Showing posts with label fraud. Show all posts
Showing posts with label fraud. Show all posts

Wednesday, October 4, 2017

Betsy DeVos sabotages Obama's borrower-defense rule for processing student borrowers' fraud claims: She fears students will get "free money"

The collapse of Corinthian Colleges and ITT Tech shined a light on the seedy for-profit college industry.  Both for-profit college companies filed for bankruptcy under a cloud of accusations of fraud and misrepresentation.

Together, Corinthian and ITT Tech had more than half a million former students. Thousands of them filed so-called "borrower defense" claims, petitioning the Department of Education to forgive their student loans because they were defrauded by the institutions they attended. About 65,000 borrower-defense claims are now pending.

What to do? The Obama Administration prepared borrower-defense regulations that were scheduled to take effect on July 1, 2017; but Secretary of Education Betsy DeVos blocked their implementation, saying the rules would be rewritten through the "negotiated rule making" process. DeVos' decision will allow the for-profit industry a voice in reshaping the rules to their liking.

Why did DeVos block the Obama-era regulations? She said the regulations drafted by the Obama administration would allow students to get "free money" by having their loans forgiven.  In other words, DeVos apparently assumes students who file fraud victims are themselves engaging in fraud by seeking debt relief.

This latest caper from DeVos' Department of Education tells us all we need to know about President Trump's least qualified cabinet appointee . Time and time again, DeVos has made decisions to benefit the for-profit colleges at the expense of students; and she has hired consultants who have worked in that sleazy industry.

Millions of people have borrowed money to attend overly expensive for-profit colleges only to receive educational experiences that are virtually worthless. Some were defrauded, some obtained degrees that did not lead to good jobs, and some just paid too much for substandard postsecondary programs. Unless these people obtain relief from their student-loan debt, they will never get on their feet financially.

The Obama administration's borrower-defense regulations were drafted to determine which for-profit students are fraud victims entitled to student-loan debt relief. In my mind, however, it is impossible to efficiently decide on a case-by-case basis which student borrowers are entitled to debt relief due to fraud. That would require hundreds of thousands of individual due-process hearings.

No, the only way to give worthy student-loan debtors a fresh start is through bankruptcy. Congress must amend the Bankruptcy Code to treat student loans like any other consumer debt.

If insolvent student-loan debtors were given reasonable access to bankruptcy, millions of cases would be filed and at least half a trillion dollars in debt would be wiped out.

A half trillion dollars in student-loan debt relief would be a big hit to the U.S. treasury, but let's face it. Millions of student loans will never be paid back. It would be far better for the overall national economy if student borrowers were given a fresh start rather than be forced into 20- and 25-year repayment plans in which borrowers make token monthly payments that don't even cover accruing interest.

DeVos either doesn't understand the magnitude of the student-loan debt crisis or she doesn't  care. Either way, she is a disaster who needs to be cashiered.

Betsy DeVos: Having a good laugh at college students' expense

References

James Briggs. Former ITT Tech students got promise of help, then silence. USA Today, May 22, 2017.

Corinthian Colleges Students Eligible For Loan Discharge. National Bankruptcy Forum, June 22, 2017.

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

Chad Miller.  Understanding 'Borrower Defense to Repayment": A New Yellow Brick Road to Federal Student Loan Forgiveness. American Action Forum, November 1, 2016.

Michael Stratford. More Debt Relief for Corinthian Students. Inside Higher Ed, March 28, 2016.

Thursday, September 28, 2017

The Department of Education's Official 3-Year Student-Loan Default Rate is Baloney

During the First World War, it is said, the British military kept three sets of casualty figures: one set to deceive the public, a second set to deceive the War Ministry, and a third set to deceive itself.

Over the years, the Department of Education has released its annual 3-year student-loan default rate in the autumn, about the time the pumpkins ripen. And every year the default rate that DOE issues is nothing but bullshit. I can't think of another word that adequately conveys DOE's mendacity and fraud.

