Tuesday, March 23, 2021

"This student loan case fits the definition of insanity": Bankruptcy judge grants 56-year-old Kansan partial relief from his student-loan debt

 In Goodvin v. Educational Credit Management Corporation, Judge Dale Somers, a Kansas bankruptcy judge, began his opinion with these words:  "This student loan case fits the definition of insanity."

Judge Somers went on to chronicle the story of Jeffrey Goodvin. 

Mr. Goodvin attended Wichita State University for four years (1982-1986) but did not obtain a degree. He enrolled at Brooks Institute of Photography in 1987 and got a bachelor's degree in fine arts in 1990. In 2007, he enrolled at Santa Barbara City College and obtained a certificate in multimedia studies. 

Goodvin made repeated attempts to find steady employment over many years, but he worked in an unstable industry.  Judge Somers summarized Mr. Goodvin's job history as being "marked by several relocations, intermittent job loss, layoffs, and periods of unemployment, through no apparent fault of his own." In 2018, Goodvin entered an apprentice program with the Plumbers and Pipefitters Union. 

By the time Goodvin filed for bankruptcy in 2019, he was 56 years old, and he owed $77,000 in student loans. Educational Credit Management Corporation (ECMC) held Goodvin's largest loan, a consolidated loan that Goodvin took out in 1992. 

And here is where Judge Somers found insanity. The principal of Goodvin's consolidated loan was only $12,077, and Goodvin had paid $19,527 on that loan--more than 150 percent of the amount that was disbursed. But interest on that loan accrued at 9 percent. By the time Mr. Goodvin filed for bankruptcy, he owed $49,000 on that $12,000 loan. 

Predictably, ECMC argued that Mr. Goodvin should be placed in the Department of Education's REPAYE plan, a 20-year income-based repayment plan that would end when he was 76 years old. ECMC did not contend, however, that Goodvin would ever pay off his student loans. In fact, Judge Somers noted dryly, "To argue otherwise would strain incredulity."

Naturally, Mr. Goodvin did not want to enroll in a repayment program that would not end until he was ten years into retirement. Moreover, as Judge Somers pointed out, Goodvin's payments under a REPAYE plan would not cover accruing interest. As Judge Somers observed, "Goodvin's reluctance to participate in the REPAYE plan for another twenty years is not a lack of good faith; it's called hopelessness."

Very sensibly, Judge Somers granted Mr. Goodvin partial relief from his student debt. The judge discharged the consolidated loan, which he described as "the elephant in the room."  That loan, accruing interest at 9 percent, amounted to 64 percent of Goodvin's total student-loan indebtedness. 

That leaves Mr. Goodvin with an obligation to pay back $27,689, an amount that he can probably manage.

Judge Somers' sensible and refreshing decision is a sign that the federal bankruptcy courts are recognizing the enormity of the student-loan crisis.  ECMC appealed to the U.S. district court, but Judge John Lungstrum upheld  Judge Somers' ruling.

This is the third bankruptcy court decision out of Kansas in recent years to grant a partial discharge of student loans. ECMC was a defendant in all three cases, and it appealed all three decisions. Remarkably, federal district courts, acting in their appellate capacity, upheld the bankruptcy judge in all three matters.

Judge Somers was right: The Goodvin case fits the definition of insanity. His decision, thank God, restores some sanity to Mr. Goodvin's life, which should hearten us all.


References

Goodvin v. Educ. Credit Mgmt. Corp., Case No. 19-10623, Adv. No. 19-3105, 2020 WL 6821867 (Bank. D. Kan. Sept. 9, 2020), aff'd, Educ. Credit Mgmt. Corp. v. Goodvin, Case No. 20-cv-147-JWL (D. Kan. March 17, 2021).





Wednesday, March 17, 2021

Sweet v. DeVos: A federal judge calls Education Department's Borrow-Defense process "Kafkaesque"

In 2019, a group of student-loan debtors filed a lawsuit against the U.S. Department of Education and Education Secretary Betsy DeVos. 

Claiming to represent more than 100,000 student-loan borrowers, the plaintiffs accused DOE of issuing "blanket refusal[s]" when students tried to have their student loans forgiven based on claims they had been defrauded by the for-profit colleges they attended. 

