Showing posts with label Steve Rhode. Show all posts
Showing posts with label Steve Rhode. Show all posts

Thursday, May 10, 2018

CFPB to Shift Focus From Protecting Student Loan Debtors to Something Else. Essay by Steve Rhodes

By  on May 10, 2018
Recently the Trump administration has tried to change the law so individual states would not be able to enforce ;laws covering student loan debt collectors.

The new head of the Consumer Financial Protection Bureau (CFPB), Mick Mulvaney, has just released the updated agenda for the CFPB.
According to the new agenda, the CFPB would drop its efforts to push forward regulations of student loan collectors and scrap “student loan servicing” from its focus.
Mulvaney has also indicated the CFPB will retreat from doing anything regarding student loans in general.
“This defangs the watchdog and instead turns the office into a lapdog for the industry,” said Chris Peterson, a former top CFPB official who is now director of financial services at the Consumer Federation of America.
The unit which has been the tip of the spear on these CFPB student loan efforts to protect debtors has been informed they will be reorganized into the CFPB Office of Financial Education. Now there is a department title which just screams no enforcement.
“This is a very significant change in the mission of the student office,” said Christopher Peterson, a law professor at the University of Utah and former enforcement attorney at the CFPB.
“America is facing an ongoing student debt crisis, with outstanding student debt surpassing $1.5 trillion and over 8 million borrowers in default on their student loans. Closing the office for students is like shuttering the fire department in the middle of a three-alarm fire,” Alexis Goldstein, the senior policy analyst at Americans for Financial Reform, said.
I don’t get it. All actions that have been taken by the Department of Education and now the new modified CFPB have the net effect of restricting supervision of student loan collectors, limit state authority to protect citizens from student loan collection abuse, reduce debt elimination from federal student loan fraud by schools, and give easier access to student loan money by for-profit schools.
You don’t need to read the tea leaves here to see what is going on, you just need to look at the billboard.
I don’t care what your political stripes are. With all these changes any student with any student loan debt should expect to be less protected from collector misinformation, bad advice, and poor servicing.
If you don’t believe me, just go ahead and file a complaint against your student loan servicer and see how much protection you get. Your new friend will be the word NONE.

Steve's essay was originally posted on The Get Out of Debt Guy web site.

*****
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here. 

Wednesday, March 7, 2018

Alexander Holmes v. National Collegiate Student Loan Trust: Don't co-sign your children's student loans!

In 2006, Alexander Holmes co-signed a student loan with Charter Bank One to fund his son's education at the University of Southern Indiana. Charter Bank sold Holmes' loan in a pool of loans to National Collegiate Funding, which then sold the loan to National Collegiate Student Loan Trust (NCSLT).

Ten years later, NCSLT sued Mr. Holmes, claiming he owed more than $16,000 on the loan plus accrued interest. Holmes denied NCSLT's claim and argued that NCSLT did not have standing to sue him.


NCSLT moved for summary judgment, which an Indiana trial court granted. The court then ordered Holmes to pay NCSLT $18,183.26 plus interest and costs.


But Mr. Holmes had a good lawyer and he appealed. An Indiana appellate court reversed the lower court's order against Mr. Holmes on the grounds that NCSLT had not provided admissible evidence that it had the right to collect on the debt Holmes owed Charter Bank.


The court's reasoning is a bit technical; but this is a summary of the appellate court's decision:
In support of its motion for summary judgment against Mr. Holmes, NCSLT offered the affidavit of Jacqueline Jefferis, an employee of Transworld Systems, Inc. (TSI), which was the "loan subservicer" for U.S. Bank, National Association, which the court identified as the "Special Servicer" working for NCSLT.


In a sworn statement, Ms. Jefferis' said she was familiar with TSI's business practices regarding loan records. But, as the Indiana Court of Appeals pointed out:

[T]he Jefferis affidavit provided no testimony to support the admission of the contract between Holmes and Charter One Bank or the schedule of pooled loans sold and assigned to National Collegiate Funding, LLC, and then to NCSLT . . . . There was no testimony to indicate that Jefferis was familiar with or had knowledge of the regular business practices or record keeping of Charter One Bank, the loan originator, or that of NCSLT regarding the transfer of pooled loans . . . . [Emphasis added by me.
In other words, as far as the appellate court was concerned, Ms. Jefferis didn't know nuthin' about no loan from Charter Bank to Mr. Holmes. Consequently, the trial court's judgment against Mr. Holmes was reversed.

Why is the Holmes case, decided by an Indiana state court, important to other student-loan debtors? Three reasons:


I. The private student-loan industry is bundling student loans and selling them to investors


First, the private student-loan industry has been packaging student loans into bundles (or pools) and selling them to third parties, and these third parties often then sell these bundled loans to yet other parties. In fact, these loans can have multiple owners.


In this flurry of transactions, the paperwork often gets mislaid or lost. Sometimes the companies suing student-loan debtors for payment do not have the critical documents necessary to show that they have the legal right to collect on the debt.


