Showing posts with label Arne Duncan. Show all posts
Showing posts with label Arne Duncan. Show all posts

Tuesday, May 24, 2016

Why the Obama administration launched its REPAYE plan: It had no choice

Late last year, the Obama administration's Department of Education launched its eighth student-loan repayment program, labeling it REPAYE.  Very similar to a previous Obama initiative titled PAYE, the REPAYE program allows college-loan borrowers to pay off their student loans over 20 years. The chief new feature of REPAYE is broader eligibility. Nearly every student-loan debtor will qualify to participate in the REPAY program.

Under both PAYE and REPAYE, college-loan debtors make monthly payments based on their income, not the amount they borrowed. Payment rates are established annually, based on the borrower's reported income for the previous year, with payments calculated to equal10 percent of the borrower's discretionary income.

In many ways, REPAYE is a good deal for overburdened student-loan debtors. Monthly payments will be lower than the standard 10-year repayment plan; and payments will be allowed to fluctuate as borrowers' income goes up or down. People who are unemployed or who live at the poverty level won't be required to make any payments at all.

All in all, the Obama administration's latest student-loan program is incredibly generous. In fact, most debtors on the REPAYE plan will be making monthly payments so low that they won't cover accruing interest on their loans. In other words, at the end of the 20-year repayment program, most debtors will still have large balances on their loans, which will be forgiven.  The forgiven amount will be absorbed by taxpayers.

Why did the Obama administration launch REPAYE, which could reasonably criticized as fiscally irresponsible? I will tell you why: it had no choice.

For years, the government has permitted overburdened student-loan debtors to enroll in economic hardship deferment programs and other forbearance plans that allowed borrowers to temporarily skip their monthly student-loan payments. Colleges encouraged this practice as a way to keep their short-term  student-loan default rates down--particularly the for-profit colleges, which needed to keep their default rates below 30 percent in order to continue receiving federal student-aid money.

For some people on these plans, however, the forbearances weren't temporary--they stretched out for years while interest accrued on their original debt. Thus for virtually everyone in a forbearance or deferment program, their loan balances were getting larger with each passing month due to accruing interest.

This phenomenon was documented in a recent Brookings Institution report written by Looney and Yanelis. These scholars found that loan balances were going up, not down, two years into the repayment period for more than half of student-loan borrowers in repayment.

In fact, for millions of people who have had their student loans in nonpayment status for any considerable period of time, it has become virtually impossible to to pay back their loans. This state of affairs drove many debtors into default, which caused their balances to grow even larger due to the penalties and fees that got tacked on to their debt.

President Obama and Arne Duncan could see that there were only two ways out of this morass. Either people must be allowed to file for bankruptcy to discharge their college-loan debt or their loans have to be refinanced to make the monthly payments lower. Since bankruptcy reform is politically impossible, Obama and Duncan chose to launch PAYE and REPAYE.

But there are enormous problems with the Obama administration's fix. First, most people entering PAYE and REPAYE are not enrolling immediately after graduating from college. Most struggle for a few years to make payments under the standard 10-year plan and then enter REPAYE because they can't service their loans. For these people, enrolling in a 20-year repayment plan extends their repayment period out over their entire working lives.

Butler v. Educational Credit Management Corporation, decided earlier this year, illustrates this problem. Beverly Butler struggled for almost 20 years to make payments on loans she took out to get her college degree, which she obtained in 1995. Eventually, she enrolled in a 25-year repayment plan that stretches out her loan repayment period until 2037--42 years after she graduated from college!

And of course the other big problem with PAYE and REPAYE is that most people in these programs are not paying back their loans at all; they are making token payments that don't cover accruing interest. In essence, these programs are designed to disguise the fact that for all practical purposes, people in long-term repayment programs have defaulted on their loans.

This is no small matter. Almost 5 million people are in income-based repayment plans now; and the Department of Education wants to enroll 2 million more by the end of next year. Without question, REPAYE is going to be the default option for most student-loan debtors in the years to come, which is what the Brookings Institution and other higher-education industry insiders want to happen.

In reality, the Obama administration has imposed a tax on most people who borrow money to attend college;  REPAYE participants will be obligated to pay a percentage of their incomes for a majority of their working lives in return for the privilege of going to college.

How ironic. Barack Obama, self-proclaimed friend of the disadvantaged, has established a huge sharecropper program for college goers. Ultimately of course, all Obama did was buy time for the college industry. In the long run, REPAYE can't sustain the status quo. At some time in the not too distant future, higher education as we now know it will collapse.

And the first cards to fall in this house of cards will be the for-profit colleges and the small private liberal arts colleges. Be patient. You don't have long to wait.

Enrollment at four-year for-profit colleges declined 9.3 percent from last year, and the University of Phoenix's enrollment has declined by half from its peak years. The private liberal arts colleges are behaving like a Texas fireworks stand (Buy One, Get One Free!!), discounting tuition for first-time freshman by 48 percent.

The end is near.

 References

Erin E. Arvedlund. A new way, REPAYE, to get out of college debt. Philadelphia Inquirer, March 29, 2016. http://articles.philly.com/2016-03-29/business/71877131_1_income-based-repayment-plan-loan-debt-standard-repayment-plan.

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

Rick Seltzer. Discount rates rise yet again at private colleges and universities. Inside Higher Ed, May 16, 2016. Accessible at https://www.insidehighered.com/news/2016/05/16/discount-rates-rise-yet-again-private-colleges-and-universities.

