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




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.

Wednesday, September 27, 2017

A Scary Report From the Federal Reserve Bank: More Than Half of a Recent Cohort of Student-Loan Borrowers Did Not Reduce Their Debt by One Penny Over Five Years

Steve Rhode commented recently on a Federal Reserve Bank report published last July. As Mr. Rhode pointed out, the Feds reported that home ownership among young people declined by 8 percent over an 8-year period (2007 to 2015);  and the Feds concluded that a substantial reason for this decline is rising levels of student-loan debt.

The Fed report also observed that more young Americans are living with their parents than in previous years. In 2004, about one third of 23-25-year-olds lived with their parents. In 2015, 45 percent of people in this age bracket were living with mom and dad--a big increase.

These are alarming statistics, but the Fed's report also included information that is even scarier. More than half of student-loan borrowers in the 2009 cohort of borrowers had not paid down their student loans by even one penny five years after beginning repayment.

According to the Fed report, 59 percent of the 2009 cohort who owed $5,000 or less had not reduced their debt by even a dollar by 2014.  Well over half of people with very modest levels of student debt were delinquent on their loans, in default, or had failed to reduce their original loan balance by even a fractional amount.

Among people who owed between $50,000 and $100,000, 57 percent had not cut their student-loan debt by even a penny over five years. Among people owing $100,000 or more, 54 percent had made no progress on their loans during that time period.

The Fed report was commenting on a single cohort: people who took out student loans in 2009. But the repayment rates for more recent cohorts must be at least as bad. The Department of Education has been encouraging distressed borrowers to enter 20- and 25-year repayment plans, which lowers monthly payments. But in almost every case, the lower payments are not large enough to cover accruing interest, so most of the 6 million people in long-term, income-drive repayment plans are seeing their loan balances grow larger with each passing month.

And here's another scary tidbit of information. The Government Accountability Office reported in 2016 that half the people in income-driven repayment plans have been kicked out because they aren't abiding by the plans' eligibility rules.

In short, a perfect storm is brewing on the nation's economic horizon. Student loans are forcing more and more young people to postpone buying a house and to live with their parents.  Millions of people are making no progress at all toward paying off their student loans.

We can quantify some of the harm caused by the student-loan crisis, but other harms are difficult to measure. How many people have given up trying to get ahead because their student-debt grows larger with each passing month? How many have become cynical, despondent, or angry? How many of those masked antifa anarchists have student loans?

Steve Rhode put his finger on the only solution to the student-loan catastrophe. "Unless we tackle the growing problem of excessive student loan debt and allow those with unmanageable student loan debt to a fresh start in bankruptcy,"Mr. Rhode wrote, "the economic future of the days ahead is going to be less than it could have been."

Exactly. The only path out of this economic quagmire is through the federal bankruptcy courts.

The student-loan crisis is brewing into a perfect storm.

References


Zachary Bleemer, et al. Echoes of Rising Tuition in Students' Borrowing, Educational Attainment, and Homeownership in Post-Recession America. Federal Reserve Bank of New York Staff Report No. 820, July 2017.

Steve Rhode. Student Loan Debt Hurts Economy, Consumers, and Retirement Savings. Personal Finance Syndication Network, September 207.

US. Government Accounting Office. Federal Student Loans: Education Needs to Improve Its Income-Driven Repayment Plan Budget Estimates. Washington, DC: U.S. Government Accounting Office, November, 2016.



Student Loan Debt Hurts Economy, Consumers, and Retirement Savings, essay by Steve Rhode

When you live in a society like ours that is dependent on consumers to consumer goods and services, a reduction in the ability for growing sections of society to do their job and purchase stuff is going to lead to slower growth. That’s not good.

When growth slows there is less of a need for workers, jobs are cut, wages go flat, and life becomes tougher for many.

Historically, people accumulated wealth through homeownership and savings. When reaching the age of retirement the home could be sold and the equity created could be withdrawn. With less access to this type of wealth accumulation and the inability to save for retirement due to growing student loan debt, tragedy is on the horizon.

