Tuesday, March 19, 2019

USA Today reports that millennials are having trouble buying cars and homes due to burdensome student loans---that ain't the half of it

According to a story published yesteerday in USA Today, fewer millennials are able to buy cars and homes because they are burdened with high levels of student debt.

This problem is well documented. The Federal Reserve Bank of New York reported that declining home ownership is partly due to student debt, and the American Enterprise Institute published a paper last December showing that student loans partly explain declining birth rates in the United States.

The USA Today story began by spotlighting Amanda Hill, a 27-year-old college graduate who amassed $90,000 in student-loan debt to get a bachelor's degree from Hampton University in Virginia. Ms. Hill said she is reluctant to take on any more debt because she owes so much on her student loans. Instead of buying a new car--the first major purchase for most college graduates--Ms. Hill bought a used Saturn for $500.

As USA Today reporter Susan Tompor reported, many millennials are constrained by their student loans from buying big-ticket consumer items. "Plain and simple," Tompor wrote, "many young consumers just aren't ready to consume."

But the plight of millennials is much worse than USA Today portrayed it. Not only are many young Americans unable to buy consumer goods because of their student loans, millions will never pay off their debt.

Let's look more closely at Amanda Hill's situation. She enrolled in an income-based repayment plan that set her monthly loan payments at only $200 a month. USA Today didn't report whether Hill is in a 20-year or a 25-year repayment plan, but it doesn't really matter.  If interest accrues at 5 percent (the current rate for federal student loans), Hill will have to pay $4,500 a year just to cover accruing interest.

But Hill is only paying $200 a month--or $2,400 a year. Thus, with each passing month, Hill's debt is growing larger. In three years or so, Hill will owe $100,000 even if she makes every payment on time.

USA Today did not disclose Hill's college major, her current salary, or her job title; but clearly she must be working in a low-paying job to be making payments of only $200 a month on a $90,000 debt.

Hill might find a better job that will allow her to make larger monthly loan payments. But that will have to happen soon if Hill is going to be in a position to make payments large enough to cover accruing interest and pay down some of the principle on her debt.

The chances are very good that Amanda Hill will make regularly monthly payments for 20 or 25 years under an income-based repayment plan and owe far more than she does now when her payment obligations come to an end. Her remaining debt will be forgiven, but she will get a huge tax bill because the IRS considers forgiven debt to be taxable income.

In short, Amanda Hill's problems are a lot more serious than an inability to buy a new car. She very well may be looking at a lifetime of indebtedness. That's a high price to pay for a bachelor's degree from Hampton University.


Sunday, March 17, 2019

Rich parents paying bribes to get their kids into elite colleges: Why risk jail for kids to get a mediocre education?

I live in Louisiana, where the most heinous thing a person can do is buy Chinese crawfish.

So I shouldn't have been shocked by the reaction of my Louisiana friends to the college-admission scandal that is roiling the national media. Several Louisianians expressed surprise that it is illegal to bribe your way into an elite college.  After all, my friends pointed out, it is well known that wealthy people get their kids into Baton Rouge's exclusive private high schools by making big donations.

What's the difference, one chum asked me, between bribing a soccer coach to get admitted to Yale and making a $5,000 donation to Catholic High School to make sure one's child gets admitted?

Not much, I admit.

Nevertheless, why pay bribes to get your kid into an elite college? After all, it is not the end of the world if your child does not get into Yale, USC, or Georgetown. There are a lot of prestigious universities in this country, and a well-qualified high-school graduate has a shot at getting into one of them.

Moreover, today's elite colleges are not what they used to be. Grade inflation, identity politics, and an atmosphere of political correctness have watered down the curriculum at colleges that once maintained rigorous academic standards.  According to a Boston Globe article published 18 years ago, 91 percent of Harvard's students graduated summa, magna or cum laude in 2001. 

How could that be? According to the Globe writer, "It takes just a B-minus average in the major subject to earn cum laude -- no sweat at a school where 51 percent of the grades last year were A's and A- minuses."

Maybe Harvard tightened standards since that article was written in 2001. Or maybe not. According to a Harvard Crimson article published in 2017, "more than half of surveyed [Harvard]seniors reported a GPA of 3.7 or greater, which is higher than an average grade of A- for every course."