This confusion sometimes occurs due to "robo-signing," the mindless signing of documents by people who are not familiar with the original transactions. This was a significant issue during the home-mortgage crisis of 2008, and judges sometimes dismissed home-foreclosure suits because the parties trying to foreclose on houses could not prove they were entitled to grab someone's home.


Thus, anyone who is sued by a company trying to collect on a private student loan should demand that the suing party show that it is the legal entity entitled to sue for the money. Fortunately for Mr. Holmes, NCSLT was unable to show that it was the party that had legal standing to sue him.

II. Student-loan debtors need good lawyers


This brings me to the second reason the Holmes case is significant for other student-loan debtors. Mr. Holmes defeated NCSLT on a technicality. Specifically, NCSLT's documentation did not pass muster with Indiana Evidence Rule 803(6). But only a competent lawyer would know how to make the technical argument that benefited Mr. Holmes.


I once thought that student-loan debtors with the right facts could go into court without lawyers and be successful. And indeed, some debtors have won their cases in federal bankruptcy courts over the ruthless opposition of the debt collectors' lawyers.


But many of these cases turn on legal technicalities that a nonlawyer could not be expected to know. The Holmes case was based on Indiana law, but federal bankruptcy law also has technicalities that nonlawyers will find very difficult to master.


That is why I was heartened by the decision of the Massachusetts Bar Association to organize teams of volunteer lawyers to represent student-loan debtors in bankruptcy courts. If student-loan debtors can get good lawyers, they will have a far better chance of winning their cases than if they go to court without legal counsel.


III. Never co-sign your children's student loans


There's a third lesson to be learned from the Holmes case. Mr. Holmes co-signed a student loan with his son Nicholas to enable Nicholas to enroll at the University of Southern Indiana. In my view, that was a mistake. If Nicholas couldn't figure out a way to attend a regional state university without having his dad co-sign a student loan, then Nicholas needed to figure out another way to go to college.

I've said this before, and I'll say it one more time. Parents should never co-sign their children's student loans. Never. Never. Never.


Note: My thanks to Steve Rhode for calling my attention to Holmes v. 
NCSLT.




References


Alexander Holmes v. National Collegiate Student Loan Trust (Ind. Ct. App. Feb. 27, 2018).

Steve Rhode. Perfect Example Why Most National College Student Loan Trust Lawsuits are BS. Getoutofdebtguyorg., March 1, 2018.




Friday, February 16, 2018

Congress enacts teeny weeny student-loan reform legislation: Is the glass half full or half empty?

As reported by Steve Rhode, Congress passed a very modest student-loan reform bill late last year.  Titled the Stop Taxing Death and Disability Act, the new law eliminates an unfair tax on forgiven student loans.

Prior to passage of this law, the government would forgive student loans held by debtors who became permanently disabled, but the amount of the forgiven debt was considered taxable income by the IRS. You may remember the story of Will Milzarski,  a military veteran who was wounded and disabled while fighting in Afghanistan.  The Department of Education forgave about a quarter of a million dollars in student loans, but the IRS sent Mr. Milzarski a tax bill for $62,000.

The Stop Taxing Death and Disability Act, which was adopted by Congress with bipartisan support, eliminates this unfair tax provision. Under the new law, all student-loan debt (including private student loans) that is forgiven due to the death or disability of the debtor is exempt from federal income taxes.

In addition, the law gives a tax break to the parents of student-loan debtors. Parents who owe student loans on behalf of their children may obtain a student-loan discharge if their child becomes disabled.  And parents who obtain such a discharge won't be taxed on the forgiven debt.

So, is the glass half full or half empty?

On the good side, passage of this modest and noncontroversial bill is a sign that Republicans and Democrats can work together to pass student-loan reform legislation. The bill's three co-sponsors--Senators Rob Portman (R-Ohio), Chris Coons (D-Delaware), and Angus King (I-Maine) are to be commended for getting this little bill adopted.

But on the other hand, as Mr. Rhode pointed out, the bill did not address the enormous tax liability that college borrowers face who are in income-driven repayment plans (IDRs).  More than six million student debtors are enrolled in IDRs, and most of them are making monthly loan payments so small that they will never pay off their loans.  Why? Because the monthly payments aren't large enough to cover accruing interest on the underlying debt.

People locked into IDRs are obligated to make monthly loan payments for terms that stretch out for 20, 25 and even 30 years. At the end of the repayment term, any remaining unpaid debt is forgiven, but the amount of the forgiven debt is considered taxable income.

In other words, a student debtor who successfully completes a 20-year IDR sheds one unpayable debt to the Department of Education and acquires another unpayable debt to the IRS.

Nevertheless, the fact that Congress passed the Stop Taxing Death and Disability Act is a good sign. Maybe Democrats and Republicans can build on this tiny victory to enact more sweeping student-loan reform.