Kelly Woodhouse. (2015, November 25). Discount Much? Inside Higher Ed. Accessible at: https://www.insidehighered.com/news/2015/11/25/what-it-might-mean-when-colleges-discount-rate-tops-60-percent?utm_source=Inside+Higher+Ed&utm_campaign=389f6fe14e-DNU20151125&utm_medium=email&utm_term=0_1fcbc04421-389f6fe14e-198565653

Enrollments slide, particularly for older students. Inside Higher Ed, May 24, 2016. Accessible at https://www.insidehighered.com/quicktakes/2016/05/24/enrollments-slide-particularly-older-students?utm_source=Inside+Higher+Ed&utm_campaign=74ec3a191d-DNU20160524&utm_medium=email&utm_term=0_1fcbc04421-74ec3a191d-198564813




Wednesday, April 27, 2016

A Bernie Sanders Supporter Who Will Vote For Donald Trump: Cry Havoc!


You ask me if I'll get along.
I guess I will, someway.
I don't like it but I guess things happen that way.

Guess Things Happen That Way
Johnny Cash

I am a die hard Bernie Sanders fan. As I said in an earlier blog, I will support him until the last dog dies, right through the California primary election.  I have harshly criticized Donald Trump on my Catholic blog site because I think Donald's stand on immigration is contrary to Catholic teaching. And I'm not taking my anti-Trump posts down.

But here's a message for Hillary. If I am faced with a choice between Donald Trump and Crooked Hillary, I'm voting for the Donster.

Hillary claims to be a progressive but her brand of progressivism allows her to collect a quarter million dollars a pop making secret speeches to corporate oligarchs. 

Hillary's brand of progressivism is Secretary of the Treasury Jacob Lew's brand of progressivism. Lew took more than two thirds of a million dollars as an exit bonus when he left New York University, the most venal and expensive higher education institution in America. But he's a progressive because he wants Harriet Tubman's face on the dollar bills he lines his pockets with.

Hillary's brand of progressivism is Arne Duncan's brand of progressivism. He bleated repeatedly about the student-loan crisis but did nothing to rein in the for-profit college industry while he was Secretary of Education. In fact, at the direction of his boss, Duncan cynically constructed a modern-day form of serfdom whereby millions of distressed student-loan debtors pay a percentage of their income to the federal government for 20 and even 25 years.  And when he finished picking his nose at the Department of Education, Duncan toddled off to the Brookings Institution, where he will probably write policy papers defending the status quo in higher education and rake in money sitting on corporate boards.

Hillary's brand of progressivism is the New York Times' brand of progressivism, which tells the people of North Carolina how to go to the bathroom while it organizes Luxury Conferences and peddles obscenely expensive New York real estate in its advertising pages.

Hillary's brand of progressivism allows her to think Americans are so stupid that she can mock Donald Trump for flying in a private jet, while she flies in a private jet that is almost identical.

Yes, and Hillary's brand of progressivism is Barack Obama's brand of progressivism, which allowed Barack to  cozy up to Wall Street for eight years while the death rate for working-class white people went up--driven by suicide, liver disease, and drug abuse.

In short, I reject Hillary and all her empty promises.  I would much prefer to vote for Bernie Sanders in November, but if I must choose between Hillary Clinton and Donald Trump, I'm pulling the lever for Trump. As Johnny Cash put it, "I don't like it, but I guess things happen that way."

Will Donald Trump bring chaos to the United States? Perhaps. But I think Hillary and the political elites are going to find that millions of Americans would rather risk chaos than be manipulated by an old political hack and her Ivy League cronies for the next four years.  

Indeed, Shakespeare expresses my sentiment exactly: "Cry 'Havoc!"

Image result for "jacob lew"
Jacob Lew, Secretary of the Treasury: I want my cash in small bills, preferably with Harriet Tubman's picture on it


References

Andrew J. Chirlin. Why Are White Death Rates Rising? New York Times, February 22, 2016. Accessible at http://www.nytimes.com/2016/02/22/opinion/why-are-white-death-rates-rising.html

Danny Hakim. Obama's Treasury Nominee Got Unusual Exit Bonus on Leaving N.Y.U. New York Times, February 25, 2013. Accessible at  http://www.nytimes.com/2013/02/26/nyregion/lew-treasury-nominee-got-exit-bonus-from-nyu.html?_r=0




Tuesday, November 17, 2015

The Department of Education's so-called plan to "strengthen" the student loan system is pathetic. Do President Obama and Secretary of Education Arne Duncan really care about distressed student-loan debtors?

On October 1, 2015, the U.S. Department of Education issued a report entitled Strengthening the Student Loan System to Better Protect All Borrowers. It's about time. More than 20 million people are struggling with unmanageable student loans, including 10 million who are delinquent on their loans or in default.

But what a pathetic document! Clearly President Obama and Secretary of Education Arne Duncan don't have the moral courage to seriously address the student-loan crisis. They are just tinkering with this problem, hoping they can keep the student-loan crisis off the public's radar screen until after Obama leaves office.

Here are my specific critiques:

Garnishing Social Security checks of elderly student-loan defaulters. The federal government garnished the Social Security checks of a 155,000 student-loan defaulters in a recent year, which is shameful. It is true that the U.S. Supreme Court approved this practice in its heartless Lockhart decision; but President Obama, using his discretionary enforcement powers that he so often invokes, could stop garnishing Social Security checks immediately. But he hasn't done that because he really doesn't give a damn about the suffering of elderly people.