More particularly, the plaintiffs accused DOE of “stonewalling” the fraud-claims process and allowing more than 200,000 fraud claims to languish for eighteen months.

In October 2019, Federal Judge William Alsup certified the lawsuit as a class action (Sweet I); and on May 22, 2020, Judge Alsup approved a preliminary settlement proposal that would end the litigation (Sweet II). 

Under the terms of the proposed settlement, DOE pledged “to decide claims and notify borrowers within eighteen months of final approval and implement relief within twenty-one [months].” DOE also agreed to be penalized if it delayed its decisions.

The plaintiff students apparently believed DOE would process the fraud claims in good faith based on a review of each individual claim. But they discovered that DOE denied almost all claims by sending a form letter that told petitioners their requests were denied based on “Insufficient Evidence.”

As reported in Forbes, borrowers accused DOE of "skirting the spirit of the settlement agreement, by essentially, arbitrarily denying relief to everyone." DOE admitted that since April 2020 it had denied 94% of all borrower-defense claims. 

When DOE’s behavior came to Judge Alsup’s attention, he was not happy. As he explained in his order, DOE’s form letters did not explain why students’ claims were almost uniformly rejected.

  Although individuals could request reconsideration of their individual denials, they had no basis for doing so since DOE gave no reason for the rejections.  Indeed, Judge Alsup observed, “the borrower’s path forward rings disturbingly Kafkaesque” (Sweet III, p. 5).

In fact, it is hard to read Judge Alsup’s opinion without coming to the conclusion that Betsy DeVos’s DOE was determined to deny relief to almost everyone who claimed to have been defrauded by a for-profit college.

As Judge Alsup pointed out, DOE had processed fraud claims expeditiously during the Obama administration. In the final 19 months of President Obama's second term in office, DOE processed 32,000 borrower-defense applications and approved 99.2% of them (Sweet III, p. 9).

But in 2017, President Trump took office and appointed Betsy Devos as his Secretary of Education. DeVos's DOE slowed down the borrower defense review process dramatically. In fact, over an 18-month period, DOE did not issue any decisions on borrower-defense claims (Sweet III, p. 3).

Then, in December 2019, while litigation was pending, the DeVos DOE speeded up its review process and decided 16,000 cases in one day. In contrast to the 99 percent approval rate during the Obama administration, President Trump's DOE denied 95% of the borrower-defense claims (Sweet III, p. 3).

Judge Alsup’s order canceling the proposed settlement was issued less than a month before the 2020 presidential election. Donald Trump was defeated, and DeVos resigned her post as Education Secretary in January.

In short, there is a new sheriff in town. Let us hope Miguel Cardona, President Biden’s Secretary of Education, will resolve student-loan borrowers’ fraud claims quickly and in good faith. The Obama administration determined that most of these claims are valid--that most claimants were ripped off by for-profit colleges.  Surely the Biden administration will come to the same conclusion.

References

Adam Minsky. Dept. of Education Tells Court It Has Denied 94% of Loan Forgiveness Applications, Forbes.com, Sept. 14, 2020.

Sweet v. DeVos [Sweet I], No. C19-03674 WHA, 2019 WL 5595171 (N.D. Cal. Oct. 30, 2019) (granting motion for class certification).

Sweet v. DeVos {Sweet II], No. C19-03674 WHA, 2020 WL 4876897 (N.D. Cal. May 22, 2020) (approving preliminary settlement).

Sweet v. DeVos [Sweet III],  No. C19-03674 WHA, 2019 WL 6149690 (N.D. Cal. Oct. 19, 2020) (refusing to approve settlement agreement).


Bye-bye, Betsy!



Monday, March 15, 2021

All Sales Final! No Refunds! Students lose lawsuit for tuition reimbursement against four Rhode Island universities that closed their campuses during COVID pandemic

Almost exactly one year ago, American higher education shut down in response to the COVID pandemic.  All across the United States, universities closed their campuses and switched from face-to-face instruction to online teaching.