This year, DOE reported that 11.5 percent of the the 2014 cohort of debtors defaulted on their loans within three years and that only ten institutions had default rates so high that they can be kicked out of the federal student-loan program. That's right: among the thousands of schools and colleges that suck up student-aid money, only ten fell below DOE's minimum student-loan default standard.

Why do I say DOE's three-year default rate is fraudulent?

Economic hardship deferments disguise the fact that millions of people aren't making loan payments. First of all, DOE has given millions of student-loan borrowers economic-hardship deferments or forbearances that allow borrowers to skip their monthly loan payments.  These deferments can last for several years. 

But people who are given permission to skip payments get no relief from accruing interest. Almost all these people will see their loan balances grow during the time they aren't making payments. By the time their deferment status ends, their loan balances will be too large to ever pay back.

The colleges actively encourage their former students to apply for loan deferments in order to keep their institutional default rates down. And that strategy has worked brilliantly for them. Virtually all of the colleges and schools are in good standing with DOE in spite of the fact that more than half the former students at a thousand institutions have paid nothing down on their loans seven years after beginning repayment.

Second,  DOE's three-year default rate does not include people who default after three years.  Only around 11 percent of student borrowers default within three years, but 28 percent from a recent cohort defaulted within five years. In the for-profit sector, the five-year default rate for a recent cohort of borrowers was 47 percent--damn near half.

DOE's income-driven repayment plans are a shell game.  As DOE candidly admits, the Department has been able to keep its three-year default rates low partly through encouraging floundering student borrowers to sign up for income-driven repayment plans  (IDRs) that lower monthly loan payments but stretch out the repayment period to as long as a quarter of a century.

President Obama expanded the IDR options by introducing PAYE and REPAYE, repayment plans which allow borrowers to make payments equal to 10 percent of their discretionary income (income  above the poverty level) for 20 years.

But most people who sign up for IDRs are making monthly payments so low that their loan balances are growing year by year even if they faithfully make their monthly loan payments. By the time their repayment obligations cease, their loan balances may be double, triple, or even quadruple the amount the originally borrowed.

Alan and Catherine Murray, who obtained a partial discharge of their student-loan debt in bankruptcy in 2016, are a case in point. The Murrays borrowed $77,000 to obtain postsecondary education and paid back about 70 percent of that amount. But they ran into financial difficulties that forced them to obtain an economic hardship deferment on their loans.  And at some point they entered into an IDR.

Twenty years after finishing their studies, the Murrays' student-loan balance had quadrupled to $311,000!  Yet a bankruptcy court ruled that the Murrays had handled their student loans in good faith, and they had never defaulted.

DOE is engaged in accounting fraud. If the Department of Education were a private bank, its executives would go to jail for accounting fraud. (Or maybe not. Wells Fargo and Bank of America's CEOs aren't in prison yet.)  The best that can be said about DOE's annual announcement on three-year default rates is that the number DOE releases is absolutely meaningless.

This is what is really going on. More than half of the people in a recent cohort of borrowers have not paid down one penny of their student-loan debt five years into the repayment phase of their loans.  And the loan balances for these people are not stable. People who are not paying down the interest on their student loans are seeing their loan balances grow.

In short, DOE is operating a fraudulent student-loan program.  More than 44 million Americans are encumbered by student-loan  debt that totals $1.4 trillion.  At least half that amount--well over half a trillion dollars--will never be paid back.

Betsy DeVos' job is to keep the shell game going a little longer, which she is well qualified to do. After all, she is a beneficiary of Amway,  "a multi-level marketing company," which some critics have described as a pyramid scheme.

Betsy DeVos: The perfect person to oversee DOE's student-loan shell game

References

Paul Fain. Federal Loan Default Rates Rise. Insider Higher ED, September 28, 2017.

Paul Fain. Feds' data error inflated loan repayment rates on the College ScoreboardInside Higher Ed, January 16, 2017.

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

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default ratesWashington, DC: Brookings Institution (2015).