Student loan debt is hurting an entire generation of consumers who are setup for financial failure at this point.

The easy access to student loans has led to a growing for-profit private student loan industry that since 2009 has been drawing in many through loans and co-signing. Private student loans exploded with the advent of the for-profit schools. As an example, read Navient Knew Loans Were Garbage When They Saddled Students With Them. Yet the current Department of Education under Secretary Betsy DeVos seems resistant to crack down on protections from these schools.

Federal government student loans have been a blessing for many to obtain funds to attend higher education but they have been a curse as well. Schools who were qualified to receive federal funds looked at that easy money as a way to make an easy sale of a student into a seat regardless of the ability of the student to benefit from the loan and school.

Data published by the Federal Reserve Bank said, ” findings are consistent with American youth having accommodated tuition shocks not by forgoing schooling, but instead by amassing more debt.”
The Federal Reserve Bank of New York goes on to say, “Further analysis demonstrates that the tuition hike and student debt increase, despite leaving higher educational attainment unchanged, can explain between 11 and 35 percent of the observed approximate eight percentage-point decline in homeownership for 28-to-30-year-olds over 2007-15 for these same nine cohorts. The results suggest that states that increase college costs for current student cohorts can expect to see a response not through a decline in workforce skills, but instead through weaker spending and wealth accumulation among young consumers in the years to come.”

At the same time as homeownership has been declining, kids are living with their parents at an increasing rate.


As a society nothing good is going to come from lower amounts of wealth accumulation, and weaker spending.

Unless we tackle the growing problem of excessive student loan debt and allow those with unmanageable student loan debt to have access to a fresh start in bankruptcy, the economic future of the days ahead is going to be less than it could have been.

Steve Rhode


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.

Thursday, September 7, 2017

Terrific essay by Steve Rhodes: Is Betsy DeVos Nuckin Futs With Break From Student Loan Debtor Protections?

This terrific essay by Steve Rhode first appeared on Consumer Debt Guy blog site on September 6, 2017.
***
By Steve Rhode on September 6, 2017
   
The Consumerist is reporting the Department of Education has terminated its cooperation with the Consumer Financial Protection Bureau in dealing with student loan servicer problems.
“DeVos accuses the Bureau of not living up to its end of agreements established in 2011 and 2013, by doing too much to hold loan servicers accountable.”
“DeVos suggests that actions taken by the CFPB to rein in shoddy student loan servicers and collectors only confuses borrowers.
“The Department takes exception to the CFPB unilaterally expanding its oversight role to include the Department’s contracted federal student loan servicers,” DeVos wrote. “The Department has full oversight responsibility for federal student loans.”
However, the Department’s ability to root out fraud was thrown into question last week, when the agency appointed former for-profit college executive Julian Schmoke to run the Department’s enforcement division.
While Schmoke currently works as a high-ranking director at a community college in Georgia, he spent several years working for DeVry University, a college that has been repeatedly accused of fraud by both federal and state authorities.”
“The claim that the CFPB ‘unilaterally’ expanded its oversight role over servicers and collectors of federal student loans is unfounded,” Persus Yu, director of the National Consumer Law Center’s Student Loan Borrower Project, said in a statement.
“Education is now trying to stop the CFPB from handling loan-related complaints, but Education’s failures are what led Congress to give the CFPB authority to help students,” Yu said. “DeVos is prioritizing the interests of predatory for-profit schools, debt collectors, and troubled student loan services over the interests of student loan borrowers.”

This recent action and the fact the Department of Education has not approved Borrower Defense claims leads me to wonder where is any proof the Department of Education gives a damn about student loan debtors.

Tuesday, July 25, 2017

National Collegiate Student Loan Trust's student loans may be uncollectible against California co-signers: Sweet!

