In my last post I reported on Decena v. Citizens Bank, in which a New York bankruptcy judge discharged Lorelei Decena's student-loan debt in bankruptcy because Decena had borrowed the money to attend an African medical school that was not on the Department of Education's Federal School Code List.
Normally, student-loan debt is not dischargeable in bankruptcy unless the borrower can show that repayment would create an "undue hardship," a very difficult standard to meet. But in Decena's case, the bankruptcy judge ruled that St. Christopher's College of Medicine, the African medical school Decena attended, was not an "eligible educational institution" because the school was not on the Department of Education's list of approved schools Thus, Decena could discharge the loans she took out to attend St. Christopher's (more than $160,000) without having to show undue hardship.
Richard Gaudreau, writing for Huffington Post, recently reported on another case in which a student-loan debtor freed herself from student-loan debt because the institution she attended was not listed in DOE's Federal School Code List.
In Davidson v. Sallie Mae, Jennifer Lynn Davidson borrowed approximately $20,000 from Sallie Mae to attend a "Co-Active Coach Training Program" operated by an outfit called CTI. As she explained in her Adversary Proceeding complaint, Davidson quickly became disenchanted with the program after her instructor swore at her during the first session and then announced that there would be a clothing-optional pool party at the end of the program day. She immediately notified CTI that she was withdrawing from the program.
Davidson sued Sallie Mae in an Oregon bankruptcy court to discharge her educational loans in bankruptcy, and she eventually persuaded Sallie Mae to sign a Stipulated Judgment agreeing to allow her to discharge the debt.
Why did Sallie Mae throw in the towel and allow Davidson to free herself from her student loans? Because--as Gaudreau explained in his Huffington Post article--CTI was not on the Department of Education's Federal School Code List.
What are we to make of Davidson's victory?
First, Sallie Mae is apparently loaning money to people to enroll in all kinds of so-called educational programs without regard to program quality, secure in the belief that people who take out loans for these programs will find it virtually impossible to discharge their debt in bankruptcy. In Davidson's case, however, Sallie Mae slipped up and loaned Davidson money to attend CTI's "Co-Active Coach Training Program" without checking to see whether CTI was on the Department of Education's Federal School Code List.
Second, students who borrow money to enroll in programs at marginal institutions like CTI and St. Christopher's College of Medicine should definitely consult DOE's School Code List to determine if the institution they attended is on it. If the school is not on that list, a borrower has a reasonable shot at shedding the student-loan debt in bankruptcy without having to show that it would be an "undue hardship" to repay the loan.
As Gaudreau pointed out, bankruptcy courts are not in total agreement as to what constitutes an educational loan that is covered by the Bankruptcy Code's undue hardship rule. But Lorelei Decena convinced a bankruptcy judge that St. Christopher's College of Medicine was not an "eligible educational institution" for purposes of the undue hardship standard; and Jennifer Lynn Davidson apparently persuaded Sallie Mae that loans taken out to attend CTI were likewise not subject to the undue hardship rule.
Congratulations to Lorelei Decena and Jennifer Lynn Davidson for their victories in the bankruptcy courts. As for Sallie Mae and Citizens Bank, which collectively lost $180,000, they got the bankruptcy-court outcomes they so richly deserved.
References
Davidson v. Sallie Mae, Case No. 12-33122-TMB-7, Adversary Proceeding Number 12-03171 (Bankr. D. Or. Aug. 15, 2012) (Stipulated Judgment to Discharge Educational Loan Debt and Dismiss Adversary Proceeding) (from an article appearing in Getoutofdebt.org). Accessible at https://getoutofdebt.org/wp-content/uploads/2013/07/183-1_new.pdf
Decena v. Citizens Bank, 549 B.R. 11 (Bankr. E.D.N.Y. 2016).
Richard Gaudreau. Some Private Loans Eligible for Automatic Discharge. Huffinton Post, June 21, 2016. Accessible at http://www.huffingtonpost.com/richard-gaudreau/when-is-a-student-loan-no_b_10530086.html
U.S. Department of Education. Federal School Code List 2016-1017.
