Monday, March 30, 2020

God Bless John Prine!

The lonesome friends of science say
"The world will end most any day."
Well, if it does, then that's okay
'Cause I don't live here anyway

John Prine is one of the three greatest American songwriters of the past century. With Merle Haggard and Hank Williams, Prine sang (and still sings) about the world where most of us really live.  He will be remembered long after the Beatles, the Rolling Stones, Lady Gaga, and Elton John are forgotten.

And now John Prine has the coronavirus.  

When I heard the news this morning, one of his lyrics immediately came to mind. "The lonesome friends of science say the world will end most any day." 

And indeed, American life as we know it has ground to a halt.  The world of easy credit, Caribbean cruises, and an ever-rising stock market has been swept away. 

Without a doubt, the world where I made a living--the world of higher education--is fast sinking into oblivion.  As the nation's unemployment rate rises, who will take out student loans to study transnational sexualities and queer theory at Mills College?  Who still wants to borrow money to study sociology, anthropology, fine arts, art history, etc.  Who even needs an MBA?

And if the world of American higher education comes to an end, that's okay with me. I never lived there anyway. I never understood academia's obsession with race and sexuality, its neurotic fixation on victimhood, or the mean-spirited arrogance that permeates our nation's most elite colleges.

In the years to come, most Americans are going to get a lot poorer, and many of us have figured out that a college degree or a graduate degree from an overrated university may not improve our life's trajectory.  

So what should we do? Voltaire said we should cultivate our gardens, but John Prine expressed this sentiment better in the lyrics of Spanish Pipe Dream.  Yes--let's blow up our televisions, throw away our newspapers, plant a little garden, and try to find Jesus on our own.

John Prine assures us we will be fine.







Thursday, March 26, 2020

"It ain't pretty, and it ain't effective": Expert urges colleges not to assess the quality of online instruction during coronavirus pandemic

Even before President Trump declared a national emergency, some American colleges and universities closed their doors, kicked students out of their dorms, and sent them home. In response to the COVID-19 virus, the nation's schools swiftly shifted from face-to-face instruction to distance learning.

Without question, it was the responsible thing to do. A few college leaders even framed their actions as almost heroic. The presidents of Harvard, Stanford, and MIT published an op-ed essay in the New York Times titled "We Lead Three Universities: It's time for drastic action." Yuh think?

Of course, the universities had no choice but to move to online teaching. Unless the colleges want to refund their students for missed instructional time and closed libraries, the coronavirus gave them only one option: immediately switch from face-to-face teaching to online instruction. And this they speedily did.

Jonathan Zimmerman, an education professor at the University of Pennsylvania, wrote an essay in The Chronicle of Higher Education, pointing out that the coronavirus outbreak provides a perfect opportunity to conduct research on the effectiveness of online learning. That seems like a good idea.

But a few days later, Thomas J. Tobin, a Wisconsin professor, rebuked Zimmerman in the pages of The Chronicle  "Now is Not the Time to Assess Online Learning, "  Tobin titled his rebuttal essay. Many professors are not adequately trained for online teaching, Tobin argued, and the "impact of throwing untrained or poorly trained instructors into online teaching" is not good. "The short version," Tobin emphasized: "It ain't pretty, and it ain't effective."

But I agree with Professor Zimmerman. American students have been lab rats for distance learning for more than 25 years. It's time we gave serious thought to what in the hell we are doing to the kids.

The for-profit colleges were the first to get in on the online-learning scam. They figured out that teaching hundreds of students asynchronously is considerably cheaper than teaching a few students on an actual college campus. Who needs all that ivy; all those drafty,  neo-gothic buildings; those grumpy, overpaid professors? Who needs all those union-wage cops and custodians, those dorm mothers, a book store?

 No, let's persuade pajama-clad kids to just stare at their computers all day in their own apartments. They can pay their tuition online and not show up on campus until graduation day!

Public colleges, alarmed by the competition from the venal for-profits, jumped into online learning as well.  Soon online degree programs were being advertised all over the country--especially on urban billboards and public buses.

Now--and this is literally true--an American student can get a bachelor's degree, a master's degree, and a doctoral degree without ever stepping inside a classroom.

And here's the beauty of the New Age when students and teachers don't need to meet.  Online education can be just as expensive as face-face-to-face! That's right: you can pay the price of a Harvard education without ever having to put your clothes on in the morning.

Let's return now to the debate between Profesor Zimmerman and Professor Tobin. Notice that Professor Tobin did not argue that we should stop online instruction.  In fact, I'm sure he loves it. No, Tobin is merely saying we shouldn't evaluate it right now.

I'm with Professor Zimmerman. Let's see if anyone is getting their money's worth from taking courses in front of their commuters. And why not do it now?

"Oh, my God! I forgot to fill out my FASFA application."



