Thursday, August 30, 2018

LGBTQ Student Organizations and the Equal Access Act: Betsy DeVos Has No Power to Restrict the Protections of the EAA

By Richard Fossey & Todd A. DeMitchell 

Originally posted at Berkley Forum, the blog site for Georgetown University's Center For Religion, Peace and World Affairs.

In 1984, Congress passed the Equal Access Act, which prohibits secondary schools that receive federal funds from discriminating against non-curriculum-related student groups based on their political, philosophical, or religious viewpoint. Thus, if a high school permits any non-curriculum-related student group to use its school facilities, it must allow other student groups equal access, without regard to the group’s viewpoint.

In adopting the EAA, Congress intended to advance the right of Christian student groups to use school facilities during non-instructional hours; and it clearly accomplished that goal. In Board of Education v. Mergens, a 1990 opinion, the United States Supreme Court upheld the constitutionality of the EAA, rejecting a school district’s argument that the Act violated the Establishment Clause.

Litigation Involving Gay Student Groups Seeking to Exercise Their Rights Under the EAA

Not long after the law was passed, LGBTQ student groups, which sometimes called themselves Gay Straight Alliances (GSA), sought the same rights as religious groups under the EAA, and a few school districts refused to recognize them. The GSAs sued in federal court, and they almost always won.

For example, a California school district argued that a GSA would introduce discussions of sexuality that were age inappropriate and would disrupt the school environment. A federal court rejected that argument, noting that a student club that focuses on sexuality might actually prevent school disruptions that can take place when students are harassed based on sexual orientation.

Likewise, a Kentucky school district maintained that it was legally entitled to shut down a GSA because the school board’s recognition of the group had triggered a boycott by anti-gay students. But a federal court disagreed. To allow disruptive anti-gay students to nullify the GSA’s legal right to meet, the court ruled, would amount to a “heckler’s veto” of constitutionally protected speech.

Ten years ago, we analyzed all published court decisions involving GSAs seeking to exercise their rights under the EAA, and we identified only one decision in which a federal court allowed a school district to ban a GSA while recognizing other student clubs. In Caudillo v. Lubbock Independent School District, a Texas school district refused to recognize a gay student group and the group filed suit. A federal district court upheld the school district’s decision on the grounds that the gay student group had created a web site with links to other web sites that the judge ruled were obscene.

Since our article was published, there have been a few more lawsuits filed by GSAs seeking recognition from school districts under the EAA, and they have generally prevailed. For example, in a 2016 case, a Florida school district refused to recognize a GSA organized by middle-school students on the grounds the EAA applied only to secondary schools and the district’s middle school was not a secondary school. The Eleventh Circuit Court of Appeals rejected that argument, ruling emphatically that a middle school is a secondary school subject to the EAA.

Can Betsy DeVos Diminish LGBTQ Students’ Rights under EAA?

Betsy DeVos, President Trump’s Secretary of Education, has diminished the U.S. Department of Education’s role in protecting the civil rights of LGBTQ students. As the Brookings Institution reported, DeVos has consistently declined to say whether DOE will protect LGBTQ students from discrimination. Earlier this year, the Department’s Office of Civil Rights announced it would stop accepting complaints about transgender students not having access to school bathrooms that match their gender identity. Is it possible DeVos might restrict LGBTQ students’ legal right to form GSAs in public high schools?

We do not believe DeVos can water down the EAA’s protections for GSAs, even if she tries to do so. The EAA is a federal statute that Congress is unlikely to repeal or amend, and federal courts are virtually unanimous in holding that the EAA guarantees the right of GSAs to organize in all public high schools where other non-curriculum related groups have formed.

Perhaps more importantly, the EAA has been in place for 34 years, and few school districts have refused to abide by its provisions. All across the United States, conservative Christian student groups and GSAs have met on high school campuses with little or no friction, and most school authorities are more than willing to allow GSAs to organize and meet.

In short, Betsy DeVos may reduce DOE’s role in protecting the civil rights of LGBTQ students, but she cannot extinguish their legal right to form GSAs in public high schools. Happily, the federal courts will stop her if she tries.

Wednesday, August 29, 2018

Wildfires ravage California and student debtors groan under mountains of debt. Meanwhile scholars debate transphobia

More than 5,000 wildfires burned in California this summer, incinerating more than 1 million acres of forests and several thousand homes.  For Californians, 2018 is truly the year of the holocaust fire.

