Wednesday, December 5, 2018

"Education Corporation of America, Virginia College, and Brightwood College Turn Out the Lights": Important Advice to ECA students from Steve Rhode

By  (originally posted on December 5, 2018)
I just received a comment from an awesome reader that said, “Just got reports (from several campuses) that ECA has decided to close down all schools (teach out and go forward) effective immediately. Apparently, ACICS pulled their accreditation. Current employees are being let go immediately with no severance or insurance after Friday, 12/7. Don’t know all details yet as its only been a few hours and the media and news outlets have not picked up the story. I wanted to let you know since you have reported the most accurate coverage on ECA’s unraveling. It’s very sad to see ECA end like this. Many people that worked for the colleges truly cared about the students and making a difference in their life. There will be many students that will not be able to finish their education and many remaining employees that will be without a job right before Christmas. This is all so very sad.”
It does appear that ECA and Virginia College are turning out the lights. WRDW 12 in Georgia said yesterday, “A news photographer on the scene spoke with at least two people who say employees were called into a meeting this morning and told the College was being closed. Workers were reportedly told to go home and that they will not be receiving further paychecks. People we spoke to also say they were told this is occurring at locations in other states.” – Source
WTVC in Tennessee has reported similar closures in Chattanooga. – Source
Virginia College in Birmingham Alabama is reported to have closed as well. Officials at this campus are reported to have said they don’t know why this is happening. – Source
Another ECA school, Brightwood College in Texas have announced its closure as well. – Source
Inside Higher Ed is reporting, “In an email to campus employees Wednesday morning, ECA president Stu Reed said that the Department of Education had added new restrictions on its access to Title IV student aid. And on Tuesday night, the Accrediting Council for Independent Colleges and Schools suspended the colleges’ accreditation. Those steps meant the company couldn’t secure the additional capital needed to operate its campuses, he said.
The company also told employees that it would complete current course modules, which will finish in the next two weeks. A skeleton crew of employees will remain on campuses to assist students with obtaining documentation on their programs.”
The schools said they will work with students to access transcripts.
Students who owe federal student loans should immediately talk to their loan servicer regarding the process for a full discharge of their federal student loans if there is no available teach-out program offered by ECA.
By receiving a closed school loan discharge,
  • you have no further obligation to repay the loan,
  • you will receive reimbursement of payments made voluntarily or through forced collection, and
  • the record of the loan and all repayment history associated with the loan, including any adverse history, will be deleted from your credit report.
To be eligible for a full discharge of your student loans, your loans must have been “William D. Ford Federal Direct Loan (Direct Loan) Program loans, Federal Family Education Loan (FFEL) Program loans, or Federal Perkins Loans.”
Loans most easily eligible for forgiveness are ones if:
  • you were enrolled when your school closed;
  • you were on an approved leave of absence when your school closed; or
  • your school closed within 120 days after you withdrew.
For more information on obtaining a closed school discharge, click here.

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This article first appeared on Get Out of Debt Guy blog site.

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here. 

Friday, November 30, 2018

Betsy DeVos compares the student-loan program to a thunderstorm looming on the horizon

Betsy DeVos, President Trump's Secretary of Education, gave a speech a few days ago in which she candidly acknowledged that the federal student-loan program is in crisis. In fact, she compared the student loan program to a "thunderstorm loom[ing] on the horizon."

Here is what Secretary DeVos said in her speech:
  • 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.
  • The debt level of individual borrowers has ballooned since 2010. Most of this growth is due to the fact that postsecondary students are borrowing substantially more money than they did just eight years ago.
  • The federal government's portfolio of outstanding student loans now constitutes 10 percent of our nation's total national debt.
DeVos basically admitted that a lot of federal student loans will never be paid back. In the commercial world, she said, no bank regulator would value the government's massive portfolio of student loans at full value. And she also admitted that the Department of Education, by itself, could only make "a few, small tactical measures" to address this enormous problem.

 In my view, DeVos's speech is the most useful statement about the student-loan program coming from a federal official since  the publication of A Closer Look at the Trillion, released more than five years ago by the Consumer Financial Protection Bureau's Student Loan Ombudsman, Rohit Chopra.

As I have said repeatedly, the student-loan crisis will not be resolved until the for-profit college industry is shut down and struggling debtors have access to the bankruptcy courts to discharge their student loans.