So what's my point? I suppose it is this. America's elite colleges are nothing special, and families shouldn't turn them selves inside out to get their children into these overpriced diploma factories. They shouldn't go into ruinous debt to pay tuition bills at these hot-air palaces, and they certainly shouldn't pay a bribe to get their kids into Yale.

I did not get my undergraduate degree from a prestigious university. I did, however, get a doctorate from Harvard Graduate School of Education; and it was nothing special.

I realized before I graduated that I had made a major mistake when I enrolled at Harvard. I feel very sorry for parents who took out Parent PLUS loans or co-signed their children's student loans in order to pay tuition at some overpriced, high-prestige university.

As for the parents who face criminal charges in the college-admission scandal, I do not think they should go to jail. Rather. their children should be forced to attend the colleges they bribed their way into, and parents should pay the full tuition cost. Four years later, when the parents see how their kids turned out after graduating from one of these elite schools, that will be punishment enough.

Felicity Huffman (photo credit: David McNew/ AFP/ Getty Images)



Wednesday, March 13, 2019

It's Magic! Betsy DeVos' Department of Education allows Grand Canyon University to call itself non-profit while its parent company reports profit margin of 27 percent

David Halperin, the nation's best investigative reporter on the for-profit college industry, wrote an article recently on Grand Canyon University, which has been advertising lately that it is a non-profit university.

Well, sorta. As Halperin explained, Betsy DeVos' Department of Education "has blessed a series of troubling deals that allow a [not-]for profit college to be 'serviced by connected for-profit companies."

To what purpose?As Halperin reported:
The non-profit school benefits from the elimination of the for-profit stigma, reduced regulations, elimination of taxation, and eligibility for more state and charitable grants. Meanwhile, the for-profit, and its owners and executives, get to siphon off a lot of the revenue, much of it from taxpayer-funded grants and loans.
Thus in the fairyland world that Betsy DeVos has created, Brian Mueller wears two hats. He is president of Grand Canyon, a non-profit entity. He is also CEO of the university's parent for-profit corporation, Grand Canyon Education.  GCE trades on NASDAQ at $115 a share and reported a profit margin of 27 percent at the end of 2018.

Mueller conducted an earnings call to his investors recently in which he complained about non-profit colleges warning potential students not to enroll at a for-profit college. Through DeVos' mumbo jumbo, Grand Canyon can now call itself a nonprofit college, which has boosted its enrollment.

As Mueller boasted: "They see our ad & call Grand Canyon and within 72 hours everything is done. Applications filled out. Transcripts evaluated. Financial aid is done. They go to our website, they see who Grand Canyon is and say, 'this sounds good,' and they start."

As Halperin accurately observed, "the Donald Trump-Betsy DeVos Department of Education . . . has done everything possible to eliminate rules that protect students and taxpayers from predatory college abuses."

In fact, according to a Century Foundation report, which analyzed colleges with large online enrollments, Grand Canyon only spends 17 percent of its tuition money on educating students (as summarized by Halperin). Some non-profit!

I once thought that DeVos was simply incompetent and making decisions that benefited for-profit colleges out of ignorance. But DeVos knows exactly what she is doing, and she must know that the for-profit college industry as a whole is committing economic rape on unsophisticated young people, including first-generation college goers.

In a November speech, DeVos admitted that the student-loan program is in crisis. This is what she said:
  • The federal government holds $1.5 trillion in outstanding student loans, one third of all federal assets.
  • Only one in four federal student-loan borrowers are paying down the principal and interest on their debt.
  • Twenty percent of all federal student loans are delinquent or in default. That's seven times the delinquency rate on credit card debt.
Of course, the for-profits aren't responsible for all the carnage in the student-loan program, but they are responsible for a lot of it. Adam Looney and Constantine Yannelis, writing for the  Brookings Institute, reported awhile back that the 5-year default rate for one cohort of students who attended for-profit colleges was 47 percent! Several for-profits have been shut down in a shower of fraud allegations.

But even for DeVos, this latest scheme, which allows a college to call itself non-profit while its for-profit parent reports a profit margin of 27 percent, is outrageous.


President of Grand Canyon University and CEO of Grand Canyon Education.










Monday, March 11, 2019

What the hell? Financing a Harley at 22 percent interest!