Approximately 45 million Americans groan under the burden of $1.5 trillion in outstanding student loans. As one dentist has demonstrated, it is now possible for a person to accumulate $1 million in student-loan debt. For millions of people, student loans have incinerated their financial future--a holocaust of another kind.

Meanwhile American scholars debate this important issue: Is the acronym 'TERF' a transphobic slur?

If you don't know what TERF means, you're probably a misogynistic bastard, and  you're definitely uncool.  So I will tell you. TERF is the acronym for "trans-exclusionary radical feminist." As Colleen Flaherty explained in Inside Higher Ed, the term describes "a subgroup of feminists who believe that the interests of cisgender women (those who are born with vaginas) don't necessarily intersect with those of transgender women (primarily those born with penises)."

Here's the nut of the debate. Some feminists believe that the experience of having lived as a male for some time is important to feminist discourse, "but some trans scholars and allies say that notion is of itself transphobic, since it means that trans women are somehow different from women, or that they're not women at all."

As Inside Higher Ed informs me, Rachel McKinnon, an assistant professor of philosophy at the College of Charleston, argues that TERF is "a modern form of propaganda where so-called trans-exclusionary radical feminists (TERFs) are engaged in a political project to deny that trans women are women--and thereby to exclude trans women from women-only spaces, services, and protections."

This is all inside baseball to me. Nevertheless, as I read the Inside Higher Ed article about this debate, I became curious about the College of Charleston, where Professor McKinnon teaches. I learned that C of C is a public institution of about 11,000 students located in Charleston, South Carolina. The college accepts almost 4 out of 5 applicants for admission and it costs a South Carolina student about $29,000 a year to study there (tuition, room and board).

An out-of-state student, however, will pay considerably more to study at C of C: about $49,000 a year. So a Californian who enrolls at the College of  Charleston to study TERF bigotry with Professor McKinnon would have to borrow a considerable amount of money--at least $200,000--to get a 4-year degree.

Would that be a good investment? You can answer the question for yourself. As for me, I question whether scholarly debates about trans-exclusionary radical feminism is a good use of public money in these unquiet times when 5,000 wildfires blaze in California, 72,000 people died from opioid overdoses last year, and millions of  Americans struggle to pay their student loans.

Professor Rachel McKinnon speaks out against TERFs







Tuesday, August 28, 2018

Student Loan Ombudsman at CFPB Can’t Take the BS Anymore. Quits in Scathing Letter Telling Director Mulvaney He Sucks. Essay by Steve Rhode

By Steve Rhode

Seth Frotman, an Assistant Director and Student Loan Ombudsman at the Consumer Financial Protection Bureau, told CFPB Director Mick Mulvaney to shove it and quit in an honest resignation. His experience inside the slowly gutted consumer protection agency was enough to say he’s mad as hell and not going to take it anymore.

Frotman’s resignation letter said, “It is with great regret that I tender my resignation as the Consumer Financial Protection Bureau’s Student Loan Ombudsman. It has been the honor of a lifetime to spend the past seven years working to protect American consumers; first under Holly Petraeus as the Bureau defended America’s military families from predatory lenders, for-profit colleges, and other unscrupulous businesses, and most recently leading the Bureau’s work on behalf of the 44 million Americans struggling with student loan debt. However, after 10 months under your leadership, it has become clear that consumers no longer have a strong, independent Consumer Bureau on their side.


Each year, tens of millions of student loan borrowers struggle to stay afloat. For many, the CFPB has served as a lifeline — cutting through red tape, demanding systematic reforms when borrowers are harmed, and serving as the primary financial regulator tasked with holding student loan companies accountable when they break the law.

The hard work and commitment of the immensely talented Bureau staff has had a tremendous impact on students and their families. Together, we returned more than $750 million to harmed student loan borrowers in communities across the country and halted predatory practices that targeted millions of people in pursuit of the American Dream.

The challenges of student debt affect borrowers young and old, urban and rural, in professions ranging from infantrymen to clergymen. Tackling these challenges should know no ideology or political persuasion. I had hoped to continue this critical work in partnership with you and your staff by using our authority under law to stand up for student loan borrowers trapped in a broken system. Unfortunately, under your leadership, the Bureau has abandoned the very consumers it is tasked by Congress with protecting. Instead, you have used the Bureau to serve the wishes of the most powerful financial companies in America.