Over the past several months, students brought dozens of lawsuits against their colleges, seeking partial tuition refunds for the 2020 spring semester. They argued that the quality of teaching suffered when teaching shifted to computerized learning.

Some student plaintiffs found sympathetic courts, but a federal judge in Rhode Island dismissed students' lawsuits against four Rhode Island schools: Brown Univesity, Johnson & Wales University, Roger Williams University, and the University of Rhode Island.

 Judge John McConnell ruled that the four universities had no contractual obligation to deliver in-person instruction during the spring of 2020.  In Judge McConnell's view, the universities' recruitment materials, which touted lovely campuses and stimulating classroom environments, were mere "puffery" and did not amount to a contractual obligation to teach classes face-to-face.

I think Judge McConnell ruled correctly. Confronted with the coronavirus pandemic, American colleges and universities had no choice but to switch instruction from the classroom settings to an online format.

I sympathize with the students who brought these lawsuits, particularly the one brought against Brown University, an elite Ivy League school. Brown's tuition and fees total $58,000 per year. Students did not shell out that kind of money to take classes by sitting in front of a commuter in their parents' basements. 

Nevertheless, America's college leaders were justified in closing their campuses last spring. It was the only responsible thing to do. Surely they realize, however, that they cannot teach students via computers over the long term, even if the coronavirus pandemic stretches out for many months or years to come.

The total cost of attending America's most prestigious colleges now amounts to about $70,000 a year or even more. Most students will have to take out student loans to cover the bill.

If Brown's academic leaders think their students will take out student loans indefinitely for computerized instruction, they are in for a rude awakening.  No one will go into six-figure debt to get an online diploma, even if the credential is from Brown University.

Thus if the COVID pandemic isn't quickly brought under control, it will be the end of expensive private-college education.  After all, a young person smart enough to be admitted to Brown is smart enough not to pay $58,000 a year for an online college degree.




References

Burt v. Board of Trustees of the University of Rhode Island, __ F.3d ___, C.A. No. 20-465-JJM-LDA (D.R.I. March 4, 2021).



Friday, March 12, 2021

A little good news: COVID Relief Act includes tax relief for student debtors whose loans are forgiven

 A little good news. The COVID relief bill that Congress passed a few days ago includes modest tax relief for student debtors whose college loans are forgiven.  

Senators Bob Mendez and Elizabeth Warren introduced the Student Loan Tax Relief Act in the U.S. Senate as a provision of the $1.9 trillion COVID relief legislation. 

Thanks to the passage of the Mendez-Warren bill, student debtors who complete income-driven repayment plans (IDRs) and have their college loans forgiven will not get a tax bill.

In most circumstances, the Internal Revenue Service considers a forgiven debt to be taxable income. Until the Mendez-Warren bill became law, this was a problem for student debtors in IDRs.

Indeed, most college-loan debtors in IDRs will have substantial loan balances when they finish making monthly payments under a 25-year IDR because their payments weren't large enough to cover accruing interest.  

The U.S. Department forgives the remaining student-loan debt for individuals who complete IDRs, but the IRS has treated the forgiven debt as taxable income.  Under the terms of the Mendez-Warren bill, that forgiven debt is no longer taxable.

This is a good development, but the Student Loan Tax Relief Act offers is only a modest reform. 

First of all, the IRS does not tax forgiven debt if the debtor is insolvent when the debt is forgiven. Since most student debtors who complete 25-year IDRs will be insolvent, their forgiven debt would not have been taxable even before the Mendez-Warren bill became law.

Second, for reasons I do not understand, the tax-relief measure expires on January 1, 2026.  After that date, forgiven debt will again be treated as income by the IRS.

Third, as the National Consumer Law Center reported earlier this month, only 32 people who completed IDRs have had their loan forgiven. If this low IDR-completion rate continues, the Mendez-Warren measure will impact very few people.

In short, the Mendez-Warren legislation is a welcome development but is no reason for student debtors to start popping the champagne corks. Save the champagne for the day Congress repeals the undue-hardship language in the Bankruptcy Code and allows distressed student debtors to discharge their student loans in bankruptcy.

Don't pop the champagne corks over the Student Loan Tax Relief Act.






