Educational Credit Management Corporation makes good money chasing destitute student-loan debtors: The Obama Administration should take action

Richard Boyle, CEO of ECMC
He made $1.1 million in 2010

Educational Credit Management Corporation is a nonprofit company that collects on defaulted student loans for the federal government. Just because it is nonprofit, however, doesn't mean its employees don't make a lot of money. According to a news story posted on Bloomberg.com, Richard Boyle, ECMC's chief executive officer, made $1.1 million in 2010.

Other ECMC employees are also making good money.  Dave Hawn, ECMC's chief operating officer, made about half a million dollars in 2010. Joshua Mandelman, an ECMC debt collector, made $454,000. And ECMC directors also do pretty well. According to the Bloomberg story, they make as much as $90,000 a year.

How does ECMC make its money? It gets a small fee for helping distressed student-loan borrowers avoid default. But it makes much more money when it collects money from student borrowers who defaulted. By law, ECMC (and other similar companies) "can receive as much as 37 percent of a borrower's entire loan amount, half in collection costs and half in taxpayer-funded commissions" (Bloomberg.com).

What a sleazy business.  People are getting rich chasing down student-loan defaulters, many of whom are unemployed and destitute.

But perhaps the most disturbing aspect of ECMC's business is the position it takes when student-loan debtors file for bankruptcy. In several cases, ECMC has argued that bankrupt student-loan debtors should not have their loans discharged in bankruptcy. Instead, ECMC has argued, these debtors should be placed in income-based repayment plans that can last as long as 25 years.

Roth case: Elderly woman with health problems seeks bankruptcy relief from student loans

For example, in a recent case, Janet Roth, a 64-year old woman, filed for bankruptcy, seeking to discharge $95,000 in student loan debt.  Actually, she only borrowed $33,000, but her debt tripled due to fees and accrued interest.

At the time of the bankruptcy proceedings, Roth was unemployed and living entirely on her monthly Social Security check--only $774.  In addition, she suffered from several serious health conditions, including diabetes, macular degeneration, and depression.

Now most people would think that Ms. Roth was a good candidate for bankruptcy. But in court proceedings, ECMC challenged her request for bankruptcy relief from her student loans. ECMC argued she should have signed up for a 25-year income-based repayment plan, a plan that would have ended when she was almost 90 years old!

Fortunately, the Bankruptcy Appellate Panel for the Ninth Circuit Court of Appeals was sympathetic to Ms. Roth's plight. The court said Ms. Roth had acted in good faith regarding her student-loan obligations, and it discharged her of the debt.

Can you imagine? A company run by a guy who makes more than a million dollars a year argued that an elderly woman with health issues and living on her Social Security check should make monthly payments on her student loans for 25 years! These ECMC guys make Ebenezer Scrooge look like Mother Teresa.

Want another example? In In re Stevenson (2011), an elderly woman with a history of homelessness  and who was living on less than $1,000 a month, was denied relief from her student-loan debt by a bankruptcy court in Massachusetts. ECMC opposed her effort to have her student loans discharged, and a court essentially forced Ms. Stevenson into a 25-year income-based repayment plan. Like Ms. Roth, Ms. Stevenson will be nearly 90 years old when her student-loan debt is discharged.

And take a look at the Krieger case. In Krieger v. Educational Credit Management Corporation (2013), ECMC opposed the discharge of a 53 year old woman's student-loan debt even though she was unemployed and had never made more than $12,000 a year during her entire working life.

President Obama Should Take Executive Action to Aid Elderly Student Loan Debtors

Ms. Roth, Ms. Stevenson and Ms. Krieger are not alone. According to a report prepared for the Federal Reserve Bank of New York, about five percent of people who are behind on their student-loan payments are 60 years old or older. Undoubtedly, many of these people are living almost solely on their Social Security checks or are destitute.

Surely, elderly student-loan defaulters are entitled to some relief. Unfortunately, their Social Security checks are subject to garnishment, and some of them are running into opposition when they file for bankruptcy.

President Obama likes to get things done through executive orders.  So how about this for a plan? President Obama should direct all student-loan collection agencies not to oppose elderly people's efforts to discharge their student loans in bankruptcy.  And he should stop the garnishment of elderly people's Social Security checks for the purpose of collecting on student loans.