Instead, the Department of Education recently proposed to insert an inflationary index into the garnishing system that would allow Social Security recipients to protect more of their Social Security check from garnishment when inflation occurs. (Currently, only $750 a month is protected from garnishment.)

This is an incredibly callous proposal. In the Roth case, the 9th Circuit BAP court's 2013 decision, Jane Roth sought to discharge more than $90,000 in student-loan debt. At the time she filed for bankruptcy, she was 68 years old, had chronic health problems, and was entirely dependent on her Social Security check of less than $800 a month.

How could any humane and reasonable person argue that  any of Ms. Roth's Social Security check should be garnished? But that is what the Department of Education's recent report basically proposes.

Arbitration clauses imposed on unsophisticated student-loan borrowers by for-profit colleges. The New York Times reported recently that many private businesses (particularly those in the finance industry) require individuals to agree to arbitration clauses and to waive their right to sue. As the Times pointed out, the arbitration system favors the business community over private individuals.

Many for-profit colleges also require students to arbitrate their grievances and to give up their right to sue, even if they believe their college defrauded them or breached contractual obligations. Arbitration can be more costly for individuals than litigation because arbitration fees can be quite expensive. And a business party is more likely to win than an individual.  For-profit arbitration clauses have been upheld by the courts.

Why don't Arne Duncan and Barack Obama stop the for-profit college industry from inserting litigation waivers and arbitration clauses into their admission documents, which they could do simply by enacting a regulation prohibiting the for-profits from engaging in this pernicious practice?

I'll tell you why. Because for all their public hand-wring and their tongue-clucking over the student-loan crisis, Obama and Duncan are firmly committed to the status quo.  Obama and Duncan's failure to address unconscionable arbitration clauses is shameful.

Making private loans dischargeable in bankruptcy. The DOE report recommends "potential changes" to the treatment of private loans in the bankruptcy courts.  DOE is referring to a provision in the Bankruptcy Code that Congress legislated in 2005 that makes private student loans nondischargeable in bankruptcy unless the debtor can show "undue hardship."  Senator Joe Biden, acting at the behest of the banking industry, helped get that legislation passed.  Thanks,Joe!

Several prominent bankruptcy scholars have recommended that the 2005 legislation be repealed and that private student loans be dischargeable in bankruptcy like any other nonsecured debt. But the DOE doesn't go that far. Here's what the DOE report says:
[T]he report recommends allowing private loans that do not offer [pay-as-you-earn or PAYE]-like borrower protections to be dischargeable in bankruptcy similar to other forms of consumer debt. Allowing private lenders the protection of non-dischargeability if they offer PAYE-like features will provide an incentive for private lenders to create meaningful ex ante payment modification options available for when borrowers cannot make standard payments. (p. 17)
In other words, Obama and Duncan propose that banks will still have the protection of having their student loans virtually impossible to discharge in bankruptcy if they will allow distressed student-loan borrowers to switch from standard loan payments to long-term income-based repayment plans. Of course, the banks might be willing to add an income-based repayment feature to their student loans, but that would mean that most private student loans would negatively amortize due to the fact that the income-based payments would almost certainly not be large enough to pay accumulating interest.

What an idiotic notion! What the DOE report should have said is simply this: private student loans should be dischargeable in bankruptcy like any other unsecured loan--period.

The fact the the Department of Education advocates any restrictions on bankruptcy relief for distressed debtors who took out private student loans is outrageous and shows that the Obama administration--for all its posturing--is little more than a lackey of the banks.

A few timid but good recommendations. The DOE report does contain a few timid but good recommendations  Eliminating tax liability for people whose student loans are forgiven under long-term income-based repayment plans is a good idea and one that President Obama had earlier proposed.

But student-loan borrowers were never under much of a threat of being assessed a huge tax bill if their loans were discharged. Present IRS regulations do not consider a forgiven loan to be taxable income if the debtor is insolvent at the time the loan is forgiven.  And in any event, this relief is small consolation for people who wind up in 25-year income-based repayment plans.

Streamlining the disability discharge process, which DOE recommends, is also a good idea.  But if it is such a good idea, why did DOE oppose bankruptcy discharge for Bradley Myhre, a quadriplegic student-loan debtor whose expenses exceeded his income due to the fact that he needed  a personal full-time caregiver in order to remain employed? (Myhre v. U.S. Department of Education, 2013).

Finally, DOE promises to streamline the process whereby individuals can have their student loans forgiven if they were defrauded by the institution they attended.   The DOE report states that the Department of Education "will conduct negotiated rulemaking on borrower defense and plans to develop new regulations to clarify and streamline loan forgiveness under the defense repayment  provision . . . ."

What DOE probably means is that it will negotiate with the for-profit college industry regarding the process for forgiving loans owed by students who were enticed to enroll at for-profit collegea through fraud or misrepresentation. Of course it is a good idea to streamline the loan-forgiveness process for people who attended institutions that have been found guilty of misrepresenting their education programs.

But I doubt if DOE is willing to streamline the loan-forgiveness process enough to provide meaningful relief. After all there are 350,000 former students of the Corinthian Colleges system, which filed for bankruptcy last spring amid allegations of wrongdoing.  As of a few months ago, only about 3,000 students had had their student loans forgiven by DOE.