Showing posts with label Sallie Mae. Show all posts
Showing posts with label Sallie Mae. Show all posts
Tuesday, July 5, 2016
Saturday, May 28, 2016
Navient Solutions and Student Assistance Corporation stung for violating the Telephone Consumer Protection Act: 727 automated phone calls to student debtor's mother!
Navient Solutions, Inc. and Student Assistance Corporation (SAC) got stung last month by a federal district court for violating the Telephone Consumer Protection Act. Navient made 249 automated collection calls to Willie McCaskill, a student debtor's mother. Co-Defendant Student Assistance Corporation made another 478 automated calls to McCaskill's phone number.
As explained by the court, McCaskill is entitled to $500 for each violation, which adds up to $363,500. In addition, the court will hold a trial to determine whether the defendants violations were wilful, which would entitle to McCaskill to treble damages. Let's hope she wins.
Navient and SAC asserted a goofy defense, which the court rejected. They argued that McCaskill "gave express consent" to being called about her daughter's debt. The court pointed out that Navient presented no evidence showing that McCaskill knowingly released her phone number to the debt collectors or that she had had any contact with them before they started calling. As if any mom would agree to getting bombarded with hundreds of phone calls from her daughter's creditors.
SAC and Navient also argued that McCaskill and her daughter were in an agency relationship, and that the daughter had legal authority to consent to the phone calls on her mother's behalf. But this is what the daughter testified:
Who is Navient Solutions anyway? Here's how it introduces itself on the web:
Navient sounds like a model corporate citizen. But if all Navient says about itself is true, why did it make 249 harassing telephone calls to a student debtor's mother?
References
McCaskill v. Navient Solutions, Inc., No. 8:15-cv-1559-T-33TBM (M.D. Fla. April 6, 2016).
As explained by the court, McCaskill is entitled to $500 for each violation, which adds up to $363,500. In addition, the court will hold a trial to determine whether the defendants violations were wilful, which would entitle to McCaskill to treble damages. Let's hope she wins.
Navient and SAC asserted a goofy defense, which the court rejected. They argued that McCaskill "gave express consent" to being called about her daughter's debt. The court pointed out that Navient presented no evidence showing that McCaskill knowingly released her phone number to the debt collectors or that she had had any contact with them before they started calling. As if any mom would agree to getting bombarded with hundreds of phone calls from her daughter's creditors.
SAC and Navient also argued that McCaskill and her daughter were in an agency relationship, and that the daughter had legal authority to consent to the phone calls on her mother's behalf. But this is what the daughter testified:
You don't give out my mom's number, which is her business. I handle my own business, she handles her own business .. . .She stay over there, and I stay over here.The court ruled that the defendants identified no evidence that questioned the daughter's testimony. Accordingly, the court granted McCaskill summary judgment on her TCPA claims.
Who is Navient Solutions anyway? Here's how it introduces itself on the web:
Although our name is new, our business is not. For more than 40 years we learned, evolved, and led in loan management, servicing and asset recovery as Sallie Mae®. And now, we continue to lead as Navient, a company dedicated to helping our clients and the people we serve along the path to financial success.Navient also says "it is committed to fulfilling our role as an active corporate citizen with integrity and transparency." And oh yes. Navient is big into philanthropy, boasting that "[w]e recognize the importance of corporate philanthropy by giving back to our own communities and encouraging employees to volunteer."
Navient sounds like a model corporate citizen. But if all Navient says about itself is true, why did it make 249 harassing telephone calls to a student debtor's mother?
References
McCaskill v. Navient Solutions, Inc., No. 8:15-cv-1559-T-33TBM (M.D. Fla. April 6, 2016).
Thursday, May 1, 2014
The Private Student Loan Industry Doesn't Need Better Regulation: It Needs to Be Exterminated
Businesses that protect homeowners from termites and roaches call themselves pest control companies. But speaking as a homeowner, I don't want the roaches in my house to be controlled. I want them dead.
The Consumer Financial Protection Bureau (CFPB) is much like a pest control company that looks out for the interests of the pests. It wants to regulate the the nation's rapacious financial services sector in a way that doesn't cause the banks too much discomfort. When it comes to the private student loan industry, this attitude is a mistake.