National Collegiate Student Loan Trust (NCSL)has been in the news lately. The New York Times recently broke a story about NCSL's efforts to collect on the defaulted student loans it holds. According to the Times, NCSL holds $12 billion in private student loans, and more than 40 percent of those loans ($5 billion) is in default.

Squadrons of NCSL attorneys have fanned out across the United States to sue student-loan defaulters, but they have been running into trouble. In case after case, judges have thrown NCSL's collection lawsuits out of court because NCSL can't produce the paperwork to show that it owns the debt.

And now, in California,  NCSL faces another obstacle to its debt-collection efforts. An obscure  California statute may make it impossible for NCSL to collect against co-signers on private student loans taken out in the Golden State.

Section 1799.91 of the California Civil Code requires lenders to provide loan co-signers with a specific written notice that warns them of the risk they take when they co-sign a loan. The warning states:
You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn't pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.

You may have to pay the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increases this amount.
 The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become part of your credit record.
Importantly, California law requires co-signers to acknowledge receipt of the statutory warning by signing their names below the cautionary message.
National Collegiate Student Loan Trust requires most of its student borrowers to obtain co-signers on their loans; and reportedly, most NCSL loans do not contain the California statutory warning. The combination of missing documents and the California co-signer statute may make it virtually impossible for NCSL to collect on defaulted student loans in California. Moreover, when NCSL borrowers in California find out that their student loans may be uncollectible, it seems inevitable that more of them will default.

Of course no one should encourage a solvent debtor to welsh on a lawful debt. People who took out private loans held by NCSL should pay them back if they have the ability to do so. But the banks made it virtually impossible for destitute private student-loan borrowers to discharge their private college loans in bankruptcy when they lobbied Congress to pass the so-called Bankruptcy Reform Act of 2005. Now, at least, hard pressed student-loan defaulters have some defenses if they get sued by NCSL--particularly in California.

I am grateful to Steve Rhode for alerting me to this important development. Mr. Rhode wrote on this issue in the Get Out of Debt Guy blog site.  I'm also grateful to California attorney Christine Kingston for calling Steve's attention to the California co-signer statute and its significance for student-loan debtors.

 References

Stacy Cowley and Jessica Silver-Greenberg. As Paperwork Goes Missing, Private Student Loan Debts May Be Wiped Away. New York Times, July 17, 2017.

 Steve Rhode. California Student Loan Co-Signer Statute Helps to Kill Student Loan Debt. Get Out of Debt Guy, July 25, 2017.











Thursday, July 20, 2017

Building a Better America Budget A Laugh for Student Loans: Great Essay By Steve Rhode

The House Budget Committee has just rolled out a first pass at a new federal budget titled Building a Better America.

People dealing with student loans had better start thinking quickly and clearly if their political ideology is more important than the future of student loan debtors.
Here are a couple of choice sections.
“The Federal Government holds most student loan debt; as of the first quarter of 2017, its portfolio was $1.29 trillion, up from roughly $516 billion in fiscal year 2007. As Federal lending consumes an ever-larger share of the student loan market, it crowds out private and other lenders that may have better products to meet borrowers’ needs.”
It would appear the argument is the government wants to get out of the student loan market and drive more people to private student loans which don’t have any of the payment options, forgiveness programs, or helpful options federal loans have.
“Account for the True Costs of Student Loans. By statute, the government’s accounting procedures for assessing the costs of student loan programs do not incorporate market risk. For example, borrowers may have trouble finding a job and repaying loans in an economic downturn. To measure student loan program costs, the budget recommends using fair value accounting, which does assume such market risk.”
While the budget may recommend fair value accounting, the Department of Education is busy trying to gut regulations protecting students from underperforming schools which lead to failed educations and problem debt. The administration can’t have it both ways.
“In areas such as health care, welfare, environmental regulation, education, workforce development, and transportation, we put federal spending on a budget and empower the states, which are best suited to address the individual needs of their citizens and communities.”
I get the philosophy of returning more responsibility to the states but won’t this just create an inequity in the ability of individuals to plan for education when there may be a patchwork of education initiatives by state instead of one federal regulation when it comes to student loan and education issues?
“Simplify and Streamline Higher Education Programs and Financing to Protect Students and Taxpayers. The current Federal aid system is complicated and time-consuming for students and parents trying to make higher education financing decisions. In addition to Federal grant aid, six loans, nine loan repayment plans, eight loan forgiveness programs, and 32 options for loan deferment and forbearance exist. Each program has different eligibility criteria and terms. The budget envisions a simplified, transparent, and fiscally sustainable aid system. Principles for reform include more transparency for loans and repayment plans, removing perverse incentives to over-borrow, consolidating the array of programs, and protecting taxpayers.”
While it is possible that some changes could be made in the loan options, forgiveness programs, and repayment options, the key question here in a budget that is poised to trim costs is what will be cut and eliminated? The administration has already indicated they would like to like to change income driven repayment programs to make them shorter but have higher monthly payments. The Trump administration also would like to make wholesale changes or eliminate forgiveness programs like the Public Service Loan Forgiveness program.
I’d love to hear your opinion. Do you think the changes proposed in this budget will help to make American education great again? Post your comments below.