Monday, March 23, 2020

This Recession is different: Unemployed Americans should be wary about going to graduate school

Traditionally, graduate school has been an excellent place to hang out for people who are unemployed or clueless about their life's vocation.

 In the old days, tuition was cheap, and a grad student had a good chance of picking up an instructor's job or a research assistant position to help pay the bills. The cost of living was low in a lot of college towns, and there were plenty of bars, live music, and sexually active young people.

Not a bad life! And you could tell your parents that you were in graduate school instead of admitting that you were out of work.

It's not surprising then that in the recession of 2008-2009, a great many unemployed Americans flocked to graduate school.  Graduate school seemed like the right place to park until the economy rebounded. And a master's degree, students told themselves, would help them get back in the job market.

To meet the growing demand, the universities ramped up their graduate programs. Like a medicine-show huckster at the county fair, the colleges rolled out all sorts of new master's degree programs in such fields as sports management, emergency management, hospital administration, criminal justice, and law enforcement.

And of course, the big lure for a lot of young people struggling in a faltering economy was the MBA degree.  All the elite universities have had MBA programs for years: Harvard, Stanford, M.I.T., etc.  But, a few years ago, the regional public universities and second-rank private colleges got in on the act. Some rolled out online MBA programs or so-called "executive" MBAs that offered classes on weekends.

Unfortunately, many of the people who got graduate degrees over the past decade saw little or no economic benefit. So many people obtained them for a time that employers saw them as nothing special. As The Economist observed in an article published almost four years ago, "Simply put, MBAs are no longer rare, and as such are no longer a guarantee for employment."

But the most significant danger of going to graduate school is cost. Under the Grad Plus program, students can take out federal student loans for the entire cost of their degrees, including living expenses, no matter how much tuition that a college or university charges.

The University of Texas, for example, now pegs the cost of getting an MBA degree at its Austin campus at $100,000 for its two-year program. Graduates who borrow the entire sum will enter the job market with $100,000 in debt.

So if the current Recession throws you out of work, don't go to graduate school without giving it a great deal of thought. A master's degree might improve your chances of getting a good job, but it might leave you with no prospect of a job and a mountain of student-loan debt--debt that is virtually nondischargeable in bankruptcy.


Step right up, ladies and gentlemen, and sign up for our prestigious executive MBA program.





Saturday, March 21, 2020

The coronavirus pandemic and broad relief for battered student-loan debtors: Congress needs to go big or go home!

The coronavirus pandemic rolls along like a tropical storm gathering force in the Gulf of Mexico.
Every day, it kills more Americans and further batters the national economy. The airline industry, the travel industry, and the restaurant business are begging for financial assistance to help them survive an economic crisis that no one saw coming.

PresidentTrump and Congress are working on a $2 trillion aid package to assist industries that have been hit hardest by the COVID-19 outbreak and provide cash assistance to individuals who lost their jobs or their businesses due to the pandemic.

Lawmakers also recognize that student-loan debtors need relief. Even before the pandemic, millions of college-loan borrowers were struggling to pay off their loans. Now--as the unemployment rate rises and whole industries collapse, a lot of student-loan debtors have their backs to the wall.

Republicans and Democrats have both proposed some form of assistance for student debtors. The Republicans recommend giving students a three-month break from their student-loan payments with no interest accruing.  The Democrats want the Department of Education to make student-loan payments on borrowers' behalf for as long as the national emergency lasts.

These proposals are a good start, but they do not go far enough. More than 45 million people have outstanding student loans, and less than half of them can pay them back. As President Trump might say, it's time to "go big" when we think about student-loan relief.

First of all, let's take a look at Senator Bernie Sander's proposal for total student-loan forgiveness—a $1.6 trillion-dollar bailout. Let's also examine Senator Elizabeth Warren's plan for loan forgiveness up to $50,000 per debtor. These ideas are not as wacky as some commentators have made them sound.

Regarding Bernie's idea, let's face facts. More than 8 million people are in long-term, income-based repayment plans, and most of these people are not paying down the interest on their loans. In fact, their loan balances grow with each passing month due to accruing interest. Millions more are in default or have their student loans in deferment. They're not paying their loans back either.

What's the point of pretending the student-loan scheme is a solvent federal program? It's not.  Bernie's plan to wipe out all student debt and offer a free college education is a logical proposal.

Senator Warren's plan to help student debtors also makes sense.  She wants to cap debt relief at $50,000, and that would help a great many people. After all, as  Don Trooper and colleagues recently reported in The Chronicle of Higher Education, people with small loan balances are more likely to default on their loans than people who owe $100,000 or more.

Forgiving student debt for individuals who ow relatively small amounts would help a lot of debtors who took out student loans to attend for-profit colleges and trade schools and didn't benefit from their educational experience.  That would be a good thing.

