Showing posts with label Josh Mitchell. Show all posts
Showing posts with label Josh Mitchell. Show all posts

Tuesday, December 5, 2017

GOP proposal to abolish student-loan forgiveness is Looney Tunes

Representative Virginia Foxx (R-NC) looks like a kindly grandmother, and maybe she is. But she is also the Chair of the House Education Committee, and her committee's proposal for revising the Higher Education Act makes me wonder if she isn't a cartoon character from Looney Tunes.

Others have commented on the House Committee's proposal--Steve Rhode, Danielle Douglas-Gabriel, and a team of Wall Street Journal writers--all insightful and trenchant. I will limit my observations to one component of the Republican proposal, which is nuts.

The House Education Committee proposes to eliminate all student-loan forgiveness in the law to reauthorize the Higher Education Act.  That's right--all student-loan forgiveness.

Currently, student borrowers can enroll in income-driven repayment plans that last from 20 to 25 years. At the end of that term, the remaining balance on a borrower's student loan is forgiven.

The Foxx committee's proposal eliminate those plans and replaces them with a plan that allows borrowers to make income-adjusted payments on their student loans until they they are paid off. Interest will accrue on these loans during the first ten years of repayment, when the loan balance is capped. But borrowers will continue making income-based payments on their loans until they are paid off or they die.

In short, if the GOP proposal becomes law in its present form (which seems unlikely), student debtors will have only two repayment options: the standard ten-year plan or an income-driven plan that doesn't end until the loans are repaid--which for most people will be never.

Representative Foxx's committee labeled this lunatic proposal the PROSPER ACT (Promoting Real Opportunity, Success and Prosperity Through Education Reform), but a more accurate title would be the Slavery Reinstatement Act.

Let's look at the facts. Last year, 1.1 million student borrowers defaulted on their loans at the average rate of 3,000 per day. And that's just for 2016.

How many Americans defaulted on their loans in past years and never got them reinstated?  The Consumer Financial Protection Bureau reported that figure in its 2013 report, and it was 6.5 million.

Nearly six million more are in income-driven repayment plans, and several million borrowers are not making loan payments because they obtained economic hardship deferments. I estimate that from 18 to 20 million Americans are not paying down their student loans because they defaulted, obtained deferments or signed up for income-driven plans that only require them to make token repayments. Most of these people will never pay of their student loans.

And what's the GOP Education Committee's response to this catastrophe? An income-based repayment plan that never ends.

GOP advocates may argue that most borrowers in the proposed income-driven repayment plan will eventually pay off their loans. But that notion is delusional. Borrowers who can't pay off their student loans in ten years will likely never pay them off--no matter how long they make income-based payments.

The student-loan program in its present form is an unmitigated disaster. But Representative Foxx and her GOP cronies on the House Education Committee have done something I thought no one could do. They have come up with a plan that makes this disaster even worse.

Rep. Virginia Foxx (R-NC). We really stuck it to 'em this time, Paul.


References

Douglas Belkin, Josh Mitchell, & Melissa Korn. House GOP to Propose Sweeping Changes to Higher Education. Wall Street Journal, November 29, 2017.

Rohit Chopra. A Closer Look at the Trillion. Consumer Financial Protection Bureau, August 5, 2013.




Friday, December 1, 2017

The Rooster Bar: Why Won't the ABA Shut Down Bottom-Tier For-Profit Law Schools ?

John Grisham's latest novel, titled The Rooster Bar, tells the story of Mark Frazier, a law student who attends a for-profit institution called Foggy Bottom Law School. By the time he is a senior, Mark has accumulated $195,000 in student loans and concludes he made a bad investment.

FBLS's bar pass rates are embarrassing low, and few of its graduates obtains jobs that justify their enormous student-loan debt. By the time FBLS students are seniors, their morale has plummeted, and some even spare verbally with their professors in class. In fact:
To varying degrees, almost everyone Mark knew believed that (1) FBLS was a sub-par law school that (2) made too many promises, and (3) charged too much money, and (4) encouraged too much debt while (5) admitting a lot of mediocre students who really had no business in law school, and (6) were either not properly prepared for the bar exam or (7) to dumb to pass it.
Foggy Bottom Law School is a fictional for-profit law school, but it closely resembles the real ones. Infilaw, owned by an equity group out of Chicago, runs three for profit law schools; and all three are in trouble. Charlotte School of Law closed in August after it lost its license to operate. Arizona Summit Law School was placed on probation last March by the American Bar Association, and the ABA warned Florida Coastal School of Law in October that it was "significantly out of compliance" with the ABA's accreditation standards.