Conclusion

In my opinion, President Obama's Department of Education issued a report that purports to "strengthen" the student loan system for the protection of borrowers but does not attack the underlying problems.  Until the private loan industry and the for-profit college industry are shut down and distressed student-loan debtors have meaningful access to the bankruptcy courts, the student-loan catastrophe will just grow bigger. And the number of people who can't make their student-loan payments--now more than 20 million--will only grow larger with each passing day.

https://i.guim.co.uk/img/static/sys-images/Guardian/Pix/pictures/2008/12/16/obamaeducation476.jpg?w=620&q=85&auto=format&sharp=10&s=26d17b6c928a0f80f7662a66a2d328a8
Frankly, my dear, we don't give a damn.
References


Sirota, David. Joe Biden Backed Bills to Make It Harder For Americans To Reduce Their Student Debt. International Business Times, September 15  , 2015. Accessible: http://www.ibtimes.com/joe-biden-backed-bills-make-it-harder-americans-reduce-their-student-debt-2094664

U.S. Department of Education. Strengthening the Student Loan System to Better Protect All Borrowers.  Washington, D.C., October 1, 2015: Author. Accessible: http://www2.ed.gov/documents/press-releases/strengthening-student-loan-system.pdf

Tuesday, October 6, 2015

A Brookings Institution Blogger Asks a Very Good Question: "How well do default rates reflect student loan repayment?"

Robert Kelchen, posted a blog essay on the Brookings Institution's "Brown Center Chalkboard" that asks a very good question: "How well do default rates reflect student loan repayment?'

Kelchen pointed out that "just over half" of the $623 billion in Direct Loans made to students who have entered repayment are  current on their loan payments. Borrowers  with approximately $111 billion in student-loan debt are delinquent or in default.  And borrowers owing another $180 billion are in deferment or forbearance.  In other words, borrowers holding about 46 percent of outstanding Direct Loans aren't making payments.

People whose loans are  in deferment or forbearance aren't counted as defaulters.  But interest is accruing for most of these people, which means their loan balances are getting larger and more difficult to repay.

Kelchen makes several important points in his blog essay, but the most important point is this: "Cohort rates substantially underestimate the percent of students who have been unable to lower their loan balances." And here's the money quote:
Of the nearly 5,700 colleges with data on both [cohort default rates] and repayment rates, the median college had a 14.9 percent three-year [cohort default rate] while 40.8 percent of students did not repay any principal in the first three years after leaving college.  This means that one in four exiting students was not in default, yet did not make a dent in their loan balance in the first three years after entering repayment.
What does this mean?   First of all, a three-year default rate of nearly 15 percent is alarming in itself. But the fact that a quarter of non-defaulting student-loan borrowers did not reduce their loan balances by even a dollar three years after beginning the repayment phase is truly frightening. Those people are not counted as defaulters as long as they retain their  forbearance or deferment status,but their loan balances are getting bigger with each passing month. In short, a lot of people who are currently excused from making loan payments will never pay off their student loans.

When we reflect on the implications of Kelchen's essay along with an earlier Brookings Institution report showing that nearly half of people who attended for-profit colleges default within five years of beginning repayment, we get some sense of the magnitude of the student-loan crisis.

It's time for the Department of Education, Congress and the American public to face this fact: student-loan forbearance options, loan deferment options, and long-term income-based repayment plans are all ways to hide from reality, which is this: millions and millions of people are holding billions of dollars in student-loan debt, which they can't pay off.

And since the Bankruptcy Code makes loan forgiveness so onerous, millions of suffering people will be burdened with this debt for the rest of their lives.

Let's face it, 21st century America is not much different from 18th century England.  Our country doesn't put debtors in prison or deport them to Australia; it just lets them dangle on the outskirts of the American economy until the day they die.

Image result for unemployed


References

Robert Kelchen. How well do default rates reflect student loan repayment? Brookings Institution, The Brown Center Chalkboard, September 30, 2015. Accessible at: http://www.brookings.edu/blogs/brown-center-chalkboard/posts/2015/09/30-default-rates-student-loan-kelchen


Friday, October 2, 2015

Goodbye, Arne Duncan. We Hardly Knew Ye. The Secretary of Education Is Leaving Higher Education in a Mess

Arne Duncan is stepping down as Secretary of Education in December. Like all good politicians, Arne knows when it's time to slip out the door and look for a new gig.

Duncan is a photogenic guy and he says everything the progressive community wants to hear. But he did not have the moral courage to clean up the federal student loan program, and he is leaving American higher education in a mess. Duncan didn't do anything substantive to relieve the suffering of millions of people who have  been ripped off by the for-profit college sector. And he didn't do enough to rein in colleges that have high student-loan default rates and low graduation rates.

So where does the nation stand regarding federal student loans? First of all, Americans are carrying at least $1.3 trillion in outstanding student-loan debt (including private student loans, which is perhaps 10 percent of the total).

At least 7 million people are in default, and another 3.9 million are in long-term repayment plans that can stretch payments out for as long as 25 years. A great many of people in these plans will never pay off the principal on their loans.

Of course, the epicenter of the disaster is the for-profit college sector. According to a report released recently by the Brookings Institution, almost half of the people who borrowed money to attend for-profit colleges default within five years of beginning repayment.

And as I have said before, the true magnitude of this train wreck has been hidden from the public because millions of former students have received economic-hardship deferments that relieve them from making loan payments without being counted as a defaulter. The public really has no idea what the true cost of the federal-loan fiasco is.