But those reforms are not politically possible right now. In the meantime, Congress should join DeVos in adopting some "small tactical measures" to ease massive suffering. Here are some suggestions:
  • Congress should adopt legislation banning the federal government from garnishing the Social Security checks of elderly student-loan defaulters. As the Government Accountability Office pointed out two years ago, most of the money collected from garnishing Social Security checks goes to paying off interest and penalties  and not paying down the principal on the debt.
  • Disabled veterans should have their student loans forgiven automatically by the government without the necessity of making a formal application.
  • The Department of Education should streamline the loan-forgiveness process for borrowers who signed up for the Public Service Loan Forgiveness Program (PSLF).  As of a few months ago, DOE had approved less than 100 of 28,000 PSLF applicants.
  • Insolvent tudents who took out private student loans and financially distressed parents who co-signed student loans for their children or who took out  Parent PLUS loans should have free access to the bankruptcy courts.
These measures, if adopted, would do little to relieve the massive suffering caused by mountains of student loan debt. But they would be a token of good faith by our government and a sign that our political leaders finally understand that the federal student loan program is out of control and has ruined the lives of millions of Americans who took out student loans in the naive hope that a college education would lead to a better life.

References

Rohit Chopra. A closer look at the trillion. Consumer Financial Protection Bureau, August 5, 2013.  Accessible at: http://www.consumerfinance.gov/blog/a-closer-look-at-the-trillion/.

Betsy DeVos. Prepared Remarks by U.S. Secretary of Education Betsy DeVos to Federal Student Aid's Training Conference. November 27, 2018.

United States Government Accountability Office. Social Security Offsets: Improvement to Program Design Could Better Assist Older Student Borrowers with Obtaining Permitted Relief. Washington DC: Author, December 2016).

Thursday, November 29, 2018

Fewer new international students are enrolling in U.S. colleges: Have foreign families figured out that American higher education is a scam?

Earlier this week, Chronicle of Higher Education reported a drop in new enrollments by foreign students in U.S. colleges. Over a two-year period, new foreign enrollments dropped nearly 10 percent. According to the Chronicle, foreign students contributed $42 billion to the U.S. economy in 2017, so a drop of this magnitude is a significant revenue loss for American higher education.

Why are foreign students staying away from American colleges and universities? Some people blame the "Trump effect." As the Chronicle explained, "The combination of policies and rhetoric from [President Trump], the thinking goes, are making international students reconsider coming to the United States amid a political climate hostile to globalism."

To my knowledge, no one has produced any empirical evidence to support that theory; and Chronicle of Higher Education went on to give some alternate explanations. For example, higher tuition prices and the strong U.S. dollar may have priced some foreign families out of the American higher education market. In addition, some countries are scaling back their financial support for foreign study. Finally, as one expert explained, American colleges are facing stiffer competition for foreign students. "The biggest new development is there are real competitor countries out there that we've never had before," said Allan E. Goodman, president of the Institute of International Education.

But I offer yet another possible explanation for the decline in new college enrollments from foreign students. Maybe foreign families have figured out that American universities are wildly overpriced and aren't worth the tuition they are charging.

As Peter Morici pointed out in an article for MarketWatch, U.S. colleges have lowered admission standards to keep their enrollments up and have watered down their curriculum to teach students who aren't qualified for postsecondary study.

This phenomenon has led to a poorer overall college experience for many students. Moroci notes that "s]tandardized tests indicate four years of college often adds little to students' analytical abilities and four in 10 graduates lack the critical thinking skills necessary for entry-level professional work."

And Morici also points out that 40 percent of young college graduates are stuck in jobs that don't require a college degree and 3.6 million American college graduates live below the poverty line.

In short, for millions of Americans, their college experiences have been a scam. After four years of largely meaningless study, college graduates are stumbling into a tight job market with little to show for their educational investment other than massive amounts of student-loan debt.

Foreign families may not understand all the dynamics of the big scam called American higher education, but many of them have figured out that it is not worth what U.S. universities are charging.  Little wonder that new foreign student enrollment has dropped nearly 10 percent in two years.

Photo credit: North Idaho College


References

Peter Morici. Opinion: A sensible way to fix the student-loan problem. Marketwatch.com, November 26, 2018.

Vimal Patel. Is the 'Trump Effect' Scaring Away Prospective International Students? Chronicle of Higher Education, November 13, 2018.