_______________________________________________________________________________

This essay by Steve Rhode first appeared in  Get Out of Debt Guy on July 18, 2017. To learn more about Steve Rhode, click here.

Wednesday, July 12, 2017

Half a millon bucks in student loans to become a pharmacist: Does that make any sense?

Earlier this week, I read a letter posted on Steve Rhode's web site: Get Out of Debt Guy and distributed on the Personal Finance Syndication Network.  An anonymous writer asked Mr. Rhode how to handle $500,000 in student loans that he or she borrowed to become a pharmacist.  Rhodes' advice was spot on, and I won't comment further about how this individual should manage all that debt.

My purpose here is to ask the simple and obvious question: How could anyone be permitted to accumulate a half million dollars in student loans to obtain a pharmacy degree?

As I said, the writer posted anonymously, so I have no way of knowing whether the person is male or female.  I'll just refer to this debtor as Pete.

As Pete mentioned in his query to Steve Rhode, he obtained a GED when he was 35 years old, about ten years ago. He obtained a BS in Neuroscience, another BS in biochemistry, and a doctor of pharmacy degree, which he recently completed. So I'm guessing Pete is about 45 years old, and he's embarking on a new career as a pharmacist.

Will Pete earn enough money as a pharmacist to pay off $500,000 in student loans? No, he won't.  We don't know the interest rate on his loans, which are both federal and private; but let's assume all his loans are accruing interest at 6 percent a year. That's $30,000 a year just to pay accruing interest on the debt.

What are Pete's options? Perhaps he can enroll in a 20-year income-base repayment plant, whereby his loan payments are based on his income. If he obtains a job paying $60,000 a year, which seems reasonable, his payments will be less than $400 a month. But of course, a payment that low won't begin to cover accruing interest on Pete's loans.

Pete might get a public service job that will allow him to make income-based payments for 10 years with the balance forgiven if he makes 120 consecutive payments.  Again, his monthly payments probably won't even cover accruing interest.

Bottom line is this: Pete, who is in his mid-40s, doesn't have a snowball's chance in hell of ever paying back $500,000 in student loans.

We can blame Pete for borrowing so much money or for obtaining two bachelor's degrees instead of one. Perhaps we can criticize him for making poor choices when choosing where to study. Maybe he could have borrowed less money had he attended less expensive colleges.

But that would be pointless. The parties who bear the blame for Pete's unmanageable debt load are the U.S. government and the banks, which loaned Pete way too much money.

Pete's situation is atypical, I'll grant you, but it is far more common than many people believe. Not long ago I blogged on a Hofstra law graduate who owes $900,000 in student loans--pretty damn near a million bucks!

The student loan crisis is not small beer. Less than half of the nation's student borrowers in repayment are paying down the principle of their loans. The problem is as obvious as a tsunami barreling down on a beach full of sunning vacationers.