President Obama can talk all he wants about how he wants to ease the burden on people who borrow money to attend college. But there are things he can do--simple things--that would ease the burden on elderly student-loan defaulters. So why doesn't he take action?

References

John Hechinger. Taxpayers Fund $454,000 Pay for Collector Chasing Student Loans. Bloomberg.com, May 15, 2013. Accessible at: http://www.bloomberg.com/news/2012-05-15/taxpayers-fund-454-000-pay-for-collector-chasing-student-loans.html

Brown, M., Haughwout, A., Lee, D., Mabutas, M., and van der Klaauw, W. (2012). Grading student loans. New York: Federal Reserve Bank of New York. Accessible at: http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (7th Cir. 2013).

Lockhart v. United States, 546 U.S. 142, 126 S. Ct. 699 (2005).

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).

Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011). 

Gore Vidal bequeathed his entire estate to Harvard University, but he died anyway.

Gore Vidal died in 2012, leaving his entire estate to Harvard University. I'm sure he received a nice thank-you note. Harvard knows how to charm the suckers.

I know. I once received a letter from Harvard confirming my appointment as a teaching assistant. I think it was signed by the Provost. It came on fine stationery and closed with the words, "Your most obedient servant."  Of course the job only paid $300 a month, less than my family's monthly health health insurance bill. But a  letter from some Harvard muckety muck signed "Your most obedient servant" meant more to me then than a living wage. I kept the letter for years.

According to the New York Times, Vidal died in his home at age 86, tormented by alcoholism, incontinence, and dementia. Apparently, no one in his life meant more to him than Harvard, which gets the royalties from Vidal's book sales plus his $37 million estate.

But why give the money to Harvard, which after all has loads of money. Perhaps Gore Vidal sought to buy immortality. As one of his friends said in the New York Times story, "Gore was clearly

Gore Vidal in 2009
Photo credit: Wikipedia

uncomfortable talking about a wold without Gore Vidal. Nothing above immortality and world domination would ever be enough for him."

But a $37 million bequest to Harvard won't buy immortality. And Neither will Vidal's 25 novels.  Even literary giants die and their reputations fade into obscurity. Remember Norman Mailer, super egotist and winner of two Pulitzer Prizes? How many people read Armies of the Night last year do you suppose?

We all creep toward death, most of us in obscurity. I have no money to give to Harvard and wouldn't give it if I had.  Harvard figured that out years ago and stopped sending me its glossy Harvard magazine. I will never be rich, never be famous, never be powerful.

But I am comforted at this time in my life by my wife and family--comforts Mr. Vidal apparently never had, although he had a long time companion he loved very much. I am grateful for my small home in a friendly Southern town, by the beauty of South Louisiana's swamps and bayous, and by the mild and temperate sun that shines most days throughout our Southern winters.

And I am comforted by my faith.  I feel sure a priest will give me last rites in my final hours. I know I will have a funeral Mass at Christ the King Church on the LSU campus; and I am confident that at least some of my grandchildren will attend.  And surely someone will write my name in the Book of Remembrance and will pray for my soul now and then.

And in my remaining years, God will strengthen me with the Mass, with Christ's body and blood. And when bitter memories and regrets sweep over me, I am reassured by God's forgiveness.

I am sorry  Gore Vidal did not have these comforts in his final years. It made me sad to learn that this famous and dazzlingly creative man felt compelled in the last year of his life to make the pathetic gesture of giving the fruits of his life's work to a soulless university he never attended.

References

Tim Teeman. A Final Plot Twist. New York Times, November 10, 2013, Style Section, p. 1.

The Demise of Legal Education as a Noble Pursuit

You teach yourselves the law, but I train your minds. You come in here with a skull full of mush; you leave thinking like a lawyer.

                Professor Kingsfield, The Paper Chase

I have a bachelor's degree in liberal arts and a doctorate in education policy from Harvard, but my only worthwhile educational experience was my three years at the University of Texas School of Law.

I loved law school. I admired my professors, who taught their classes in business attire and were always well prepared. I respected law school's rigor, the fact that students were graded on a curve and only five percent received As. And I came to love the order, the logic, and the majesty of the law. UT Law School changed my life.