As the New York Times pointed out in a recent editorial, private student loans are very different from federal student loans. Students who take out federal student loans get a fixed interest rate, and they can apply for an economic hardship deferment if they run into financial difficulties. Private lenders often offer variable interest rates that allow monthly loan payments to adjust upward, and they usually don't have any process in place to assist financially distressed borrowers.
The CFPB collects hundreds of complaints each year from people who took out private student loans. In a recent analysis, the Bureau reported that some private student-loan borrowers were forced into default without warning even though they were current on their loan payments In particular, the CFPB documented that some student-loan borrowers who were making regular payments on their loans were forced to pay back the entire amount of their loans if a person who co-signed their loan died. Some student borrowers received notice from their lender that their loans were being called due at the same time they were mourning the loss of the parent or grandparent who had cosigned the student's college loan. Now that's crumby behavior.
And guess which private lender received the most complaints? Sallie Mae. The CFPB received 995 complaints about Sallie Mae between October 2013 and March 2014. That's a 50 percent jump over the previous measuring period.
And coming in second place for most number of complaints was JP Morgan Chase.
Issuing private loans is a particularly lucrative business for the banking industry. Why? First of all, in 2005, the banks got Congress to amend the bankruptcy laws to make private student loans almost impossible to discharge in bankruptcy.
Second, about 90 percent of these loans are co-signed--often by a parent or a grandparent. Co-signers stand jointly liable with the student borrower when it comes to paying off a private student loan. And co-signers--like the student borrowers themselves--cannot discharge a private student loan in bankruptcy except under very rare circumstances.
In its recent report, the CFPB practically begged the banks to be more compassionate to their student-loan debtors. Rohit Chopra, CFPB's Student Loan Ombudsman, pointed out that a student-loan borrower who had a bad experience with a bank would be less likely to use that bank for other banking matters. And, Chopra added, treating student-loan borrowers badly might hurt the banks' reputation. Yes--the CFPB's Student Loan Ombudsman actually expressed concern about the banks' reputation!
The New York Times, commenting on the CFPB's report, thinks more federal regulation is the way to deal with the rapacious private student-loan industry. "Federal regulators clearly have a lot to do to address what amounts to a student loan crisis," the Times editorialized. Regulators "can begin by preventing contracts that unfairly burden borrowers," the Times suggested and loan terms "should be clearly stated." And--the Times concluded, student-loan borrowers should be notified when their loans are at risk and borrowers in good standing should not be "shoved into default."
Personally, I don't give a damn about Sallie Mae's reputation or the reputation of the banks that have been mistreating private student-loan debtors. And I don't think another layer of regulation will make the banks behave more compassionately or more responsibly.
The way to deal with problems in the private student-loan industry is to shut this sleazy business down. And that can be easily done. All Congress needs to do is to repeal the 2005 law that made it exceedingly difficult for private student-loan debtors and their guarantors to discharge student loans in the bankruptcy courts.
If Sallie Mae, JP Morgan Chase, Wells Fargo and the other major players in the private student loan industry knew that distressed student-loan debtors could discharge their student loans in bankruptcy in the same way they could discharge other non-secured debts, they would get out of the student loan business in a hurry. And that is exactly what we should want them to do.
References
Rohit Chopra. Mid-year update on student loan complaints. Consumer Financial Protection Bureau, April 2014.
Editorial. Troubling Student Loans. New York Times, April 29, 2014, p. A20.
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| Image credit: pestcontrolman.cm |
As the New York Times pointed out in a recent editorial, private student loans are very different from federal student loans. Students who take out federal student loans get a fixed interest rate, and they can apply for an economic hardship deferment if they run into financial difficulties. Private lenders often offer variable interest rates that allow monthly loan payments to adjust upward, and they usually don't have any process in place to assist financially distressed borrowers.
The CFPB collects hundreds of complaints each year from people who took out private student loans. In a recent analysis, the Bureau reported that some private student-loan borrowers were forced into default without warning even though they were current on their loan payments In particular, the CFPB documented that some student-loan borrowers who were making regular payments on their loans were forced to pay back the entire amount of their loans if a person who co-signed their loan died. Some student borrowers received notice from their lender that their loans were being called due at the same time they were mourning the loss of the parent or grandparent who had cosigned the student's college loan. Now that's crumby behavior.