But if we really want to "go big," Congress must do two straightforward things. First, it must strike the"undue hardship." language from the Bankruptcy Code and allow insolvent student-loan borrowers to discharge their college loans in bankruptcy like any other nonsecured consumer debt. Second, it must repeal those provisions of the 2005 Bankruptcy Reform Act that made it more complicated and more expensive for beaten-down debtors to file for bankruptcy.

The very purpose of bankruptcy in American law is to give honest but unfortunate debtors a fresh start. Lawmakers need to remember that now as we enter into this century's Great Depression.

The 2020 Depression will look a lot like the Depression of the 1930s.









Thursday, March 19, 2020

Goodbye to all that: The coronavirus will sink many small colleges

Three presidents of elite colleges--Harvard, M.I.T., and Stanford--published an op-ed essay in the New York Times a few days ago, justifying their decisions to close their campuses. To increase social distancing during the coronavirus pandemic, the three university presidents wrote, they were forced to take drastic action:
That meant turning university life upside down: suddenly sending virtually all of our undergraduates home; asking faculty to swiftly bring all instruction online; canceling academic, athletic, artistic and cultural events, and virtually all in-person meetings; shutting our libraries; and asking everyone who could work remotely to do so right away.
The elite presidents basically did what most college presidents did over the past couple of weeks; they shut down their campuses. Of course, this was a severe inconvenience; but Harvard, Stanford, and M.I.T. will weather this disruption.  All three have enormous endowments, wealthy donors, and millions of dollars in federal research grants. When the coronavirus crisis is over, life for them will quickly return to normal.

But a lot of small colleges were teetering on the brink of closure even before the coronavirus pandemic began. As Scott Carlson recently reported in the Chronicle of Higher Education, six out of ten colleges failed to meet their enrollment goals last fall, and two-thirds of the colleges were unable to achieve their revenue goals.

This crisis will push many small colleges over the edge. According to Education Drive, which keeps track of college closings, 95 nonprofit colleges have merged or closed since 2016. This trend will surely accelerate. I think at least 100 small colleges will close within the next two years.

Many small colleges will suffer death from a thousand cuts. To begin with, the demographics for higher education are not good. The number of people in the traditional college-going age has shrunk, and college enrollments have suffered. Colleges have experienced enrollment declines for eight consecutive years.

These declines were not distributed evenly across the higher education community. By and large, the public flagship universities have continued to grow at the expense of small private colleges and regional public institutions.

Colleges have tried various tactics to grow their enrollments. Several years ago, the small, private colleges began discounting their tuition rates to lure students through the doors. The average discount for first-year students at small private colleges is now about 50 percent. But for many colleges, this tactic did not allow them to balance their budgets.

 In addition, a lot of colleges recruited international students to juice their enrollments and their revenues.  Most international students pay the full freight, compared to Amerian students who often receive grants, scholarships, or discounts. But foreign-student enrollment has declined substantially in recent years, and the federal ban on international travel will likely accelerate this trend.

Spring is recruiting season for both public and private colleges, the time when college recruiters strive desperately to sign up enough students to have a healthy sized freshman class. But these recruiting drives are being canceled due to the pandemic, and many colleges will have fewer first-year students as a result.

The coronavirus pandemic itself has a financial cost, and this cost will hit small colleges hard. Colleges that close their dormitories will be forced to pay out refunds to students who live in campus housing. Some schools may not have the liquidity to make these payouts.

Although circumstances will vary, the virus will force many colleges to pay employees to work less productively from home or cease work altogether. Sanitizing college buildings, athletic facilities, and residence halls will be costly. College professors are being ordered to teach their face-to-face classes online, and many professors do not have online teaching skills. Retooling professors to teach their courses in a new way is an unanticipated expense.

Kent Chabotar, a nationally recognized higher-education expert, summarized the pandemic's impact this way: "We've run into a crisis, and our flexibility is shot because we've already given away the store" [with high tuition-discount rates and other desperate measures].

In short, the coronavirus pandemic is an existential crisis for America's small colleges. When the crisis is over, a significant number of them will be closed.

This is my advice. If you are a young person thinking about attending a small, private college with high tuition, you might think again. Enrolling at a state university might make more sense because a public university is less likely to close than a small, private school.

If you are a college professor employed by a struggling, small nonprofit college, it is probably time to develop your Plan B. Think about what you will do if you are laid off, or your college closes.

For everyone who works or studies at a small, private college, it is time to face facts. The future is not bright at the nation's little colleges and universities, whether they are public or private. If you link your future to one of these struggling institutions, you may go down with the ship.