Murray v. Educational Credit Management Corporation, Case No. 14-22253, ADV. No. 15-6099, 2016 Banrk. LEXIS 4229 (Bankr. D. Kansas, December 8, 2016), aff'd, Case No. 16-2838 (D. Kan. September 22, 2017).

Joe Nocera. The Pyramid Scheme Problem, New York Times, September 15, 2015.







Tuesday, September 12, 2017

Betsy Devos deserves a Congressional censure: It's nothing personal, Betsy; but you are a disaster

Betsy DeVos, President Trump's Secretary of Education, is a disaster. Month after month, she makes decisions to aid the for-profit college industry at the expense of students who have been swindled by the institutions they attended.

As David Halperin said in a recent essay, DeVos' embrace of predatory for-profit colleges is "breathtaking."  Halperin's indictment of DeVos' performance is comprehensive, and you should read it. Here are a few of the highlights of DeVos' reckless malfeasance:

She rolled back an Obama-era regulation that prohibits the for-profits from inserting mandatory arbitration clauses in their student enrollment agreements.  These clauses prevent defrauded students from suing the colleges that defrauded them and usually prohibit students from banding together to file class action lawsuits.

She set aside a procedure for processing so-called "borrower defense" claims, whereby students can get their student loans discharged on the grounds that they were defrauded by the college they attended.

Under her leadership, the Department has failed to failed (as of July 2017) to process even one of the 65,000 fraud claims that students have filed, including claims filed by students who attended Corinthian Colleges and ITT Tech--two for-profits that filed bankruptcy under a dense cloud of fraud allegations.

DeVos' Department of Education canceled an information-sharing agreement with the Consumer Financial Protection Bureau, an act so irrational that Steve Rhode was prompted to ask whether she was "nucking futs."

DeVos cannot be impeached, because the Constitution only allows impeachment of a cabinet official for "high crimes and misdemeanors;" and I don't think DeVos has done anything criminal. But she certainly deserves to be censured by Congress for conduct that is blatantly contrary to the public interest.

 Wouldn't it be grand if the U.S. Senate formally censured her in a bi-partisan expression of righteous indignation? In my mind's eye, I see Mitch McConnell, Senate Majority Leader, hand-delivering a formal Senate censure resolution.

Perhaps Mitch would borrow a line from The Godfather as he tenders DeVos a blistering condemnation of her public stewardship. "It's not personal, Betsy," McConnell would intone, 'but you're a disater."

It's not personal, Betsy.

References

Collin Binkley. Student-loan forgiveness has halted under Trump, records show. Chicago Tribune, July 27, 2017.

David Halperin. DeVos Embrace of Predatory For-Profit Colleges is Breathtaking. Huffington Post, September 10, 2017.

Andrew Kreighbaum. Few solutions for defrauded borrowers. Inside Higher Ed, June 26, 2017.

Steve Rhode. Is Betsy DeVos Nuckin Futs With Break From Student Loan Debtor Protections? The Debt Out of Debt Guy, September 



Tuesday, June 6, 2017

Department of Education is slow to forgive loans of student borrowers defrauded by Corinthian Colleges: State Attorneys General urge DOE to move more quickly

Yesterday, nineteen state attorneys general and the Director of the Hawaii Office of Consumer Protection delivered a letter to Betsy DeVos, U.S. Education Secretary, urging the Department of Education to quickly process fraud claims brought by former students of Corinthian Colleges.

The state AGs asked DeVos to approve "swift automatic group discharge" to students in Corinthian cohorts where fraud has been found. Alternatively, the AGs asked DeVos to process individual fraud claims faster.

Corinthian Colleges closed and filed for bankruptcy in 2015, leaving behind more than 350,000 former students who took out loans to pay Corinthian's tuition. Many of these student borrowers were induced to attend Corinthian through fraud, and the nineteen AGs claim there are defrauded Corinthian students in all 50 states.

