Sunday, December 18, 2022

Sam Bankman-Fried and the Crypto Scandal: Lessons for Average Americans

Sam Bankman-Fried, founder of FTX, a cryptocurrency exchange, was once worth billions of dollars. Today he is sitting in a Bahamian jail, abiding with rats and maggots. Worse--the prison doesn't offer a vegan menu.

Sam was to have testified before a Congressional hearing about his financial dealings. However, a federal prosecutor filed criminal charges against him, and the Bahamian authorities obligingly locked him up before he spilled the beans.

And so many beans to spill. Commentators estimate Sam has one million creditors, primarily investors. 

The mainstream media has portrayed Bankman-Fried as a naive and inexperienced investor who got over his skis. I think that's bullshit.

SBF is no country bumkin. He graduated from the Massachusetts Institute of Technology with a degree in physics.

He certainly grew up in sophisticated surroundings. His Wikipedia bio says he was born "on the campus of Stanford University." (Evidently, Stanford has a maternity ward).

Sam's dad, a professor at Stanford School of Law,  is a tax specialist who got his law degree from Yale. 
Sam's mom, a recently retired Stanford law professor, has three degrees from Harvard, including a law degree.

So what's next for Sam Bankman-Friedman and his crypto empire, which some people describe as a giant Ponzi scheme?

There are two possibilities. If Sam's shenanigans are fully exposed, the public may discover that many influential politicians profited from Sam's activities, which could trigger a political earthquake and multiple indictments.

On the other hand, the full extent of this scandal may never come to light. Sam is in a Bahamian jail awaiting extradition to the United States. Sam might be prosecuted vigorously, but he will likely take a plea deal without ever publicly testifying.

Regardless of how this saga plays out, Americans can learn a lot from Sam Bankman-Fried and the FTX fiasco.

First, people should only invest in financial vehicles they understand. Who really knows what cryptocurrency is or why it has value? And yet, millions of people invested their savings in crypto.

Second, financially insecure people should not invest their meagrer savings in desperate schemes to reverse their fortunes.  Many Americans are approaching their retirement years with inadequate savings and are panicking.

Nevertheless, impecunious people who think they can get rich by investing in cryptocurrency are like the guy who loses heavily at the roulette wheel and places his entire dwindling stake on black. Desperate gambling often leads to disaster.

Finally, FTX's collapse is a reminder that people who have degrees from elite universities aren't necessarily smart.  Sam Bankman-Fried and almost everyone associated with FTX holds a degree from an exclusive school. Yet look what happened?

Sam Bankman-Fried has a degree in physics from M.I.T.















Monday, December 12, 2022

"Let's all pretend we couldn't see it coming" (The US Working-Class Depression) by Dahn Shaulis

How is the working-class Depression of 2020 similar to the other 47 financial downturns in US history? 


Downturns are frequently precipitated by poor economic and cultural practices and preceded by lots of signals: over-speculation, overuse of resources, oversupplies of goods, and exploitation of labor. What I see are many poor practices brought on by corruption--with overconsumption, climate change, growing inequality, and moral degeneration at the root.

The "disrupters" (21st century robber barons) have enabled an alienating and anomic system that is highly dysfunctional for most of the planet, using "algorithms of oppression." And this cannot be solved with data alchemy, marketing, and other forms of sophistry.

Put down your iPhone for a minute and ponder these rhetorical questions:

Warm Koolaid (2016) signified corporate America's use of myths and distractions to sedate the masses. 

    How long have we known about all of this dysfunction? Academics have known about the effects of global climate change and growing US inequality since at least the 1980s. The Panic of 2020 should be a lesson so that we don't have a larger economic, social and environmental collapse in the future.

    Who will hear the warnings and do something constructive for our future? Or is this Covid crisis another opportunity for the rich to cash in on the tragedy?

    The answer lies, in part, to an ignorance of history and science, and oversupply of low-grade information, poor critical thinking skills, and lots of distractions. That's in addition to the massive greed and ill will by the rich and powerful.

    US downturns are baked into this oppressive system. And crises are used to further exploit working families. With climate change and a half century of increasing inequality, these situations are likely to worsen.


    Workers will resist and fight oppression; they always do, but will they have a voice as the US faces another self-induced crisis, as trillions are doled out to those who already have trillions?

    Here are the dates of the largest economic downturns.
    1797-1800
    1807–1814
    1819–1824
    1857–1860
    1873–1879 (The Long Depression)
    1893–1896 (The Long Depression)
    1907–1908
    1918–1921 (World War I, Spanish Flu, Panic of 1920-21)
    1929–1933 (Stock Market Crash, Great Depression)
    1937–1938 (Great Depression)
    Feb-Oct 1945
    Nov 1948–Oct 1949
    July 1953–May 1954
    Aug 1957–April 1958
    April 1960–Feb 1961
    Dec 1969–Nov 1970
    Nov. 1973– March 1975
    Jan-July 1980
    July 1981–Nov 1982
    July 1990–March 1991
    Mar-Nov 2001
    December 2007 – June 2009 (The Great Recession)
    March 2020-

    We live in an economic system that is unsustainable, unjust, and exploitative. While many of us in academia and the thought industry have known this for decades, those with greater wisdom have known for centuries. Techies and disrupters think it can all be solved with technology, not with profound wisdom. The ultimate in hubris and reductionism. We have to change the system politically, socially, and culturally. We have to be wiser.