As the Bureau official charged by Congress with overseeing the student loan market, I have seen how
the current actions being taken by Bureau leadership are hurting families. In recent months, the Bureau has made sweeping changes, including:

Undercutting enforcement of the law. It is clear that the current leadership of the Bureau has abandoned its duty to fairly and robustly enforce the law. The Bureau’s new political leadership has repeatedly undercut and undermined career CFPB staff working to secure relief for consumers. These actions will affect millions of student loan borrowers, including those harmed by the company that dominates this market. In addition, when the Education Department unilaterally shut the door to routine CFPB oversight of the largest student loan companies, the Bureau’s current leadership folded to political pressure. By undermining the Bureau’s own authority to oversee the student loan market, the Bureau has failed borrowers who depend on independent oversight to halt bad practices and bring accountability to the student loan industry.

Undermining the Bureau’s independence. The current leadership of the Bureau has made its priorities clear — it will protect the misguided goals of the Trump Administration to the detriment of student loan borrowers. For nearly seven years, I was proud to be part of an agency that served no party and no administration; the Consumer Bureau focused solely on doing what was right for American consumers. Unfortunately, that is no longer the case. Recently, senior leadership at the Bureau blocked efforts to call attention to the ways in which the actions of this administration will hurt families ripped off by predatory for-profit schools. Similarly, senior leadership also blocked attempts to alert the Department of Education to the far-reaching harm borrowers will face due to the Department’s unprecedented and illegal attempts to preempt state consumer laws and shield student loan companies from accountability for widespread abuses. At every turn, your political appointees have silenced warnings by those of us tasked with standing up for service members and students.

Shielding bad actors from scrutiny. The current leadership of the Bureau has turned its back on young people and their financial futures. Where we once found efficient and innovative ways to collaborate across government to protect consumers, the Bureau is now content doing the bare minimum for them while simultaneously going above and beyond to protect the interests of the biggest financial companies in America. For example, late last year, when new evidence came to light showing that the nation’s largest banks were ripping off students on campuses across the country by saddling them with legally dubious account fees, Bureau leadership suppressed the publication of a report prepared by Bureau staff. When pressed by Congress about this, you chose to leave students vulnerable to predatory practices and deny any responsibility to bring this information to light.

American families need an independent Consumer Bureau to look out for them when lenders push products they know cannot be repaid, when banks and debt collectors conspire to abuse the courts and force families out of their homes, and when student loan companies are allowed to drive millions of Americans to financial ruin with impunity.

In my time at the Bureau I have traveled across the country, meeting with consumers in over three dozen states, and with military families from over 100 military units. I have met with dozens of state law enforcement officials and, more importantly, I have heard directly from tens of thousands of individual student loan borrowers.

A common thread ties these experiences together — the American Dream under siege, told through the heart wrenching stories of individuals caught in a system rigged to favor the most powerful financial interests. For seven years, the Consumer Financial Protection Bureau fought to ensure these families received a fair shake as they as they strived for the American Dream.

Sadly, the damage you have done to the Bureau betrays these families and sacrifices the financial futures of millions of Americans in communities across the country.

For these reasons, I resign effective September 1, 2018. Although I will no longer be Student Loan Ombudsman, I remain committed to fighting on behalf of borrowers who are trapped in a broken student loan system.

Sincerely,
Seth Frotman
Assistant Director 5 Student Loan Ombudsman
Consumer Financial Protection Bureau – Source

Steve Rhode, the Get Out of Debt Guy



`*****

This essay by Steve Rhode originally appeared on August 27, 2018 at Getoutofdebtguy.org I highly recommend Mr. Rhode's blog site--a robust ongoing commentary on consumer debt issues.



Bob Hertz, Editor of New Laws for America, Has Some Good Suggestions for Solving the Student Loan Crisis

Bob Hertz, who manages a website titled New Laws for America (newlawsforamerica.blogspot/) sent me his list of legal reforms to solve the student loan crisis.

I don't agree with all of Mr. Hertz's proposal, but all are worthy of consideration. I am listing some of his suggestions:

1) Student borrowers should not be required to make payments on their student loans until they make at least $40,000.

2) No interest should accrue on student loans. In fact, interest on student loans should be abolished altogether.

3) All student debt owed by borrowers or cosigners over age 60 should be forgiven.