So far, DOE has discharged 27,000 borrowers from their federal loan debt, but that number is a small fraction of the former students who are entitled to debt relief. Thousands have filed "borrower defense" claims, asking DOE for loan forgiveness, but DOE is not processing these claims quickly. Meanwhile, many Corinthians students are still paying on their loans or defaulted and are subject to having their wages garnished and their credit ruined.

According to the state AGs, DOE notified 23,000 Corinthian student borrowers in January that their loan forgiveness applications had been approved and that "forgiveness should be completed within the next 60-120 days." It's been nearly 180 days since that announcement, and these loans have still not been discharged.

What's going on?

I think the Department of Education is simply overwhelmed by the meltdown of the student loan program. Almost half the people in a recent cohort of students who attended for-profit colleges defaulted within five years. According to a recent article in the Wall Street Journal, half the students who attended more than 1,000 colleges and schools have not paid down one dime of their student loans seven years after their repayment obligations began.

In addition, the first beneficiaries of the Public Service Loan Forgiveness Program will be eligible for debt relief before the end of this year, and DOE has no idea how many people are eligible to have their loans discharged under that program.

Personally, I think Secretary DeVos should adopt the AGs' suggestion and grant swift automatic group discharges to all Corinthian students who were in DOE's "Designated Fraud Cohorts." Or better yet, I think DOE should forgive the loans of all 350,000 former students.

Admittedly, there are probably some people who completed a Corinthian program and actually got a good job, but I'll bet there aren't many. Undoubtedly, the default rate for Corinthian students is extraordinarily high largely due to the fact that Corinthian's students did not get well-paying jobs at the conclusion of their studies.

I recognize there are risks associated with a mass loan forgiveness program. If all 300,000 of Corinthian's former students are granted a discharge, then ITT Tech's former students will ask for blanket loan forgiveness. ITT Tech also closed and filed for bankruptcy, and it has 200,000 former students.

It is shocking to contemplate, but millions of Americans will never pay back their student loans. In addition to the for-profit college students, there are the law graduates who accumulated mountains of debt and can't find law jobs. And then there are the poor saps who got liberal arts degrees from expensive liberal arts colleges; many of them will never pay back their loans.

The 19 state AGs are right to urge Secretary DeVos to grant automatic group discharges for thousands of former Corinthian students. But Corinthian Colleges is the tip of the iceberg. Millions of student borrowers will never pay back their loans, and the ultimate loss to taxpayers will be in the billions.



References

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

Tamar Lewin. Government to Forgive Student Loans at CorinthianNew York Times, June 9, 2015, p. A11.

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default ratesWashington, DC: Brookings Institution (2015).


Andrew Kreighbaum. State AGs Want Action on Student Loan Discharge. Inside Higher Ed, June 6, 2017.

Lisa Madigan, Illinois Attorney General. Letter to Betsy DeVos, US. Secretary of Education, June 5, 2017.

Sunday, December 11, 2016

Pam Hunt, debt striker, begs Obama to forgive all student loan debt of former Corinthian Colleges students: Let's hope the President responds

When Barack Obama steps down from the presidency next month, he will leave a huge mess behind for the next president to clean up. 43 million Americans hold student loans, and almost half of them can't pay them back.

Most desperate among the victims are the hapless souls who attended for-profit colleges. Many were enticed to enroll by high-pressure and even fraudulent recruiting tactics. Most paid far too much for their educational experiences, and few obtained jobs that paid well enough to justify their educational investments.

Under pressure from state and federal regulators, some for-profit colleges are closing and filing for bankruptcy. Corinthian Colleges, with 350,000 former students, filed for bankruptcy last year. ITT Tech filed for bankruptcy a few months ago, and Dade Medical College filed a bankruptcy-type action in Florida after it closed under allegations of corruption. Global University lost all federal funding earlier this month and will likely close.

Unfortunately, most of the students who attended these ne'er-do-well colleges are still liable on their student loans.  The federal government has processes in place for students to obtain loan forgiveness if they can show they were enticed to take out loans through fraud. But the process is slow. In late September, Senator Elizabeth Warren wrote the Department of Education a letter, specifically complaining about the Department's failure to provide speedy relief for Corinthian students.