    How do we do that, radically change society, when our economic system has driven us in the wrong direction for so long? Some of these lessons can be learned from working-class history, but they have to be applied with wisdom.

    *****
    This essay, written by Dahn Shaulis, was originally posted on Higher Education Inquirer.



    Friday, December 9, 2022

    Cazenovia College is closing: Who cares?

     Cazenovia College is closing at the end of the spring semester. According to Inside Higher Ed, the college missed a bond payment due to financial stresses exacerbated by inflation and the COVID pandemic.

    Cazenovia College is a liberal arts college located in the town of Cazenovia in upstate New York. It has about 800 students. The school was founded as a Methodist seminary almost 100 years ago.

    Over the years, Cazenovia has gone through several metamorphoses and name changes. From 1904 until 1931, Cazenovia functioned as both a seminary and a secondary school.  The Methodists withdrew church sponsorship in the 1940s, and the school transitioned into a junior college. In the 1980s, the school became a four-year college and began offering graduate programs in 2019. 

    In short, this plucky little college has done its best to remain relevant and to change with the times. Ultimately, however, Cazenovia couldn't make a go of it.

    Cazenovia is primarily a liberal arts school. For example, the college has majors in Liberal Studies and Individual Studies.  What kind of job will a Cazenovia graduate get with a degree in those fields?

    Like many obscure liberal arts schools around the United States, Cazenvovia's attendance costs can't be justified.  Tuition for this academic year is more than $36,000. Room and board are another $15,000. Who in their right mind would pay $50,000 a year to attend this tiny college with a 6-year graduation rate of only 59 percent?

    But maybe the costs aren't that high.  The U.S. News & World Report points out that Cazenovia's sticker price is below the national average.  According to that source, the net price for federal loan recipients is only about $19,000. 

     That's still high.  When room, board, and living expenses are added, the total cost to attend Cazenovia for federal loan recipients is around $34,000 per academic year--34 grand to attend a college with only 800 students.

    Across the United States, there are hundreds of obscure, expensive colleges struggling to survive. How have they held on for as long as they have? 

    A recent study by the Government Accountability Office offers some clues. According to the GAO report, many schools are making financial aid offers to prospective students that misrepresent the actual costs. Specifically, GAO found that 41 percent of colleges in its study did not include the net price of attendance.  And half the schools reported a net price that did not include key costs.

    For example, many schools include student loans and even Parent PLUS loans as "student aid," thus blurring the line between grants and loans. Unsophisticated families may not realize that the supposedly generous financial aid offer they received from an expensive private school might require them to take on burdensome levels of debt.

    I'm not saying Cazenovia misrepresented the actual cost of attendance. Its financial aid offers may have been perfectly candid and totally in keeping with best practices. 

    If so, it is in the minority. The GAO "estimate[d] most colleges do not provide students all of the information necessary in their financial aid offers to know how much they will need to pay for college."





    Tuesday, December 6, 2022

    Tears and Regret: More than half the people who attended a for-profit college wish they'd studied at a different institution

     "If they gave gold statuettes for tears and regrets," Ronnie Milsap sang in a classic country song, "I'd be a legend in my time."

    Most of us have a few regrets, but no one should regret their college choice. Yet a recent Federal Reserve  Board report shows that many Americans wish they had studied at a different school or chosen another major.

    More than half of those who attended a for-profit institution wish they'd studied at a different college. Fourteen percent of for-profit college attendees reported wishing they had received less postsecondary education or not gone to college at all.

    In addition, many Americans are skeptical about the benefits of their college education.  Most older Americans (82 percent of people ages 60 and older) believe that the benefits of their college education exceed the costs. 

    In contrast, many people in the traditional college-going years (ages 18-29) aren't sure that a college degree is worth the money. Among young Americans, only slightly more than half (56 percent) believe that the benefits of their education exceeded the cost. More than a third of college attendees in the 30-44 age bracket reported that the cost of their education outweighed the benefits.

    The Federal Reserve report also found that a high percentage of people who majored in the humanities or social sciences regret their choice of major. Forty-eight percent of people who majored in the humanities and 46 percent of those who majored in social and behavioral sciences wish they had selected a different academic program.

    For years, high school graduates were told they would never get ahead unless they obtained a college degree--and that the benefits of a college diploma far outweigh the cost.

    Yet, these findings show that many Americans are unhappy about their college experience. A high percentage wish they had attended a different school or chosen another academic major. Perhaps most alarming, more than four out of ten young people think the cost of their college education exceeded the benefits.

    *****

    My thanks go to Dahl Shaul and Glen McGhee for calling my attention to the Recent Federal Reserve Board report.



    Saturday, December 3, 2022

    Major Changes Now Allow You to Eliminate Federal Student Loans in Bankruptcy Essay by Steve Rhode

    -or-

    Are you in default on your federal student loans?  And have you been unemployed for at least 5 of the last ten years? Have you made at least one payment in the past on your loans?