Why can't we put some limit on the amount of money students can borrow? The amount of interest that can accrue? The amount of penalties and fees that can get added to borrowers' debt when they default?

In fact there are lots of things we could do to limit the harm caused by the student loan crisis. But nobody is talking about fixes. The college presidents, whether they are Ivy League college leaders or the CEO of Bobby Joe's College of Auto Mechanics, are saying nothing about the student loan mess. Every school, college, and university participating in the federal student loan program--more than 4,000 institutions--is dependent on regular infusions of student-loan dollars to keep the doors open.

Someday, it will become apparent that a high percentage of the nation's accumulated student-loan debt--30 percent, 40 percent, perhaps 50 percent--is not going to be paid back; and this house of cards will collapse.

But until that day comes, our politicians, academics and the national media will continue focusing on what they think is the most important topic of the day--President Trump's alleged communications with the Russians. And like summer vacationers lolling on the beach, a lot of pundits, intellectuals and journalists are going to be caught unawares as the student-loan tsunami flows over America's colleges and universities and destroys a good many of them--beginning with the small liberal arts colleges.

References

Steve Rhode, How Do I Handle My $500K of Student Loans to Become a Pharmacist? Personal Finance Syndication Network. 


Monday, July 3, 2017

Department of Education Punts on Borrower Defense to Repayment Rules. Essay by Steve Rhode



I’m still waiting to be pleasantly surprised by the Trump Department of Education (ED) under Secretary DeVos. It has not happened yet.

From the recent actions to remove critical information from consumer notices to wanting to get a single loan servicer to handle all federal loans, the current incarnation of ED seems to be moving in a direction that provides less support and help for debtors.

On October 2016, the then ED announced new regulations to go into force on July 1, 2017. “The U.S. Department of Education today announced final regulations to protect student borrowers against misleading and predatory practices by postsecondary institutions and clarify a process for loan forgiveness in cases of institutional misconduct. These final regulations further cement the Obama Administration’s strong record and steadfast commitment to protecting student loan borrowers, deterring harmful practices by institutions, safeguarding taxpayer dollars and holding institutions accountable for their actions.” – Source

The Betsy DeVos ED is delaying the implementation of the Borrower Defense to Repayment rules. The ED announced today “Postsecondary institutions of all types have raised concerns about the BDR regulations since they were published on Nov. 1, 2016. Colleges and universities are especially concerned about the excessively broad definitions of substantial misrepresentation and breach of contract, the lack of meaningful due process protections for institutions and “financial triggers” under the new rules.” – Source

So the current ED is going to start over again and says, “The Department plans to publish its Notice of Intent to Conduct Negotiated Rulemaking on BDR and GE in the Federal Register on June 16, 2017. The Department will conduct public hearings on BDR and GE on July 10, 2017, in Washington, D.C. and July 12, 2017, in Dallas, Texas.” Goodness knows how long this new process if going to take and what opportunities student loan debtors will have to actually have their loans discharged due to misrepresentation by colleges and schools who received federal student loans.
For example, the ED previously said, “Many of these claims are from borrowers who attended programs that the Department found had been publicized with misleading job placement rates.” – Source

What do you think, should schools who misrepresented the success of their programs or actual employment rates to induce students to enroll, get a free pass and eliminated from the new rules? Let me know what you think by posting your comment below.
Even under the old administration the Borrower Defense to Repayment processing was less than optimal. There are students that have been waiting years for a conclusion to their claims and the next changes will only serve to slow down the entire process of assisting harmed student loan debtors.

As an example, ED previously said they had ” received a total of approximately 82,000 claims.” And while a previous report on the status of the program said 16,000 had been processed and approved, the current ED press release says, “Nearly 16,000 borrower defense claims are currently being processed by the Department, and, as I have said all along, promises made to students under the current rule will be promises kept,” said Secretary DeVos. So where are the rest of the claims?

Steve Rhode

Get Out of Debt Guy – TwitterG+Facebook
This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.