And guess which private lender received the most complaints? Sallie Mae. The CFPB received 995 complaints about Sallie Mae between October 2013 and March 2014. That's a 50 percent jump over the previous measuring period.
And coming in second place for most number of complaints was JP Morgan Chase.
Issuing private loans is a particularly lucrative business for the banking industry. Why? First of all, in 2005, the banks got Congress to amend the bankruptcy laws to make private student loans almost impossible to discharge in bankruptcy.
Second, about 90 percent of these loans are co-signed--often by a parent or a grandparent. Co-signers stand jointly liable with the student borrower when it comes to paying off a private student loan. And co-signers--like the student borrowers themselves--cannot discharge a private student loan in bankruptcy except under very rare circumstances.
In its recent report, the CFPB practically begged the banks to be more compassionate to their student-loan debtors. Rohit Chopra, CFPB's Student Loan Ombudsman, pointed out that a student-loan borrower who had a bad experience with a bank would be less likely to use that bank for other banking matters. And, Chopra added, treating student-loan borrowers badly might hurt the banks' reputation. Yes--the CFPB's Student Loan Ombudsman actually expressed concern about the banks' reputation!
The New York Times, commenting on the CFPB's report, thinks more federal regulation is the way to deal with the rapacious private student-loan industry. "Federal regulators clearly have a lot to do to address what amounts to a student loan crisis," the Times editorialized. Regulators "can begin by preventing contracts that unfairly burden borrowers," the Times suggested and loan terms "should be clearly stated." And--the Times concluded, student-loan borrowers should be notified when their loans are at risk and borrowers in good standing should not be "shoved into default."
Personally, I don't give a damn about Sallie Mae's reputation or the reputation of the banks that have been mistreating private student-loan debtors. And I don't think another layer of regulation will make the banks behave more compassionately or more responsibly.
The way to deal with problems in the private student-loan industry is to shut this sleazy business down. And that can be easily done. All Congress needs to do is to repeal the 2005 law that made it exceedingly difficult for private student-loan debtors and their guarantors to discharge student loans in the bankruptcy courts.
If Sallie Mae, JP Morgan Chase, Wells Fargo and the other major players in the private student loan industry knew that distressed student-loan debtors could discharge their student loans in bankruptcy in the same way they could discharge other non-secured debts, they would get out of the student loan business in a hurry. And that is exactly what we should want them to do.
References
Rohit Chopra. Mid-year update on student loan complaints. Consumer Financial Protection Bureau, April 2014.
Editorial. Troubling Student Loans. New York Times, April 29, 2014, p. A20.
Wednesday, January 22, 2014
National Consumer Law Center Report on Sallie Mae: Good Recommendations But They Don't Go Far Enough
The National Consumer Law Center (NCLC) published a report this week on Sallie Mae, the nation's largest lender of private student loans and a major servicer of federal student loans. The report documents a long history of poor performance and allegations of wrong-doing. As documented by NCLC, Sallie Mae was under investigation by both the Consumer Financial Protection Bureau and the Justice Department during 2013.
NCLC has produced a very useful and interesting report--but like most reports on the student-loan industry, it does not go far enough with its reform recommendations. In this blog, I will briefly summarize the NCLC report and give my own recommendations for reform.
Sallie Mae: A Summary of the NCLC Report
The Student Loan Marketing Association--commonly called "Sallie Mae"--began as a government-sponsored enterprise during the Nixon administration. Today it is a publicly traded corporation involved in nearly every aspect of the student loan business.
Sallie Mae is incredibly profitable. According to NCLC, it enjoyed a return of 30 percent on equity in 2006, and its income nearly tripled between 2010 and 2013. As of September 30, 2011, it has received almost $100 million from the federal government for servicing federal loans.
Sallie Mae's CEO, Albert Lord, received more than $200 million in compensation between 1999 and 2004 (NCLC Report, p.2). According to Salary.com, Mr. Lord made more than $7 million in total compensation in fiscal year 2012.
How does Sallie Mae make its money? Besides servicing federal student loans, it lends money to student borrowers at high interest rates--often much higher than the rates charged under the federal student loan program.