    -or-

    Do you struggle to make monthly student loan payments after covering other expenses?  Are you 65 or older? Have you responded to letters or calls from your servicer about your past-due balance?

    For as long as we’ve had bankruptcy laws, people in the circumstances like the above could generally access the Bankruptcy Code’s promise of a “fresh start.” The “fresh start” was intended to ensure that honest but unfortunate debtors in dire financial situations were not doomed to spend their lives in poverty. They could file for bankruptcy protection, discharge their outstanding debts, and start fresh on a new lifeExcept for student debtors. In 1978, Congress removed “student loans” from the list of dischargeable debts—unless the debtor proved that requiring repayment after bankruptcy would impose an “undue hardship.”  To prove “undue hardship,” debtors generally had to prove three things: (1) the debtor cannot presently maintain a minimal standard of living if required to repay the student loan, (2) circumstances exist that indicate the debtor’s financial situation is likely to persist into the future for a significant portion of the loan repayment period, and (3) the debtor has made good faith efforts in the past to repay the student loan.

    These highly subjective elements made it very difficult to prevail in litigation.  And even where debtors did prevail at trial, they could expect years of appeals to follow, often resulting in a reversal of the trial court’s decision.  For those and other reasons, only 0.1% of debtors even attempt to discharge their loans. And that is largely because of the cost associated. Most bankruptcy lawyers charge anywhere from $30,000-50,000 to handle a student loan discharge case.

    But thanks to the new guidance by the Departments of Education and Justice, debtors with circumstances like the above (and many others) can finally discharge their federal student loans in bankruptcy. Going forward, the Department will not oppose discharge, and will stipulate to the facts supporting discharge, provided the debtor demonstrates he or she meets certain criteria:

    FIRST REQUIREMENT

    The debtor’s current financial situation. If the debtor’s monthly income minus necessary expenses do not leave enough money left over to make the monthly payment on the debt. Perhaps most importantly, this will be based on the “Standard” repayment plan—not an income-based repayment plan. The Standard Plan is ten years, meaning, take the balance of your loan, divide it by 120, and if the monthly payment exceeds your income after necessary expenses (food, clothing, health insurance, etc.), you likely meet the standard.

    SECOND REQUIREMENT

    The debtor’s financial future. This is usually the most challenging part of the test since it relies on accurately predicting the future.  But going forward, the government will stipulate to discharge wherever the debtor is (i) over 65; (ii) did not obtain a degree; (iii) is suffering from some disability or chronic injury that makes employment difficult; (iv) has been unemployed for at least 5 of the last ten years; or (v) has been in repayment for more than 10 years.

    THIRD REQUIREMENT

    Whether the debtor has made a “good faith” effort at repayment. The government will now stipulate to discharge provided the debtor has made one payment in the past, applied for forbearance, or attempted to work with their servicer on an affordable payment plan. So long as you have not buried your hand in the sand, you can likely meet this prong.

    An important caveat here is that the government will only stipulate to these facts. Even where one or more of these circumstances are present, the Bankruptcy Court will still need to concur with the government and issue an order discharging the debt. But there is an enormous difference between those two things regarding time and cost.

    Takes Less Time

    First, rather than taking five or six years (the average length of time required to litigate a trial and handle any appeals), this can now be accomplished in a matter of months.

    Second, and perhaps more importantly, the cost can be dramatically reduced if it can be done in months instead of years. If lawyers are no longer required to spend ~100 or more hours litigating your case and appeals, they won’t need to charge $30,0000 or $50,0000.  Instead, lawyers could do this economically for a few thousand dollars.

    Some of this probably sounds complicated.  Other parts of it probably sound too good to be true. And implementing this guidance may not be as consistent or predictable as we might like.  But this is the first time the government has opened the door to discharge federal student loans in bankruptcy in more than 40 years.

    That is a huge deal and long overdue.

     *****

    This essay was originally posted on November 23, 2022, on the  Get Out of Debt Guy website. 

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

    An Iowa bankruptcy court building



    Friday, December 2, 2022

    The Supreme Court will soon rule on legality of Biden's Student-Loan Forgiveness Plan

     Forty million student debtors are waiting anxiously for President Biden's loan forgiveness plan to kick in. Biden wants to knock off $10,000 from everyone's student loans who makes less than $125,000 a year. That won't mean much to people whose loans are in six figures, but it will mean a great deal to people with modest loan balances. 

    Unfortunately for all those millions of college borrowers, the Eighth Circuit Court of Appeals halted Biden's plan.

    President Biden appealed to the Supreme Court, and yesterday the Court agreed to consider his appeal. We should have a Supreme Court decision by early summer of next year.

    I predict that the Supreme Court will strike down Biden's loan-forgiveness scheme as an unconstitutional usurpation of Congressional authority. If that happens, the President and Congress will be under heavy pressure to provide some sort of loan relief that isn't illegal.

    As I have argued repeatedly, Congress should revise the Bankruptcy Code to allow honest debtors to discharge their student loans in bankruptcy. This simple action would do more than anything else to grant loan relief to deserving college borrowers without allowing unworthy student debtors to get a free ride.