For example, perhaps a bipartisan coalition could rally behind the Warren-McCaskill bill to stop the IRS from garnishing the Social Security checks of elderly student-loan defaulters. Who in good conscience could vote against that bill?

And is it too much to hope that Congress might someday reform the Bankruptcy Code and allow suffering student-loan borrowers to discharge their crushing student loans in bankruptcy?

Will Milzarski, Wounded Veteran (photo credit: Chicago Tribune)


References

Associated Press. Wounded Michigan vet gets student loan debt forgiven, but now IRS wants $62,000Chicago Tribune, October 20, 2017.

Judith Putnam. Student debt forgiven, but wounded vet gets $62,000 tax billUSA Today, October 20, 2017.

Representative John Delaney press releaseDelaney and Katko File Legislation to Help Americans Struggling with Student Loan Debt, May 5, 2017.

Representative John Katko press release. Reps. Katko and Delaney File Legislation to Help Americans Struggling with Student Loan Debt. May 8, 2017.

Steve Rhode. 15 Seconds of Positive News About Student Loans and Congress. Get Out of Debt Guy, February 15, 2108.


Friday, February 2, 2018

Massachusetts Attorney General organizes volunteer lawyers to represent indigent college debtors in bankruptcy: This is A VERY BIG DEAL

Maura Healey, Massachusetts Attorney General,  announced last month that her office is partnering with the Massachusetts Bar Association and the Greater Boston Chamber of Commerce to organize volunteer lawyers to represent distressed college debtors in bankruptcy.

This is a VERY BIG DEAL for a least four reasons:

Dispelling the myth that student loans can't be discharged in bankruptcy

First, as Steve Rhode pointed out, AG Healey's initiative gives the lie to the myth that student loans cannot be discharged in bankruptcy. The Department of Education and the student-loan industry want college borrowers to believe their student loans are not dischargeable, and they have been successful in  perpetuating that falsehood.

As scholar Jason Iuliano wrote in a law review article, almost a quarter of million student loan debtors filed for bankruptcy in 2007, but only a few hundred even tried to discharge their student loans. But the Massachusetts Attorney General's initiative demonstrates that competent attorneys believe these loans can be wiped out in bankruptcy, and that is welcome news.

Legal representation means that more college borrowers will win their bankruptcy cases

Second, having experienced and committed lawyers representing student-loan debtors in bankruptcy court means more college borrowers will be successful. I once thought student-loan debtors could win their cases against the Department of Education and their agents even if they went to court without lawyers.

And indeed a few debtors have gotten relief from student loans in the bankruptcy courts, even though they went to court without attorneys. Richard Precht, Jaime Clavito, and George and Melanie Johnson come to mind.  But the debt collectors--and Educational Credit Management Corporation, in particular--have appealed their losses in the appellate courts, where it is very difficult for debtors to defend their interests.

In the Hedlund case, for example, a student-loan creditor fought Michael Hedlund in the appellate courts for 10 years!  And creditors often got debtors' victories reversed by appellate courts. In a heartbreaking loss, George and Melanie Johnson got their victory snatched away after a bankruptcy judge reversed his earlier decision to discharge their loans. The judge backtracked after his original decision was vacated by an appellate judge.

With competent attorneys, however, college borrowers can fight DOE and its venal agents until hell freezes over. And eventually some of debtors' victories in the bankruptcy courts will be upheld at the federal circuit court level.  Once the federal appellate courts endorse a more humane approach to handling student-loan bankruptcies, we will see more deserving debtors get relief.

Attorneys can defend college borrowers from dastardly creditor tactics

Third, if energetic and competent lawyers begin representing college borrowers in the bankruptcy courts, debtors will have able advocates to fend off what Rafael Pardo labeled "pollutive litigation" by the debt collectors.  Indigent debtors cannot counter unscrupulous tactics by creditors' lawyers unless they themselves have lawyers. In the Bruner-Halteman case, for example, ECMC repeatedly garnishing the wages of a bankrupt student debtor in violation of federal law. Had Bruner-Halteman not had an attorney, she would have been crushed.

A State Attorney General is now in open conflict with Betsy Devos and the Dept. of Education

 Finally, Massachusetts AG Maura Healey is now in open conflict with our federal government's heinous policy of fighting bankruptcy relief for college borrowers who are truly suffering. In the Myhre case, DOE opposed bankruptcy relief for a quadriplegic student-loan borrower who was working full time and yet unable to survive financially. In the Abney case, DOE fought bankruptcy relief for Michael Abney, a man in his forties who had a record of homelessness and who had a monthly income of about $1100 a month. In Roth, ECMC fought Janet Roth all the way into an appellate court. Poor Ms. Roth was living on Social Security income amounting to less than $800 a month.

Conclusion

For the first time, we will soon see a state attorney general's office and aggressive and competent lawyers going on the attack against Betsy DeVos' Department of Education, which has become nothing more than a shill and a lackey for the corrupt student-loan business.  Hurrah for AG Maura Healey!