Moreover, in spite of the fact that the entire higher education industry is heavily dependent on federal student-aid money, a lot of colleges are struggling. Moody's estimates that the number of colleges that are closing will triple by 2017.  True--Moody's estimate translates into only 15 colleges closing in that year, a small percentage of the more than 2000 colleges; but Moody's estimate is probably over-optimistic. The whole private sector is slashing tuition to attract students, so that the actual price of tuition is only about half the sticker price that colleges are advertising.

The higher education industry and its sycophants continually assure the public that all is well. People who graduate from college make more than high-school graduates, we are repeatedly told. We also hear that college costs haven't really gone up that much when inflation is taken into account and we calculate how much colleges are discounting their tuition prices. And we are also told that most of the defaulters owe small amounts of money, so rising college tuition isn't the heart of the problem.

All these excuses carry a certain amount of truth, but the fact remains that millions of people have had their credit ruined, their career hopes dashed, and their dreams of financial security destroyed by borrowing money to attend college that they are unable to pay back.

These millions have only one real route toward a second chance in life--discharge of their loans in bankruptcy. But the Department of Education opposes almost all efforts to discharge student loans in the bankruptcy courts other than people who have catastrophic health problems. In fact, DOE--Arne Duncan's DOE--opposed bankruptcy relief for a quadriplegic student-loan debtor who held a job but was unable to provide for himself and pay the full-time caregiver that he needed in order to survive.  And DOE had unleashed its lackey, Educational Credit Management Corporation, to hound debtors in the bankruptcy court. ECMC is as ruthless  as a character from a Dickens novel, but Duncan did nothing to bring this outfit under control.

So goodbye, Arne Duncan; and good riddance. I'm sure he will toddle off to a cushy university job where he will be working for one of the elite and over-priced institutions that benefited from the shameful federal student-loan program.

But Arne is still young enough to be forced to appear at a congressional hearing ten years from now, when irate Congresspeople will be asking questions about the student-loan bubble that ultimately burst. I can envision him flanked by high-priced lawyers; and I can hear the cameras clicking while he reads his prepared statement to cranky legislators glaring at him over their bifocals.  I'm sure he will be just as glib on that day as he is today, and I'll bet he'll be wearing a nice suit.

Obama administration resignations and firings



References

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

Kellie Woodhouse, Closures to Triple. Inside Higher Education, September 25, 2015

Kellie Woodhouse. Discounting Grows Again. Inside Higher Education, August 25, 2015.

  

Monday, September 21, 2015

The deluge is upon us: University of Phoenix students owe the taxpayers $35 billion; and 45 percent default within five years

Earlier this month, the Brookings Institution published a report on student-loan default rates; and some of its findings are truly shocking.  The report ranked institutions based on their students' total accumulated outstanding loans. University of Phoenix, a for-profit college company, ranked number 1; almost 1.2 million University of Phoenix students have racked up more than $35 billion in outstanding student-loan obligations.

And ponder this: 45 percent of the students in the University of Phoenix's 2009 cohort defaulted on their student loans within five years  
(Looney & Yannelis, 2015, table 5).

Image result for "university of phoenix" images

Brookings' researchers also reported that about three quarters of students (74 percent) who attended for-profit schools owed more than they originally borrowed two years after beginning repayment (for the 2009 cohort).  And nearly half of students who attended for-profit schools (47 percent) defaulted within five years of beginning repayment.

These are astonishing figures. And when we consider that a lot of former students who attended for-profit schools are enrolled in economic-hardship deferment programs and are not making loan payments, this sobering fact seems indisputable: more than half of the people who borrow money to attend for-profit colleges eventually default on their loans.

The Brookings Institution argues that the nation's high student-loan default rate can mostly be attributed to students who are "non-traditional borrowers," which it defines as students who attended for-profit colleges or two-year schools. Among all students who began repayment on their loans in 2011 and defaulted by 2013, 70 percent were nontraditional borrowers.

Loaning money for students to attend for-profit schools is irresponsible.

Based on these numbers, even a child can conclude that the federal government should not be loaning money to students who enroll in for-profit programs because taxpayers are going to get less than half of it back.  And--what is far worse--a lot of minority students and students from disadvantaged backgrounds will have student-loan debt hanging around their necks for the rest of their lives.  For these students, attending a for-profit school did not improve their lives; attending a for-profit school made their lives worse. 

Arne Duncan's Department of Education knows that the for-profit college sector is out of control, and it is made some efforts to provide student-loan debtors a little relief. For example, DOE granted loan forgiveness to about 3,000 students who attended one of Corinthian Colleges' campuses after Corinthian went bankrupt earlier this year. But there are more than 300,000 former Corinthian students.

Reasonable bankruptcy relief is the only humane remedy for non-profit students who default on their loans.

I do not think Congress or the Department of Education will ever shut off the federal-loan spigot to the for-profit colleges. This industry has protected itself with lobbyists, attorneys, and strategic campaign contributions.  Year after year, misguided students will continue to enroll at for-profit schools, and at least half will eventually default.

But  in the name of common decency, can't we at least give student-loan defaulters, who are suffering by the millions, some effective relief?  Do we have to make it so difficult for student-loan defaulters to file for bankruptcy and get a fresh start? Do we really want to force them into 25-year repayment plans, basically turning them into economic serfs for the balance of their working lives?

References

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

Friday, September 4, 2015

The End of the Beginning: The Corinthian Bankruptcy Case Marks a New Phase in the Meltdown of the Federal Student Loan Program



Winston Churchill, in a speech delivered after the Battle of Egypt, Britain's first major victory in the Second World War, uttered these immortal words: "Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."