    If this is too much of a heavy lift for Congress, it could enact more modest reforms. Here are my suggestions:

    1) Congress should forbid the Department of Education from garnishing the Social Security checks of elderly borrowers who defaulted on their student loans. 

    2) Congress should shut down the for-profit college industry. There is no reason for private investors and hedge funds to profit from young people striving to get their college degrees.

    3) We should end the Parent PLUS program, which has impoverished hundreds of thousands of low-income families who took out federal loans so their children could attend college.

    4) Congress also needs to reform the Grad PLUS loan program, which currently has no cap on the amount of money students can borrow to attend graduate school.  It is ridiculous for people to borrow $100,000 or more to get a master's degree in journalism.

    Will any of these reforms see the light of day? Doubtful. Universities, student-loan servicers, and the banks are all happy with the status quo. As someone remarked after the fall of France during World War II: "Reform was possible only through catastrophe."

    Sadly, it will probably take the catastrophic collapse of the American economy before our politicians will do what needs to be done to clean up the calamitous student-loan program.

    Reform is not possible without a calamity.




    Wednesday, November 30, 2022

    December is the Cruelist Month: Watch Out, Student Debtors

     T.S. Eliot was wrong: December is the cruelest month, not April.  

    We think of December as a time for rest after a toilsome and anxious year--a time to prepare for Christmas and reconnect with our loved ones.

    Yet, December can bring a lot of nasty surprises--shocking us when our hearts are mellow and our guard is down.

    For example, the Japanese attacked Pearl Harbor on December 7, 1941. 

    The Germans launched the Battle of the Bulge in December 1944.

    George Washington's ragtag army sneaked across the Delaware River and surprised the Hessians on Christmas Eve, 1776.

    Poor Napoleon was shocked when he reached Moscow in December of 1812. He thought he had beaten the Russians, but he was wrong. By the time he got his army back to France, he had lost 90 percent of his soldiers. 

    So here are my predictions for the month ahead: Americans will receive two rude shocks.

    First, the United States is prosecuting a hot war by proxy in Ukraine. Americans believe that the plucky Ukrainians are beating the crap out of Russia.

    I don't think so. The Russians are masters of winter warfare and still have a few tricks up their sleeves. Vladimir Putin will remind America there is a price to pay for mucking around in eastern European politics. 

    Second, the crypto craze will blow up next month, and everybody who bought crypto coins will be wiped out. You will be surprised to learn the names of famous people who got duped.

    These two bombshell events will rock the American economy and make us all poorer.

    If you are a college student, this is the December to be on your guard. Now is a terrible time to take out student loans to pay for your studies. This might be a good time for you to take a gap year, get a job, and start thinking seriously about what you will do to make a living. 

    If you're majoring in liberal arts, now is an excellent time to consider changing majors. You may love literature, but you will need more than a bachelor's degree in English to get a job.

    My advice: select a vocationally oriented major and read Henry James on your own time.


    Surprising the Hessians during the holiday season



    Monday, November 28, 2022

    Fair or Not, the Biden Administration Owns the Student Loan Catastrophe

     I grew up in a small Oklahoma town before the era of the big box stores. If my family wanted to buy a small appliance, a birthday present, or a wedding gift, we went to the town's family-owned gift shop.

    This little shop sold items that would make good gifts for a wedding shower--glassware, casserole bowls, and kitchen stuff. It also sold toys and sports equipment.

    Wandering through the gift shop as I child, I remember seeing mysterious little signs posted in the glassware section that said this: 

    Lovely to look at,

    Delightful to hold.

    If you break it,

    We mark it sold.

    What did that mean? I asked myself.

    One day my six-year-old brother and I were in the little store shopping for Christmas presents.  Without warning, my brother grabbed a football in the sporting goods section and kicked it into the glassware aisle.

    That's when I knew what the sign meant because my mother had to pay for the damage.

    President Biden is in a situation somewhat like my mother's. Someone kicked a metaphorical football into the federal student-loan program, and he has to pay for the damage.

    I feel sorry for the President. He did not break the student-loan program. Other parties bear most of the blame. 

    First, Congress revised the Bankruptcy Code several times to make it almost impossible for student borrowers to discharge their loans in bankruptcy. 

    Next, President Obama's Department of Education introduced PAYE and REPAYE, extremely generous income-based repayment plans that allowed borrowers to stretch out their payments for as long as a quarter of a century. Borrowers in those plans were allowed to make loan payments so small that they would never pay off their loans.

    Then Betsy DeVos, President Trump's Education Secretary, administered the loan program so heartlessly that borrowers who were defrauded by their schools could not get their loans forgiven. In addition, DeVos made it almost impossible for people to avail themselves of the Public Service Loan Forgiveness program.

    Thus, when Biden stepped into the presidency, he was confronted with a student-loan scheme that had run amuck. More than 40 million Americans are student-loan debtors, along with several million parents who took out Parent PLUS loans.  Total indebtedness is now around $1,7 trillion, and most of it won't be paid back.