Earlier this week, Pam Hunt, a former Corinthian Student, appealed directly to President Obama to forgive the student-loan debt of all Corinthian students. "We're appealing to you this one last time," Hunt said. "Please forgive these debts before you leave office."

President Obama should head Hunt's plea, but he probably won't. Secretary of Education John King raised two objections to Hunt's proposal. First, King said, it is not clear that fraud occurred on every Corinthian campus. Second, he said that Corinthian students should testify individually that they were victims of fraud.

King is ignoring the fact that the for-profit college industry is riddled with corruption and fraud, and has victimized millions. DOE doesn't have the resources to deal with these victims on a case-by-case basis, and many for-profit students aren't sophisticated enough to file administrative actions anyway. After all, more than half of the people in income-driven repayment plans are not certifying their income on an annual basis, which is a requirement for remaining in these plans.  Few Corinthian students have applied for loan forgiveness under DOE guidelines, even though almost all are probably entitled to relief.

Hunt is right. DOE should forgive all student loans taken out by Corinthian students. And it should forgive all student debt taken out by ITT Tech students, Global University students, and students who attended Dade Medical College.

After all,whether DOE forgives these loans or not, most of these loans won't be paid back. It is in the national interest to give all victims of the for-profit college industry a fresh start.

Pam Hunt: "Please forgive these debts before you leave office."

References

Andrew Kreighbaum. New Call for Debt Relief Before Obama Leaves. Inside Higher Ed, December 6, 2016.

Tamar Lewin, "Government to Forgive Student Loans at Corinthian Colleges," New York Times, June 8, 2015.

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.

Michael Vasquez. Dade Medical College sets in motion plan to sell assets. Miami Herald, November 18, 205.

 

Tuesday, December 6, 2016

The Department of Education denies student-aid money to Globe University and Minnesota School of Business: Surely the end is near for Globe/MSB

The Department of Education announced this week that it is suspending Globe University and Minnesota School of Business from participating in the federal student aid program. Last September a Minnesota judge ruled that Globe and MSB had fraudulently marketed their criminal justice programs, and the Minnesota Office of Higher Education began the process of revoking the schools' authorization to operate.

Globe and MSB had over 9,000 students as recently as 2010, but enrollments plummeted after the Minnesota Attorney General's Office began investigating the institutions. According to a news story, students spent as much as $80,000 to obtain degrees in criminal justice, but these degrees did not lead to jobs as Minnesota police or probation officers. Apparently, the schools' programs were not accredited by the Minnesota Board of Peace Officer Standards and Training.

 It is hard to see how Globe and MSB can continue to operate without as steady infusions of federal student-aid money. Together the two schools received more than $50 million in federal aid money for the 2014-2015 academic year.  Earlier this year, DOE cut ITT Tech off from federal student-aid money, and that institution closed and filed for bankruptcy shortly thereafter. It seems likely that Globe University and MSB will be closing soon--perhaps within a few weeks.

It is good to see DOE and state attorneys general going after for-profit institutions that prey on unwary students. Without a doubt, vigorous enforcement actions will force a lot of shady institutions to close.

But hundreds of thousands of students have taken out billions of dollars in federal student loans to attend for-profit institutions, and their student loans are not automatically forgiven if the institution they attended is found liable for fraud. Although DOE has a closed-school loan forgiveness program and a process whereby students can seek loan forgiveness if they were defrauded by the college they attended, both processes are cumbersome and slow.

In my view, all students who attended a for-profit college should have their student loans automatically forgiven if the college they attended is found liable by a competent court of defrauding students  or violating consumer protection laws. Of course, discharging all these student loans would be a huge hit for taxpayers, but it is not fair for students who were lured into taking out loans to receive substandard training or education from sketchy for-profit colleges to be burdened by debt they simply will never be able to pay.