"You come in here with a skull full of mush . . ."
Professor Kingsfield, The Paper Chase

Now, thirty years on, I am saddened by the decline of legal education in the United States. Applications for admission have plunged nationwide, putting pressure on the schools to lower admissions standards.  The market for lawyers is saturated, due in part to the proliferation of third- and fourth-tier law schools, which turn out far more lawyers than our society needs.

And law school has gotten incredibly expensive. In-state tuition at UT Law School is now $36,000 a year! It was only $1,000 a year when I attended.   Students are having to borrow incredible amounts of money to study law, and many don't earn enough after they graduate to pay back their loans.

In fact, some law school graduates are suing their alma maters for fraud and misrepresentation, claiming the law schools falsified their graduates' employment rates to entice people to enroll.

As best I can determine, most of these suits are unsuccessful.  The Sixth Circuit recently issued an opinion that affirmed the dismissal of a lawsuit brought against Thomas M. Cooley Law School by its graduates. The law school was not liable for fraudulent misrepresentation or fraudulent concealment, the Sixth Circuit ruled.

Nevertheless, the facts outlined in the Sixth Circuit decision are disturbing.  Thomas M. Cooley Law School enrolls more law students than any other law school in the United States, the court said. Tuition is $36,750 per year, about the same as the University of Texas School of Law, one of the nation's top-ranked law schools. According to U.S. News &World Report (as cited by the Sixth Circuit opinion), Cooley Law School has the lowest admission standards of any accredited law school in the country. In 2010, it admitted 83 percent of its applicants.

On the other hand, a federal court in New Jersey allowed a lawsuit against Widener University School of Law to go forward.  In that case, under-employed law-school alumni sued Widener under the New Jersey Consumer Fraud Act and the Delaware Consumer Fraud Act. 

The alumni claimed that Widener had published misleading post-graduate employment data and salary information. As the court summarized the heart of their claim, "Plaintiffs argue 'they would not have paid over $30,000 a year in tuition had they know that merely 56% of Widener graduates were employed in jobs that require or use a Widener law degree,'" In the court's view, the plaintiffs had sufficiently plead a claim under the New Jersey Consumer Fraud Act to proceed with their case.

Most of this litigation has been brought against lower-tier law schools that charge high tuition and have trouble placing their graduates in the legal job market.  But I wonder if there is also something wrong with elite law-school education.  Law schools are supposed to teach students to use language carefully--never to deceive the courts or anyone else for that matter. Yet we have seen President Obama--a Harvard law graduate and Editor of the Harvard Law Review--make representations again and again about the Affordable Care Act that simply aren't true.

All Americans should be concerned about the deterioration of legal education in this country.  Since the beginning of the Republic, our nation has drawn its leaders from among lawyers. It has been lawyers who have drafted our legislation, presided over our courts, and made many of the important policy decision that have shaped our national life.

We cannot preserve our nation's democratic ideals, our commitment to fairness and equality, without noble lawyers. And we won't get noble lawyers unless they receive noble legal education.

References

Harnish v. Widener University School of Law, 931 F. Supp. 2d 641 (D.N.J. 2013).

MacDonald v. Thomas M. Cooley Law School, 724 F.3d 654 (6th Cir. 2013).

President Obama Pushes Income-Based Repayment Plans for Student-Loan Debtors: Madness! Madness!

The U.S. Department of Education is sending e-mails to selected student-loan borrowers, urging them to consider signing up for income-based repayment plans (IBRs) to pay off their student loans. Currently, about 1.6 million student-loan borrowers participate in IBR plans, but DOE wants to sign up 3.6 million additional participants within the next six weeks.  If DOE is successful, more than 5 million people will soon be making student-loan payments based on a percentage of their income over a long period of time--20 to 25 years.

A lot of the major players in higher education like IBRs--"pay as you earn" plans as some people call them. In a co-authored essay in Chronicle of Higher Education, Sandy Baum of the College Board lauded the President's plan for notifying students about IBRs and said IBRs should be the "default option" for student-loan repayment. In other words, unless student borrowers affirmatively opt out, they would automatically be enrolled in a student-loan repayment plan that would stretch their payments out over 20 or 25 years.  Wow, what a super idea!