AG Healey has introduced a model for progressive state governments to attack a vicious federal agency and bring relief to millions of college borrowers who have their backs against the wall.  California, I call on you to rally to AG Healey's standard. New Jersey, New York, Illinois, Texas and Florida: respond to Healey's bugle call and join the fight.

It is time for state governments to fight the corrupt and sleazy student-loan industry and to bring it down.  AG Healey and the Massachusetts Bar Association have shown the nation the path toward justice.



References

Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).

Hann v. Educational Credit Management Corporation, 711 F.3d 235 (1st Cir. 2013).

Jason Iuliano. An Empirical Assessment of Student Loan Discharge and the Undue Hardship Standard. American Bankruptcy Law Journal 86 (2012), 495.

Natalie Kitroeff. Loan Monitor is Accused of Ruthless Tactics on Student Debt. New York Times, January 1, 2014. Accessible at http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html?_r=0

Rafael Pardo. The Undue Hardship Thicket: On Access to Justice, Procedural Noncompliance, and Pollutive Litigation in Bankruptcy. 66 Florida Law Review 2101 (2014).

Steve Rhode. Mass AG and Bar Association Lead Way to Help Student Loan Debtors to Help File Bankruptcy. getoutofdebtguy.org (blog), January 29, 2018.

Roth v. Educational Credit Management Corporation490 B.R. 908 (9th Cir. BAP 2013). 








Wednesday, January 17, 2018

Dept of Ed Puts Fraud First Over Students and Common Sense. Essay by Steve Rhode

By SteveRhode, January 3, 2018

Secretary of Education Betsy DeVos seems to be waging a terrible war against student loan debtors who have been defrauded by their schools in order to extract federal student loan money. Since the Trump administration took over the Department of Education has not actually delivered relief to a single Borrower Defense to Repayment claim. Yet they brag as of December 20, 2017 they have just approved “12,900 pending claims submitted by former Corinthian Colleges, Inc. students, and 8,600 pending claims have been denied.”
Under that Department of Education program the student previously would be forgiven from the student loans obtained by deception and the government would claw back the money the school got.
Most of these claims have been submitted by students of for-profit schools who played fast and loose with their marketing.
But it seems the government is turning its back on students who have been misled by schools to get their student loan money. Not only is the Department of Education changing the rules but they are also proposing rules that students who land better jobs after graduation should not be forgiven from the loans they were defrauded by. Either you are or are not a victim of fraud but the proposed policy create a middle ground where victims get to be only partial victims.
Under the deadline of “Improved Borrower Defense Discharge Process Will Aid Defrauded Borrowers, Protect Taxpayers” the government proposes what they say is more fair. Department of Education Secretary DeVos says “No fraud is acceptable, and students deserve relief if the school they attended acted dishonestly.” But then goes on to say relief is conditional based on gainful employment. – Source

While the Department of Education brags about their recent wave of Corinthian College Borrower Defense to Repayment claims they also disclose “rather than taking an “all or nothing” approach to discharge, the improved process will provide tiers of relief to compensate former Corinthian students based on damages incurred.”

Relief from fraud will be dependent on the current earnings of the victims. Victims earning 70% and above of the income of their peers will only receive a 30 percent forgiveness of the fraudulent student loans. So to be clear, that income test is against the other students who were the victims of the same fraud and not the general population.
As a bonus the Department of Education gives fraud victims this carot “to mitigate the inconvenience for how long it has taken to adjudicate claims, the Department will apply a credit to interest that accrues on loans starting one year after the borrower defense application is filed.”
So the Department of Education will take forever to deal with the forgiveness application and then only tack on a year worth of interest while they drag their feet.
Now to add insult to injury the Department of Education is proposing making it much harder for students to prove they were subject to misrepresentation to induce enrollment in an effort to extract money from students loan debtors.
The proposed forgiveness plan is to eliminate any successful judgment against a school by an Attorney General as proof of deception. Instead the individual student would have to obtain an individual judgment against the school. This would require a legal action that nearly all students would never be able to afford to file. Additionally the defrauded student would have to show clear and convincing evidence they were intentionally misled and that misrepresentation let to monetary harm.
“They’ve made it almost impossible for borrowers to meet the misrepresentation standard by requiring them to demonstrate the intent of the school especially when students don’t have the power of discovery” to examine the inner workings of a school, said Clare McCann, deputy director of higher education policy at New America, who worked on the Obama-era policy. “They took every dial and dialed to the far extreme. It really tries to make [the regulation] as useless as possible.”
Pretty soon we are going to need a Department of Education Victim Helpline to assist people soon to be screwed over by a government department that clearly appears to be putting for-profit colleges first.


*****

Steve's essay was originally posted on The Get Out of Debt Guy web site.
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here. 