Something similar might be said about the recent bankruptcy filing of Corinthian Colleges, one of the largest chains of for-profit colleges, which once had enrollments totally more than 100,000 students.  Corinthian's collapse does not signal the end of federal funding for the for-profit college industry. The Department of Education will continue pouring money down the rat hole of for-profit higher education at an enormous rate--more than $30 billion per year. And the for-profits will continue to use litigation, lobbying, and strategic campaign contributions to protect their interests.

But the Corinthian bankruptcy does mark a new phase in the downward spiral of the federal student loan program. First of all, Corinthian is one of the largest for-profit college chains in the United States, with 350,000 former students. Under federal law, its closure will require the Department of Education to forgive the student loans of at least some of those students. According to the New York Times, if all 350,000 apply for loan forgiveness and those applications are granted, Corinthian's collapse will cost taxpayers about $3.5 billion.

Thus far, DOE has granted loan forgiveness to 3,000 former Corinthian students, which will cost the taxpayers about $40 million (as reported in Chronicle of Higher Education). But that's only a drop in the bucket.

Let's say half of Corinthians' ex-students are entitled to a loan discharge on the grounds that they were victims of misrepresentations or did not receive fair value for their tuition dollars, which, it seems to me, would be a reasonable estimate of the percentage who are entitled to relief.  Half of all of Corinthian Colleges' former students is about 175,000 people.  And if all those people's loans were forgiven it would cost the American taxpayers well over $2 billion.  And Corinthian is just one of many for-profits who have given students very little of value for the tuition that was paid with federal student loans.

But of course the Department of Education will never grant relief on that scale. It will bustle about the edges of the for-profit scandal, making sympathetic clucking noises while failing to confront this huge crisis. According to the Chronicle of Higher Education, DOE has received just 12,000 applications for some kind of loan relief from former Corinthian students, a small fraction of the total number of people who deserve assistance.  

Meanwhile, as DOE bureaucrats grant loan relief to a handful of  student-loan debtors who attended Corinthian campuses, DOE lawyers go into the federal bankruptcy courts again and again to oppose bankruptcy discharge for the few desperate individuals who have the temerity to seek justice through the bankruptcy process.

Nevertheless, to paraphrase Churchill, the Corinthian debacle is the end of the beginning. Whether DOE wants to admit it or not, the federal student-loan crisis is gathering steam like a locomotive and thundering down the tracks toward a disaster for America's colleges and universities.

Fortunately for President Obama and Secretary of Education Duncan, they have time to get off the tracks before the train arrives. By the time the student-loan program blows up in America's face, they will be out of office and safely ensconced in cushy academic posts at one of the elite universities that made their own contributions to the student-loan catastrophe.

Arne feels your pain--just a little bit of your pain.

References

Kelly Field, "U.S. Has Forgiven Loans of More Than 3,000 Ex-Corinthian Students, Chronicle of Higher Education, September 3, 2015. Accessible at: http://chronicle.com/article/US-Has-Forgiven-Loans-of/232855/?cid=pm&utm_source=pm&utm_medium=en


Tamar Lewin, "Government to Forgive Student Loans at Corinthian Colleges," New York Times, June 8, 2015. Accessible at: http://www.nytimes.com/2015/06/09/education/us-to-forgive-federal-loans-of-corinthian-college-students.html?_r=0

 


Thursday, June 11, 2015

Student Loan Forgiveness for Students Who Attended One of the Schools Owned by Corinthian Colleges: I Recommend Chiang Kai-Shek's Fire Hose Approach

Chiang Kai-shek was the  leader of the Nationalist government of China for many years, but he was also a Methodist of sorts. I read somewhere that he once baptized his soldiers en masse, using a fire hose.  I'm not sure that story is true, but I like to think of all those Chinese soldiers who became Methodists. I'm sure it did them a world of good.

Regardless of the truth of that story, I believe the Department of Education should adopt Chiang Kai-shek's  fire-hose technique when designing a student-loan forgiveness program for all the people who attended one of  institutions operated by Corinthian Colleges--which is now bankrupt.


Chiang Kai-shek(蔣中正).jpg
Chiang Kai-shek: Did he baptize his troops with a fire hose?
The Department of Education is designing a process whereby students who attended a Corinthian campus can apply for loan forgiveness, which at least some of them are legally entitled to do due to Corinthian's shutdown. According to the New York Times, DOE estimates that 350,000 people attended one of the Corinthian  campuses over the past five years. If all of them apply for loan forgiveness and receive debt relief, it will cost taxpayers $3.5 billion.

In the past, DOE has utilized a cumbersome loan-forgiveness process for  students who attended colleges that closed, and DOE says that only 6 percent of students who were eligible for debt relief due to a college closure  actually applied for that relief (as reported in the New York Times).


Secretary of Education Arne Duncan promises a streamlined loan-forgiveness process for former Corinthian students. "We will make this process as easy as possible for them, including by considering claims in groups wherever possible" Duncan said.


But why make Corinthian students jump through hoops to have their student loans forgiven--any hoops at all? Why not adopt Chiang Kai-shek's methods and forgive all those loans en masse? I agree with Luke Herrine, a member of the Debt Collective, who argued that all Corinthian students should be given "blanket relief."


Why give blanket loan -forgiveness to former Corinthian students? First of all, the government is not going to get that money back anyway. In all likelihood, a majority of Corinthian students will either default on their loans or apply for economic-hardship status that will exempt them from making loan payments until they get on their feet financially, which for many Corinthian victims will be never.