    President Biden attempted to provide student borrowers with a bit of relief by forgiving $10,000 in student debt for every borrower making less than $125,000 (and $20,000 in forgiveness to people who got Pell grants while in school).

    That's not working out so well. The federal courts have blocked the President from implementing his loan forgiveness scheme.  He has responded by extending the pause on student-loan payments until August 2023 (unless the Supreme Court rules on the plan's legality before the end of June).  

    Experts estimate that this loan-payment moratorium could cost taxpayers more than $200 billion. 

    So--like my mother, who paid for a lot of broken glass in an Oklahoma gift shop, President Biden now owns this shit show.

    So far, Biden's DOE has tinkered a bit with the program. For example, the Department granted generous relief to students who claimed they were defrauded by their college, and it is trying to clean up the Public Service Loan Forgiveness program.

    But, there is only one reasonable thing to do to address the student-debt crisis. Biden needs to put the heat on Congress to amend the Bankruptcy Code to allow millions of distressed debtors to discharge their debt in a bankruptcy court.

    Tragically, I don't think the President will do that. Instead, he has chosen to preside over the student-debt crisis, which he now owns.




    Sunday, November 27, 2022

    President Biden's Never Ending Pause On Student-Loan Payments: Hey, It's Just Monopoly Money

     When I was a kid, my childhood friends and I often played Monopoly on those long summer days when time stood still in southwestern Oklahoma.  

    Sometimes our games lasted for two or three days. If a kid went broke by landing on Park Place, the player with the biggest bankroll would provide an interest-free loan to keep the game going.

    Why not?  It was only Monopoly money. 

    Now, the United States is playing a grown-up version of Monopoly. Beginning in 2020, the Department of Education allowed student-loan borrowers to skip their monthly payments due to the COVID pandemic. 

    The original pause ended in September 2020 but has been extended eight times.  

    In the meantime, President Biden launched his student-loan forgiveness plan to give millions of student debtors $10,000 a piece in student-loan forgiveness.

    Biden's plan was challenged in the courts, and the President used this ongoing litigation as an excuse to continue the pause on student-loan payments. 

    "It isn't fair to ask tens of millions of borrowers eligible for relief to resume their student debt payments while the courts consider the lawsuit," the President said.

    Thus the moratorium on student-loan payments will extend until August 2023 unless the Supreme Court rules on his loan-forgiveness plan by the end of June.

    Due to the payment pause, it seems likely that 40 million student debtors will go more than three years without making a single loan payment. During this moratorium, student loans do not accrue interest, and DOE does not assess penalties for non-payment. 

    Even better, borrowers in DOE's various income-based repayment programs can count the time their loan payments are paused toward their fixed-term payment obligations. For example, an individual in DOE's ten-year Public Service Loan Forgiveness program (PSLF) who skips loan payments for three years will only be required to make income-based payments for seven years. Sweet!

    How much is the loan-payment pause costing taxpayers? According to the Wall Street Journal, the government will have lost $155 billion in uncollected interest by next month. By extending the break until August 2023, the delay will cost taxpayers an additional $40 billion.

    So what? It's only Monopoly money. If the federal government runs out of cash, it can always print or borrow more.

    Ultimately, I predict, the U.S. Supreme Court will declare President Biden's student-loan forgiveness program unlawful.  The Bident administration asked the Supreme Court to fast-track the case, but I don't think the Court will agree. It will probably be 2024 before the litigation is resolved.

    As the loan-forgiveness litigation winds its weary way through the federal courts, Biden will certainly keep extending the loan-payment pause--probably to the end of his administration.

    There will likely be two dire consequences if 40 million Americans are allowed skip making student-loan payments for four years.

    First, student borrowers will conclude that they will never have to pay back their loans and will be damned angry if the government forces them to resume writing loan-payment checks after four years.

    Second, after allowing student debtors to skip making loan payments for several years, DOE  won't be able to get the student-loan program back on track.  It will become like a car that sits idle in a barn all winter.  When spring arrives, the car won't start.

    Meanwhile, colleges and universities continue raising their tuition prices, and students are taking out more federal loans.

    To quote from an old adage, if something can't last forever, it won't. DOE's Rube-Goldbergian student-loan program will eventually collapse--perhaps sooner than anyone thinks.



    Hey, it's only Monopoly money. 


    Wednesday, November 23, 2022

    Be Awake, College Students! Massive Economic Turmoil is Coming

    A friend sent me a copy of the Magnificat journal's Advent Companion, a selection of daily reflections for the Advent season. Advent begins on November 27, and I read the first entry, which reflects on Matthew 24 and Christ's warning to be watchful.

    During the time of Noah, Jesus instructed, people ate, drank, and married until the day the flood came and carried them all away.

    "Therefore, stay awake!" Christ cautioned, and be prepared for the hour you don't expect.

    As I read the Advocate Companion, I thought this passage would make an excellent advertisement for My Patriot Supply, an outfit that sells emergency food kits with a shelf life of 25 years. 

    This is not a religious message. Instead, I warn that our national economy, built on financial speculation and easy money, will ultimately collapse. Perhaps it will be brought on by the cryptocurrency meltdown. If you aren't convinced, read James Howard Kunstler's recent blog essays posted on Clusterfuck Nation.