4) Students debtors should have access to the bankruptcy courts.

5) The following types of academic programs should be excluded from the student-loan program:


  • Third-tier law schools
  • MBA programs
  • Graduate programs in liberal arts
  • for-profit vocational schools
  • loans for living expenses

Near the conclusion of Mr. Hertz's list of recommendation, he makes this trenchant observation, which I quote:
Let's quit harassing and destroying our own citizens. The Federal Reserve was rich enough to buy up billions of 'toxic assets' after the bank meltdown of 2008. We can do the same with toxic student loans, which are destructive to more individuals than subprime mortgages. You an walk away from an unaffordable house. That destroys your credit but your financial life can be rebuilt.  These student loans are forever. 
I will take this opportunity to list my own list of student-loan reforms, which are similar to Mr. Hertz's reforms, but not identical.

1. Distressed student borrowers should be able to discharge their student loans in bankruptcy like any other nonsecured consumer debt.

2) The for-profit college industry should be shut down completely.

3) The Department of Education should be forbidden from garnishing Social Security checks from elderly student-loan defaulters.

4) The Parent PLUS program, which loans money to parents of college students, should be abolished; and private lenders should be prohibited by law from requiring student debtors to obtain co-signers for their loans. In addition, all student-loan cosigners should be immediately released from any legal obligation to pay back student loans that were taken out to benefit a third party (usually the child or grandchild of the cosigner).

I have called for reforms again and again, but I take this opportunity to state them again along with the reforms proposed by Bob Hertz.




Monday, August 27, 2018

Ben Miller, where the hell ya been? Center for American Progress finally wakes up to the magnitude of student-loan crisis

Ben Miller, senior director of the Center for American Progress, reminds me of a fuddy duddy who falls asleep at a wild party in a friend's apartment.  Just as the party starts to get interesting, he nods off on a pile of party goers' coats.

 Meanwhile, the party spins out of control: fights break out, spontaneous trysts are consummated in closets and spare bedrooms, furniture is broken, lamps are shattered. When the fuddy duddy awakes, the apartment is in shambles and the police are cuffing drunken revelers and hauling them off to jail.

"Did I miss something?", the fuddy duddy asks as he rubs the sleep from his eyes.

Miller wrote an op ed essay for the New York Times on August 8 titled "The Student Debt Problem is Worse Than We Imagined?" Ya think? Where the hell have you been, Mr. Miller?  You're like the guy who went out to buy popcorn just before the steamy scene in Last Tango in Paris.

So here is what Mr. Miller said in his op essay: student loan default rates are much higher than the Department of Education reports. I hate to break it to you, Ben; but people have known that for years. Everybody knows the for-profit colleges have been hiding their default rates by pushing their former students into deferment programs to disguise the fact the suckers weren't paying on their loans.

In fact, the problem is probably worse that Miller described it in the Times. Looney and Yannelis reported in 2015 that the five-year default rate for the 2009 cohort of student borrowers was 28 percent (Table 8).  And the five year default rate for the 2009 cohort of for-profit students was 47 percent--almost double what Miller reported for the 2012 cohort--only 25 percent.

Admittedly, Miller is looking at the 2012 cohort of debtors, while Looney and Yannelis analyzed the 2009 cohort. But surely no on believes the student-loan problem got better in recent years. Everyone knows the crisis is getting worse.

Miller's analysis briefly mentions the federal push to put student borrowers in deferment plans,  but that problem is more serious than Miller intimates. In fact 6 million student borrowers are in income-based repayment plans (IBRPs) and are making payments so small their loan balances are getting larger and larger with each passing month due to accruing interest.  For all practical purposes, the IBRP participants are also in default.

But Mr. Miller can be forgiven for waking up late to smell the coffee. Perhaps Miller, like the New York Times that published his essay, was so distracted by Stormy Daniels and the Russians that he was late to notice that American higher education is going down the toilet.  And surely, we can all agree that the person pressing down on the toilet-bowl handle  is Betsy DeVos.

What happened while Center for American Progress was snoozing?



References

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

Ben Miller. The Student Debt Problem is Worse Than We Imagined. New York Times, August 8, 2018.

Sunday, August 26, 2018

A quarter trillion dollars in student aid last year: And what do we have to show for it?

The Chronicle of Higher Education released its annual Almanac edition this month, stuffed full of information that professors care most about: how much money people are making in the higher-education racket.