Not surprisingly, Infilaw wants to sell its two law schools that are still open. But why did the American Bar Association ever accredit these schools in the first place? The answer is illusive, but here is a key fact. In the 1995, when Bill Clinton was president, the U.S. Justice Department sued the ABA, claiming it was in violation of federal antitrust laws.  The suit was settled in 1996, and the ABA agreed not to deny accreditation to a law school solely because it was a for-profit entity.

That same year, a law professor named Don Lively started Florida Coastal Law School in Jacksonville, Florida. In 2004, Lively sold out to Sterling Partners, a Chicago-based private-equity firm. According to the Wall Street Journal, Sterling created Infilaw as a holding company for the law schools and lined up additional investors, allegedly including Harvard University's endowment fund.

By almost any measure, all three Infilaw law schools are sub-par institutions. If you want to see the data, visit Law School Transparency's web site.  All three schools charge high tuition rates similar to reputable law schools like Harvard and Yale. Yet these three schools have low bar pass rates and very few graduates find law jobs that justify the enormous student-loan debt they accumulated to get their law degrees.

The for-profit advocates say schools like the Infilaw trio offer opportunities to minority students who are often rejected by reputable schools because of mediocre undergraduate GPAs and low LSAT scores. But the top-tier schools bend over backward to attract minority students and have plenty of scholarship money to recruit them. Too often the people who enroll at for-profit law schools are not academically prepared to study law and often fail their bar exams.

As has been often reported in the media, the job market for recent law graduates is terrible; and the bottom-tier law schools are producing lawyers who run a high risk of failing the bar while facing dismal job prospects.

In short, the integrity of legal education has been seriously undermined by a herd of poor-quality law schools, including the Infilaw schools and several public law schools as well.  Apparently, even Harvard University contributed to this train wreck, although Harvard wouldn't confirm that its endowment fund invested in Infilaw's schools.

The American Bar Association is primarily responsible for this disaster, but is it taking steps to shut down the bottom-feeding law schools? No it is not. In fact, the ABA is considering a measure that would allow law schools to make LSAT scores an optional criteria for law school admission. The purpose of that action, perhaps, is to make it harder to measure just how low some law schools' admission standards really are.



References

John Grisham. The Rooster Bar. New York: Doubleday, 2017.

Andrew Kreighbaum. ABA Backs Testing Choices on law Admissions, Inside Higher Ed, November 7, 2017.

Andrew Kreighbaum. Report: For-Profit Looking to Sell 2 Law Schools. Inside Higher Ed, November 29, 2017.

Josh Mitchell. The Rise and Fall of a Law School Empire Fueled by Student Loans. Wall Street Journal, November 24, 2017.

Law School Transparency web site.

Angela Morris. GRE or LSAT? ABA Council's Latest Move Could Nix Tests Altogether. Law.com, November 3, 2017.

United States v. American Bar Association, 934 F. Supp. 435 (D.D.C. 1996).

 








Sunday, April 30, 2017

Parents Plus Loans can be a nightmare: "Teach your children well . . ."

Teach your children well,

Their father's hell did slowly go by.



Teach the Children Well

Lyrics by Graham Nash

More than three million parents have taken out student loans for their children's college education. Eleven percent are in default, and another 180,000 are delinquent in their payments.

Congress created the Parent Plus program in 1980, which allows parents to obtain student loans to supplement the loans their children take out to finance their college studies. As Josh Mitchell reported in the Wall Street Journal last week, outstanding indebtedness on Parent Plus loans now tops $77 billion. 

The government issues Parent Plus loans with little regard to whether the parents can pay them back. Many parents who take out Parent Plus loans have subprime credit scores, which means they run a high risk of default. As Mitchell pointed out,  the Parent Plus default rate is higher than the home mortgage default rate during the 2008 housing crisis.

Without question, Parent Plus loans are being issued recklessly. "This credit is being extended on terms that specifically, willfully ignore their ability to repay," a spokesperson for Harvard Law School's Legal Services Center charged. "You can't avoid that we're targeting high-cost, high-dollar-amount loans to people who we know can't afford them."

To its credit, the Obama administration recognized that lending standards for Parent Plus loans were too lax. In 2011, the Department of Education introduced modest underwriting rules to prevent parents with low credit ratings from taking out Parent Plus loans.

But the higher education industry protested, arguing that tighter underwriting standards for Parent Plus loans would reduce college access for low-income and minority students. In response to this pressure, the Department of Education withdrew the new rules.

Obviously, people who are taking out student loans for their children are older; two thirds of Parent Plus borrowers are between the ages of 50 and 64. Many of them have student loans of their own. Some parents took out Parent Plus loans expecting their children to get good jobs and take over the loan payments.  But sometimes that doesn't happen, and the parents find themselves responsible for paying off loans they can't afford to repay.