Second, the Department of Education is morally responsible for the mess it created by shoveling student-aid money to for-profit colleges that paid their executives lavish salaries while delivering substandard educational programs. A quarter of all student-aid money goes to for-profit colleges, which have the highest default rates. 


The for-profits have kept this shell game going by hiring lobbyists to represent their interests, employing lawyers to file lawsuits to stop DOE's regulatory efforts, and making campaign contributions to strategic members of Congress.  In fact, Corinthian's bankruptcy filings lists its lobbyists as some of its creditors.

No, DOE needs to spray all these students with a metaphorical fire hose, forgiving Corinthian's former students' loans through executive action. These unfortunate folk have been through enough. Duncan shouldn't make them fill out any more forms in order to rid themselves of student-loans they took out to attend one of Corinthian's colleges.



References


Tamar Lewin. Government to Forgive Student Loans at Corinthian. New York Times, June 9, 2015, p. A11.


Help for Victims of College Fraud (Editorial). New York Times, June 10, 2015, p. A24.

Monday, May 11, 2015

Senator Elizabeth Warren and the Brookings Institution's Matthew Chingos are ignoring reality: The federal government is not making a profit off the student-loan program

Do you believe the federal government is making a profit off the student loan program? You do? Then I have some beautiful beachfront property in southwestern Oklahoma I would like to sell you. That's right--Caddo County, Oklahoma is going to be the next Hamptons! 


Caddo County, Oklahoma in springtime
Beachfront lots are still available!
Uncle Sam is not making a profit on student loans

Some people actually believe that Uncle Sam is making a bundle off the federal student loan program. Senator Elizabeth Warren is of that mind. She once said that the government's profits from the student-loan program are "obscene."


And last February, Senator Warren and five other U.S. Senators wrote Secretary of Education Arne Duncan a scolding letter charging the Department of Education with making a profit off of student loans. The Senators accused the government of overcharging student borrowers and "pocketing the profits to spend on unrelated government activities."


Senator Elizabeth Warren: Government profits on student loans are "obscene"
And apparently, the policy wonks over at the Brookings Institution also think the student loan program is producing a profit for the federal government. Matthew Chingos recently published a Brookings paper proposing to significantly lower interest rates on student loans while assessing student borrowers a fee that would be placed in a "guarantee fund" to cover student loan defaults. Chingos argued that his plan would keep the government from profiting from student loans while having a contingency fund to cover the cost of defaults.

Theoretically (and only theoretically), the government is making a profit on student loans.  The government's cost for borrowing money is about 1.9 percent on ten-year Treasury Bonds . And the government is currently loaning money to undergraduate students at a 4.7 percent interest rate. If all students paid back their loans, the government would indeed make a handsome profit.

But, as everyone knows, a high percentage of students are defaulting on their loans. According to Chingos, the government estimates only 0.6 percent of students will default, but of course that is absurd. Every year, for the past 20 years, the Department of Education has been issuing reports on the percentage of students in the most recent cohort of borrowers who default within two years of beginning the repayment phase of their loan. Over that period, that number has never been lower than about 5 percent. Last year, the figure was 10 percent--16 times higher than the DOE default estimate that Chingos cited.

In a Forbes.com article, Jason Delisle and Clare McCann reported that the government estimates that about 20 percent of student-loan borrowers will eventually default on their loans--that's 30 times higher than the rate cited by Chingos.

And let's not forget A Closer Look at the Trillion, the Consumer Financial Protection Bureau's 2013 report on the federal student loan program.   CFPB reported that 6.5 million out of 50 million outstanding student loans were in default--13 percent.


Need more data? The Federal Reserve Bank of New York issued its most recent report on household debt in February 2015. The Bank found student loan delinquency rates worsened in the 4th quarter of 2014, with 11.3 percent of aggregate student-loan debt being 90 days delinquent or in default.(up from 11.1 percent in the previous quarter).

Just one more tidbit of information. The Department of Education recently admitted that more than half of the student-loan borrowers who were signed up for income-based repayment plans, the government's most generous loan-payment option, had dropped out due to failure to file their annual personal income reports on time.  That is a clear sign that many student-loan borrowers are so discouraged that they aren't bothering to file the necessary paperwork to keep their loan status in good standing.

The Chingos Report and Senator Elizabeth's Letter to Secretary Duncan Ignore Reality

I am astonished that Michael Chingos and Senator Warren would publicly state that the government is making a profit off the student-loan program when it so clearly losing money. What's going on?

Tragically, our politicians and policy analysts simply can't face the fact that the student-loan program is out of control. It is so much easier to demand a pseudo reform based on the fantasy that the government is making money off the student loan program than to face reality.

References

Chingos, Matthew M. End government profits on student loans: Shift risk and lower interest rates. Brookings Institution, April 30, 2015. Accessible at: http://www.brookings.edu/research/papers/2015/04/30-government-profit-loans-chingos

Rohit Chopra. A closer look at the trillion. Consumer Financial Protection Bureau, August 5, 2013.  Accessible at: http://www.consumerfinance.gov/blog/a-closer-look-at-the-trillion/

Jason Delisle and Clare McCann. Who's Not Repaying Student Loans? More People Than You Think. Forbes.com, September 26, 2014. Accessible at: http://www.forbes.com/sites/jasondelisle/2014/09/26/whos-not-repaying-student-loans-more-people-than-you-think/?utm_content=buffer1e0e0&utm_medium=social&utm_source=facebook.com&utm_campaign=buffe

Federal Reserve Bank of New York. Quarterly Report on Household Debt and Credit: February 2015. Accessible at: http://www.newyorkfed.org/householdcredit/2014-q4/data/pdf/HHDC_2014Q4.pdf

Senator Elizabeth Warren, et. al to Arne Duncan, February 25, 2015. Accessible at: http://www.warren.senate.gov/files/documents/2015_25_02_Letter_to_Secretary_Duncan_re_Student_Loan_Profits.pdf

Sunday, May 3, 2015

An episode of The Walking Dead: Why did the U.S. Department of Education oppose bankruptcy relief for a quadriplegic student-loan debtor?