Steve Rhode, the Get Out of Debt Guy, answers questions from his blog-site readers about consumer complaints. A few days ago, a woman named Mary wrote Steve about a Harley Davidson motorcycle her husband bought and financed at an interest rate of 22 percent.

Mary asked Steve if it was legal to apply an entire monthly loan payment to interest just because the payment was a few days late. She also asked if her husband could simply return the motorbike.


First of all, he pointed out, most loan payments typically go primarily to interest in the early months of the repayment period. "This is especially true," Mr. Rhode added, "if the outstanding balance includes late fees that get added to the account balance.

Taking the Harley back to the dealer, Mr. Rhode advised, is usually a bad option because a voluntary repossession will lead Mary and her husband with a big bill. The couple could sell the bike but they would need to sell it for at least enough to cover what they owe or come with the difference between the sales price and what they owe. Otherwise, they could not get the title to transfer.

Rhode then went on to estimate what the Harley is going to cost Mary and her husband if they continue with their repayment plan. Assuming, they financed the bike with a 72-month note, monthly payments would be $628 a month for 72 months. When they paid off the note after six years, they would have made payments totally $45,000 to pay off a $25,000 purchase.

Since Mary and her husband seem willing to just to give the bike back to Harley, they obviously realize they made a bad deal. They would have been better off to have saved enough money for a hefty down payment so they could have taken out a smaller loan. And assuming they had good credit, they could have financed the bike with a credit card at a lower rate of interest.

Some people reading Mary's story might conclude that she and her husband made a bad decision and have no one to blame but themselves. But I disagree. In a fairer and more just economy, laws and regulations would have prohibited this very bad transaction.

People forget that not too long ago, states had usury laws that placed strict limits on the interest that could be charged for a consumer transaction. In the state where I practiced law, a statute limited the interest rate to 10.5 percent--less than half the rate that Mary and her husband were charged.

But the banks figured out how to base their operations in states that permitted very high interest rates. Remember sending those credit card payments to South Dakota or Delaware? Then, in 1978, the Supreme Court allowed out-of-state credit card companies to charge interest rates that were higher than the interest rate allowed in their customers' own states. (Pat Curry explains this in a 2010 essay.)

Even student-loan debtors can fall into the trap of paying high interest rates. I've read a couple of recent bankruptcy court decisions in which people refinanced their student loans at 9 percent--a hefty rate indeed when we consider that the interest rate on a 10-year treasury bond is less than 2.7 percent right now.

Tragically, millions of Americans are financing consumer transactions to purchase stuff they don't need or is virtually worthless. This is also true for people who take out student loans to attend for-profit colleges that are not providing students with fair value--or any value at all in many cases.

As the 2020 political season heats up, voters need to ask presidential candidates if they endorse legislation that would effectively regulate consumer transactions and the student-loan industry. If a candidate has nothing to say about the massive exploitation of ordinary Americans by the banks, the student-loan racket, and the consumer-finance industry, voters need to find someone else to vote for.


Photo credit: Harley Davidson

Saturday, March 9, 2019

Misinformation: Some commentators inaccurately say that student loans cannot be discharged in bankruptcy

Last month, Mises Institute, an Austrian think tank, posted an interesting article on the American student-loan crisis. For the most part, the article contains interesting and accurate information; but it also said student loans cannot be discharged in bankruptcy--which is not true.

The Mises Institute article focuses on student-loan debt owed by older Americans, As author Andrew Moran explained, these debts fall into two categories: student loans that seniors take out to finance their own education and Parent PLUS loans, which are loans older Americans take out for their children's postsecondary studies.

"It is the Parent PLUS program that seems to be wreaking the most havoc on older Americans," Moran wrote. These loans are marketed to parents of college students and carry a fixed interest rate of 7.67 percent plus an origination fee equal to 4.2 percent of the loan. As Moran noted, there is no cap on the amount of money parents can borrow through Parent PLUS.

American seniors who fall behind on their student-loan payments face serious consequences. As Moran reported, the federal government can seize income-tax refunds from senior Americans who default on their student loans (either their own loans or the loans they took out for their children). The feds can also garnish Social Security checks. True enough.

Moran then went on to state that student-loan debt cannot be discharged in bankruptcy. But this is not accurate. The Bankruptcy Code states that students  cannot be discharged unless the debtor can show that paying the loans would create an "undue hardship."