Tuesday, March 9, 2021

You can't get there from here: Millions of student borrowers are in Income-driven repayment plans but only 32 got debt relief

 Everyone knows the story about the hapless motorist who gets lost in rural Maine. When he finds a farmer and asks for directions, the farmer says, "You can't get there from here."

The U.S. Department of Education must be staffed by Maine farmers. DOE has made it almost impossible for student-loan debtors to benefit from DOE's income-based repayment plans (IDRs).  When it comes to getting debt relief from an IDR, DOE's position seems to be: You can't get there from here.

DOE and its loan servicers are responsible for administering the federal student-loan program, including its various income-based repayment plans. These IDRs allow borrowers to make payments on their student loans based on their income--with low-income borrowers making payments as low as zero.

As the National Consumer Law Center (NCLC) reported this month, more than 8 million people are enrolled in IDRs. Two million student debtors have been in an IDR for at least 20 years. 

Yet only 32 people--that's right, 32--have had their student loans canceled through an IDR.

NCLC blames private student-loan servicers for this dismal state of affairs. NCLC accuses the servicers of giving inaccurate or inadequate information to student borrowers and steering borrowers away from IDRs toward options that don't lead to eventual loan cancellation.

And there is another problem. According to NCLC, nearly 6 out of 10 people in IDRs lose their eligibility because they fail to recertify their income annually.

NCLC recommends canceling all student debt that has been in repayment for 20 years--whether or not a borrower was signed up in an IDR.  I agree.

After all, student debtors who have not paid off their college loans after 20 years will probably never pay them off. In fact, interest accruing on their debt will have built up over time so that their total outstanding debt will likely have doubled or tripled.

Another reform--less sweeping than loan forgiveness--would at least prevent a majority of borrowers from getting kicked out of their IDRs. DOE could stop requiring IDR participants to certify their income on an annual basis. Instead, DOE should simply assign that job to the Internal Revenue Service.

Over the past few months, the federal government has issued millions of coronavirus relief checks to Americans based on the recipients' income. This was a relatively easy task because the Internal Revenue Service knows every American's income based on tax returns.

Since the feds know everyone's annual income, DOE doesn't need to ask 8 million IDR participants to certify their income every year. Eliminating that unnecessary requirement would prevent more than half the people in IDRs from getting kicked out of their repayment plans.

But maybe that simple reform is too easy. Perhaps DOE and the student-loan processers don't care whether IDR programs operate as Congress intended.  

When only 32 people get their student loans forgiven under IDR programs intended to give debt relief, something is terribly wrong. Surely the U.S. Department of Education is capable of managing its IDR programs better than a Maine farmer.


You can't get there from here.




Sunday, March 7, 2021

"Becker College on the Brink of Closure": Small, private colleges are sliding toward oblivion

As reported in Inside Higher Ed, Becker College is on the brink of closure. Located in Worchester, Massachusetts (no garden spot), Becker's enrollments have drifted downward in recent years, and it now enrolls only about 1,500 students. 

The Massachusetts Department of  Higher Education says the school's financial situation is uncertain, and Becker and the Department are working on a "contingency closure" plan. A local newspaper says Becker "is unlikely to survive another academic year."

Becker is an expensive place to study. Tuition and fees total approximately $40,000 a year.  When living expenses are included, attending Becker will cost at least $50,000.

Thus, for students who invest four years of their lives studying at Becker College, a bachelor’s degree could cost $200,000.

Unfortunately, it takes longer than four years for most Becker students to get their bachelor’s degree.  CollegeSimply reports that only 14 percent of Becker students earn their bachelor’s degree within four years, and only 27 percent graduate within six years. (Other sources cite a higher graduation rate, and Becker's website says its graduation rate is above the national average.)

Of course, most Becker students get some kind of financial assistance that can cut costs considerably.  But few people will graduate from Becker College without taking out student loans.  According to CollegeSimply, 83 percent of Becker students have federal student-loan debt when they graduate.

And what kind of job awaits a Becker College graduate?

Today, small private colleges are sliding down a path toward oblivion.  Hundreds of these schools dot the American landscape, especially in New England and the mid-Atlantic states. 