Wednesday, November 21, 2018

Hopson v. Illinois Student Assistance Commission: A clueless bankruptcy judge sentences a 63-year-old student-loan borrower to a lifetime of indebtedness

Janice Faye Hopson, 63 years old, went to trial in an Illinois bankruptcy court last spring, hoping to discharge more than $100,000 in student loans. The Illinois Student Assistance Commission and the U.S. Department of Education opposed her plea for relief; and Judge Jacqueline Cox, the bankruptcy judge who heard Hopson's case, ruled against her.

At the time of Judge Cox's ruling, Hopson was in a 25-year income-based repayment plan (IBRP) that required her to make monthly payments of zero due to her low income. Indeed, Judge Cox ruled that Hopson could maintain "a substantial standard of living" while making student-loan payments of zero dollars a month (588 B.R. 518).

Hopson argued that she would never pay back $100,000 in student loans under a 25-year IBRP and that the principal on the loan will continue to grow in the coming years due to accruing interest. When the 25-year plan ends, Hopson will likely be in her 80s. Moreover, although DOE will write off the amount of her unpaid debt when the 25-year repayment plan is completed, that amount will be taxable to her as income.

Judge Cox was unsympathetic. If Hopson is insolvent when her 25-year plan ends, Judge Cox pointed out, she can file for bankruptcy a third time and discharge her tax bill on the grounds that she is broke (588 B.R. at 515).

Will Ms. Hopson be insolvent when her IBRP ends two decades from now? Of course she will. At age 63, she has virtually no retirement savings (as Judge Cox acknowledged). Twenty years from now, she undoubtedly will be living entirely off her Social Security checks, estimated to be only $1430 a month.

Although Judge Cox probably did not realize it, she essentially ruled that no student debtor who is eligible for a long-term income-based repayment plan is entitled to bankruptcy relief. Of course it is true in one sense that a person allowed to make student-loan payments of zero dollars a month cannot claim her student loans constitute an "undue hardship" in the present moment. But people making token monthly payments or even monthly payments of zero are burdened by student-loan debt that grows with each passing month due to accruing interest and which will never be repaid.

They are also burdened by the specter of a huge tax bill when DOE eventually writes off their loans two decades or more into the future. Like Ms. Hopson, many people will be long past retirement age when their IBRP payment obligations come to an end. And like Ms. Hopson most people in IBRPs won't have sufficient retirement savings to live their last years in comfort and dignity.

*****

A few notes in closing. First, Judge Cox ruled that Ms. Hopson could maintain a "substantial standard of living" while making student-loan payments of zero dollars a month. Apparently, the judge concluded Hopson was living above a minimal lifestyle because she rented a two-bedroom apartment. Judge Cox pointed out Hopson could save $225 a month if she moved into a one-bedroom apartment.

Second, Adam Merrill, a Chicago lawyer, represented Ms. Hopson pro bono. I want to especially commend him for taking on Ms. Hopson's case without a fee.

Finally, Judge Cox did not state in her opinion when Ms. Hopson's 25-year repayment plan will end. Perhaps the date was not important to the judge.  In this essay I presumed that Hopson signed up for a 25-year repayment plan fairly recently and that it won't conclude until she is in her 80s.

Judge Jacqueline Cox: No mercy for a 63-year-old student-loan debtor


References

Hopson v. Illinois Student Assistance Commission, 588 B.R. 509 (Bankr. N.D. Ill. 2018).

Friday, November 9, 2018

Roosevelt Institute researcher says student-loan program is "a failed social experiment." But you already knew that.

Julie Margetta Morgan and Marshall Steinbaum wrote a blockbuster of a report for the Roosevelt Institute on the student-loan crisis. Unfortunately, the bland title and multiple graphs obscured the authors' key finding, which is this: Contrary to what student-loan advocates proclaim, a great many people who took out student loans for postsecondary education have not seen a rise in wages.

As author Julie Margetta Morgan summarized, "We've essentially engaged in a failed social experiment where the government thought that it would be fine to give people student debt because it would pay off in the long run and we're seeing that's not the case."