Tuesday, March 17, 2020

James Howard Kunstler says plant a garden: That's good advice

Blow up your t.v.
throw away your paper
Go to the country, 
build you a home
Plant a little garden
eat a lot of peaches
Try and find Jesus on your own

Spanish Pipedream
John Prine

If you would like to get a provocative and unconventional take on the coronavirus pandemic and the accompanying financial crisis, you should read James Howard Kunstler's refreshing blog, clusterfuck nation. Mr. Kunstler has been predicting an economic meltdown for a long time. And now, by God, his prediction has finally come true.

What we are experiencing is not just a health emergency, and it's not a recession. We are at the beginning of the 21st century's Great Depression, and it is going to last a long time. A lot of industries, a lot of organizations, and a lot of jobs are going to disappear, and many of them are not coming back.

So what should we do? Kunstler recommends planting a spring garden:
If you’re prudent, you can begin at once to organize serious gardening efforts, if you live in a part of the country where that is possible. I’d go heavy on the potatoes, cabbages, winter squashes, and beans, because they’re all keepers over winter. Baby chicks sell at the local ag stores for a few bucks each now and you’ll be very grateful for the eggs. Get a rooster — even though they can be a pain-in-the-ass — and you won’t have to buy any more chicks.
I think Kunstler is right. I'm not saying we are in danger of starving to death in the coming months. I feel sure that our supply chains and grocery stores will continue to provide us with food. We may not be able to get Mexican blueberries in February, but we will always be able to get canned beans and Kraft macaroni and cheese--or so I believe. And, to paraphrase Humphrey Bogart in Casablanca, we'll always have baloney.

But planting a garden is a good thing to do. I have maintained a vegetable garden for the last eight years, and it gives me great satisfaction to harvest and eat food I grew myself. As everyone knows, homegrown tomatoes are better than the store-bought varieties. And homegrown broccoli, harvested and cooked on the same day, is a totally different experience from eating frozen broccoli from the grocery store.

Furthermore, by planting a garden, we begin to retrieve essential skills that our grandparents knew. My elders knew when to plant various crops and when to harvest. They knew how to preserve fruit and vegetables through the winter. They knew how to butcher a hog and turn it into smoked hams, bacon, sausages, and lard.  

I can't feed my family on what I grow in five raised garden beds.  In fact, if I gathered all the food my garden grows over the course of a year, my wife and I would survive for about a week. But I am learning a few things about raising food crops.

For example, I planted a fall garden this year and learned that broccoli can survive a light freeze.  I also learned that collard greens are ridiculously easy to grow and taste delicious if seasoned with bacon and a little garlic. 

I plant okra in my spring garden.  I've learned that okra likes hot weather and grows so fast once it starts producing that I have to pick okra every other day. But I also learned that I don't like okra very much.

In World War II, Americans ripped out their front lawns and planted victory gardens. I am told that at one time, people's individual victory gardens produced more food than all commercial farming combined.  

That's comforting to contemplate because things are changing in America, and they are changing fast. We are going to have to be more resilient, more frugal, and more self-reliant.  Planting a garden will help us obtain these virtues. 

After all, a tomato bush growing behind the garage is a reminder that we are capable of taking care of ourselves. 





Joe Biden and the 2005 Bankruptcy Reform Act: "It's not personal. It's strictly business."

The 2020 presidential election is about eight months away, and I'm not going to tell you how to vote. If you hate Trump, you'll vote for Biden. If you think Biden is suffering from dementia, you'll vote for Trump.  And by election day, Biden or Trump will probably be your only choice.

Regardless of their political affiliation, all student-loan borrowers who are drowning in debt will want the next President to do one thing: reform the bankruptcy law. Specifically, they will want the next President to pressure Congress to repeal the Bankruptcy Reform Act of 2005 and to remove the "undue hardship" language from the Bankruptcy Code.

The Bankruptcy Reform Act of 2005--named with unintended irony--made it more difficult for Americans to discharge credit card debt in the bankruptcy courts, and it made the bankruptcy process more expensive and more difficult for beaten-down debtors.

 According to Senator Elizabeth Warren:
After the bill passed, bankruptcy filings went down permanently by 50%, and the number of insolvent people went up permanently by 25%. By making it harder for people to discharge their debts and keep current on their house payments, the 2005 bill made the 2008 financial crisis significantly worse: experts found that the bill “caused about 800,000 additional mortgage defaults and 250,000 additional foreclosures.” 
The law also made private student loans almost impossible to discharge in bankruptcy. Before its passage, debtors could not discharge federal student loans in bankruptcy unless they could show "undue hardship." After the bankruptcy reform law was passed, private loans were also nondischargeable unless a debtor could show undue hardship.

The law was a Republican-backed bill, which Senator Ted Kennedy scathingly criticized. “This legislation breaks the bond that unites America, it sacrifices Americans to the rampant greed of the credit card industry,” Kennedy said.