And how will income-based loan repayments be collected? The details aren't clear yet, but I imagine the feds will do what the Brookings Institution recommends.  Student-loan borrowers will have their loan payments deducted from their payroll checks. The IRS will become the national debt collector, and a student-loan borrower's monthly loan payments will go up or down based on the borrower's current income, like income-tax withholding payments. 

Thus, the day may be coming when former college students will see their monthly student-loan payment appear as just another deduction on their paychecks--like Social Security, mandatory retirement contributions, and federal and state taxes. And for most borrowers, those deductions will last about a quarter of a century.

President Obama probably thinks he is doing college-loan debtors a favor by encouraging them to sign up for long-term repayment plans. He reminds me of Colonel Nicholson in Bridge on the River Kwai. Colonel Nicholson (played by Alec Guinness) is so obsessed with building a bridge for the Japanese army that he loses sight of the fact that he is hurting his country's cause, not helping it.. Not until the end of the movie does the Colonel realize that he has betrayed his country and the soldiers he commands.  The last lines of the movie are: "Madness, Madness!"

Col. Nicholson in Bridge on the River Kwai
"Madness! Madness!"

Why are all the insiders lining up in favor of IBRs? Two reasons:

IBR plans will hide the student-loan default crisis. First and most importantly, IBRs are a cosmetic fix for the soaring student-loan default rate.  As I've explained before, the true student-loan default rate is probably twice as high as the anemic three-year default rate DOE reports every year. In the for-profit sector, the overall default rate is at least 40 percent.  Over the long run, such a default rate is economically and politically unsustainable.

For years now, the for-profits have hid their institutional default rates by encouraging their students to sign up for economic hardship deferments so they won't be counted as defaulters. Millions of people have these deferments, but this shell game can't last forever. Eventually, the government will have to admit that a lot of people on economic-hardship deferments (probably most of them) are really defaulters who will never pay back their loans.

Putting people in IBRs is unlikely to increase the number of people who pay off their loans, but it will obscure the true student-loan default rate for several years. How? If people are automatically enrolled in IBRs, their loan payments will be lowered perhaps as low as zero for people who are unemployed or are in low-paying jobs.  These people won't be paying off their loan balances because interest will continue to accrue.  But they won't be counted as defaulters.

IBRs will take the heat off colleges and universities to keep their costs down.  Second, IBRs benefit the colleges and universities. If students pay for their college experiences based on a percentage of their income instead of the amount they borrow, they will have little incentive to shop for a college based on price. And governmental agencies will have less incentive to try to keep college costs down. Colleges and universities can perpetuate the status quo indefinitely, raising their tuition rates every year without being pressured to keep their costs down.

The for-profits will be the big winners if IBR plans become the default option for student borrowers because their student-loan default rates will drop to zero in spite of the fact that too many students who attend for-profit colleges are paying exorbitant tuition and getting substandard educational experiences.

For most students and for American Society, IBRs will be a disaster. Income-based repayments may make sense for a small percentage of student-loan debtors, but if IBRs become the default option for college-student borrowers, the consequences will be disastrous.

First of all,  as I just said, IBRs reduce students' incentive to borrow as little money as possible to attend college. In fact, many students will conclude that it makes economic sense to borrow to the max. Thus, if IBRs become popular, the total amount of money students borrow every year to attend college will  continue going up--perhaps at a faster rate than in the past.

In addition, mass adoption of IBRs will hurt the American economy. If young people are locked into making student-loan payments for 20 or 25 years, their take-home pay will be smaller and they will have less money to purchase homes, have children, and save for retirement.

But this is the most chilling fact about IBRs: They have the potential for creating a large class of people who are in essence share croppers for the federal government They will be forced to contribute a percentage of their earnings to Uncle Sam for the majority of their working lives. No one can say with certainty what the psychological impact of this arrangement will be on American college graduates, but it could reduce their faith in the American dream and lead to mass cynicism about the American political process.

And IBRs will not increase the number of people who pay off their student loans. I predict that a majority of students who select IBR plans as their student-loan repayment option will be students who pay too much to attend for-profit colleges and don't make enough money after they complete their studies to pay back their loans.  A lot of these people will be unemployed or working in low-wage jobs that entitle them to pay nothing on their loans or to pay so little that their payments won't cover accruing interest.