It is true that discharging student loans in bankruptcy is very difficult, and the Department of Education or its agents oppose bankruptcy relief in almost every instance. But in recent years, bankruptcy judges have discharged student-loan debt in a number of cases.

For example, in the Abney case, a Missouri bankruptcy judge discharged student loans owed by a man in his 40s who was living near the poverty line and had actually slept in his employer's truck for a time. In the Lamento case, an Ohio judge discharged student loans owed by a 35-year-old, single mother with two children who had taken out loans to get a college degree she had been unable to obtain.

In Kansas, a bankruptcy judge discharged accumulated interest on student loans owed by a married couple in their late 40s, and the decision was upheld on appeal. Later, a second Kansas bankruptcy judge forgave accumulated interest on student loans owed by V icky Jo Metz, a 59-year-old woman who had taken out student loans in the 1990s to attend a community college.

One might argue that isolated decisions by compassionate bankruptcy judges are anomalies, and that the common belief that student loans are nondischargeable is overall still true. But several federal appellate courts have expressed sympathy for distressed student-loan debtors. The Roth decision by the Ninth Circuit Bankruptcy Appellate Court, the Krieger ruling out of the Seventh Circuit, the Fern case from the Eighth Circuit Bankruptcy Appellate Court, and the Tenth Circuit's Polleys decision all approved bankruptcy relief for overburdened student debtors.

I do not wish to criticize Mr. Moran for the error in his Mises article. The Department of Education has done nothing to dispel the myth that student loans are nondischargeable; and in fact DOE has uniformly opposed bankruptcy relief, even for people in desperate circumstances. In the Myhre case, for example, DOE opposed bankruptcy relief for a quadriplegic who was gainfully employed but not making enough money to pay for the full-time care he needed to feed and dress himself.

And a pattern has emerged for student-loan creditors to assign student loans to Educational Credit Management Corporation, who often steps in to oppose bankruptcy relief after the debtor files for relief. Why? I think it is become ECMC, with its network of lawyers and ample resources for paying attorneys, has become the Department of Education's hired thug to beat down destitute student-loan debtors, who often come to court without attorneys.

So keep reporting on the student-loan crisis, Mr. Moran. You are doing good work. And don't feel bad about the error in the Mises article. The myth that student loans are nondischargeable in bankruptcy has been circulated many times by experts, even by attorneys who should know better.









Friday, March 8, 2019

"Robbery at its finest": Western State Law School May Close in Mid-Semester

Western State College of Law, a nonprofit law school located in California, may shut down soon. If it does, Above the Law reporter Staci Zaretsky observed, it will be the first time an ABA-accredited law school closes its doors in mid-semester.

What's going on? Well, its complicated. Western State is part of Argosy University, which is a nonprofit institution owned by Dream Center Education Holdings, a nonprofit Christian group. Dream Center bought Argosy from Education Management Corporation (EMC), a for-profit entity. EMC, once the second largest for-profit-college operator in the United States, sold out after it ran into trouble over its recruiting tactics.

Dream Center discovered that its purchase was not as profitable as it anticipated. As reported by Stacy Cowley and Erica L. Green of the New York Times, Dream Center expected to make a $30 million profit in the first year. Instead, it suffered a $38 million loss.

Dream Center could not pay all its bills, and a creditor put it into receivership in January. A federal judge in Ohio appointed a receiver, and the receiver wants to sell at least some of Dream Center's holdings.

Then, late last month, the Department of Education announced that it would yank all federal student-aid money from Dream Center, which will strangle all of its educational institutions.  DOE took this action due in part to the fact that Dream Center had not disbursed student aid money to students in a timely manner. According to DOE's letter of February 27, Dream Center failed to distribute more than $16 million in student stipends to Argosy University students, including law students at Western State College of Law. Meanwhile, the DOE letter said, Argosy continued paying its staff and vendors.

Naturally, the announcement that Western State might close in mid-semester, threw students into a panic."[W]e as students are suffering the never-ending consequences physically, emotionally mentally, and spiritually," said Kim Davoodi, a third-year last student. "This is robbery at its finest."