References

Christopher Magan. Fraud ruling threatens Globe U, Minnesota School  of Business with closure. Twin City Pioneer Press, September 8, 2016.

Judge Orders Globe University, Minnesota School of Business to Stop Fraudulent Marketing. KSTP Televsion News, September 10, 2016.

U.S. Department of Education. Globe University, Minnesota School of  Business Denied Access to Federal Student Aid Dollars. US. Department of Education Press Release, December 6, 2016.

 

Friday, April 8, 2016

Artist burns student loan records at private university in South America: What a cool idea!

A friend recently sent me an article from The Guardian about an artist using the name Fried Potatoes (Papas Fritas in Spanish) who sneaked into the vault of Universidad del Mar, a private university in Chile, and burned all the documents pertaining to the university's student loans.  Yep, a half billion dollars in student debt went up in smoke.

What a cool idea!

Of course, destroying all loan documents pertaining to private college loans would be impossible in the United States. There are literally millions of student-loan documents in the U.S. involving hundreds of for-profit colleges. Most are in electronic format and the government  maintains records of these debts, since the government guarantees all loans issued through the federal student-loan programs.

Still, some variation of this idea is worth considering. Let's start with Corinthian Colleges, which filed for bankruptcy last year and now has a $1.2 billion judgment against it for false advertising and misleading lending practices. A California judge ordered Corinthian to pay most of the judgment ($820 million) as restitution to former students who were victimized by its scam. The bulk of this money represents federal loans students took out to pay their tuition bills at one of Corinthian's campuses.

But of course Corinthian doesn't have the money to pay the judgment. At the time it filed for bankruptcy, it claimed to have only $20 million in assets--about one sixtieth of the total California judgment.

Department of Education regulations allow students to apply for loan forgiveness if they were students at a college that closed or if they were defrauded by the college they attended. Thousands of Corinthian alums have applied for relief under these regulations.

But the administrative process for resolving these claims has been tedious, and so far only a small number of ex-Corinthian students have had their loans forgiven.

Why doesn't the Department of Education do what Papas Fritas did and just dissolve the debt? Of course, DOE wouldn't need to actually burn all those loan documents, although I'm sure a bonfire would be personally satisfying to Corinthian's former students. But the loans could be forgiven by government fiat. And that is what DOE should do.

After all, Corinthian's former students will never pay back those student loans. In fact, almost half of all students who attended for-profit colleges eventually default on their federal student loans. Wouldn't it be easier and more just for the government to simply decree that any student who took out federal loans to attend a for-profit college will have those loans forgiven if the college is found guilty of fraud or misrepresentation?

Of course it would, but DOE will never take that straightforward step because the amount of money involved is enormous. It would rather deal with student claims through a cumbersome administrative process, knowing that most students won't go to the trouble of filing a claim.

And here's a better idea. Given the high levels of fraud, misrepresentation, price-gouging and totally worthless educational experiences connected with the for-profit college industry, I think we should simply allow anyone who took out student loans to study at one of these shyster for-profit institutions to discharge those loans in bankruptcy under the same standards that apply to other unsecured debt. In other words, people who are otherwise qualified for bankruptcy relief should have their student loans discharged through the routine process of a bankruptcy filing without the need of filing an adversary proceeding.

Image result for crowd around bonfire

References

Jonathan Franklin. Chile students' debts go up in smoke. The Guardian, May 23, 2014. Accessible at http://www.theguardian.com/world/2014/may/23/chile-student-loan-debts-fried-potatoes

Matt Hamilton. Corinthian Colleges must pay nearly $1.2 billion for false advertising and lending practices. Los Angeles Times, March 23, 2016. Accessible at http://www.latimes.com/local/lanow/la-me-ln-corinthian-colleges-judgment-false-advertising-20160323-story.html

Thursday, February 25, 2016

Loan forgiveness for college students defrauded by for-profit colleges: Why not simply allow defrauded students to take bankruptcy?