    If you are a college student, this is no time to take out extravagant student loans. Higher education is under extreme duress: Since 2004, 861 colleges have closed their doors, and more than 9,000 campuses have shut down.

    Stay awake, and don't take out loans to attend an obscure small college with a tuition rate of $25,000 a semester. Don't enroll in an online degree program unless you are pretty damned sure that an online college degree will lead to a good job.

    Just importantly, don't be deceived by all the talk of student-loan forgiveness or by the Department of Education's pause on student-loan repayment--which will last more than three years.

    A few people will get their loans forgiven under DOE's borrower defense program based on findings of fraud, and President Biden's loan forgiveness initiative may ultimately be approved by the courts. Still, the President's plan to forgive $10,000 of student debt, if it comes to fruition, will be a drop in the bucket for students paying $50,000 a year in college tuition. 

    If you are pretty sure a college degree will lead to a job, by all means, go for it. People with degrees in the medical services field will probably find jobs.

    But you are insane if you plan to take out $50,000 or more in student loans to get a humanities degree, a liberal arts degree, or a degree in gender studies.

    You are insane if your college degree requires your parents to take out Parent Plus loans that they can't discharge in bankruptcy.

    You are insane to take out a Grad PLUS loan to get a graduate degree in business, journalism, or the liberal arts.

    Sometimes the Bible has some good advice. Indeed, now is an excellent time to head the biblical admonition to "Stay Awake!" and be prepared for global economic turmoil--which is coming.

     



    Tuesday, November 22, 2022

    Universities entering the gambling business while students place bets on their futures by taking out student loans

     Sports betting is legal in most states, and universities are getting in on the action. As the New York Times reported earlier this week, eight universities have already signed contracts with gaming companies.

    Last year, Louisiana State University's athletic department partnered with Caesars Sportsbook, a gambling corporation. The contract gives Caesers the naming rights to the Skyline Club at Tiger Stadium and the right to advertise at the stadium, LSU"s basketball arena, and the varsity baseball stadium.

    Cody Worsham, LSU's associate athletic director and "chief brand officer," describes the deal as a win-win for everybody. LSU "shares a commitment to responsible, age-appropriate marketing," he said. That commitment "is integral to a sustainable and responsible partnership benefiting our entire department, university, and fan base." That sounds like bullshit to me.

    Robert Mann, an LSU journalism professor, is not sure LSU's gambling partnership is a good thing: "It just feels gross and tacky for a university to be encouraging people "to engage in behavior that is addictive and very harmful," Mann said in an interview with the Times.

    Indeed, LSU sent an email message encouraging recipients, including students too young to legally gamble, "to place your first bet (and earn your first bonus)."

    Implicit in LSU's new revenue stream is the belief that gambling is not harmful and that students too young to place bets won't engage in sports betting.

    However, that sentiment is naive, if not downright disingenuous. LSU students will see sports betting advertisements when they go to Tiger Stadium to watch a football game, and they can place sports bets on their cell phones. Does anybody believe LSU's contract with Caesars won't cause more students to gamble?

    Louisiana is already lousy with gambling opportunities: riverboat casinos, land-based casinos, truck stop casinos, and the Louisiana Lottery. (The lottery also advertises at LSU). Ubiquitous gambling advertisements often portray young, prosperous, and healthy people having a ball at one of the state's many casinos.

    I've strolled through the Louisiana casinos several times over the years, and almost no one looks happy and prosperous to me.  Mostly, they look old, unhealthy, and poor. Why would a young and successful person want to throw money away at a truckstop casino in Port Allen, LA?

    The universities and the gaming companies seem to believe they have met their obligation to discourage addictive gambling by posting an 800 number at the bottom of their ads informing people where they can call to get help for gambling addiction. But does LSU really want its students to seek professional counseling to overcome a sports-betting addiction--a habit that LSU profits from?

    LSU students must be on their guard when they see their university pushing sports betting. Gambling is not suitable for anyone, especially young college students. In fact, every time an LSU undergraduate sees an LSU gambling enticement, they should remind themselves that their university is not their friend.




    Friday, November 18, 2022

    Another Half Assed Attempt to Fix Federal Student Loans With Bankruptcy: Essay by Steve Rhode

    The Department of Education just released a guidance document to the Department of Justice on what they feel should be done to allow people to discharge federal student loans, partially or entirely.

    While I applaud the efforts by the Department of Education, it seems like we’ve watched this movie before.

     This guidance is just that, an opinion letter, not law. If a Republican administration gets back into office, don’t be surprised to see this guidance revised or eliminated altogether.

    By the time this guidance, if taken seriously, filters through the courts, I forecast things will change again. I have zero confidence this document can be relied upon in the future.

    The better approach would be to have Congress change the Bankruptcy Code and eliminate the hurdles. My reading of the “Guidance for Department Attorneys Regarding Student Loans in Bankruptcy Litigation” is that it attempts to massage the law, not fix it.

