Tuesday, August 10, 2021

The Feds messed up the federal student loan program: And everything they do to fix it just makes things worse

 Many years ago, when I was a fledgling attorney, my senior partner gave me some advice I never forgot. 

He told me that a competent attorney won't make many errors, but all lawyers will make a mistake at some point in their careers.

When you realize you made an error, he advised me, admit it to yourself and immediately begin trying to repair the damage. 

Why? Because the longer you ignore a blunder, the worse the consequences will be. 

I have tried to follow my senior partner's advice throughout my career--first as a lawyer and then as a professor--and I have learned that this advice is always the right thing to do.

But Congress is not following my law partner's advice. Since it created the student loan program more than 50 years ago, it's made several colossal mistakes, but it muddles on--like a drunk driver who causes a multi-car pileup and then leaves the scene of the accident.

For example, Congress screwed up when it allowed for-profit colleges to participate in the student-loan program.  The evidence of corruption, price gouging, and fraud in that sector is well documented.

But the for-profits are sort of like a deadbeat relative who asks you if he can crash on your couch. Once you let him in and give him a house key, you can't get the sonofabitch out.

Congress also made a mistake when it amended the Bankruptcy Code to make it almost impossible for distressed college borrowers to discharge their student loans in bankruptcy. We now have thousands of people who owe three or four times what they borrowed, but they can't free themselves from that debt in bankruptcy court.

And here's another screwup--the Public Service Loan Forgiveness program (PSLF). PSLF was intended to relieve the student-loan burden for people wanting to take public service jobs:--firefighters, school teachers, nurses, etc.

But that program is so botched up that 98 percent of the people who thought they were in the PSLF program were denied relief. As Steve Rhode said in a recent podcast--PSLF is a "dumpster fire."

And then there are the various income-based repayment plans (IBRPs) that the brainy policy wonks said would relieve the debt burden on people who had taken out so many loans that they could not pay off the debt under ta standard 10-year repayment program.

How's that working out? We now have more than 8 million people in IBRPs that can last for a quarter of a century. And how many of these people have had their deads cleared? According to the National Consumer Law Center--only 32!

And the IRBP participants are making monthly payments that are not large enough to cover accruing interest. Virtually all these people will owe much more than they borrowed when they finish their 25-year repayment plans.

Do you want to talk about the Parent PLUS program, which preys on low-income families and has a ten percent default rate?

Let's face it, the federal student loan program and its toxic offshoots is a calamity--the mother of all calamities. Its impact on the economy and individual lives makes the 2009 home-mortgage scandal look like a Sunday school class.

And now, what has our government done? It has extended the pause on student loan payments until the end of January 2022. That's right, millions of student loan debtors are excused from making their monthly payments for almost two years!

Did that move solve anything? No, it did not. By extending the loan-payment pause, the Department of Education merely postponed the day it will have to admit that the student-loan program is a trillion-dollar screwup.


It is always best to admit your mistakes and do your best to repair the damage.


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