But many Democratic senators crossed party lines and voted with the Republicans.  One of those aisle-crossing Democrats was Joe Biden. Senator Biden claimed the new law would cut down on abuses in the bankruptcy system. In fact, there was little evidence that debtors were scamming the bankruptcy courts.

In my view, Biden disguised his motives for voting in favor of the bankruptcy reform bill. In reality, Biden was doing the bidding of the corporate banks, which have donated millions to his campaign coffers over the years. To borrow a quote from The Godfather, Biden's vote wasn't personal; it was strictly business.

Now, however, Mr. Biden is singing a different tune. As reported by Matthew Yglesias in Vox,  Biden recently changed his position on the 2005 law. He now endorses the views of Senators Elizabeth Warren and Bernie Sanders, who have called for its repeal.

This is good news for student-loan debtors, but I think Mr. Biden needs to express his change of views more forcefully. Student debtors need to hear Biden explicitly call for the repeal of the 2005 Bankruptcy Reform Act and the abolition of the "undue hardship" language in the Bankruptcy Code. If he does that, Biden will win a lot of votes in the November election.



Biden and the 2005 Bankruptcy Reform Act: It wasn't personal. It was strictly business.

Saturday, March 14, 2020

President Trump waives interest on student loans "until further notice": Woefully inadequate relief for distressed student-loan borrowers

In yesterday's speech on the coronavirus crisis, President Trump announced he is temporarily waiving interest on all federal student loans.

"I've waived interest on all student loans held by federal government agencies ... until further notice," Trump said in his speech "That's a big thing for a lot of students that are left in the middle right now. Many of those schools have been closed."

I appreciate President Trump's effort to assist distressed student borrowers, but yesterday's action is totally inadequate.  Millions of distressed student borrowers need broad and immediate relief, and a temporary waiver of interest offers almost no help at all. 

Around 45 million Americans have outstanding student loans totaling $1.6 trillion.  For many college-loan debtors, interest has already accrued, causing their loan balances to double, triple, and even quadruple.  Temporarily waiving interest on that debt is almost meaningless.

Besides, I think President Trump may have overestimated the Department of Education's ability to implement his moratorium.  Adjusting interest costs for 45 million student borrowers is no small task. Many student debtors have more than one student loan, and these loans have varying interest rates. (In fact, I met a woman yesterday who has five separate student loans.)We're probably talking about interest adjustments on more than 100 million individual loan agreements.

Frankly, I don't think Betsy DeVos's DOE is up to the job. DOE completely botched the Public Service Loan Forgiveness Program, denying 99 percent of the applications for PSLF debt relief. Last year, a federal judge ruled that DOE had managed the program arbitrarily and capriciously and in violation of the Administrative Procedure Act.

Also last year, a California federal judge held Secretary DeVos and DOE in contempt for not abiding by the judge's order to stop trying to collect on student loans taken out by people who had attended schools operated by the now-defunct Corinthian Colleges. I don't think DeVos and her crew intentionally disregarded the judge's order. I think they simply don't know what they are doing.

If DOE cannot manage its routine responsibilities, how can it manage adjustments on student loans held by 45 million people?

As Steve Rhode wrote a few days ago, "People in denial about the impact of COVID-19 may be adequately protected with emergency savings, good health insurance, and paid time off of work. But those of us who work in hourly paid jobs are at a very high risk of having finances slaughtered by this virus."

Mr. Rhode's observation is particularly applicable to college students and former college students.  A lot of people with substantial student-loan burdens are working in temporary jobs that pay low wages. In the coming weeks, these jobs are going to be lost as the public stops eating out, shopping, and traveling. The people who held these lost jobs are going to be unable to service their student loans, and many of them will default.

Giving overburdened student debtors a temporary break from the interest on their loans is like putting a bandaid on a compound fracture (a hackneyed analogy, I admit).  President Trump and Congress need to take far more drastic action.

Specifically, Congress must revise the Bankruptcy Code to allow insolvent student-loan debtors to discharge their student loans in bankruptcy.  

Ultimately, our politicians will be forced to confront the fact that the student-loan program is a colossal disaster, and the coronavirus epidemic is going to make it worse. Now is a good time to do what needs to be done. And what needs to be done is bankruptcy reform.







Wednesday, March 11, 2020

Calvillo Manriquez v. Devos: Judge Sallie Kim holds U.S. Department of Education in contempt for failing to abide by her injunction in the Corinthian Colleges case

Corinthian Colleges, a for-profit chain of colleges, went bankrupt in 2015 under a shower of fraud accusations. More than 100,000 former students filed claims with the U.S. Department of Education, seeking relief from federal student loans they took out to attend the defunct chain’s schools.

Corinthian students maintained that they were lured to attend the school by the college chain's job placement rates, which turned out to be inflated. Initially, DOE granted full relief to some claimants.

