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.  Rhode's 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 principal 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. 

Richard Fossey.Hofstra Law School Graduate incurs nearly one million dollars in debt: Dufrane v. Navient Solutions, condemnedtodebt.org, June 3, 2017.

Grambling State University graduates have highest average student-debt load in the United States: $51,887!

Grambling State University, a public HBCU located in rural Louisiana, is not known for much, but it does have this distinction: In 2015, GSU's graduates had the highest average student-loan debt of any university in the United States: $51,887!

On average, Grambling graduates leave school with more debt than Harvard or Yale graduates. In fact, Grambling students graduate with a higher debt load than people graduating from more than 1,000 other colleges.

How could this be? GSU's tuition is relatively modest; according to U.S New & World Report, Grambling's tuition is only about $7,000 for the 2016-2017 academic year. And its students get a lot of needs-based financial aid; 82 percent received some sort of needs-based financial assistance in  a recent year at an average amount of $5,359. Indeed,  according to a 2015 AAUP report, 73 percent of Grambling students received Pell grants, the highest rate among all Louisiana's  four-year colleges and universities.

In my view, Grambling graduates' high debt load cannot be justified. Grambling is located in rural Louisiana where the cost of living is low.  Tuition is relatively modest; and a high percentage of Grambling students receive needs-based student aid.  How is it possible for Grambling graduates to rack up more than $50,000 in student-loan debt?

Not surprisingly, Grambling graduates are having difficult paying back their loans.  Grambling's three-year default rate for its FY 2013 cohort is 17.7 percent, and of course that rate doesn't count people who have their student loans in deferment or forbearance and aren't making payments. According to a very useful report compiled by Monroe College, only 40 percent of Grambling's former students were making any progress on paying down their loans five years into the repayment period.

Grambling is a historically black university and a public institution that is partly supported by Louisiana taxpayers. Everyone supports the mission of the HBCUs, but we are not doing African Americans any favor if we allow them to enroll at an institution where graduates leave school with more than $50,000 in debt--debt that a high percentage of former Grambling students cannot pay back.

It is also worth noting that GSU's 4-year graduation rate is only 11 percent, and that the university ran an operating budget deficit for five consecutive years (FY 2011-2015). Willie Larkin, Grambling's president at the time, wrote an open letter in February 2016, in which he said that Grambling was "fighting for her life." Larkin reported that Grambling faced an operating budget deficit of more than $5 million when it began the 2015-2016 academic year and an even larger deficit in the athletic budget: $5,746,321.

Surely it is time to ponder whether the public investment in Grambling is paying off, not only for the people of Louisiana as a whole, but for Grambling's students. Or perhaps we don't care enough about the African American students who attend Grambling to ask some probing questions about why they leave school with so much student debt.

Postscript: Four months after writing an open letter stating that Grambling was "fighting for her life," Willie Larkin resigned as president of GSU.

References

Howard Bunis. Overview of the Financial Situation for Higher Education in Louisiana. American Association of University Professors, May 2015.

Greg Hilburn and Bob Lenx. Update: Grambling President Larkin resigns. thenewsstar.com, June 23, 2016.

Marc Jerome to Jea-Didier Gaina. Letter regarding proposed defense to repayment rule. Docket Number ED-2015-OPE-0103. August 1, 2016.

Willie Larkin. Grambling State University Is Fighting For Her Life. February 22, 2016.

Louisiana Legislature Auditor. Grambling State University Report Highlights. Audit Control # 80150088. December 2015. 

Delece Smith-Barrow. 10 Colleges Where Grads Have High Debt. U.S. News  World Report, July 4, 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 – Twitter, G+, Facebook

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

College of New Rochelle failed to pay federal payroll taxes for about two years: Will anyone be held accountable?

College of New Rochelle, a Catholic college located in Westchester County, New York, announced last fall that it had failed to pay federal payroll taxes for about two years and that it owed approximately $20 million in unpaid taxes. A close examination of the college's financial picture also revealed that the college owed an additional $11.2 million to other creditors.