College presidents are making out like bandits. In 2015, Fifty presidents of private colleges received at least a million dollars in total compensation. Nathan Hatch at Wake Forest was the highest paid university CEO. He made $4 million in 2015--more than twice as much as the president of Yale.

The Chronicle also documented what we already knew--the cost of going to college is in the stratosphere.  At 100 private universities, it costs a quarter of a million dollars to get an undergraduate degree (tuition, room and board). And those costs are probably underestimated. According to the Chronicle, room and board at Yale costs $15,500. But does anyone believe a person can live in New Haven, Connecticut on $15,500 a year?

On the other hand, the posted sticker price for college tuition is inflated. As the Chronicle reported, colleges are discounting freshman tuition by 50 percent. Thus, a private college that charges $36,000 a year for tuition is actually collecting only about $18,000 due to grants, scholarships and various discounts.

Who gets those tuition discounts and who pays the sticker price? Colleges give grants and aid to athletes, minority students, and applicants with good academic credentials. Only the least attractive applicants pay full price.

The Chronicle's Almanac also contains some useful information about colleges that are in financial trouble.  The U.S. Department of Education gives financial responsibility ratings to American colleges. Institutions that rate 1.0 and above are considered financially responsible; college ranking below that are considered not financially responsible.

Not surprisingly, a lot of the schools with low ratings are private colleges with religious affiliations.  Northeast Catholic College, for example, received a negative 0.4 rating, and Boston Baptist College drew a 0.8.

These scores are just another sign that the small, non-prestigious, private colleges are in big trouble, particularly schools tied to religious denominations. I wish all these little schools well, but parents are crazy if they allow their children to take out student loans to attend a small private college no one has heard of.  There is a good chance these schools will have shut down before their graduates pay off their loans.

Finally, the Chronicle reported almost a quarter of a trillion dollars  was distributed in governmental and institutional student aid during 2016-2017, including $153 billion in federal aid (loans, grants and Work-Study). That's a lot of money invested in American higher education in just one year. Does anyone think we're getting our money's worth?

Nathan Hatch, president of Wake Forest University, made $4 million in 2015




Sunday, August 5, 2018

Martin v. ECMC: Iowa bankruptcy judge discharges unemployed lawyer's student loans

In Martin v.  Educational Credit Management Corporation (ECMC), decided last February, Janeese Martin obtained a bankruptcy discharge of her student-loan debt totally $230,000. Judge Thad Collin’s decision in the case is probably most significant for the rationale he articulated when he rejected ECMC’s argument that Martin should be placed in a 20- or 25-year, income-based repayment plan (IBRP) rather than given a discharge.

Citing previous decisions, Judge Collins said an IBRP is inappropriate for a 50-year-old debtor who would be 70 or 75 years old when her IBRP would come to an end. An IBRP would injure Martin’s credit rating and cause her mental and emotional hardship, the judge wrote. In addition, an IBRP could lead to a massive tax bill when Martin's plan terminated in 20 or 25 years, when she would be "in the midst" of retirement.

Janeese Martin, a 1991 law-school graduate, is unable to find a good law job

Janeese Martin graduated from University of South Dakota School of Law in 1991 and passed the South Dakota bar exam the following year. In spite of the fact that she held a law degree and a master's degree in public administration, Martin never found a good job in the field of law. 

Martin financed her undergraduate studies and two advanced degrees with student loans totally $48,817. In 1993, she consolidated her loans at an interest rate of 9 percent; and she made regular payments on those loans from 1994-1996. 

Over the years, there were times when Martin could make no payments on her student loans, but she obtained various kinds of deferments that allowed her to skip monthly payments while interest accrued on her loan balance. By 2016, when Martin and her husband filed for bankruptcy, her student-loan debt had grown to $230,000--more than four times what she borrowed.

As Judge Collins noted in his 2018 opinion, Janeese Martin was 50 years old and unemployed. Her husband Stephen was 66 years old and employed as a maintenance man and dishwasher at a local cafe. The couple supported two adult children who were studying at the University of South Dakota and had student loans of their own. The family's annual income for 2016 was $39,243, which came from three sources: Stephen's cafe job, his pension and his Social Security income.

Judge Collins reviewed Janeese's petition to discharge her student loans under the "totality of circumstances" test, which is the standard used by the Eighth Circuit Court of Appeals for determining when student loans constitute an "undue hardship" and can be discharged through bankruptcy. 