On the contrary, this is what Morgan and Steinbaum found:
  • "More education has not led to higher earnings over time." Although the higher education community trumpets the myth that rising student debt and more education leads to higher income, that is not true. Instead, "the distribution of earnings in the labor market has remained relatively unchanged over time. And to the extent that individuals see an income boost based on college attainment, it is only relative to falling wages for high school graduates."
  •  "Student debt is a burden for a growing share of young adults." Traditional ways of measuring student debt "fail to consider the changing distribution of  debtors over time or the changes in the ways that borrowers repay their loans." When these factors are accounted for, "the data show that many more Americans have debt, and the burden of that debt is more significant now than for previous generations."
  •  "Credentialization better explain these dynamics than the 'skills gap.'" Although the nation's population is becoming better educated, "each educational group is becoming less well paid." In the authors' view, this phenomenon "is a result of declining worker power, which allows employers to demand a higher level of educational attainment for any given job, not a broken link between workforce skills and labor market demands."
  • "These trends have had particularly negative impacts on Black and brown Americans." Minorities already have to obtain more education than their peers in order to get the same or similar jobs. In general, people of color have less wealth than nonminorities, which means students of color take on disproportionate amounts of debt, which exacerbates disparities in student-loan debt between minority and nonminority students.
 Morgan and Steinbaum fortify their arguments with statistical analysis, but this is the essence of what they found. A higher percentage of Americans have student-loan debt than previous generations, and they have more debt than in the past.  And this trend has developed at the same time that wages have remained stagnant.

As worker power in the job market declines, employers have been able to demand more credentials from job  applicants. In essence, employers have been"upskilling" the labor market.

 I see evidence of this everywhere. Lawyers, for example, need just one professional degree to practice their trade: a J.D.  Yet as the job market for attorneys tightens, I see more and more lawyers get additional education: an MBA, for example,or a master's degree in law.  But these additional credentials often do not lead to higher salaries--and generally are not necessary for the jobs they are seeking.

I give myself as an example of a person who took out student loans to get a credential that did not enhance my job skills. I had a law degree before I became a professor, and my legal skills and experience are all I needed to be a competent education-law professor, a job I have done for 25 years.

But to get my first professor's job, I had to have a doctorate, and so I took out loans to get an Ed.D. degree from Harvard. It was a complete waste of time and money.

Morgan and Steinbaum question the enormous public investment in postsecondary education our government is making through the student-loan program. Midway through their policy report, they make this trenchant observation:
If the only function of that public investment is to increase the credentialization of the labor market and enrich academic institutions that are best able to provide those credentials to students looking to differentiate themselves (at great expense) in a rat race, it's hard to conclude that the public investment s paying off . . . .
Indeed, the investment is not paying off.  For millions of Americans, the student-loan program is doing nothing more than sentencing them to become members of a permanent debtor class.

Cleveland State University says you will be richer if you get an advanced degree. Is that true?

References

Jillian Berman. America’s $1.5 trillion student-loan industry is a ‘failed social experiment.’Marketwatch.com,October 18, 2018.

Julie Margetta Morgan and Marshall Steinbaum. The Student Debt Crisis, Labor Market Credentialization, and Racial InequalityRoosevelt Institute, October 2018.

Wednesday, November 7, 2018

Iowa Wesleyan and Valparaiso Law School make brave decisions: “It is a far, far better thing that I do, than I have ever done"

“It is a far, far better thing that I do, than I have ever done." Who said that? I think it was some dead guy from the 19th century. Charles Dickens maybe?

Iowa Wesleyan University and Valparaiso Law School both made brave decisions this week, and I salute them for it. Valparaiso Law announced it is closing after negotiations to transfer the school to Middle Tennessee State University broke down. And the President of Iowa Wesleyan University, Steven E. Titus, posted a statement on the university web site candidly telling the campus community that the university faces a serious financial crisis and that the governing board is pondering the university's future.

These decisions must have been very hard for both institutions. President Titus acknowledged that publicizing Iowa Wesleyan's financial situation might hurt enrollment, which could hasten its demise. "But we decided it was the right thing to let people know what was going on," Titus said. "There is risk no matter what we do."

As for Valparaiso, the loss of its law school diminishes the reputation of the university as a whole, as a law school is generally seen as a prestige-enhancing program.

In my view, both institutions are facing the stark financial reality that many private colleges are facing, and they are facing it with courage. Let's first look at Valparaiso. 

There are far too many law schools in this country, and enrollments have been declining. As reported in Inside Higher Ed, law-school enrollments have sunk from a high of 52,000 to 37,000. 

The quality of students being admitted to law schools is also declining. As tracked by Law School Transparency, a nonprofit group that reports on law -school admissions, some law schools have admitted students with LSAT scores so low that half the entering class faces a very high risk of failing the bar.

Valparaiso is closing its law school,  which is certainly in the public interest. It is far better for Valparaiso to close than for it to lower its admissions standards just to enroll more students.

As for Iowa Wesleyan, the school has been discounting tuition to attract students; according to one report, it has discounted tuition by more than half.  At some point that practice raises ethical issues.  How can a college justify charging its least attractive students full price when the average price is less than half that amount?