Friday, January 12, 2018

Betsy DeVos is trying to nullify a federal law intended to give defrauded students relief from student loans: Our government is shielding crooks

Betsy DeVos is in bed with the corrupt for-profit college industry. Her slavish pandering to the for-profit-college racketeers is truly shocking. Now she is trying to nullify a law that gives relief to students who were defrauded by for-profit colleges.

In 1994, Congress passed a law giving students an avenue for getting their student loans discharged if they were defrauded by the college they attended.  The law was not used much until Corinthian Colleges--a for-profit college group--collapsed and filed for bankruptcy. At the time of its demise, Corinthian had over 300,000 students or former students; and several thousand filed so-called borrower defense applications seeking to get their student loans discharged on the grounds they were defrauded by Corinthian.

The Obama administration adopted regulations for implementing the borrower-defense rule, which provided a regulatory avenue for reviewing fraud claims. But Betsy DeVos nullified those regulations. DeVos said the Obama regulations would allow students to wrongly obtain "free money" at the expense of for-profit colleges.

DeVos launched a new round of administrative review, and DOE said the new regulations would probably not be implemented until 2019. The DeVos DOE's new borrower-defense rules are very different from what the Obama administration had fashioned. In fact, the DeVos regulations, if implemented, will basically invalidate the federal borrower-defense statute altogether.

David Halperin, writing in Huffington Post, observed that "the DeVos-Trump draft borrower defense rules . . . essentially nullify the 1994 law that gives former students who are ripped off by their colleges . . . the right to seek cancellation of their student loans."

As Halperin explained, the DeVos rules erect "numerous and redundant barriers to students getting the benefit of that law." The DeVos draft rules are so draconian that a representative of the for-profit college industry admitted that the new rules "feels a little stacked against the student."

For example, under the rules DeVos proposes, students will have to prove their fraud claims by "clear and convincing evidence." This is a very high legal barrier, especially when you consider that the colleges--not the complaining students--have access to the evidence of fraud.

Of course, state attorneys general have been suing the for-profits for fraud.  Surely a former student could present a judgment for fraud against a for-profit college as evidence that the student herself is a fraud victim. No, DeVos' new regulations will not permit a fraud victim to present a judgment against a for-profit college as part of the student's own fraud claim. As Steve Rhode wrote recently:
The proposed forgiveness plan is to eliminate any successful judgment against a school by an Attorney General as proof of deception. Instead, the individual student would have to obtain an individual judgment against the school. This would require a legal action that nearly all students would never be able to afford to file.
If the DeVos rules go into effect, fraud victims will rarely if ever obtain relief from their student loans. Abbey Shafroth, an attorney with the National Consumer Law Center, said this: "I really think [the DeVos rules] would effectively do away with borrowers' ability to get relief in almost all circumstances."

The DeVos Department of Education's proposed borrower-defense rules demonstrate that it has abandoned all pretense of fairness and decency toward student-loan debtors. DeVos herself is nothing more than obsequious book licker for the for-profit college industry, and Congress seems unable or unwilling to rein her in.

Last July, Eighteen Democratic state Attorneys General sued DeVos and the Department of Education, seeking to force the Department to implement the Obama-era borrower defense rules. I hope they are successful because what DeVos is essentially trying to do is eviscerate a 1994 statute passed by Congress for the express purpose of  providing student fraud victims with well deserved relief from their student loans.




References

David Halperin. Backing DeVos Repeal of Obama Rules, For-Profit Colleges Vilify Students. Huffington Post, January 9, 2018.

Andrew Kreighbaum. Few Details on Tougher Borrower-Relief Standards. Inside Higher Ed, January 9, 2018.

Andrew Kreighbaum. Devos: Borrower-Defense Rule Offered 'Free Money'Inside Higher Ed, September 26, 2017.

Steve Rhode. Dept of Ed Puts Fraud First Over Students and Common Sense. Getoutofdebtguy.org (blog), January 3, 2018.

Editorial: Scamming for-profit schools roar back under Betsy DeVos. Chicago Sun-Times, December 25, 2017.




Thursday, January 4, 2018

Forget the Russians: Democrats should focus their energy on removing Betsy DeVos from Trump's Cabinet

Almost 44 million Americans are student-loan debtors, and every single one of them should see Betsy DeVos as their mortal enemy. Since President Trump appointed her as Secretary of Education, DeVos has done nothing to ease the suffering of college borrowers. On the contrary, she has done everything she can to prop up the venal and corrupt for-profit college industry, which has preyed on vulnerable and naive students, many of them minority members or just plain poor.

We have known for years that the for-profit college racket is a cancer. Senator Tom Harkin's 2012 report on the for-profits made that fact absolutely clear. And we know that a high percentage of people who take out student loans to attend these shyster colleges default on their loans. Nearly half of a recent cohort of borrowers who attended for-profit colleges defaulted within five years. It was recently reported that more than half of the students who took out student loans to attend 1,000 colleges and schools had not paid down one dime of their student loans seven years into repayment. Most of those 1,000 institutions are for-profits.