These poor people will see their federal loan debt grow, not shrink, over the years, even if they make all their loan payments on time.  For example, the New York Times ran a story about a veterinarian who borrowed $300,000 to attend a for-profit veterinary school outside the United States. Even though this individual found a job as a veterinarian and is making regular student-loan payments under an IBR, her current job does not pay enough to enable her to make loan payments that are large enough to cover the accruing interest on her debt. A financial analyst estimated that when this veterinarian completes her 25 year repayment period, the amount of her debt will not have been paid off.  In fact, it will have doubled--from the $300,000 she originally borrowed to more than $600,000!

In short--and I say this emphatically--wholesale adoption of income-based repayment plans is madness and its long term effect will be drive millions of people out of the middle class and into a new class of Americans--sharecroppers for the federal government.

References

Sandy Baum & Michael McPherson. Obama's Aid Proposals Could Use a Reality Check. Chronicle of Higher Education, August 26, 2013. Accessible at: http://chronicle.com/article/Obamas-Aid-Proposals-Could/141265/

David Segal. High debt and falling demand Traps New Vets. New York Times, February 23, 2013. Accessible at: http://www.nytimes.com/2013/02/24/business/high-debt-and-falling-demand-trap-new-veterinarians.html?pagewanted=1&_r=0

Michael Stratford. You've Got Mail. Inside Higher Education, November 4, 2013. Accessible at: http://www.insidehighered.com/news/2013/11/04/education-dept-will-email-35-million-student-loan-borrowers-about-income-based

Fewer college students major in the humanities: Is anyone surprised?

A few days ago, the New York Times carried a front-page story on the declining number of humanities majors at American colleges.  This shouldn't surprise anyone.  In fact, students have been shifting from the humanities to business majors for over 25 years.

There are two main reasons for the decline. First, as the Times noted, more and more young people see college as "a tool for job preparation" rather than an opportunity for deeper self understanding. And that makes sense as the price of attending college goes up. People don't go to college to find themselves any more. They go hoping to get a job after graduation.

Tuition costs are especially high at institutions like Stanford and Princeton, which were mentioned in the Times article. A person would almost have to be crazy to pay the sticker price of attending one of the expensive, elite institutions just for the privilege of getting an undergraduate degree in women's studies or medieval history.

Of course, as the College Board assured us in its recent report, a lot of people don't pay the sticker price--the sucker price--to attend an elite college.  A person who gets a grant or scholarship would incur a lot less debt to attend Stanford or Princeton than a person who takes out loans and pays the full cost.

And people who know they are going to law school, business school, or medical school after they graduate don't have to worry too much about their choice of majors. People who graduate at the top of their class at Harvard can major in anything they want as undergraduates.

But people who don't get a coveted grant or scholarship and who don't come from wealthy families should be extremely cautious about going to an elite college with the goal of getting a degree in the humanities. Apart from people who borrow money to attend for-profit colleges, the people hurt most by student-loan debt are probably the people who borrow $100,000 or more to get a humanities degree from Dartmouth, Emory, or some other overpriced, hoity toity higher education institution.

Apart from the increased cost of obtaining a college degree, I think there is a second explanation for a decline in humanities majors.  Let's face it, a lot of so-called humanities professors don't teach humanities anymore; they teach postmodernism. Instead of helping students search for ultimate truths, these professors guide students toward cynicism, relativism, and self-centeredness

And so we see the proliferation of degree programs in women's studies, African American studies, Hispanic studies, LGBT studies--programs that encourage college students to develop intensely self-focused perspectives on life and to abandon the search for universal truths.

Frankly, given the present state of humanities at American colleges, I am not sure we need humanities majors or humanities professors.  It is increasingly plain that great literature,  insightful histories, and perceptive interpretations of culture and society are coming from journalists, novelists, script writers, and self-employed intellectuals. For example, Erik Larson's In the Garden of Beasts and  David Benioff's City of Thieves are fine examples of creative work by non-academic writers that give readers a glimpse into European history during World War II and the pre-war years.  And Rick Atkinson, trained as a journalist, wrote a wonderful trilogy on the history of World War II.

If you want to know more about 20th century European history, read Benioff, Larson, and Atkinson. Why pay $5,000 to hear a Stanford professor give fifteen history lectures and then give you a grade of C+?