Paying federal payroll taxes is required by federal law; and failure to do so can lead to big trouble. The Internal Revenue Service can impose fines and even jail time for wilful failure to pay those taxes.

The college released a statement in November suggesting that the college's former controller, Keith Borge, was responsible for the error. Borge retired as controller of the college in May 2016. Without identifying Borge by name, college leaders said that the financial irregularity came to light only after the controller retired at the end of the 2015-2016 academic year.

Apparently, the college's auditor did not discover this mammoth financial problem for some time, which is curious. The College of New Rochelle's auditing firm was KPMG, a highly reputable global auditing firm with an reputation for competence and integrity.

CNR's president, Judith Huntington, stepped down shortly after the college announced its financial crisis. Huntington said she relied on the controller to manage the college's financial affairs, which is reasonable. But Huntington is herself a CPA and was employed for 15 years at KPMG as a senior audit manager. She's also the director of a major bank. According to Bloomberg, Huntington served as a bank director at Signature Bank during the same time she was president of CNR. Apparently being a college president is only a part-time job.

At least one more senior administrator departed CNR after the financial scandal broke. Betty Roberts, Vice President of Finance, terminated her employment at the college sometime in late 2016. According to a news story, Roberts came to CNR after serving in a similar position at Alcorn State University, a Mississippi HBCU that was under investigation by the Mississippi state auditor's office.

Will anyone be sued over this massive scandal? I doubt it. Little can be gained by suing individuals, who do not likely have the resources to pay any judgment that might result. And anyone who gets sued for the big screw up at the College of New Rochelle will likely implicate others.

How about KPMG? Can KPMG be sued for failing to pick up CNR's massive tax liability more quickly?

Perhaps, but Huntington and KPMG undoubtedly have close ties stemming from her 15 years as a senior audit manager for the firm.  And there may be lots of good reasons why the college might demur from suing a very powerful  global firm.

So let's just rack this incident up as an unfortunate episode in the institutional life of the College of New Rochelle. "Least said, soonest mended," as the old saying goes.

But then there is the matter of a mysterious $5 million donation to CNR, which was made anonymously after the scandal broke. This quick cash will buy CNR some time to get its financial house back in order. What party would make a $5 million anonymous gift to a college that may not survive this huge financial crisis?

Perhaps the money is not completely a  gift. Perhaps the donation was an exchange by some interested party for a covenant not to sue. We will never know.

We can take comfort, however, in a pledge made by KPMG, which was neck deep in CNR's travails, that appears on its web site:

At KPMG, our promise of professionalism to each other, our clients and the capital markets we serve compels us to align our culture of integrity with our values, words and actions.

This is the same KPMG that was auditor for Wells Fargo when the bank created two million bogus accounts. Robert Earl Keen is right: "The road goes on forever and the party never ends."

Judith Huntington, former president of College of New Rochelle
(photo credit: College of New Rochelle)

References

Judith Huntington. Executive Profile. Bloomberg.com (last visited July 2, 2017).


Associated Press. Alcorn State President Christopher Brown Resigns Amid Investigation. Gulflive.com, December 19, 2013.

Sarah N. Lynch. Lawmakers question quality of KPMG's Wells Fargo audits. Reuters, April 25, 2017.

Vani Murthy. The consequences of wilful failure to pay payroll taxes. Journal of Accountancy, June 1, 2014.

Jonathan Ortiz. College of New Rochelle Financial Probe Finds Millions in Unpaid Taxes. Westchester, Magazine, November 2, 2016.

Colleen Wilson. $5 million boost for struggling College of New Rochelle. USA Today, December 16, 2016.

Colleen Wilson and Mark Lungariello. Another finance official out at College of New Rochelle. Lohud.com, November 22, 2016.

The consequences of willful failure to pay payroll taxes

The penalties for failing to pay over trust fund taxes can be severe and sometimes include prison time.