In NCLC's view, Sallie Mae's activities are often not in the interest of student-loan borrowers. Its private student-loan business offers loans at higher interest rates than loans offered through the federal student loan program and these loans do not provide options for forbearance and long-term repayment that are available to students who borrow from the federal program. Default rates are high for Sallie Mae's "nontraditional" loan, including loans made to students with poor credit ratings who attend for-profit schools.
NCLC also criticizes Sallie Mae's work as a servicer of federal student loans. According to NCLC, Sallie Mae often encourages students who are delinquent on their loans to apply for forbearances instead of steering them into income-based repayment plans, which might be in the students' best interest. Students who receive forbearnces on their loans are excused from making payments but interest accrues on the loan balance, making them more difficult to pay off.
NCC's Recommendations for Reform
NCLC recommends better oversight of Sallie Mae's activities and urges the government to hold Sallie Mae and other private loan servicers accountable for poor performance and legal violations. Who can disagree?
NCLC also recommends the creation of a "safety net" for distressed student borrowers who took out private student loans, "including bankruptcy discharge rights and cancellation rights for fraud victims." Again, who could disagree?
My Own Belief: The Private Student-Loan Business Should Be Shut Down
NCLC's recommendations are reasonable, but they don't go far enough. In my view, the federal student loan program should be the exclusive provider of college loans. In other words, the feds should shut down the private student-loan business completely.
Certainly, Sallie Mae and the major corporate banks should not be offering college loans to students at high interest rates and with inadequate consumer protections--loans which are almost impossible to discharge in bankruptcy. It is outrageous that Congress amended the Bankruptcy Code in 2005 to make private student loans nondischargeable in bankruptcy absent a showing of "undue hardship."
Even the banks themselves have come to realize that the their private student-loan activity is dirty business. The banks have reduced their student-loan business from $22 billion in loans in 2008 to only $6.4 billion n 2012. And JP Morgan Chase recently announced recently that it is getting out of the private student-loan business altogether.
All Congress needs to do to shut down the private student-loan industry is to repeal its 2005 Bankruptcy Code amendment and allow distressed student-loan borrowers to discharge their private student loans in bankruptcy just like any other unsecured loan. That one reform would cause the banks to voluntarily stop offering private student loans.
Why won't Congress enact this one simple reform? Perhaps it is because Sallie Mae, the banks and the for-profit college industry pay powerful lobbyists to discourage Congress from cleaning up the giant mess that the student-loan business has become--both the federal student loan program and the private student-loan industry. As NCLC pointed out, Sallie Mae paid lobbyists more than $22 million between 2007 and 2013 to protect its interests.
The Feds Should Not Be Paying Private Firms to Manage the Federal Student Loan Program
In addition, the Feds should stop paying private companies to service federal student loans and act as loan collection agencies. The government now has $1 trillion in outstanding student loans and 39 million borrowers in repayment status. It is time the government itself takes over the management of this huge portfolio of debt instead of outsourcing loan management to Sallie Mae and other private entities who act in their own private interest and not the interest of student borrowers.
References
Albert L. Lord executive compensation. Salary.com. Accessible at: http://www1.salary.com/Albert-L-Lord-Salary-Bonus-Stock-Options-for-SLM-CORP.html
JP Morgan Chase to stop making student loans. USA Today, September 5, 2013. Accessible at:
http://www.usatoday.com/story/money/personalfinance/2013/09/05/jpmorgan-chase-student-loans/2772509/
Deanne Loonin. The Sallie Mae Saga: A Governmet-Created, Student Debt Fueled Profit Machine. National Consumer Law Center, January 2014.
NCLC has produced a very useful and interesting report--but like most reports on the student-loan industry, it does not go far enough with its reform recommendations. In this blog, I will briefly summarize the NCLC report and give my own recommendations for reform.
Sallie Mae: A Summary of the NCLC Report
The Student Loan Marketing Association--commonly called "Sallie Mae"--began as a government-sponsored enterprise during the Nixon administration. Today it is a publicly traded corporation involved in nearly every aspect of the student loan business.
Sallie Mae is incredibly profitable. According to NCLC, it enjoyed a return of 30 percent on equity in 2006, and its income nearly tripled between 2010 and 2013. As of September 30, 2011, it has received almost $100 million from the federal government for servicing federal loans.