In 2017, however, DOE unilaterally changed the way it processed these claims and only granted partial relief from student loans under a formula that calculated the income of borrowers who had been enrolled in Corinthian programs. A group of former Corinthian students sued DOE for arbitrarily changing the rules and Judge Sallie Kim certified the lawsuit as a class action.

Judge Sallie Kim issues a preliminary injunction against DOE

While this litigation was ongoing, Judge Kim issued a preliminary injunction against DOE, ordering the agency to “cease all efforts to collect debts from Plaintiffs” (Calvillo Manriquez v. DeVos, p. 538). Corinthian appealed Judge Kim’s preliminary injunction to the Ninth Circuit Court of Appeals, and Judge Kim stayed all proceedings while the appeal was pending.

Later, the student plaintiffs filed a motion asking Judge Kim to lift the stay and enforce her injunction. Judge Kim then ordered DOE to file a report regarding the status of its compliance with her injunctive order.

DOE filed a “Compliance Report,” in September 2019, admitting that it had erroneously sent a notice to 16,034 borrowers that student-loan payments were due. In response to that notice, more than 3,000 borrowers made one or more payments on their student loans.

According to Judge Kim, DOE did not notify any of the borrowers that it had made a mistake and did not issue refunds to borrowers who had made payments in violation of the preliminary injunction. (p.538)

Moreover, in violation of Judge Kim’s injunctive order, DOE “provided adverse reports to credit reporting agencies for 847 Corinthian borrowers and collected on the loans of 1,808 Corinthian borrowers through wage garnishment or offsets from tax refund[s].” (pp. 538-39).

Judge Kim finds DOE in contempt of her preliminary injunction

After hearing the evidence, Judge Kim held DOE in contempt. In her order, the judge wrote:
[T]here is no question that [DOE] violated the preliminary injunction. There is also no question that [DOE’s] violations harmed individual borrowers who were forced to repay loans either through voluntary action or involuntary methods (offset from tax refunds and wage garnishment) and who suffered from the adverse credit reporting. Defendants have not provided evidence that they were unable to comply with the preliminary injunction, and the evidence shows only minimal efforts to comply with the preliminary injunction. The Court therefore finds Defendants in civil contempt. (p. 540)
Judge Kim then fined DOE $100,000.
The Court finds that a monetary sanction of $100,000 paid by [DOE], to a fund held by Plaintiffs’ counsel, is the best method to remedy [DOE’s] wrongful acts. Given that there are over 16,000 borrowers who have suffered damages from [DOE’s] violation of the preliminary injunction and given that there may be some administrative expenses to remedy the harm, the Court finds the amount reasonable. (p. 540)
Conclusion

Calvillo Manriquez v. DeVos is simply one more sign that the U.S. Department of Education holds distressed student debtors in contempt and Judge Kim’s contempt order was certainly appropriate.

Nevertheless, the $100,000 fine that Judge Kim issued against DOE is totally inadequate to get DOE’s attention.  A $100,000 fine is just pocket change to DOE Secretary Betsy DeVos—probably less than the annual maintenance costs on her yacht.  And $100,000 distributed to the 16,000 Corinthian students who were injured by DOE’s conduct amounts to only about eight bucks apiece.

Corinthian Colleges filed for bankruptcy nearly five years ago, and some of the plaintiffs were injured earlier than that. Five years is too long to wait for justice. The Department of Education should be ordered to forgive all student-loan debt acquired by students who attended for-profit colleges that have been found guilty of fraud and deception.  In other words, all the poor souls who attended Corinthian Colleges should have their student loans forgiven in their entirety.

References

Calvillo Manriquez v. DeVos, 411 F. Supp. 3d 535 (N.D. Cal. 2019).


The Seaquest: Betsy DeVos's yacht



Friday, March 6, 2020

Retirees with student-loan debt should ask elderly presidential candidates what they plan to do about the student-loan crisis

Last month, the New York Times ran a story about retirement-age Americans who are struggling to pay off student-loan debt. As reported by Times writer Tammy La Gorce, 2.8 million Americans in their 60s have student-loan obligations, a number that has quadrupled since 2005.

The average debt load for elderly student-loan debtors has nearly doubled between 2012 and 2017--from $12,100 to $23,500. And, according to the Times story, most student-loan debt held by older Americans was taken out to pay for for their children's education.

Many of these elderly student-loan debtors jeopardized their own retirement by borrowing money to get their kids through college. And these debts are virtually impossible to discharge in bankruptcy.

It is now inevitable that the United States will elect an old guy for President in November: Donald Trump, age 73; Joe Biden, age 77; or Bernie Sanders, who is 78.  Will they be sympathetic to senior Americans who are burdened by student debt?

Why don't we inquire? If we get an opportunity to question Bernie, Biden, or Trump, these are the questions we should ask.

