4.6 million student debtors are in long-term repayment plans, default rates are up, and President Obama's "best friend" is buying University of Phoenix: "Things fall apart; the centre cannot hold."

Things fall apart; the centre cannot hold

The Second Coming

William Butler Yeats

As William Butler Yeats put it, "Things fall apart; the centre cannot hold." Everywhere, we see signs that the federal student-loan program is on the verge of collapse. And when the loan program collapses, so will American higher education.

Here are some portents of the coming disaster:

Student borrowers are enrolling in long-term repayment plans in record numbers

First, the U.S. Department of Education recently announced that 4.6 million student debtors are enrolled in Income-Driven Repayment plans (IDRs) to pay off their college loans. This is a 48 percent increase since December 2014 and a 140 percent increase since December 2013. 

People in IDRs are obligated to pay on their student loans for 20 or even 25 years, and most are making payments so small that their loan balances are going up, not down, due to unpaid accumulating interest. In other words, most people in IDRs will never pay off their college loans.

Yet lenient income-based plans are President Obama's chief strategy for addressing the student-loan crisis. As the DOE blog put it," President Obama has fought hard to make college more affordable and to help borrowers keep their student loan payments manageable." And thanks to those efforts, DOE continues, students in the new IDRs never have to pay more than 10 percent of their monthly income on your federal student loans."   Indeed, borrowers who are  "temporarily unemployed" don't have to pay anything. "After all, as DOE cheerily pointed out, "10 percent of zero dollars is zero dollars."

But of course, 20-year and 25-year repayment plans are crazy, especially when we consider that most people don't sign up for these plans until their backs are against the wall. Remember Brenda Butler, who entered a 25-year repayment plan 20 years after graduating from college? She won't be finished with her student loans until 2037, 42 years after acquiring her degree!

The Feds are garnishing wages and Social Security Checks, and default rates are rising

Meanwhile, the government garnished $176 million in wages from student-loan defaulters during the last three months of 2015. And the government garnishes Social Security checks of 155,000 elderly student-loan defaulters. 

And despite governmental assurances to the contrary, student-loan default rates are rising. According to a recent analysis by Jason Deslisle, 20 percent of all borrowers with loans due are in default. A Brookings Institution report noted that almost half of  a recent cohort of student borrowers who attended for-profit colleges defaulted within 5 years

And let's not forget the nine million people in the repayment phase of their loans who aren't making payments because they've obtained economic hardship deferments or some other deferment from making loan payments.  Those folks are counted as defaulters, but in reality, most of them will never pay back their loans. 

Law schools are in trouble

And then there are the law schools, some of which are in real trouble. Over the last few years, law schools began behaving like pirates, raising tuition rates to insane levels even as the market for lawyers imploded. Now they are seeing  a 20 percent decline in enrollment applications; and many have lowered their admission standards just to get warm bodies in their classrooms. A typical law student now graduates with $140,000 in debt; and many have almost no prospect of getting jobs in the legal field.

The for-profit college sector: The barbarians are at the gates

Finally, in the private sector, the barbarians are at the gates. Corinthian College, which had 350,000 students or former students as of last year, filed for bankruptcy; and thousands of its victims have filed claims to have their student loans forgiven. The Department of Education brokered a sale of some Corinthian campuses to a company affiliated with Educational Credit Management Corporation, the rapacious college-loan debt collector, just to maintain some semblance of order in the chaos of the Corinthian collapse.

Apollo Education Group, owner of the University of Phoenix, is in real trouble. Enrollments at UP dropped from a a peak of 475,000 in 2010 to less than half that number in 2015. Apollo's stock, which once sold for more than $80 a share, is now trading below 8 bucks.

Apollo is in negotiations to sell out to a group of private equity firms, including Visteria Group. Visteria was founded by Martin Nesbitt, described as President Obama's "best friend." In fact, Nesbitt was treasurer for both of Obama presidential campaigns; and he heads the Obama Foundation that is planning the Obama Presidential Library. 

If the deal goes through, Tony Miller, former Deputy Secretary of Education in the Obama administration and Martin Nesbitt's business partner will become Apollo Education Group's new Board Chairman.  Very cozy!

"The ceremony of innocence is drowned."

To borrow a phrase from Yeats, "The ceremony of innocence is drowned" in American higher education.  Colleges and universities were once honored as the guardians of our civilization's ideals, the places where young people came to grow and learn, and to develop the civic and moral values that are indispensable to maintaining a healthy and vibrant society.

No more.  Arrogant college presidents, greedy profiteers, and mindless bureaucrats now control our once beloved universities. The best of these characters "lack all conviction, while the worst are full of passionate intensity." 

All of this craziness is paid for by federal student-loan money. And millions of college-loan borrowers are strangling in debt they can never pay off. This cannot go on forever.

President Obama and Martin Nesbitt

Tony Miller, former Deputy Secretary of Education
and soon-to-be Board Chairman of Apollo Education Group

References

Jillian Berman. Americans just had $17 million in wages garnished by the government due to unpaid student loans. Marketwatch.com, March 22, 2016. Accessible at http://www.marketwatch.com/story/the-government-just-garnished-176-million-in-wages-because-of-unpaid-student-loans-2016-03-21

Ronald J. Hansen. Apollo Education, parent company of University of Phoenix, to go prvate at $1.1 billion deal. Arizona Republic, February 9, 2016. Accessible at http://www.azcentral.com/story/money/business/2016/02/08/apollo-education-to-go-private-in-11b-deal/79998782/

Jason Delisle. @usedgov latest data out today shows student loan defaults just hit another record high, 20% of those w/ loans due. Mhttps://twitter.com/delislealleges/status/710539989256429568

Matt Sessa. Student Aid Posts Updated Reports to FSA Data Center. Department of Education, March 17, 2016. Accessible at https://www.nasfaa.org/news-item/7943/3-17_Federal_Student_Aid_Posts_Updated_Reports_to_FSA_Data_Center

Dan Primack. Obama's 'best friend' raises millions for private equity fund. Fortune Magazine, August 11, 2014. Accessible at http://fortune.com/2014/08/11/obamas-best-friend-raises-millions-for-private-equity-fund/

Patricia Cohen and Chad Bray. University of Phoenix Owner, Apollo Education Group, To Be Taken Private. New York Times, February 9, 2016. Accessible at http://www.nytimes.com/2016/02/09/business/dealbook/apollo-education-group-university-of-phoenix-owner-to-be-taken-private.html?

No, You Won't Be Arrested for Falling Behind On Your Student Loans. US. Department of Eduation Official Bog, April, 2016. Accessible at http://blog.ed.gov/2016/04/no-you-wont-be-arrested-for-falling-behind-on-your-student-loans/