Without question, the precipitous closing of a law school is a disaster for students. But Davoodi may be misinformed about when this alleged robbery occurred. Western State, a third-tier law school, is shockingly expensive. Accord to Law School Transparency, which reports on law schools' costs and outcomes, it will cost an entering first-year student $282,000 to get a law degree from Western State.

Thus, almost all Western State students must borrow prodigious amounts of money to finance their studies. In fact, by Law School Transparency's calculations, a Western State graduate would have to make monthly payment of $3,329 for ten years to pay off this debt. (Of course some students receive tuition discounts, which reduces the amount of student loans they would need.)

Obviously, Western State law graduates must find very good jobs in order to service their student loans. But a law school graduate must pass the state bar exam to become a practicing attorney; and Western State's bar pass rates are abysmal.

How abysmal? Only 51 percent of Western State's first-time takers passed the California bar exam in the summer of 2018. And Western State's bar pass rate is going down. The school's bar pass rate declined by 5 percent from the previous year.

So if a robbery occurred (metaphorically speaking), it took place on the day Western State law students took out their first student loans. It is recklessly irresponsible for a law school to charge students outrageously priced tuition, when only about half of their graduates pass the state bar exam the first time they take it.

A few days ago Western State's Dean Allen K. Easley sent students an email alerting them that the law school was "finalizing plans" to stay open for at least two more weeks. Dean Easley also told student that Argosy's receiver was in "active discussions with a potential suitor interested in acquiring the law school."

Perhaps an investor will buy Western State and keep the law school open awhile longer. But speculation about a buyer for Western State reminds me of a scene from True Grit. Rooster Cogburn (played by Jeff Bridges) and Mattie (played by Hailee Steinfeld) come across a corpse hanging from a rope tied to a tall tree. Cogburn orders Mattie to cut the cadaver down, which she does; and then he slings the carcass on the back of a horse.

Why was he keeping the corpse, Mattie asked. If my recollection of the scene is correct,  Cogburn replied: "A dead body might be worth something."



Thursday, March 7, 2019

I know more about farting cows than Alexandria Ocasio-Cortez. What does AOC know about the student-loan crisis?

Let me begin by saying I recognized global warning a long time ago--before Congresswoman Alexandria Ocasio-Cortez was born. I lived in Alaska in the early 1980s, and we all saw the glaciers retreating.

The planet is heating up, we observed--not a political statement, just an acknowledgement of fact. Some of us naively believed global warming might even be a good thing. Alaska is such a great place to live, we told ourselves, but it would be so much nicer if the winters were just a wee bit warmer.

I also know a whole lot more about farting cows than AOC. My father was a cattle raiser, and I saw a lot of flatulent bovines in the stock pens. In fact, I admit that my father's Angus herd is at least partly responsible for a rise in global temperatures. Mea friggin' culpa.

But will AOC reverse global warming with her Green New Deal? No she won't.  Everybody knows that--even the wax-museum Democrats in Congress.

Better questions to ask are these: What does AOC know about the student-loan crisis, and what will she do about it?

I think the answer to both questions is "Not much." Our national politicians--with AOC in the forefront--bray on and on about problems they know they will not fix. Meanwhile millions of Americans--more than 20 million--have had their lives ruined by student loans that enriched the venal and corrupt higher education industry.

The student-loan crisis is complicated; I acknowledge that. But there are some small things Congress can do that would alleviate the suffering. For example:

Congress could pass Representative Katko's bill to allow distressed debtors to discharge their student loans in bankruptcy. Or if that lift is too heavy, Congress could at least allow parents who cosigned their children's student loans  to shed those debts in bankruptcy if they are insolvent.

Congress could also pass legislation barring the Department of Education from garnishing elderly student-loan defaulters' Social Security checks, which Senator Elizabeth Warren proposed in a bill that got nowhere in the U.S. Senate. AOC could endorse that bill, and it would probably be passed in the House of Representatives.

And here is another thing Congress could do. It could pass legislation requiring Betsy DeVos' Department of Education to streamline the process for forgiving student loans owed by people in the Public Service Loan Forgiveness program.

I suspect AOC has never thought about the student-loan crisis, even though a lot of the sufferers reside in her congressional district. And I will close by saying again that politicians who won't do something tangible toward solving the student-loan crisis don't deserve our votes.

It's farting cows, stupid!