Martin's Past, Present, and Reasonably Reliable Future Financial Resources

Judge Collins surveyed Martin's employment history since she completed law school. In addition to three years working for a legal aid clinic, Martin had worked eight years with the Taxpayer's Research Council, a nonprofit agency located in Iowa.  Her maximum salary in that job had paid only $31,000, and Martin was forced to give up her job in 2008 when her family moved to South Dakota.

ECMC, which intervened in Martin's suit as a creditor, argued that Martin had only made "half-hearted" efforts to find employment, but Judge Collins disagreed. Martin "testified very credibly that she wants to work and has applied for hundreds of jobs," Judge Collins wrote. Nevertheless, in the nine years since her last job, Martin had only received a few interviews and no job offers. 

Judge Collins acknowledged that Martin had two advanced degrees, but neither had been acquired recently. In spite of her diligent efforts to find employment, the judge wrote, she was unlikely to find a job in the legal field that would give her sufficient income to make significant payments on her student loan.

Martin's Reasonable and Necessary Living Expenses

Judge Collins itemized the Martin family's monthly expenses, which totaled about $3,500 a month. These expenses were reasonable, the judge concluded, and slightly exceeded the family's monthly income. Virtually all expenses "go toward food, shelter, clothing, medical treatment, and other expenses reasonably necessary to maintain a minimal standard of living," Judge Collins ruled, and "weigh in favor of discharge" (p. 893).

Other Relevant Facts and Circumstances

ECMC argued, as it nearly always does in student-loan bankruptcy cases, that Martin should be placed in a 20- or 25-year income-based repayment plan rather than given a bankruptcy discharge. The Martin family's income was so low, ECMC pointed out, that Martin's monthly payments would be zero. 

Judge Collins' rejected ECMC's arguments, citing two recent federal court opinions: the 2015 Abney decision, and Judge Collins' own 2016 decision in Fern v. FedLoan Servicing. “When considering income-based repayment plans under § 523(a)(8),” Judge Collins wrote, “the Court must be mindful of both the likelihood of a debtor making significant payment under the income-based repayment plan, and also of the additional hardships which may be imposed by these programs” (p. 894, internal punctuation omitted).

These hardships, Judge Collins noted, include the effect on the debtor’s ability to obtain credit in the future, the mental and emotional impact of allowing the size of the debt to grow under an IBRP, and “the likely tax consequences to the debtor when the debt is ultimately canceled” (p. 894, internal citation and punctuation omitted).

In Judge Collins’ view, an IBRP was simply inappropriate for Janeese Martin, who was 50 years old:
If she were to sign up for an IBRP, she would be 70 or 75 when her debt was ultimately canceled. The tax liability could wipe out all of [Martin’s] assets not as she is approaching retirement, but as she is in the midst of it. If [Martin] enters an IBRP, not only would she have the stress of her debt continuing to grow, but she would have to live with the knowledge that any assets she manages to save could very well be wiped out when she is in her 70s. (p. 894)
Conclusion

Martin v. ECMC is at least the fourth federal court opinion which has considered the emotional and mental stress that IBRPs inflict on student-loan debtors who are forced into long-term repayment plans that cause their total indebtedness to grow. Together, Judge Collins' Martin decision, Abney v. U.S. Department of Education, Fern v. FedLoan Servicing, and Halverson v. U.S. Department of Education irrefutably argue that the harm IBRPs inflict on distressed student debtors outweighs any benefit the federal government might receive by forcing Americans to pay on student loans for 20 or even 25 years--loans that almost certainly will never be paid off.



References

Abney v. U.S. Department of Education540 B.R. 681 (Bankr. W.D. Mo. 2015).

Fern v. FedLoan Servicing, 553 B.R. 362 (Bankr. N.D. Iowa 2016), aff'd, 563 B.R. 1 (8th Cir. B.A.P. 2017).

Fern v. FedLoan Servicing, 563 B.R. 1 (8th Cir. B.A.P. 2017).

Halverson v. U.S. Department of Education, 401 B.R. 378 (Bankr. D. Minn. 2009).

Martin v. Great Lakes Higher Education Group and Educational Credit Management Corporation (In re Martin), 584 B.R. 886 (Bankr. N.D. Iowa 2018).