BY VANI MURTHY,

The consequences of willful failure to pay payroll taxes

The penalties for failing to pay over trust fund taxes can be severe and sometimes include prison time.

BY VANI MURTHY,

A Big Nothing Burger: The FBI should stop investigating Jane Sanders, Bernie's wife and former president of Burlington College

The FBI is investigating Jane Sanders, former president of Burlington College and wife of Senator and former presidential candidate Bernie Sanders.

The heart of the matter, as I understand it, is this: Jane allegedly submitted a loan application on behalf of Burlington College that falsely represented that the College had secured millions of dollars in pledged financial donations. The college obtained the loan but the pledged donations did not materialize. The college then closed in 2016 under a mountain of debt.

This is a big NOTHING BURGER, and the FBI should shut this investigation down.

Let's assume for a moment that the allegation is true and that Jane falsely represented that the college had financial pledges and that the the college obtained a large loan based on that misrepresentation. That would be reprehensible but no more reprehensible than the millions of people who filled out so-called liars loans during the real estate bubble that burst in 2008.

We all remember that episode, accurately dramatized in the movie The Big Short. People were applying for loans to buy homes without proper documentation of their income and assets. Those homes were wildly overvalued; but real estate brokers, real estate appraisers, and the banks all colluded to make sure the loans were approved Corporate financiers then packaged the loans into asset backed securities (ABS), which were peddled to unwary investors, including pension funds. The ratings agencies glibly certified that the ABS were investment grade when in fact they were junk.

And then the real estate market collapsed in a flood of foreclosures, and the American economy nearly collapsed.

Did anyone go to jail for that huge speculative bubble? No, no one went to jail.

Even if we put Jane's conduct in the worst possible light (which I am not inclined to do), she did nothing that wasn't done by millions of Americans, including a lot of fat cats in the global financial industry.  If we aren't going to put the ratings-agency executives, the real estate brokers, and the fat cats from Goldman Sachs in jail, then let's leave Jane Sanders alone.

Apart from whether Jane filed a fraudulent loan application, there is a suggestion that she was an incompetent president of Burlington College and that the college closed last year due at least in part to her poor leadership. But that allegation is bogus as well.

Dozens of small private colleges have closed in the past three or four years, and dozens more are on the brink of closure. Even if Jane Sanders had sterling administrative and financial skills, it is doubtful she could have saved that little college. After all, Burlington only had a couple of hundred students.

Her detractors have collected negative assessments from disgruntled former Burlington faculty members, but let's face it. Colleges all over the country are on the brink of extinction, and the professors generally do nothing but moan, gripe and criticize.

I repeat, this is a big nothing burger. The FBI and the conservative media should get off Jane's back.

In the interest of full disclosure, I admit I was once a big fan of Bernie Sanders. I voted for him, and I was disappointed when he wasn't named the Democratic nominee for President.

But I am over Bernie. In my opinion, he was cheated out of the Democratic nomination by Hillary Clinton, John Podesta, Debbie Wasserman Schultz and a gaggle of disreputable journalists. Remember when columnist Froma Harrop called Bernie a racist in an op ed essay? Bernie Sanders, who was arrested in a civil rights demonstration when Hillary was checking footnotes at Yale Law School. What an outrageous accusation!

After the way the Democratic Party treated him, Bernie should have quit the Democrats and started a third political party. I am hugely disappointed to see him working collegially with the people who treated him so disgracefully during the 2016 primary season.

Nevertheless, Jane does not deserve to have aspersions cast against her based on a loan application that might have been puffed up a bit.  The FBI and Fox News should leave her the hell alone.

Leave Jane the hell alone!

References

Alan Dershowitz. Dershowitz: Why the Sanders FBI bank loan investigation is dangerous territory. Fox News, June 28, 2017.

Froma Harrop. Bernie Sanders and Racism Lite. Seattle Times, May 19, 2016.

Eli Watkins, Elizabeth Landers, and Will Cadigan. Bernie Sanders says reported investigation into his wife stems from 'pathetic attack. CNN, June 28, 2017.

