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 rates. Washington, DC: Brookings Institution (2015). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults


Friday, February 19, 2016

Let Justice Roll On Like A River: Richard Precht, A Virginia Man Living on $1200 a Month, Won Bankruptcy Discharge of Nearly $100,000 in Student-Loan Debt

But let justice roll on like a river, righteousness like a never-failing stream!
Amos 5:24
On July 7 2015, the Department of Education issued a letter outlining guidelines for determining when the Department and its student-loan collection agencies would not oppose bankruptcy relief for distressed student-loan debtors. DOE listed 11 factors that it would consider, including these:

1) "Whether a debtor is approaching retirement, taking into account the debtor's age at the time student loans were incurred and resources likely to be available to the debtor in retirement to repay a student loan . . ."

2) "Whether a debtor's health has materially changed since the student loan debt was incurred . . . ."

Frankly, I thought DOE's letter was insincere and that DOE would continue to oppose bankruptcy relief for nearly everyone and that it would persist in insisting that virtually every distressed student-loan debtor must be placed in a long-term income-based repayment plan. But I was wrong. 

Last year, Richard Precht, age 68, filed for bankruptcy and asked to have his student-loan debt discharged.  Mr. Precht as it turned out was the perfect person to test whether DOE meant what it said in its  July 2015 letter.  He was living in retirement and was in ill health and was burdened with almost $100,000 in student-loan debt.

In fact, his circumstances were desperate. Mr. Precht was living on a small pension and a small Social Security check, but both were being garnished by the federal government. His total income was only $1,200 a month and he was forced to live with his adult daughter because his income was not sufficient for him to afford housing.

Precht filed for bankruptcy in Virginia, and the federal court system quickly issued a scheduling order that put his case on track for a trial before a bankruptcy judge. Fortunately, Mr. Precht was ready to proceed with his case without delay. He had prepared nearly a thousand pages of exhibits outlining his financial circumstances, his health status, and his loan payment history over the years.

Initially, DOE seem prepared to oppose Precht's petition for relief. DOE's lawyer filed a motion to strike, asking the bankruptcy judge to order Precht to refile his complaint on technical grounds. But fortunately for Mr. Precht, the bankruptcy judge had read DOE's July 2015 letter. 

At the hearing, the judge pointedly asked DOE's attorney what DOE planned to do about that letter. The attorney's candid reply was, "We don't know."

But apparently, the policy makers at DOE considered the matter and decided to do the right thing. A few days after the hearing on DOE's motion to strike, the DOE attorney called Mr. Precht and said the Department would not oppose bankruptcy relief. DOE prepared an order for the bankruptcy judge to sign that relieved Mr. Precht of all his bankruptcy debt--a miracle of almost biblical proportions.

As the prophet Amos said: "Let justice roll on like a river." Mr. Precht won a life-altering victory for himself, and his case points the way for hundreds of thousands of people similarly situated. More than 150,000 elderly student-loan debtors are having their Social Security checks garnished, and millions of people are now in long-term income repayment plans that obligate them to pay on their student-loans until they are in their 70s, their 80s, and even their 90s!

I will write more about this remarkable case in coming weeks. For now it is enough to simply rejoice with Mr. Precht in his victory and to ponder the significance of this important development, which is this: The Department of Education said in a 2015 letter that there were certain circumstances when it would not oppose bankruptcy relief for student-loan debtors. Mr. Precht's recent victory indicates that DOE may have really meant what it said.

References


Lynn Mahaffie, Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings.  U.S. Dep’t of Educ., July 7, 2015, DCL ID: GEN-15-13.
Precht v. United States Department of Education, AD PRO 15-01167-RGM (Bankr. E.D. Va. Feb. 11, 2011 (Consent Order).