First, do you support the bill that Congressman John Katko introduced in Congress to eliminate the "undue hardship" provision in the Bankruptcy Code so that insolvent Americans can discharge student debt in bankruptcy just like any other unsecured consumer debt? Yes or no.

Second, do you support the repeal of the so-called "Bankruptcy Reform Act" that made it more difficult and more expensive for financially distressed Americans to get bankruptcy relief? Yes or no?

Third,  do you support legislation that would prohibit the federal government from garnishing the Social Security checks of retired Americans who defaulted on their student loans? Again, yes or no?

And here are some candidate-specific questions to ask:

President Trump, you indicated that the Department of Education is looking at some options for relieving the suffering of college borrowers who are burdened by student-loan debt? Precisely what do you have in mind?

Senator Sanders, do you have any plan for addressing the student-loan crisis other than forgiving $1.6 trillion in student debt?  If you are elected President, and Congress refuses to approve your loan-forgiveness promise, do you have any other ideas about relieving the student-debt crisis?

Former VP Joe Biden, do you regret your role in passing the notorious Bankruptcy Reform Act of 2005? Would you work to repeal the law if you are elected President?  Would you at least repeal the provision that makes private student loans almost impossible to discharge in bankruptcy?

Curiously, although the student-loan program is totally out of control and burdens 45 million Americans, the media has not pressed any of the presidential candidates about the student-loan crisis.

College and university leaders have said almost nothing about this catastrophe, and they won't be asking the presidential candidates any awkward questions about the federal student-loan program. Harvard, for example, took in $4 billion in federal money between 2011 and 2015. The student-loan program works just fine for America's wealthiest university.

But ordinary Americans need to know what Bernie, Biden, and Trump plan to do if they are elected President. Ask those questions yourself because the press and the universities aren't interested.


Harvard University President Lawrence Bacow: Student-loan crisis? What student-loan crisis?


Wednesday, March 4, 2020

Clavell v. U.S. Department of Education: A New York bankruptcy judge takes refreshing approach to "undue hardship" in student-loan bankruptcy case

Clavell v. U.S. Department of Education: An Introduction

Christian Clavell, a 35-year-old sales employee with Coca-Cola, filed for bankruptcy in the hope of discharging $96,000 in student loans.  The U.S. Department of Education opposed his application for relief, arguing that Clavell could afford to make loan payments of $492 a month under REPAYE, one of DOE's long-term, income-based repayment plans.

At first blush, DOE's position seems reasonable. Clavell was projected to have an income of $77,000 a year, he was single, and he lived inexpensively in his grandfather's home. Fortunately for Clavell, however, Judge Michael E. Wiles, dug deeper into Clavell's financial situation and concluded that he was entitled to a partial discharge of his student loans that only requires him to make loan payments of $250 a month over a 25-year term.

In reaching his decision, Judge Wiles endorsed the views expressed by Bankruptcy Judge Cecelia G. Morris in Roseberg v. New York State Higher Education Services Corporation.  Like Judge Morris, Judge Wiles rejected the "certainty of hopeless" standard that some bankruptcy judges have adopted to justify their decisions to deny relief to distressed student-loan borrowers.

And, like Judge Morris, Judge Wiles called for a less harsh interpretation of the Second Circuit's Brunner opinion. Brunner has been used by bankruptcy judges all over the country to make it virtually impossible for honest but unfortunate student-loan debtors to obtain the "fresh start" that the bankruptcy courts were established to provide. Together, Rosenberg and Clavell signal the possibility that bankruptcy judges would like to see the Brunner test softened by the federal appellate courts.

Judge Wiles applies the three-part Brunner test to Mr. Clavell's financial situation.

In analyzing Clavell's claim, Judge Wiles applied the three-part Brunner test, first articulated by the Second Circuit Court of Appeals.  Part one of that test required Clavell to show that he could not pay off his student loans and still maintain a minimal standard of living.

Judge Wiles pointed out that Clavell made child-support payments of $946 a month and that DOE did not take this obligation into consideration when it calculated how much Clavell would have to pay under the REPAYE plan. In Judge Wiles' view, DOE's calculations were "too mechanical" and did not take into account Clavell's actual financial circumstances" (p. 10).

Furthermore, the judge noted, REPAYE is actually a misnomer. "[T]he mere fact that the REPAYE payments are low, or in some cases even zero, does not really mean that a debtor can afford to 'repay' the underlining loans" (p. 11). On the contrary, the fact that some people are eligible to make lower payments on their student debts under REPAYE may actually show that these people cannot afford to repay their underlying loans.