    The guidance says, “A debtor’s student loan be discharged if three conditions are satisfied: (1) the debtor presently lacks an ability to repay the loan; (2) the debtor’s inability to pay the loan is likely to persist in the future; and (3) the debtor has acted in good faith in the past in attempting to repay the loan.”

    But here is where it gets fast and loose. “Department attorneys should stipulate to facts necessary to demonstrate undue hardship and recommend discharge where the debtor provides information in the Attestation (or otherwise during the adversary proceeding) that satisfies the elements of the analysis below. Some debtors have been deterred from seeking discharge of student loans in bankruptcy due to the historically low probability of success and due to the mistaken belief that student loans are ineligible for discharge. Other student loan borrowers have been dissuaded from seeking relief due to the cost and intrusiveness entailed in pursuing an adversary proceeding.”

    So it appears the intention is to make it easier to get a discharge by relaxing the current requirements.

     For example, to help make one of the hurdles easier, the guidance says, “A presumption that a debtor’s inability to repay debt will persist is to be applied in certain circumstances, including: (1) the debtor is age 65 or older; (2) the debtor has a disability or chronic injury impacting their income potential; (3) the debtor has been unemployed for at least five of the last ten years; (4) the debtor has failed to obtain the degree for which the loan was procured; and (5) the loan has been in payment status other than ‘in-school’ for at least ten years.”

    If we follow the guidance, anyone over 65 or someone who failed to obtain the degree for which the loan was procured should check off the future circumstances box.

    But that’s not even the real loosey-goosey bit.

    The section of what is an appropriate good faith attempt to repay student loans for consideration for a bankruptcy discharge includes the following factors.

    “Where the debtor has taken at least one of the following steps and in the absence of countervailing circumstances as discussed below, the steps demonstrate good faith. We would normally expect the Department attorney to be able to determine the presence of any countervailing circumstances based on the information contained in the Attestation and provided by Education or that is publicly available.

    Evidence of good faith: The following steps are evidence of good faith:

    · making a payment;

    · applying for a deferment or forbearance (other than in-school or grace period
    deferments);

    · applying for an IDRP plan;

    · applying for a federal consolidation loan;

    · responding to outreach from a servicer or collector;

    · engaging meaningfully with Education or their loan servicer, regarding payment options, forbearance and deferment options, or loan consolidation; or

    · engaging meaningfully with a third party they believed would assist them in managing their student loan debt.


    Unless I’m reading this wrong, all someone now has to do to make the good faith part of the discharge test is make a payment, apply for a forbearance, apply for an Income-Driven Repayment Plan, consolidate their loans, or respond to a collector.

    But here is my favorite, “engaging meaningfully with a third party they believed would assist them in managing their student loan debt.”

    If we believe what that says than any discussion with anyone, from a credit counselor, my debt coach friend Damon Day, or just about anyone breathing, would meet that standard. Even a bankruptcy attorney could possibly check that box.

    How about this nugget buried in the guidance, “Issues concerning employment, income, and expenses are case-specific and may be highly dependent on a debtor’s family, community, and individual circumstances. Debtors may provide an explanation of those circumstances, and the Department attorney should weigh the explanation in consultation with Education.”

    So as long as it passes the sniff test, anything goes.

    Bankruptcy attorneys should prepare to get busier than a one-arm wallpaper hanger.

    While this solution may be bullshit, it’s the best bullshit we’ve got at the moment to deal with a fair legal discharge and fresh start for people buried in federal student loans.

    And for anyone saying the debtors have to suck it up, let me remind you that the government gave out all this money with no qualifications other than a pulse.

     *****

    This essay was originally posted on November 18th on Get Out of Debt Guy.

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




    DOE and DOJ Issue Guidelines for Dealing with Student Debtors in Bankruptcy: Blah, Blah, Blah

     On November 17, the U.S. Department of Education and the Department of Justice issued a 15-page document titled "Guidelines For Department Attorneys Regarding Student Loan Bankruptcy Litigation."

    According to the memo, these guidelines aim "to enhance consistency and equity in the handling of [student-loan] bankruptcy cases."

    These guidelines are bullshit and won't do anything to change the way DOE and its collection agencies respond to student debtors who file for bankruptcy relief. 

    Why do I think these guidelines are bullshit? Three reasons:

    First, the policies are not signed. Nor do they appear on government letterhead. It's not clear who's responsible for drafting this murky document. I don't think anyone wants to be associated with it.  That's a bad sign.

    Second, DOE didn't honor the guidelines it issued in 2015, so it probably won't follow the new guidelines. Instead, I predict that DOE will continue to oppose almost all student-loan bankruptcies.

    Here's a little background information. In July 2015, Deputy Assistant Secretary Lynn Mahaffie released a letter advising DOE lawyers and debt collectors not to oppose bankruptcy if it didn't make economic sense to do so.

    That letter had zero effect on DOE's policy to oppose bankruptcy relief for nearly every student debtor.

    For example, in Abney v. U.S. Department of Education, which was decided after Mahaffie's letter was issued, DOE opposed a bankruptcy discharge for a man living on less than $1200 a month and who rode a bicycle to work because he couldn't afford a car.  This poor guy was making child-support payments that almost equaled his take-home pay and had lost his home to foreclosure. In fact, this man's situation was so desperate that he lived in the cab of one of his employer's trucks for a time. And DOE demanded that he be put on a 25-year repayment plan!