Minorities have been especially injured by the for-profit colleges. Three quarters of African Americans who take out loans to study at a for-profit college and then drop out eventually default.

In my view, the Obama administration did not do a great job of reining in the for-profit racketeers, but it did make an effort. The combined efforts of the Obama Department of Education and several state attorney generals brought down two bad actors: Corinthian Colleges and ITT Tech. These two organizations had a total of a half million students and former students at the time they closed and filed for bankruptcy.

And the Obama administration put regulations in place to process students' fraud claims--claims against Corinthian in particular. But Betsy DeVos derailed those regulations and appears intent on protecting the for-profits from fraud claims. She's cooked up a bogus formula for resolving fraud claims, awarding only partial compensation to victims.

As Steve Rhode noted in a recent essay, the DeVos DOE has not provided relief to a single student borrower who was defrauded by a for-profit college, although it has approved around 13,000 claims by former Corinthian students (while rejecting 8,600 pending  claims).

DeVos also nullified an Obama-era regulation that would prohibit the for-profits from forcing their students to sign covenants not to sue as a condition of enrollment.  In addition, DeVos is slow rolling the Public Service Loan Forgiveness Program (PSLF), which provides debt relief to people who devote ten years to public service. Indeed, the Trump administration proposes to do away with the PSLF program.

And if that weren't enough, the Republicans sent a bill out of the House Education Committee that would do away with student-loan forgiveness altogether. DeVos has not formally endorsed this bill, but she called it a "starting point."  The bill, if it becomes law, would give student borrowers only two options--pay off their loans in ten years or go into a perpetual income-based program that would not end until the loans are paid off or the student borrower dies. Oh yes, and the bill would eliminate the authority of state attorney generals to police the student loan industry.

And what have the Democrats done in response to DeVos' shockingly obsequious behavior toward the for-profit college racketeers? Not a friggin' thing. Senator Elizabeth Warren--self-proclaimed consumer advocate, writes stern letters to DeVos and other government bureaucrats, but she can't point to a single accomplishment in terms of student-loan relief.

I give the Democrats grudging credit for at least introducing legislation that addresses the student-loan crisis. The Delaney-Katko bill (co-sponsored by 25 Democrats and one Republican) would open the bankruptcy courts to deserving student borrowers, which is really the only comprehensive solution to the crisis. But that bill will never make through a Republican dominated Congress that is totally beholden to the financial industry.

In my mind, the litmus test for Congress in terms of student-loan relief is the Warren-McCaskill bill that would bar the federal government from garnishing the Social Security checks of elderly student-loan defaulters. Passing this bill would at least alleviate the suffering of the 114,000 older Americans who are seeing their Social Security income reduced due to unpaid student loans.

 It is not enough for Senators Warren and McCaskill to simply file this bill; they need to get it to a vote. What Republican would vote against that bill? Can't Senator Chuck Schumer and Representative Pelosi walk across the aisle and get Warren-McCaskill bill signed into law with bipartisan support?

Frankly, if there is not enough good will between Republicans and Democrats to enact the Warren-McCaskill Social Security relief bill, which only provides puny student-debt relief, then student debtors should say the hell with both parties and form a third political party.

In the meantime, Democrats should focus on getting Betsy DeVos out of Trump's cabinet. I don't know if her slavish catering to the for-profit-college gang amounts to high crimes and misdemeanors for impeachment purposes, but this I know: Betsy has got to go.

Image credit: GQ Magazine


References

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

Jillian Berman. House Republicans seek to roll back state laws protecting student loan borrowers. Marketwatch.com, December 7, 2017.

Danielle Douglas-Gabriel. GOP higher ed plan would end student loan forgiveness in repayment program, overhaul federal financial aidWashington Post, December 1, 2017.

Danielle Douglas-Gabriel. Dems raise concern about possible links betwen DeVos and student debt collection agencyWashington Post, January 17, 2017.


Danielle Douglas-Gabriel. Elizabeth Warren wants the Education Dept.'s use of earnings data investigated. Washington Post, January 2, 2018.

Paul Fain. Half of black student loan borrowers default, new federal data showInside Higher Ed, October 17, 2017.

Andrea Fuller. Student Debt Payback Far Worse Than BelievedWall Street Journal, January 18, 2017. 

Andrew Kreighbaum. DeVos on Higher Education Act Rewrite. Inside Higher Ed, December 15, 2017.

Jack Moore. Betsy DeVos may be Gearing Up to Screw Over Public Service Workers Who Expect Student Loan Forgiveness. GQ.com, August 3, 2017.

Representative John Delaney press releaseDelaney and Katko File Legislation to Help Americans Struggling with Student Loan Debt, May 5, 2017.

Senator Claire McCaskill Press Release, December 20, 2016. McCaskill-Warren GAO Report Shows Shocking Increase in Student Loan Debt Among Seniors.