The Department of Education is revising the regulations for handling student-debtor requests for debt relief. Under present regulations, student-loan borrowers  are eligible for debt relief if they can show they were victims of misrepresentation by the institution they attended.

But the old regulations are cumbersome, and DOE has been swamped by debt relief requests after Corinthian Colleges closed last year. Corinthian had 350,000 students or former students.

Apparently, the Department of Education is proposing some sort of hearing process where students who claims to be fraud victim can confront the colleges that lured them into enrolling and taking out student loans.

But how will that work? All the for-profit colleges have teams of lawyers, and the defrauded students who confront them at hearings will likely  have no lawyer at all.  That's a crumby idea.

Second, DOE is contemplating some kind of statute of limitation that would bar a student's fraud claim if not filed by some yet-to-be-defined time limit. Another crumby idea. Student-loan creditors can pursue student-loan defaulters any time they want--30 years after a loan was incurred if they choose. That's because there is no statute of limitation on debt collection of a student loan. So why should students be restricted by a time limit to file misrepresentation claims?

Third, the proposed regulations are cumbersome legalese that many students won't understand. Here is a sample of proposal's text:
For loans first disbursed prior to July 1, 2007, the borrower may assert as a defense to repayment, any act or omission of the school attended by the student that relates to the making of the loan or the provision of educational services that would give rise to a cause of action against the school under applicable State law.
Got that?

If the Department of Education were willing to face facts, it would admit that millions of students who enrolled at for-profit colleges have valid misrepresentation claims.  The for-profit industry as a whole has a 5-year default rate of 47 percent--strong evidence that many of the programs the colleges offered did not lead to well-paying jobs.

Rather than construct an elaborate, expensive, and unworkable administrative process for sorting out student fraud claims, the Department of Education should simply allow all students who attended a for-profit college and who are now broke to discharge their student-loan debts in bankruptcy without having to meet the "undue hardship" standard that currently applies to student-loan debtors in the bankruptcy courts. In other words, an insolvent student-loan debtor who attended a for-profit college should be able to discharge student-loan debt in bankruptcy like any other nonsecured debt.

After all, the bankruptcy courts have the expertise and the resources to sort out valid bankruptcy claims from invalid ones.  But DOE won't expedite the loan forgiveness process because it knows that millions of people took out student loans for worthless college experiences. If every student who was huckstered by a for-profit college obtained student-loan debt relief, the cost of loan forgiveness would amount to hundreds of billions of dollars.

References

Michael Stratford. Obama Crackdown on College Fraud. Inside Higher Ed, February 9, 2016. https://www.insidehighered.com/news/2016/02/09/education-department-creates-new-office-crack-down-fraud-colleges?utm_source=Inside+Higher+Ed&utm_campaign=8bca58981a-DNU20160209&utm_medium=email&utm_term=0_1fcbc04421-8bca58981a-198565653

Michael Stratford. New Criteria For Debt Relief. Inside Higher Ed, February 17, 2016. Available at: https://www.insidehighered.com/news/2016/02/17/us-plan-would-cancel-federal-loans-borrowers-misled-their-colleges?utm_source=Inside+Higher+Ed&utm_campaign=60a80c3a41-DNU20160217&utm_medium=email&utm_term=0_1fcbc04421-60a80c3a41-198565653

Kelly Field, "U.S. Has Forgiven Loans of More Than 3,000 Ex-Corinthian Students, Chronicle of Higher Education, September 3, 2015. Accessible at: http://chronicle.com/article/US-Has-Forgiven-Loans-of/232855/?cid=pm&utm_source=pm&utm_medium=en

Tamar Lewin, "Government to Forgive Student Loans at Corinthian Colleges," New York Times, June 8, 2015. Accessible at: http://www.nytimes.com/2015/06/09/education/us-to-forgive-federal-loans-of-corinthian-college-students.html?_r=0

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default rates. Washington, DC: Brookings Institution (2015). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults


Thursday, December 3, 2015

The percentage of low-income students going to college went down while Pell Grant spending went up: What's going on?