Sallie Mae's CEO, Albert Lord, received more than $200 million in compensation between 1999 and 2004 (NCLC Report, p.2). According to Salary.com, Mr. Lord made more than $7 million in total compensation in fiscal year 2012.
 |
| Albert Lord, CEO of Sallie Mae photo credit: Sallie Mae |
In NCLC's view, Sallie Mae's activities are often not in the interest of student-loan borrowers. Its private student-loan business offers loans at higher interest rates than loans offered through the federal student loan program and these loans do not provide options for forbearance and long-term repayment that are available to students who borrow from the federal program. Default rates are high for Sallie Mae's "nontraditional" loan, including loans made to students with poor credit ratings who attend for-profit schools.
NCLC also criticizes Sallie Mae's work as a servicer of federal student loans. According to NCLC, Sallie Mae often encourages students who are delinquent on their loans to apply for forbearances instead of steering them into income-based repayment plans, which might be in the students' best interest. Students who receive forbearnces on their loans are excused from making payments but interest accrues on the loan balance, making them more difficult to pay off.
NCC's Recommendations for Reform
NCLC recommends better oversight of Sallie Mae's activities and urges the government to hold Sallie Mae and other private loan servicers accountable for poor performance and legal violations. Who can disagree?
NCLC also recommends the creation of a "safety net" for distressed student borrowers who took out private student loans, "including bankruptcy discharge rights and cancellation rights for fraud victims." Again, who could disagree?
My Own Belief: The Private Student-Loan Business Should Be Shut Down
NCLC's recommendations are reasonable, but they don't go far enough. In my view, the federal student loan program should be the exclusive provider of college loans. In other words, the feds should shut down the private student-loan business completely.
Certainly, Sallie Mae and the major corporate banks should not be offering college loans to students at high interest rates and with inadequate consumer protections--loans which are almost impossible to discharge in bankruptcy. It is outrageous that Congress amended the Bankruptcy Code in 2005 to make private student loans nondischargeable in bankruptcy absent a showing of "undue hardship."
Even the banks themselves have come to realize that the their private student-loan activity is dirty business. The banks have reduced their student-loan business from $22 billion in loans in 2008 to only $6.4 billion n 2012. And JP Morgan Chase recently announced recently that it is getting out of the private student-loan business altogether.
All Congress needs to do to shut down the private student-loan industry is to repeal its 2005 Bankruptcy Code amendment and allow distressed student-loan borrowers to discharge their private student loans in bankruptcy just like any other unsecured loan. That one reform would cause the banks to voluntarily stop offering private student loans.
Why won't Congress enact this one simple reform? Perhaps it is because Sallie Mae, the banks and the for-profit college industry pay powerful lobbyists to discourage Congress from cleaning up the giant mess that the student-loan business has become--both the federal student loan program and the private student-loan industry. As NCLC pointed out, Sallie Mae paid lobbyists more than $22 million between 2007 and 2013 to protect its interests.
The Feds Should Not Be Paying Private Firms to Manage the Federal Student Loan Program
In addition, the Feds should stop paying private companies to service federal student loans and act as loan collection agencies. The government now has $1 trillion in outstanding student loans and 39 million borrowers in repayment status. It is time the government itself takes over the management of this huge portfolio of debt instead of outsourcing loan management to Sallie Mae and other private entities who act in their own private interest and not the interest of student borrowers.
References
Albert L. Lord executive compensation. Salary.com. Accessible at: http://www1.salary.com/Albert-L-Lord-Salary-Bonus-Stock-Options-for-SLM-CORP.html
JP Morgan Chase to stop making student loans. USA Today, September 5, 2013. Accessible at:
http://www.usatoday.com/story/money/personalfinance/2013/09/05/jpmorgan-chase-student-loans/2772509/
Deanne Loonin. The Sallie Mae Saga: A Governmet-Created, Student Debt Fueled Profit Machine. National Consumer Law Center, January 2014.
Friday, January 10, 2014
Such hypocrisy! The Obama administration urges private college-loan lenders to play nice with student borrowers
Obama administration officials summoned the leading private student-loan creditors to a meeting at the Treasury Department yesterday to urge them to do more to help student-loan borrowers who are in danger of default.
Who attended this meeting? Arne Duncan, Secretary of Education, and Richard Cordray, chief of the Consumer Financial Protection Bureau, represented the government.