    To this day, DOE fights bankruptcy relief for almost every student borrower, no matter how desperate the circumstances. And Mahaffie's letter has apparently been withdrawn because the link to that letter is no longer operable.

    Third, the new guidelines allow DOE lawyers to agree to the partial discharge of student loans in bankruptcy but only "[w]here appropriate and permissible under governing case law."

    Although the guidelines cited some case law about partial discharges, they didn't mention four recent bankruptcy decisions in which judges issued partial releases over DOE's (or its debt collectors') opposition.

    In Murray v. Educational Credit Management Corporation (ECMC), Kansas Bankruptcy Judge Dale Somers approved a partial discharge of student debt owed by Alan and Catherine Murray. ECMC, DOE's contracted debt collector, opposed the ruling and appealed.  Acting as an appellate judge, a federal district court upheld Judge Somers' decision.

    Later, Kansas Bankruptcy Judge Robert Nugent approved a partial discharge of student loans owed by Vicky Metz over ECMC's objection. ECMC appealed this ruling, just as it had appealed in the Murray case. ECMC lost again when Judge Nugent's opinion was upheld on appeal.

    Despite losing two partial student-loan discharge cases in  Kansas, ECMC opposed a partial discharge a third time in the same jurisdiction. In ECMC v. Goodvin, ECM lost again, appealed again, and lost the third appeal.

    Did DOE and ECMC get the message about partial student-loan discharges in Kansas? No. In Loyle v. DOE and ECMC, decided just nine months ago, the Department and ECMC  opposed a partial student-loan discharge sought by Paris and Katherine Loyle. For the fourth time in the same jurisdiction, ECMC and DOE lost their case.

    If DOE and DOJ are serious about approving partial discharges, why didn't the Guidelines cite these four important cases? I'll tell you why. DOE and DOJ don't really want student debtors to get relief in the bankruptcy courts--even partial relief.

    I encourage you to download and print these new guidelines. You can put this gobbledygook on your bedside table if you have trouble sleeping.

    Better yet, keep the Guidelines in your bathroom. We have a paper shortage; you can always use this disingenuous blather for toilet paper.

    References


    In re Murray, 563 B.R. 52 (Bankr. D. Kan. 2016); aff'd sub nomEducational Credit Management Corporation v. Murray, No. 16-2838, 2017 WL 4222980 (D. Kan. Sept. 22, 2017).  

    In re Metz, 589 B.R. 750 (Bankr. D. Kan. 2018), aff'dEducational Credit Management Corporation v. Metz, Case No. 18-1281-JWB (D. Kan. May 2, 2019).

    Educational Credit Management Corporation v. Goodwin, Case No. 20-cv-1247-JWL, 2021 WL 1026801 (D. Kan, March 17, 2021)

    Loyle v. U.S. Department of Education and ECMC, Case No. 19-10065 Adv. No. 20-50732021 WL 1026801 (Bankr. D. Kan. Feb. 24, 2022).




    Wednesday, November 16, 2022

    President Biden Is Under Pressure to Extend Pause on Student-Loan Payments. What Will That Cost?

    Federal student-loan borrowers are disappointed by federal court decisions that have stopped President Biden's student-loan forgiveness scheme. Advocacy groups are arguing that Biden should extend the pause on student-loan repayments until after the legal challenges to his loan-forgiveness plan are resolved.

    College borrowers are currently expected to resume monthly loan payments in January 2023. By that time, they will have been excused from paying their loans for 33 months. What will another pause cost taxpayers?

    The Committee for a Responsible Federal Budget (CRFB) estimated that the current pause (33 months) will cost taxpayers $155 billion in lost interest and inflation that has eroded the value of loan balances.

    The CRFB pointed out that the biggest beneficiaries of the loan repayment pause are people who took out the largest student loans--such as medical school and law school graduates. According to the CRFB, the typical person with an M.D. degree will effectively receive $68,000 in loan forgiveness due to being excused from making loan payments for 33 months. The average J.D. graduate will receive $41,500 in student-debt relief. 

    People who took out smaller loans will receive smaller benefits. An associate-degree graduate will only get about $4,500 in debt relief. Thus, the pause on making student loan payments for almost three years primarily benefits people with professional degrees.

    Is that fair--especially when we consider the cost of this relief will fall on taxpayers, whether or not they went to college? Should a blue-collar worker who didn't attend college be forced to subsidize student loans for high-earning doctors and lawyers?

    If Biden extends the loan-payment pause beyond December (which he promised not to do), the cost to taxpayers will continue to grow.  If he extends the pause until his loan forgiveness plan is definitely ruled on by the federal courts, that pause will likely stretch out for two more years.

    Shouldn't our government dispense with this nonsense about loan pauses and loan forgiveness and simply let distressed borrowers seek student-debt relief in the bankruptcy courts? 

    Apparently, that solution is too goddamned simple. 

    Hey, poor guy. Thanks for subsidizing my student loans!