Another Attorney General Jumps on Department of Education: Essay by Steve Rhode

North Carolina Attorney General Josh Stein has joined to voices of others from around the country who are disappointed the Department of Education has decided to delay the July 1, 2017 regulations that would have helped to protect students with federal student loans from fraudulent schools and colleges. See this.

Stein said, “Education is one of the best reasons I can think of to borrow money. But unfortunately, there are some in our world who take advantage of those who are vulnerable – and that includes student borrowers. As North Carolina’s Attorney General, protecting people, including students is my top priority.”

“That is why I find this news deeply troubling. The rules, which were to take effect on July 1, would protect student borrowers – delaying them is misguided and irresponsible.”

“These delayed rules were hard-fought and sound consumer protection measures born out of the problems that other attorneys general and I have seen plague student borrowers time and time again.”

The delayed protections include: 

• Prohibiting schools from forcing students to pursue complaints in arbitration rather than in court; 
• Prohibiting schools from requiring students to waive participation in class action lawsuits; and 
• Providing automatic relief and group relief for defrauded federal student loan borrowers in certain circumstances, including following legal actions by state attorneys general. 

Delaying the rules is a win for for-profit schools that provide a poor result and a loss for student loan debtors who have their futures financially damaged.

Steve Rhode

Steve Rhode

Get Out of Debt Guy – Twitter, G+, Facebook


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

About Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. 

Bethune-Cookman University reports $17.8 million operating loss as administrators' salaries go up

Bethune-Cookman University, a Florida HBCU, reported an operating loss of $17.8 million in its most recent tax return. That's a 12-fold increase over the previous year, when it reported a budget deficit of only $1.5 million.  Fitch Ratings downgraded the school's bond rating for the second time in six months. B-CU's bond rating now hovers just above junk status.

Should B-CU tighten its belt and cut expenses to deal with this crisis? Hell no!

According to the Daytona Beach News-Journal, salaries jumped from $41.5 million to $49.2 million in just one year.

Here are the details, quoted verbatim from the Daytona Beach News-Journal article:

• Salaries at the school jumped nearly $8 million, from $41.5 million to $49.2 million, accounting for a large chunk of the increased expenses.

• The school's top leadership took away a combined $2.69 million in compensation--an average of $207,000 for each of the 13 [executive] employees. The previous year, its leadership took in $1.4 million, an average of $175,000 for only eight top executives.

• While his base pay was lowered, [President Edison] Jackson received a raise of $40,000 when additional compensation was factored in, giving him a total salary of nearly $410,000.

• Fifty employees were paid at least $100,000, up from only eight in the previous year.

And there's more. B-CU borrowed $7 million from its endowment funds, about 13 percent of the total. Five million dollars of that amount was to pay--you guessed it--administrative expenses. Meanwhile, its investments suffered a 11 percent loss, even though the stock market was going up.

In short, it appears that B-CU's senior administrators are giving themselves raises while the school's budget deficit spirals out of control.

You may remember that Bethune-Cookman made the news recently when many of its students turned their backs on Secretary of Education Betsy DeVos and booed her when she spoke at the university's spring graduation exercise.

Isn't it remarkable how college students turn their anger on external parties instead of examining the competence of their own institution's leadership? Most of Bethune-Cookman's students have taken out student loans to finance their studies at a university that apparently does not know how to manage its own financial affairs. B-CU's students booed the wrong person at last spring's graduation exercises. They should have been booing President Edison Jackson.

References

Erica L Green. Bethune-Cookman Graduates Greet Betsy DeVos with Turned Backs. New York Times, May 10, 2017.

Scott Jaschick. Large, Growing Losses at Bethune-Cookman. Inside Higher Ed, June 26, 2017.

Seth Robbins. Tax documents show B-CU losses mounting to $17.88 million. Daytona Beach News-Journal, June 24, 2017.

Valerie Straus. Booing students at Betsy DeVos's commencement speech told to shut up or get diplomas sent in mail. Washington Post, May 10, 2017.