Parents who default on Parent Plus loans risk having their income-tax refunds seized and their Social Security checks garnished. And bankruptcy is rarely an option. Parents who default on their children's student loans will find it difficult to discharge those loans in bankruptcy even if they are unemployed or in ill health.

In an NPR podcast, Michelle Singletary, a finance columnist, pointed out that many parents take out Parent Plus loans to help their children attend expensive colleges their families can't afford. It is difficult, Singletary acknowledged, for parents to tell their children that a particular elite college is simply out of financial reach.

The child might say, "But this is my dream college." If that happens, Singletary advised, the parent must have the wisdom and fortitude to say, "Honey, you need to find another dream."

Or, as songwriter Graham Nash might put it, "Teach your children well" regarding their college choices because if you borrow money for your child to go to college and can't pay it back, you will enter financial hell, a hell that will go by slowly.



References

Tom Ashbrook. Parents On the Hook for Student Loans. NPR Onpoint (podcast), April 26, 2017.

Josh Mitchell. The U.S. Makes It Easy for Parents to Get College Loans--Repaying Them Is Another StoryWall Street Journal, April 24, 2017. 

Note: Quotations in this essay come from the sources cited in the reference list.

Monday, August 29, 2016

ITT Tech is teetering on the brink of collapse due to pressure from the U.S. Department of Education: Why did DOE wait so long to aggressively regulate the for-profit college industry?

ITT Educational Services, owner of ITT Technical Institute, is on the verge of collapse. A few days ago, the U.S. Department of Education issued a directive barring ITT from enrolling any students who rely on federal financial aid to pay their tuition.

DOE's recent action may be the coup de grĂ¢ce for this tottering for-profit chain of technical schools. ITT gets 80 percent of its revenues from federal student aid monies.  Now that DOE has turned off the spigot of federal funds, ITT's days are numbered. In fact, if you want to measure ITT's pulse, just look at its stock price.   The company's stock was trading today at about 51 cents a share. In 2009, the stock sold at more than 200 times today's price--$128!

Shahien Nasiripour, a Bloomberg reporter, argued recently that the Department of Education does not know what it is doing when it comes to regulating for-profit colleges. Nasiripour wrote that DOE bungled the regulation of Corinthian Colleges and was surprised when the college chain filed for bankruptcy, leaving thousands of students in the lurch.   Nasiripour quoted an observer who said that "[t]he Education Department hasn't been a good analyst of corporate balance sheets."

Now, Nasiripour maintains, DOE is repeating its mistake with ITT and may "unwittingly exacerbate ITT's financial woes."

I disagree with Nasiripour. I think DOE knows exactly what it is doing to ITT and is fully mindful that its recent regulatory actions will likely drive ITT out of business. DOE surely knows that cutting ITT off from federal student aid money will shut off most of its revenues. And not long ago, DOE ordered ITT to almost double its cash reserves--from $124 million to $247 million, which ITT almost certainly is unable to do.

Why is the Obama's DOE acting so aggressively against the for-profit college industry now that Obama has less than three months left in his final term? Is DOE moving against the for-profits now because Obama no longer cares about the political consequences of cracking down on a powerful industry?

Or is DOE pressuring the for-profits to drive down their stock prices so that friendly investors can snap them up for a song and make a killing? Martin Nesbitt, a close confidant of Barack Obama, is leading a group of equity funds to purchase Apollo Education Group, the University of Phoenix's owner. If the deal goes through, Nesbitt's partners will only pay around $9 a share for the stock--about a tenth of Apollo's all-time-high share price.

If ITT gets bought up by financial vultures, it will be interesting to see if the new owners have ties to the Obama administration.

But let's give Obama's DOE the benefit of the doubt and assume that it is finally doing what it should have done a long time ago, which is aggressively regulate the for-profit industry in order to protect students from disreputable operators.

But DOE officials should remember that shutting down reputedly shady for-profit colleges is only half the job.  Corinthian Colleges had about 300,000 former students at the time it filed for bankruptcy and most of them took out federal student loans. All those people should have their student loans forgiven.

If DOE shuts down ITT--which it is apparently trying to do with its recent regulatory actions, it needs to provide relief for all of ITT's indebted students--both current enrollees and former students.

If  ITT closes and DOE forces all these hapless student-loan debtors into a tedious administrative process in order to get their student loans forgiven, then we will know that the Obama administration doesn't really care about the students who attended for-profit colleges.  Rather, knowingly or unknowingly, DOE may simply be driving down the value of for-profit colleges in a way that allows new investors to swoop down and scoop them up at bargain prices.