And these are some of the banks that attended: Sallie Mae, Wells Fargo, JP Morgan Chase, RBS Citizens Financial, PNC Financial Services, SunTrust Banks, and Discover Financial Services.
The Obamacrats delivered their usual blather about easing the plight of overburdened student-loan borrowers. This is how a government spokeswoman described the meeting.
U.S. Urges Private Lenders and services to Help Borrowers. Inside Higher Education, January 20, 2014. Accessible at: http://www.insidehighered.com/quicktakes/2014/01/10/us-urges-private-lenders-and-servicers-help-borrowers
Who attended this meeting? Arne Duncan, Secretary of Education, and Richard Cordray, chief of the Consumer Financial Protection Bureau, represented the government.
And these are some of the banks that attended: Sallie Mae, Wells Fargo, JP Morgan Chase, RBS Citizens Financial, PNC Financial Services, SunTrust Banks, and Discover Financial Services.
The Obamacrats delivered their usual blather about easing the plight of overburdened student-loan borrowers. This is how a government spokeswoman described the meeting.
Participants discussed strategies to assist borrowers in successfully managing their private student loans, including servicing best practices and approaches to private student loan modifications and refinancing.
Yak, yak, yak. The only way to get the private banks to behave decently toward indebted college students is to force them out of the student-loan business altogether. And this could be done so easily.
In 2005, Congress amended the Bankruptcy Code to make private student loans nondischargeable in bankruptcy absent "undue hardship"--the same standard that applies to federal student loans. Consequently, private student loans--like federal student loans--are almost impossible to discharge in a bankruptcy court.
All Congress needs to do to reform the private student-loan industry is repeal the 2005 law and allow insolvent debtors with private student loans to discharge those loans in bankruptcy. I guarantee you, this single legislative change would dry up the private student-loan industry overnight.
But Congress won't do the straightforward thing. No--it will tinker with all kinds of cosmetic fixes and allow the private banks to continue exploiting colleges students.
Hands down, Sallie Mae is the chief offender. According to a 2012 news story, Albert Lord, Sallie Mae's CEO, made $225 million between 1999 and 2004 and was building his own private golf course. What do you think his total compensation is today?
Democrats seem to think they can establish their liberal credentials simply by expressing sympathetic platitudes. Arne Duncan talks about helping student borrowers but hasn't done a damn thing to alleviate the student loan crisis. And Senator Elizabeth Warren, a self-proclaimed consumer's advocate, is all bark and and no bite.
Why doesn't Congress act more aggressively to give college students some relief? Maybe because the private lenders and private-college industry hire well-paid lobbyists to protect their interests and make strategic campaign contributions to powerful politicians.
 |
| Thanks, Arne,ever so much! |
Personally, I won't start believing the so-called liberal Democrats who express concern about the student-loan crisis until some of them throw their support behind some straightforward and simple reforms. First and foremost, insolvent students who took out private loans to finance their education should have access to bankruptcy.
References
U.S. Urges Private Lenders and services to Help Borrowers. Inside Higher Education, January 20, 2014. Accessible at: http://www.insidehighered.com/quicktakes/2014/01/10/us-urges-private-lenders-and-servicers-help-borrowers
Sophia Zamen. "Education is Worth It": Students Take on Sallie Mae CEO Albert Lord at Shareholder Meeting. Alternet.org, May 21,2012. Accessible at: http://www.alternet.org/newsandviews/article/932971/%22education_is_worth_it%22%3A_students_take_on_sallie_mae_ceo_albert_lord_at_shareholder_meeting
Note: My description of the meeting at the Treasury Department comes from the Inside Higher Education story. My references to Sallie Mae are taken from Sophia Zamen's essay for Alternet.org
Note: My description of the meeting at the Treasury Department comes from the Inside Higher Education story. My references to Sallie Mae are taken from Sophia Zamen's essay for Alternet.org
Monday, April 23, 2012
Albert Lord Says Student Loan Program is Not in a Bubble: Should We Believe Him?
 |
| Albert Lord CEO, Sallie Mae |
So Mr. Lord assures us the
student loan program is not in a bubble. Should we believe him?