Wednesday, August 1, 2018

"Broken and at risk of collapsing": Sandy Baum's excellent recommendations for reforming DOE's income-based student-loan repayment system

Sandy Baum published a short essay yesterday in Chronicle of Higher Education titled "Don't Get Rid of the Income-Based Loan Repayment System. Fix It."  As she said in her essay, the federal student-loan repayment system as it now stands is "broken and at risk of collapsing."

I have a few reservations about Ms. Baum's recommendations (which I will address later), but on the whole her suggestions for reform make sense.

"Create one income-driven repayment plan with clear requirements and provisions." 

As Ms. Baum attests, the Department of Education currently administers a "hodgepodge of repayment programs": PAYE, REPAYE, Public Service Loan Forgiveness (PSLF), etc.  She recommends one plan for everyone with borrowers paying a higher percentage of their income than the 10 percent rate that currently applies to borrowers in PAYE and REPAYE plans.

Baum also recommends that student borrowers be automatically enrolled in an income-based repayment plan just as soon as their repayment obligations begin. In addition, she endorses having student-loan payments added as a payroll deduction to student borrowers' paychecks.

This is a good idea. As Baum pointed out, "[p]ayroll deductions for student-loan payments would make it easier for required payments to adjust quickly when financial circumstances change, and also make it easier for students to meet their payment responsibilities."

More than that, automatic payroll deductions would make it impossible to default on student loans and eliminate the need for student borrowers to obtain economic hardship deferments. If the payroll deduction reform were implemented, it would be put the student-loan servicers out of business. No more 25 percent penalties slapped on loan defaulters; no more interest accruing on loans that are in deferment, no more robocalls from the debt collectors.

"As the total amount borrowed increases, extend the number of payments required to reach loan forgiveness."

Baum argues for longer repayment periods for people who acquired a lot of student debt. And this too makes sense. People who borrowed $20,000 or $30,000 to attend college should have a repayment plan that allows them to be debt free after 10 or 15 years.  But a person who borrows $100,000 or more should expect to make payments for a longer period of time.

"Place reasonable limits on graduate students' federal borrowing."

Student-loan debt is spinning out of control, partly fueled by the GRAD PLUS program that allows people to borrow the entire cost of going to graduate school regardless of the amount. In response to that incentive, universities raised the cost of their graduate programs exponentially--and I mean exponentially. As I have said before, I paid $1,000 a year to attend University of Texas School of Law. The current cost is $35,000 a year--35 times as much as I paid.

Not long ago, I wrote about Mike Meru, who borrowed $600,000 to go to dentistry school. With accrued interest, he now owes $1 million! A cap on the amount a student can borrow to go to graduate school would stop the insane escalation in professional-school tuition.

"Eliminate taxes on all forgiven loan balances.

The IRS considers a forgiven loan to be taxable income. Thus, with the exception of borrowers in PSLF plans, borrowers whose loan balances are forgiven under income-based repayment plans receive a tax bill for the amount of forgiven debt .

This is crazy. I doubt anyone in Congress supports the status quo on this issue. After all, what is the point of people enrolling in income-based repayment plans if they get hit with a big tax bill after faithfully making monthly loan payments for 20 or 25 years?

Baum's other good ideas

In addition to the recommendations she made this week in Chronicle of Higher Education, Baum wrote a book on the student loan program in which she endorsed easier accessibility to the bankruptcy courts for distressed student borrowers. She also supports an end to garnishing Social Security checks of elderly student loan defaulters.

I once opposed all income-based repayment plans on the grounds that they basically turn student debtors into indentured servants--forced to pay a portion of their wages to the federal government for the majority of their working lives simply for the privilege of going to college. I still believe that.

Nevertheless, Baum's proposals address reality--which is that 45 million student debtors now carry $1.5 trillion in student-loan debt.  The proposals Baum put forward this week in Chronicle of Higher Education won't fix this train wreck of the federal student-loan program, but they will make the system more humane.

References

Sandy Baum. Don't Get Rid of the Income-Based Loan Repayment System. Fix It. Chronicle of Higher Education, July 30, 2018.

Sandy Baum. Student Debt: Rhetoric and Realities of Higher Education Financing. New York: Palgrave-MacMillan, 2016.

Jason Delisle. The coming Public Service Loan Forgiveness bonanzaBrookings Institution Report, Vol 2(2), September 22, 2016.