Looking at Clavell's expenses, Judge Wiles subtracted Clavell's child-support payments to determine his take-home pay--only $3,242 a month. The judge concluded that Clavel's modest contributions to his retirement plan ($121 a month) were reasonable expenses and not a "luxury" item as DOE maintained.
I disagree with the DOE's contention that modest 401(k) contributions of the kind at issue here are "luxury" items. One of the financial obligations of a responsible adult is to make reasonable provisions for the future, both for the adult's own good and for the good of his or her family.  (p. 20)
Indeed, Judge Wiles reasoned, "[r]equiring a debtor to forego making reasonable provisions for his and his family's future living expenses would itself be an 'undue hardship,' even if it would not immediately deprive the debtor of food or shelter" (p. 20).

At the time of trial, Clavell lived with his grandfather, paying him $956 per month in rent. DOE argued that Clavell's "real" rent obligations were less than $956, apparently because Clavell paid rent to a relative. But Judge Wiles rejected DOE's argument, finding that Clavell's rent obligations were reasonable.

Remarkably, Judge Wiles also determined that Clavell's own estimation of his food and housekeeping costs were higher than Clavell himself claimed.  Reasonable costs for these items was not $265 a month, as DOE contended, or even $400 a month, as Clavell asserted. Instead, Clavell's reasonable housekeeping costs were $590.

In sum, taking all of Clavell's reasonable expenses into account, the judge concluded that Clavell could not maintain a minimal standard of living if forced to repay his student loans.

Turning to part two of the Brunner test, Judge Wiles ruled that Clavell had met his burden of showing that his financial circumstances were not likely to change over "a substantial portion of the loan repayment period" (p. 36). Although Clavell might make more money if he obtained a job in his chosen field of law enforcement, Clavell had not been able to get such a job, and the judge found no evidence to suggest that Clavell had not made a good-faith effort to maximize his income.

Finally, Judge Wiles concluded that Clavell had handled his student-loan obligations in good faith, and thus, he met part three of the Brunner test.  The judge acknowledged that Clavell had made no payments on his student loans since he consolidated them in 2013. Nevertheless, Judge Wiles reasoned, "a debtor's 'good faith' must be determined based on the situation in which the debtor found himself."

In Clavell's case, Judge Wiles observed:
[T]he loan servicers themselves recognized that Mr. Clavell's circumstances did not permit him to make payments and thus they suspended Mr.Clavell's payment obligations and put the loans in forbearance as a result. In fact, Mr. Clavell never defaulted on his student loans. Instead, his payment obligations have been suspended. Mr. Clavell's failure to make payments was hardly a sign of "bad faith" when the lender acknowledged that Mr. Clavelll could not make such payments and when the lender agreed to suspend his obligation to make them. (p. 37)
Good faith, Judge Wiles ruled, should be measured by a debtor's efforts to obtain employment, maximize his income, minimize expenses, and undertake all other reasonable efforts to repay his student' loans.
The evidence shows that Mr. Clavell did his best to maximize his employment opportunities and his income and to minimize his expenses. He attempted to find a position in law enforcement but was unable to do so despite diligent efforts. He has worked in a sales position and . . . there is no suggestion that he passed up any better opportunities that were available. He has a large child support obligation that he must honor and other reasonable expenses that do not permit him both to maintain a minimal standard of lving and to repay his loans. (p. 37).
Accordingly, Judge Wiles reduced the amount of Clavell's loan balance such that Clavell would pay off the remaining debt in an amount that could be paid in 25 years with monthly payments set at $250 per month.

 Conclusion

Clavell v. U.S. Department of Education is important for several reasons:

First, Judge Wiles endorsed the view of Judge Cecelia G. Morris in the Rosenberg decision that the Brunner test has been interpreted too harshly by many bankruptcy judges. Judge Wiles flatly rejected the "certainty of hopelessness test" that some bankruptcy courts have adopted to justify their decisions to deny overburdened debtors relief from their student-loan debts.

Second, Judge Wiles ruled that a student debtor's child-support payments should be taken into account when determining whether the debtor can maintain a minimal standard of living and still pay off student loans. Judge Wiles also ruled that a student-loan debtor is entitled to make modest contributions to his or her retirement plan and that such payments are not a luxury.

Finally, and perhaps most importantly, Judge Wiles ruled in Clavell's favor regarding the fact that Clavell had not made monthly loan payments while his loans were in forbearance.  The judge concluded that DOE's decision to grant Clavell a forbearance from making payments constituted evidence that DOE itself acknowledged that Clavell was unable to repay his student loans while maintaining a minimal standard of living.

References

Clavell v. U.S. Department of Education, No. 15-12343, Adv. Pro. No. 16-01181 (Bankr. S.D.N.Y. Feb. 7, 2020).

Rosenberg v. New York State Higher Education Services Corporation, 18-35379, 2020 LEXIS 73 (Bankr. S.D.N.Y. Jan. 7, 2020).

Bankruptcy Judge Michael E. Wiles