No, we should not. First of all,
as everyone knows, the percentage of students who borrow money to attend
college is going up and students' average indebtedness is going up as well. Moreover, annual student-loan default rates
have almost doubled between 2003 and 2009—going from 4.5 percent to 8.8
percent. And these numbers only reflect
the numbers of students who default within two years after beginning
repayment. When the default rate is
expanded to measure defaults during the first three years after repayment
begins, the rate goes up substantially—especially for students who borrowed money to attend for-profit colleges.
According to one projection, the three-year default rate for the 2009 cohort is 29 percent for students who attended
for-profit schools. (Lederman, 2011). Surely this is a
sign of serious trouble ahead for the student loan program.
We should also look at some recent
reports by outside analysts when we assess Mr. Lord’s assurances about the
student loan program. The Federal Reserve Bank of San Francisco, in a 2011
publication, reported that private lending increased dramatically from 2000 to
2007, reaching 26 percent of all student loans during the 2006-2007 academic
year. Private loan volume then retreated from a high of $22.6 billion in
2006-2007 to only $7.9 billion in 2010-2011.
(Choi, 2011). This may be an indication that the private banking
industry has concluded that student loans are becoming riskier for banks, in
spite of the fact that these loans—like federally guaranteed loans—are almost
impossible to discharge in bankruptcy.
In a 2012 publication, the
Federal Reserve Bank of New York reported that total outstanding student-loan
indebtedness has reached $870 billion, surpassing the nation’s entire
outstanding credit-card balances and its outstanding car-loan balances.
According to the New York Reserve Bank, there are about 37million people with
student-loan balances, Sixty percent of these borrowers are 30 years old or
older, and about 27 percent of all borrowers have at least one past-due
student-loan account. Seventy-five
percent of individuals with past-due student-loan accounts are 30 years old or
older, and 40 percent are 40 years older or older. These numbers tell us that a lot of people
are struggling with student-loan debt well into midlife.
In addition, Moody’s issued a report in July
2011, which is sharply different in tone from Mr. Lord’s optimistic reassurances.
“The long-run outlook for student lending and borrowers remains worrisome,” the
Moody report stated. “[T]here is increasing concern that many students may be
getting their loans for the wrong reasons, or that borrowers—and lenders—have
unrealistic expectations about borrowers’ future earnings.” Moody’s warned that
“[u]nless students limit their debt burdens, choose fields of study that are in
demand, and successfully complete their degrees on time, they will find
themselves in worse financial positions and unable to earn the projected income
that justified taking out their loans in the first place” (Moody’s Analytics,
2011).
In my opinion, Mr. Lord is wrong
to say the student loan program is not in a bubble. Independent analysts see
trouble ahead. As I have written
earlier, there are many things we can do to ease the burdens that weigh down overstressed
student-loan borrowers. But the first
thing we must do is face reality and admit that the student loan program is out
of control.
References
Choi, L. (2011, December). Student debt and default in the 12th
District. San Francisco: Federal Reserve Bank of San Francisco. http://www.frbsf.org/publications/community/research-briefs/Student-Debt-and-Default-in-the-12th-District.html
(last visited April 23, 2012).
Brown, M., Haughwout, A., Lee, Donghoon,
Mabutas, M., & van der Klaauw, W.(2012). Grading students loans. New York: Federal Reserve Bank of New
York. http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html
(last visited April 23, 2012).
Deritis, C. (2011, July). Moody’s Analytics: Student Lending’s Failing Grade.
Lederman, D. (2011, May 23). Trouble ahead on student loan defaults. Inside Higher Education. http://www.insidehighered.com/news/2011/05/23/student_loan_default_rates_rise_sharply_especially_for_for_profit_colleges (last visited April 23, 2011).
Lederman, D. (2011, May 23). Trouble ahead on student loan defaults. Inside Higher Education. http://www.insidehighered.com/news/2011/05/23/student_loan_default_rates_rise_sharply_especially_for_for_profit_colleges (last visited April 23, 2011).
Mulholland, S. (2012, April 19). Sallie Mae CEO Albert Lord Rejects
Education Loan Bubble Claims. Huffington Post. http://www.huffingtonpost.com/2012/04/19/sallie-mae-ceo-albert-lor_n_1438595.html
(last visited April 23, 2012).
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