References

Shahien Nasiripour. The Obama Administration Could Cause the Next Big For-Profit College Collapsehttp://www.bloomberg.com/news/articles/2016-06-09/the-obama-administration-could-cause-the-next-big-for-profit-college-collapse. Bloomberg.com, June 9, 2016.  Accessible at http://www.bloomberg.com/news/articles/2016-06-09/the-obama-administration-could-cause-the-next-big-for-profit-college-collapse

Josh Mitchell. Education Department Orders ITT Educational to Bolster Finances. Wall Street Journal, June 6, 2016. Accessible at http://www.wsj.com/articles/education-department-orders-itt-educational-to-bolster-finances-1465246531

Mark Muckenfuss. New Sanctions Against ITT Tech will limit enrollment. Press Enterprise, August 26, 2016.  Acessible at http://www.pe.com/articles/students-811674-itt-school.html






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, May 10, 2014

It Seemed Like a Good Idea at the Time: Student-Loan Forgiveness Programs are Making the Student Loan Crisis Worse

The federal government's student-loan forgiveness programs--like  Germany's decision to invade Russia in 1941--must have seemed like a good idea at the time.

After all, millions of college students are burdened by crushing student loans, the student-loan default rate creeps ever upward, and many college graduates have not gotten jobs that pay well enough to service their student-loan debt.

So why not create some programs that will lower student borrowers' monthly loan payments?

  And so the government created two programs that are essentially student-loan forgiveness programs. One program allows people who take public service jobs to make loan payments based on a percentage of their income for ten years. At the end of the ten-year period, the balance of their loans are forgiven.

Germany invaded Russia in the summer of 1941
It seemed like a good idea at the time.

The other program--income-based repayment plans (IBRPs) --allows borrowers to make monthly student-loan payments based on a percentage of their income for 20 or 25 years (there are several variations). Just as with the public-service loan forgiveness plans, student-loan debtors will see the balance of their loans forgiven at the end of the repayment period.

The attractiveness of these programs for student-loan borrowers is obvious. They see their monthly payments go down, which may keep many student-loan debtors from going into default.

Currently, about 1.3 million borrowers are enrolled in public-service loan forgiveness plans, and about the same number are enrolled in IBRPS. 

But here is the downside.  None of these programs contain provisions to discourage students from borrowing more money than necessary.  In fact--since the monthly payments are based on a percentage of borrowers' income and not the amount borrowed, the programs contain a perverse incentive to borrow as much as possible.  As a result, many of the people making income-based loan payments will never pay back even a portion of their loans.

Here are a couple of examples--one taken from a Wall Street Journal article and one taken from a New York Times story--that illustrate the problem.

Haley Schafer borrowed $312,000 to attend veterinary school in the Caribbean, even though the job market for veterinarians in the United States is terrible  Schafer got a job making about $60,000 a year, not nearly enough to comfortably pay back her student loans under the standard 10-year repayment plan.

So Schafer signed up for a 25-year income-based repayment plan that lowered her monthly loan payments to about $400 a month. Unfortunately,  her monthly payments aren't large enough to cover accruing interest on her loans.  The New York Times estimated that her loan balance will continue to grow, and when she finishes her 25-year repayment plan her loan balance will be more than twice the amount that she borrowed--$650,000!

And that's Haley Schafer's story. Now let's hear about Max Norris, a public-service attorney who borrowed $172,000 to go to University of California's Hastings College of Law.  Under the public-service student-loan forgiveness plan, he only pays $420 a month on his loan balance, not enough to cover accruing interest.

Norris's loan balance will be forgiven after 10  years. Assuming Norris stays in public service and gets annual raises of 4 percent, the government will forgive $225,000 in student-loan indebtedness--more than Norris borrowed!

In other words, the federal government is giving Morris a 100 percent subsidy to go to law school, even though the market is flooded with lawyers. In fact there are currently two law-school graduates for every new legal job.

Surely, anyone can see that it makes no sense for the federal government to permit people to borrow $100,000 or more to train people for professions that are already overcrowded and then allow them to make loan payments that are so small that the payments don't cover the accruing interest.

But that is what our federal government is doing.  

And, although these programs may help keep the student-loan default rate down, they are actually making the student loan-crisis worse.  Not only do we have 7 million people who stopped making loan payments and are in default, we have another 9 million who aren't making payments because they received an economic hardship deferment or are entitled to some other form of forbearance.  And then we have 2.5 million people who are making loan payments based not on the amount they borrowed but on their income, which means most will never pay off the principal of their loans.

In short--the number of people who will never pay off their student loans is in the millions--many, many millions.

References

Josh Mitchell. Student-Debt Forgiveness Plans Skyrocket, Raising Fears Over Costs, Higher Tuition. Wall Street Journal, April 22, 2014.

David Segal. High Debt and Falling Demand Trap New Vets. New York Times, February 23, 2013. Available at: http://www.nytimes.com/2013/02/24/business/high-debt-and-falling-demand-trap-new-veterinarians.html?_r=0