According to the American Council on Education, the percentage of low-income students enrolling in college has gone down. What's going on?

ACE reports that the percentage of recently-graduated low-income students who enrolled in college dropped from 55.9% in 2008 to 45.5% in 2013.  College enrollments also dropped for other income groups, but not by nearly as much.

Can the drop be attributed to insufficient federal student aid? Probably not. The Department of Education reported that federal student aid increased by 29% from 2009 to 2012--rising from $129 billion in FY 2009 to $166.9 billion in FY 2012.

And Pell Grant funding (grants to low-income college students) actually tripled from 2007 to 2011, going from $13.6 billion in FY 2007 to  $41.6 billion.

Perceived cost of higher education. ACE speculated that the perceived cost of higher education may have discourage low-income students from going to college, and this makes sense. Low-income young people may not be aware that many private colleges actually discount their tuition by more than 40 percent for incoming freshmen. In other words, potential students from poor families may not know that the sticker price is only the sucker price and that most first-year students get the benefit of deep discounts.

Going to work rather than going to college. ACE suggested another explanation for the percentage drop in low-income college students: many low-income students are simply skipping the college experience and going to work. This explanation also makes senses.

In my own family, I have a nephew who dropped out of college and got a job as a pipe fitter working in the shipbuilding industry. He's making good money and he found a girl friend who is also making good money as a pipe fitter. In fact, my nephew is making more money in his present job than he would make if he got a college degree and got a job as a school teacher. Is he likely to go back to college? I don't think so.

Low-income families have gotten wise to the for-profit college industry. I think there is a third possible explanation for the drop in low-income students going to college: low-income families may have gotten wise to the for-profit college industry.

All over the country, state attorney generals are investigating the for-profit colleges based on allegations that these colleges have engaged in misrepresentations and fraud.  Some for-profits have been fined. Corinthian Colleges filed for bankruptcy and several for-profits have closed.

It could be that low-income and minority students--who have been the target of the for-profit colleges--have figured out that many of these joints charge too much and don't deliver on their promises.

Conclusion

Low-income individuals are going to college in smaller numbers, and this may not be bad. If they can get good jobs without going to college then they can avoid the huge opportunity costs of being a college student--forgone wages and student loans.

And if young people from low-income families are becoming more appreciative of the risk of borrowing money to attend a for-profit college, that is certainly good news. Although the Obama administration hasn't been as aggressive as I think it should be toward the for-profit college industry, it has taken some steps to rein in abuses.  And state officials have taken action against abusive for-profits colleges as well. This is good news.

References

American Council on Education. ACE Fact Sheet on Higher Education. Pell Grant Funding History (1976 to 2010). Accessible at: http://www.acenet.edu/news-room/Documents/FactSheet-Pell-Grant-Funding-History-1976-2010.pdf

Misty Baily. Attorney Generals Expand Probe into For Profit Colleges. Education News, January 14, 2014. Accessible at:  /www.educationnews.org/higher-education/attorney-generals-expand-probe-into-for-profit-colleges/#sthash.pKZVeW5V.dpuf

Kelly Field. Attorneys General Take Aim at For-Profit Colleges Institutional Loan Programs, Chronicle of Higher Education, March 20, 2012. Accessible at: http://chronicle.com/article/Attorneys-General-Take-Aim-at/131254/

Scott Jaschik. The Missing Low Income Students: Study finds drop in percentage of low-income students enrolling in college. Inside Higher Education, November 25, 2015. Accessible at: https://www.insidehighered.com/news/2015/11/25/study-finds-drop-percentage-low-income-students-enrolling-college

U.S. Department of Education. Fiscal Year 2012 Budget Summary--February 14, 2011.  Accessible at: https://www2.ed.gov/about/overview/budget/budget12/summary/edlite-section2d.html

U.S. Department of Education. Pell Grant Funding Status. Accessible at:
http://www2.ed.gov/programs/fpg/funding.html