Senator Elizabeth Warren Press Release, December 20, 2016. McCaskill-Warren GAO Report Shows Shocking Increase in Student Loan Debt Among Seniors

Steve Rhode. Dept of Ed Puts Fraud First Over Students and Common Sense. Getoutofdebtguy.com, January 3, 2017.

United States Government Accountability Office. Social Security Offsets: Improvement to Program Design Could Better Assist Older Student Borrowers with Obtaining Permitted Relief. Washington DC: Author, December 2016).

United States Health, Education, Labor and Pension Committee. For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. July 2012. Accessible at: http://www.help.senate.gov/imo/media/for_profit_report/PartI.pdf













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.




Tuesday, November 28, 2017

Wells Fargo Facing Penalties Over Ignoring Student Loan Included in Bankruptcy. Essay by Steve Rhode

By Steve Rhode.  November 27, 2017
One of our very own student loan attorneys, Austin Smith, recently scored an important victory on a Wells Fargo student loan.
Austin said, “I confess when we filed this case, I was hoping Wells Fargo would quickly see that we were right, acknowledge the mistake, and fix it. And naively, I thought they might be willing to sit down and fix the problem for all their customers. Everybody makes mistakes, and this could have been a real opportunity for Wells to prove that they’ve changed their business culture. But now I fear that Wells Fargo has no intention of changing its culture or business practices despite their public protestations to the contrary over the last year. They have dug in their heels on this issue, and seem intent to keep doing what they’re doing, which is plainly a violation of the bankruptcy laws.”
In 2007 Ryan, the consumer, filed for bankruptcy. Following the bankruptcy Wells Fargo Bank sued Ryan and obtained a state court judgment to collect on the debt. Ryan had attended Capella University, a for-profit school.
Attorney Austin Smith jumped into the fray as part of a team and last year he reopened the case and sued that the debt had in fact been discharged and sought punitive damages for discharge violations.
In this case, Educational Financial Services, a division of Wells Fargo Bank, tried to make the argument the loan was not actually discharged in the 2007 bankruptcy.
When Wells Fargo sued Ryan in State Court to collect on the student loan debt included in Ryan’s bankruptcy they made no mention of Ryan’s previous bankruptcy and discharge. The consumer felt subsequently pressured into entering a consent judgment over the debt in 2008 and made monthly payments of $150 on the loan for the next seven years.
Finally fed up Ryan found legal help to reopen his previous bankruptcy case to commence an adversary proceeding and have this matter dealt with once and for all.
The valid point raised by Ryan, the Plaintiff, was “that the loans from Wells Fargo were discharged by operation of law on November 29, 2007, because the loans were not a student debt protected by any subsection of Section 523(a)(8).” More on this technical issue can be found here.
The Judge ruled that even though Ryan had previously repaid the debt through the State Court judgment he was not prevented from reopening his bankruptcy and filing an adversary proceeding to rule on the discharge of his non-protected private student loan debt. The issue at hand was if Ryan’s discharge had been violated because the loans were not student loans under Section 523(a)(8).
And while the Court said “Section 523(a)(8) is self-executing, a student loan debt is non-dischargeable absent a determination.” The Court also said, “However, the self-executing nature of Section 523(a)(8) is premised on the debt actually being one for a student loan, a determination that was not previously made by this Court or the State Court which had concurrent jurisdiction to do so.” – Source
This is why it is so important for anyone who includes student loans in a bankruptcy to pursue an adversary proceeding to get a ruling on the dischargeability of the loans. This key step is one that often gets overlooked.
Judge John Gregg ruled Wells Fargo could not easily have the Plaintiff’s complaint dismissed and the issue would have to proceed. As you can imagine, Wells Fargo has appealed the Judge’s ruling and hopes to get a different answer on appeal. – Source
In the appeal Wells Fargo raises the point Ryan’s loans should not be discharged because “he obtained funds from Wells Fargo and the government in excess of the cost of attendance.” But shouldn’t that be the job of Wells Fargo to determine? Because if private student loans are extended for more than the cost of attendance, all or part of the loans can be discharged thru bankruptcy.
Wells Fargo is most likely in a hurry to get this matter resolved in their favor because if they are found to have pursued the alleged discharged private student loan debt they could be facing a precedent and financial consequences.
Ryan’s amended complaint they are trying to get tossed out summarizes the issue at the heart of this case. It says, “Not all student loans are presumptively non-dischargeable in bankruptcy. In fact, the term “student loan” appears nowhere in section 523(a)(8). Instead, section 523(a)(8) makes certain educational debts presumptively non-dischargeable, including government issued educational loans, defaulted conditional government grants and scholarships, certain loans from non-profit institutions, and private education loans that are qualified education loans under the tax code. Section 523(a)(8) does not except from discharge a host of other types of traditional private, credit-based loans couched as “student loans” by for-profit lenders, including loans for K-12 programs, loans made to students at unaccredited trade schools, loans made for alcohol and drug rehab, and loans made in excess of the “cost of attendance.” This is reinforced by the plain language of the discharge order, which states that debts for “most student loans” are non-dischargeable. If debts for “all student loans” are presumptively non-dischargeable, then more than 10 million discharge orders have been issued with an erroneous legal conclusion since 2005.” – Source
The complaint also states, “Given Wells Fargo’s actual and constructive knowledge of the timing of the Plaintiff’s loans, the “cost of attendance” at Capella University, and the nature of the Loans it extended to the Plaintiff, Wells Fargo knew or should have known that the Loans were discharged in the Plaintiff’s bankruptcy.”
This is an interesting case and I can’t wait to get the final ruling after a lot more expensive court time. We’ll have to keep our eye on this one.
*****
Steve's essay was originally posted on The Get Out of Debt Guy web site.
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here. 