And how does a college explain the discounts to the students who receive them? Some colleges have been showering first-year students with scholarships--athletic scholarships in particular.  But is it honest to give an incoming student a volleyball scholarship when the school doesn't even field a decent volleyball team?

No, Valparaiso and Iowa Western should be commended for their courage and their honesty. It was a far, far better thing they did than perhaps anything they've ever done.

References

Scott Jaschik. Iowa  Wesleyan could become the latest small college to close. Insider Higher Ed, November , 2018.

Emma Whitford. Valparaiso Law School will close following unsuccessful attempt to transfer to Middle Tennessee University. Inside Higher Ed, October 31, 2018.

Sunday, November 4, 2018

Alabama trashes the LSU Tigers and tailgaters trash the LSU campus: How about bloody marys for brunch?

Number 1 ranked University of Alabama trashed Number 3 ranked LSU on LSU's home field last night.  About 200,000 people were on hand for the debacle: 102,000 in the stadium and another 100,000 tailgaters. The score was 29 to 0. LSU's star field-goal kicker made one attempt for 3 points, but he missed.

In the hours leading up to the game, tailgaters were packed shoulder to shoulder around the stadium, making the campus look something like a Civil War army camp. Portapotties and trash cans were overwhelmed, and picnickers squatted on the sidewalks because there was no room for them on the lawns.

On the morning after game day, the crowds were gone, save for a few dozen recreational vehicles (each costing about a quarter of million). Shades were drawn in the RVs, but the generators were running, so the owners must have been inside, sleeping off their hangovers.

And shortly after dawn, the cleanup crews were out early picking up thousands of discarded beer cans, plastic cups, and styrofoam fast-food containers. LSU used to hire prison trustees to do this work, but the optics were bad. This morning, young people are picking up the trash, perhaps LSU student volunteers.

Big disappointment. If only LSU could have knocked off Alabama and its satanic football coach, Nick Saban. If LSU coach Ed Ogeron had pulled it off, the fans would certainly have erected a statue in his honor, a statue even larger and gaudier than the one Alabama installed for Saban. But it was not to be.

No matter. Lots of Baton Rouge restaurants offer Bloody Mary brunches on Sunday, and it least one restaurant includes all-you-can drink mimosas for folks nursing hangovers.  And then the Saints play the Rams on Sunday afternoon--an opportunity to drink Bud Lites and eat chicken fingers--chicken fingers that Coach Ogeron personally endorses.

Fall is the season of bacchanal in South Louisiana. Let's get drunk for every LSU game, every Saints game, and every playoff game.  Let's get drunk at the fraternity hazing exercises. After all, hardly anyone dies from alcohol poisoning.

And then spring comes--another season of bacchanal. Mardis Gras parades start at least two weeks before Fat Tuesday, and the St. Patrick's Day parade is another occasion for a huge town drunk. The garbage trucks follow closely behind the St. Patrick's Day floats, sweeping up the discarded beads and beer bottles.

A friend told me he attended a Mardis Gras parade in New Orleans a few years ago. A drunk driver, driving a beer truck as it happened, plowed into a crowd of spectators, killing a woman who was pinned under the vehicle. My friend said he saw revelers crawl under the truck and loot the woman's Mardis Gras beads. The corpse was still warm.

Fox Business Report assures us daily that the economy is booming with record-low unemployment and a robust growth in wages. In Baton Rouge, people drive around in late-model luxury cars and pack the restaurants every night.

Cheaply built apartment complexes are being thrown up willy nilly for LSU students in the flood plain next to the Mississippi River levees. They feature swimming pools, and enormous television screens in the common areas. Meanwhile LSU passed a rule requiring most first-year students to live on campus, and it built its own faux-luxury residence halls to accommodate them.

But in North Baton Rouge, weekend killings are routine. A six-year-old was shot dead a couple of days ago, and thirteen-year-old was arrested.  Baton Rouge schools are a mess, and almost no one of means will put their children in a public school.

The rich go to private schools, and the less well-to-do buy inexpensive homes in adjoining parishes where the schools are better. They drive to work every morning on Interstate 10, which is a parking lot from 7:30 AM until about 10 AM on workdays.

But the commute is not so bad. You can check your cell phone when the traffic grinds to a halt or listen to Stuart Varney on Fox Business Report tell you how much money we're all making in the stock market.


Nick Saban's statue at University of Alabama
Photo credit: David Mercer, USA Today