Many are losing students, and some are closing. Atlantic Union College, located only a few miles from Becker College, shut down in 2018. Incredibly, the Massachusetts Department of Higher Education maintains a list of more than sixty closed colleges and schools in the Bay State. 

The COVID pandemic hit these colleges especially hard—accelerating enrollment declines. Federal money has propped some of them up—at least temporarily. Becker College received nearly $5 million in coronavirus aid. 

To an unsophisticated young person, a small private college like Becker may look attractive. In contrast to the public mega-universities, which may enroll 50,000 students or more, the small private schools feel friendlier. Their ancient buildings--Romanesque, Greek revival, or Victorian architecture--their leafy lawns and small, intimate classroom setting are appealing to young people searching for wisdom and guidance that will help them plan their lives.

But these colleges can be dangerous places to study. First of all, they are quite expensive. Tuition prices vary from school to school, but they typically charge about $50,000 per year in tuition, fees, room, and board.  Most students from low-income or middle-class families will be forced to take out student loans to cover those costs.

Second, a degree from a small, private college may not lead to a good job. CollegeSimply reports that a Becker College graduate’s average salary after ten years is only $46,600. That is not a very attractive salary for a person burdened by oppressive student-loan debt.

I sympathize with these small, struggling private colleges.  Some have noble histories dating back to the early nineteenth century or even earlier. Becker College, for example, traces its roots to 1784.

And many of these schools have made commendable efforts to remain relevant. Becker Colege offers a variety of job-oriented degree programs: nursing, criminal justice, veterinary technology, and forensic science. Becker's game design program is nationally recognized. According to the Princeton Review, the program ranks number 2 in the world. 

But the future of the small, private college is bleak. Young people should carefully consider the costs and benefits of attending an expensive private school compared to a public university. 

They should also weigh the possibility that the private college of their choice may shut its doors in the not-to-distance future--perhaps before they pay off their student loans.


Expensive private colleges: Think before you take the plunge.







Tuesday, March 2, 2021

House version of COVID relief bill modifies 90/10 rule for for-profit colleges. Critics say the change may cause some for-profits to close

 The House of Representatives passed a $1.9 trillion relief bill a few days ago, and the legislation is now before the Senate. House Democrats inserted a provision that would modify  an obscure statute that requires for-profit colleges to obtain at least 10 percent of their revenues from non-federal student aid.

The purpose of the 90/10 rule is to require for-profit colleges to obtain at least a small part of their income from non-federal sources. As a recent paper by the Veterans Education Project noted:

The rationale for the [90/10] policy is that a worthwhile educational provider should be able to attract other sources of revenue beyond federal grants and loans, and that students should be willing to put some of their own money toward their education (i.e., “skin in the game”).

 Or as Representative Bobby Scott (D-Virginia) put it, the rule requires for-profit institutions to “show some semblance of attraction to people.”

Under current law, GI Bill benefits--federal student aid for veterans--are not counted as federal student aid under the 90-10 rule. Thus, for-profits can get 90 percent of their revenue from federal student aid and get additional federal money from veterans' benefits without violating the 90/10 rule. 

The House version of the COVID relief bill would change the way the 90/10 rule is calculated by including veterans benefits as federal student aid.  The Wall Street Journal criticized the measure, pointing out the rule change would cause 87 for-profit schools to fall out of compliance with federal regulations and perhaps close.

I disagree with the Wall Street Journal. For-profit colleges have a long and well-documented history of providing overly-expensive, often substandard services to students.  As the Brookings Institute reported recently, for-profit schools enroll only 10 percent of postsecondary students but account for half of all student loan defaults.

Moreover, on average, for-profits are four times more expensive than community colleges, and black and Latino students are overrepresented in this low-performing education sector. Indeed, some research suggests that a for-profit college education may be no better than no college education at all. 

Tightening the 90/10 rule is a modest reform. All it will do is require for-profits to find more non-federal operating funds than they are required to have now.  

If the Senate includes the modified rule in its version of the COVID legislation, some for-profits may indeed closeWe should not mourn their loss.

Rep. Bobby Scott (D. Virginia)