Showing posts with label John B. King. Show all posts
Showing posts with label John B. King. Show all posts

Thursday, April 28, 2016

Obama expands income-repayment plans: Sharecropper Nation

The Obama administration announced yesterday that it wants to enroll 2 million more people in income-based repayment plans (IBRPs) within the next year.

I'm sure President Obama will reach that goal.  About 4.8 million people are in IBRPs now, up from just 3.9 million last summer.  It is virtually certain that 7 million people will be 20-year or 25-year repayment plans by the end of 2017.

But this is insane! Putting people in long-term income-based repayment plans basically makes them sharecroppers, forcing them to pay a percentage of their income to the government over the majority of their working lives.

Many people in IBRPs didn't even complete the education programs that dragged them into debt. How can that be good for our economy--to have millions of people making monthly payments  for two decades or more for educational experiences that are worthless to them?

And let's not forget that most people don't sign up for these long-term repayment plans immediately after they finish their studies. Generally, they initially try to make loan payments under the standard 10-year repayment plan. It is only when they fall behind on their payments or default that they sign up for an IBRP.

Brenda Butler, who recently lost a court battle to discharge her student loans in bankruptcy, is a case in point. Butler graduated from Chapman University in 1995 and tried to keep current on her student loans for almost 20 years. Eventually, she signed up for a 25-year repayment plan and filed for bankruptcy.  Although the judge ruled that Butler had acted in good faith, she denied Butler a discharge.  Butler is now in a 25-year repayment plan that will not be completed until 2037--42 years after Butler graduated from college!

President Obama and Secretary of Education John King tout IBRPs as beneficial to college-loan borrowers. As Secretary King put it in a conference call to reporters, "The goal is to get all of the folks who would benefit from income-based repayment into one of the plans that make sense for them."

But of course, these long-term repayment plans are nothing more than a cynical scheme by our government to sweep the student-loan catastrophe under the rug. Virtually everyone in these plans is making payments that are so low that the payments don't cover accruing interest. In other words, most people in these plans will be seeing their loan balances go up, not down, as the years go by.

In short, most people in IBRPs are not paying down their student loans at all; they're basically just paying a 20-year penalty for making poor educational choices when they were young. For all practical purposes, people in IBRPs--soon to be 7 million people--have defaulted on their loans; and we can add that 7 million to the 10 million who officially defaulted or are delinquent in their loan payments.

So if you borrowed too much money to go to college and didn't find a good job, this is your likely future: You will eventually join an IRBP and become a sharecropper.

Image result for sharecroppers wpa
Sharecroppers

References

Josh Mitchell. White House to Push Student Borrowers to Get Into Debt-Relief Plans. Wall Street Journal, Apri 28, 2016.  Accessible at http://www.wsj.com/articles/white-house-to-pushes-student-borrowers-to-get-into-debt-relief-plans-1461816062

Michael Stratford. Obama Admin Sets New Income-Based Repayment Goal. Inside Higher Ed, April 28, 2016. https://www.insidehighered.com/quicktakes/2016/04/28/obama-admin-sets-new-income-based-repayment-goal?utm_source=Inside+Higher+Ed&utm_campaign=c63d1912bd-DNU20160428&utm_medium=email&utm_term=0_1fcbc04421-c63d1912bd-198565653

U.S. Department of Education. Income-Driven Repayment plan Enrollment Jumps, Delinquency Rates Drop in New Student Loan Data, August 20, 2015. Accessible at http://www.ed.gov/news/press-releases/income-driven-repayment-plan-enrollment-jumps-delinquency-rates-drop-new-student-loan-data

Why Student Debtors Go Unrescued. New York Times, October 7, 2015. Accessible at http://www.nytimes.com/2015/10/07/opinion/why-student-debtors-go-unrescued.html?_r=0

Saturday, April 23, 2016

Arbitration clauses in student-loan documents:the sad case of Sierra Roach v. Navient Solutions, Inc.

In 2015, Sierra Roach sued Navient Solutions, Inc. for violations of the Telephone Consumer Protection Act and the Fair Credit Reporting Act.  Navient had been pursuing Roach to collect on five student loans totaling almost $69,000--money that had been disbursed to Bowie State University, not Roach.

Roach disputed the debt and claimed she was being repeatedly called by debt collectors. She also claimed that credit reporting bureaus were  issuing inaccurate credit reports about her.

Navient filed a motion asking a federal court to stay Roach's suit and compel her to arbitrate pursuant to an arbitration clause that was buried in the promissory notes she allegedly signed. (Roach claimed not to remember signing the notes.)

Roach's defense to Navient's arbitration demand was that she had signed the promissory note with another entity, not Navient.  But Navient presented evidence showing it had power to collect the debt, and a federal court granted Navient's arbitration demand in an order issued last December.

Roach had some other claims against Navient, but she apparently submitted them late and inartfully. After all, she had sued Navient without an attorney and was unfamiliar with the niceties of practicing law.

Some judges deal leniently with people who go to court without lawyers, but not Roach's judge. She had filed a "surreply memorandum," which the judge refused to consider, saying "sureplies are highly disfavored."

Although it is not entirely clear, she also apparently argued that the arbitration clause buried in the promissory notes had not come to her attention and that she did not realize that she had waived her right to sue when she signed the promissory notes.

The judge did not like this argument at all. In a footnote, he cited language from another decision that said: "[T]he fact that [plaintiff] may have chosen not not to access or read the  language of the Arbitration Agreement does not render it invalid or non-binding."

In short, the judge forced Roach to arbitrate her claims against  Navient.

Scholars and commentators largely agree that arbitration generally favors corporate parties. That's why banks, financial institutions, and student-loan lenders force people to sign arbitration clauses in routine documents. Like Ms. Roach, most people do not understand that they are signing away their right to sue for wrongdoing when they agree to arbitrate.

Two comments on the Roach case:

1) Many student-loan debtors are losing in the courts because they are not represented by competent lawyers. Roach's best argument for invalidating the arbitration clause was that it is an "adhesion contract" that she was forced to sign as a condition for getting federal loan money. Courts have ruled for fifty years or more that agreements waiving the right to sue can be nullified if the party signing the waiver is the weaker party with no opportunity to negotiate and no choice but to sign in order to receive a service. But Ms.Roach probably knew nothing about adhesion contracts.

Distressed student-loan debtors ought to have access to pro bono (free) legal services. There are literally hundreds of thousands of unemployed lawyers right now--and most of them have massive student-loan debt themselves. Their talents should be harnessed to help people like Ms. Roach.

2) The fact that student-loan lenders and for-profit colleges are allowed to put arbitration clauses in student-loan documents and college-enrollment forms is a scandal. Secretary of Education John B. King announced recently that he opposes this practice and will draft regulations that will put some limits on it.

But the regulation revision will go through a negotiations process, and any regulations DOE adopts are likely to be watered down. After all, the finance industry and the for-profit colleges have powerful lobbyists and sharp lawyers, and they make campaign contributions to powerful politicians.

For now at least, millions of people are jeopardizing their financial futures when they borrow money to attend college. Even if they are defrauded or get substandard educational experiences, they are barred from filing suit. And if they file for bankruptcy to get a fresh start, the creditors' attorneys are waiting for them to make sure these distressed debtors get booted out of bankruptcy court.

References

Roach v. Navient Solutions, Inc., 2015 WL 8479195 (D. Maryland, Dec. 10, 2015).

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=