References

Tamar Lewin. Interest Fading in Humanities, Colleges Worry. New York Times, October 31, 2013, p. 1.

Jennifer Levitz & Douglas Belkin. Humanities Fall from Favor. Wall Street Journal. June 6, 2013. Accessible at: http://online.wsj.com/news/articles/SB10001424127887324069104578527642373232184

Things Universities Don't Want to Talk About: It's Time for a Freedom of Information Act for American Colleges That Participate in the Federal Student Loan Program

LSU President King Alexander recently told a Rotary Club audience that the cost of attending Louisiana State University is very reasonable.  For the many students who receive one of Louisiana's TOPS scholarship, the cost is only about $1,000 a year for housing and other costs, according to President Alexander.

LSU President King Alexander:
It only costs a TOPS student a thousand bucks a year to attend LSU.  Really?

But that's not accurate. In a letter to the editor of the Baton Rouge Advocate, Elizabeth Welsh, a Baton Rouge homemaker, corrected LSU's president.  The true cost for a TOPS student attending LSU is between $2,000 and $3,000 per semester, Welsh pointed out--at least four times President Alexander's figure. 

How did Ms. Welsh figure out Alexander's numbers were wrong? By drawing on her family's own experience with a child in college and by looking at housing costs posted online at LSU's web site.

President Alexander's recent misstatement is just another example of the modern university's tendency to hide the truth.  LSU, after all, is the same university that refuses to disclose the names of people who applied for the LSU president's job that Alexander now holds.

Some more examples? George Washington University recently admitted that it had not told the truth when it represented that it had a needs-blind admission policy.  Sorry about that.

UC Davis refused to explain the circumstances under which Lieutenant John Pike, the guy who pepper-sprayed non-offending students in November,2011, left university employment.  Was he fired? Did UC Davis pay him off? Who knows? UC Davis won't talk.

And then there's Ohio State University, which was embarrassed to disclose how much it was paying OSU President Gordon Gee.  It took an Ohio newspaper about a year to pry that information out of the university after it filed a Freedom of Information request.

And remember Harvard Law School's refusal a few years ago to disclose which of its professors was a Native American, although it represented that one faculty member was an Indian? Why the reticence? I suspect it was because it was counting Professor Elizabeth Warren as a Native American, when in fact she is not.  Oops!

Finally, there's the College Board, which speaks for higher education in general.  In a report issued earlier this month, it actually represented that the cost of attending a private nonprofit college had  gone down over the past ten years, in spite of the fact that tuition at a private college has gone up almost every year for the past 30 years.

How did the College Board justify that whopper?  By distinguishing between the sticker price of attending college (going up) and the so-called net price, which the College Board said has gone down a bit after tax benefits, grants, scholarships, and inflation are taken into account. Of course not every student gets those scholarships, grants, and tax breaks.  You--Mr. and Ms. sucker--are probably paying the sticker price.

Why do colleges and their constituent organizations continually hide the facts about their activities? Two reasons.  First, they are accountable to no one and don't care if they get caught in a misstatement or an embarrassing activity. Do you think King Alexander cares about being corrected by a Baton Rouge homemaker?

Second, the upper echelons of American higher education are contemptuous of the American people.  Like Colonel Jessup who screamed "You can't handle the truth!" in A Few Good Men, they don't think Americans deserve to know the facts about the way their universities are being run.

That's why we need a federal Freedom of Information Act that requires all colleges and universities receiving federal funds to publicly disclose a whole range of their activities including the way they choose their executive leaders, their affirmative action practices, their admissions policies, and the way they distribute scholarships and student aid.

Until they are required by law to do so, American universities will continue to behave like Lois Lerner, the IRS administrator who assured Congress she had nothing wrong and then took the Fifth Amendment.

 

Lois Lerner of IRS
Not taking any questions

References

Koran Addo. LSU President calls for reinvestment in higher education. The (Baton Rouge) Advocate, October 17, 2013. Accessible at: http://theadvocate.com/home/7336360-125/lsu-president-calls-for-reinvestment

Elizabeth Welsh. LSU cost numbers don't add up. The (Baton Rouge) Advocate, October 29, 2013, p. 8B.