Tuesday, November 14, 2017

Department of Education Coming to Jesus Moment With For-Profit Schools. Article by Steve Rhode

By  on November 10, 2017
99 percent of student loan fraud claims come from for-profit colleges and schools.
I’d love to tell you I absolutely think the current Trump administration Department of Education is going to get the message that for-profit colleges are problematic, but I doubt it.
The Century Foundation has obtained data from the U.S. Department of Education through a Freedom of Information Act (FOIA) request which paints a very clear picture of issues surrounding for-profit schools and student loan fraud issues. I can’t wait to see the magic the Department of Education uses to make these facts go away or not be relevant.
Out of the total of 98,868 complaints reviewed by TCF, for-profit colleges generated more than 98.6 percent of them (97,506 complaints). Of these complaints nonprofit colleges generated 0.79 percent (789 complaints) and public colleges generated 0.57 percent (559 complaints).
Approximately three-fourths of all claims (76.2 percent) were against schools owned by one for-profit entity, the now-closed Corinthian Colleges (75,343 claims). Removing Corinthian from the analysis, the vast majority of claims, over 94 percent, were still against for-profit colleges (22,160 of the 23,525 non-Corinthian claims).
Claims are concentrated around fifty-two entities—forty-seven for-profit companies and five nonprofit institutions—that have each generated twenty or more borrower defense claims. Of these five nonprofits, three converted from for-profit ownership.
The backlog of fraud complaints—currently numbering 87,000 not yet reviewed—is increasing, with the number of new claims submitted per month averaging approximately 8,000 since mid-August.”
The data uncovered while for-profit schools account for ten percent of student enrollment the students who attended were 1,100 times more likely to file a fraud claim.

*******

This article appeared on The Get Out of Debt Guy site. Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve here.

Friday, October 27, 2017

Why Does the Department of Education Hate Student Loan Debtors Just So Much? Article by Steve Rhode

By  on October 25, 2017

If I was ever to get into an academic research argument on the role of government, this would be the time. Frankly I’m just getting pissed off by the apparent disregard for student loan debtors by the Trump Department of Education. And before you react that this is a Trump reaction, it’s not. This is an outrage and embarrassment of the actions taken collectively against consumers and student when it comes to student loan debt.
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America. – Source
The last administration was trying to protect students from being misled by schools to enroll them based on false promises and employment assertions. That’s been significantly halted.
The previous administration expanded the Borrower Defense to Repayment program to allow students who had been defrauded by their schools a chance to have their loans forgiven and the loans clawed back from the schools. That’s been significantly halted.
The Consumer Financial Protection Bureau (CFPB) is suing Navient over poor student loan servicing and Navient says it has no duty to provide good advice to student loan debtors. The Department of Education is not participating in that fight by backing up the CFPB and in fact has said they will stop sharing information with the CFPB.
Now we will have to see what the Department of Education does next on this. The student loan lending industry is making the argument to the Department of Education they should not be subject to state probes into their industry. The position is the federal law and should prevent states from investigating the abusive practices of the student loan industry.
Just to show you how crazy this has all become, even Texas thinks this argument is crap and Texas has typically been the business comes first state.
“Joining a bipartisan coalition of 25 states, Attorney General Ken Paxton today called on U.S. Secretary of Education Betsy DeVos to reject a campaign by student loan servicers and debt collectors to dismantle state oversight of the student loan industry. In recent years, Texas and other states investigated and prosecuted a number of student loan industry abuses, winning settlements in the tens of millions of dollars for vulnerable student borrowers.
In a letter to Secretary DeVos, Attorney General Paxton and his counterparts point out that the student loan industry continues to lobby the U.S. Department of Education for more control and autonomy at a time when it is still in urgent need of reform.” – Source
If the Department of Education was doing anything to hold schools and lenders accountable for the massive levels of student loan debt issued with fraud and serviced with incompetence then maybe all of these events would not matter, because they would not happen or be allowed to continue.
But I’ve got an old expression for you: If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.

*******

This article appeared on the Personal Finance Syndication Network web site and also on The Get Out of Debt Guy site. Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve here.