America's insolvent student-loan debtors are the walking dead

America's student-loan crisis is beginning to resemble an episode of The Walking Dead.  Like zombies, millions of distressed student-loan debtors stumble around the American landscape, basically pushed out of the economy and suffering in silence.

Just as Deputy Sheriff Rick tries to elude the zombies in Walking Dead, President Obama treads lightly, hoping to avoid encountering the millions of student-loan defaulters. Deputy Sheriff Rick doesn't have enough shotgun shells to dispatch all "the walkers" if they show up en masse; and the Obama administration doesn't have the intellectual or moral resources to deal with the masses of people whose lives were destroyed by their student loans.

Insolvent student-loan debtors: The Walking Dead

Basically the culprits who created the student-loan crisis or helped hide its magnitude--Congress, colleges and universities, think tanks like the Brookings Institution, the Department of Education, the College Board--are huddled in their bastions much like the characters in The Walking Dead, who holed up in an abandoned department store for awhile, hoping someone with a little courage and intelligence would come to their rescue.

Of course, if the United States was a humane society--which it isn't--people who were overwhelmed by student-loan debt could discharge their loans in bankruptcy. But Congress passed several laws making it quite difficult for insolvent student-loan debtors to get relief from the bankruptcy courts.

Still--a few brave souls make the effort, filing adversary actions in the bankruptcy courts, often without lawyers. And recently, the bankruptcy courts have begun to take notice of the nightmare that the student-loan program has become; and the courts have been discharging some student loans.

But every time an intrepid spirit tries to get relief from oppressive student loans in a bankruptcy court, lawyers for the Department of Education or one of the government's private debt-collection agencies show up to oppose relief. In fact, it is fair to say that the official position of the U.S. government--President Obama's government--is that no one should be relieved of student-loan debt in bankruptcy.

In virtually every student-loan bankruptcy case, the lawyers for DOE and the debt-collection companies argue that student-loan debtors should be put in 25-year income-based repayment plans (IBRPs) rather than have their loans discharged. Of course, this is a heartless position to take, and in some cases it is downright ridiculous.

In Stevenson v. Educational Credit Management Corporation, for example, Educational Credit Management Corporation argued that a woman in her 50s, who had a record of homelessness and was living on less than $1000 a month, should be put in a 25-year IBRP in spite of her record of poverty and in spite of the fact that this woman didn't file for bankruptcy until 25 years after she took out her first student loan.  And the bankruptcy judge agreed! I don't know what ultimately happened to this poor woman, but apparently she was forced into a repayment plan that would not end until a half century after she first borrowed money to go to college.

Myhre v. U.S. Department of Education: DOE opposes bankruptcy relief for a quadriplegic student-loan debtor

But for utter, depraved heartlessness, my nomination goes to the bankruptcy case of Myrhe v. U.S. Department of Education, in which the Department of Education opposed bankruptcy relief for Bradley Myhre, a quadriplegic student-loan debtor who had no muscle control below his neck.  Myhre had suffered a catastrophic spinal injury in a swimming-pool accident, but he borrowed money to attend college and was able to work full-time. Unfortunately, his salary wasn't enough to cover the cost of paying his full-time caregiver--the person Myhre employed to feed, dress and bathe him and drive him back and forth to work.

Incredibly, DOE--Arne Duncan's DOE--opposed bankruptcy relief for Myhre and argued that he shouldn't have spent money for cable television since that was money he could have applied to paying off his student loans.

Fortunately for Mr. Myhre, the bankruptcy court rejected DOE's arguments and granted him relief from his student loans. In fact, the court praised him for his courage. "Mr, Myhre is an articulate and personable young man," the court observed, "whose mobility is determined by his wheelchair and dexterity is only sufficient to operate a directional stick control." Myhre's daily life required "bravery and tenacity," the court wrote," and Myhre had "made a truly admirable effort to return to work in order to support himself financially rather than remain reliant on government aid" (Myhre v. U.S. Department of Education, 2013, p. 704).

The Department of Education's lawyers are like Daryl in The Walking Dead

Why did the Department of Education take such a heartless position regarding Mr. Myhre's student loans? I'll tell you why. DOE is driven to stop every student-loan bankruptcy because if the bankruptcy courts ever begin reviewing the plight of insolvent student-loan debtors from a humane perspective, the judges would start granting bankruptcy relief to these unfortunate souls. And if that ever happenes, millions of honest but unfortunate people--and I mean literally millions--will be filing for bankruptcy, which would topple the entire corrupt and putrid student-loan program.  DOE simply can't let that happen.

Much like a DOE lawyer opposing bankruptcy relief for student-loan debtors, Daryl quietly dispatches zombies
And so when DOE's lawyers go to court to oppose bankruptcy relief for student-loan debtors, they behave much like Daryl in The Walking Dead.  Daryl kills zombies silently with his crossbow, dispatching them efficiently without making a noise that would attract other zombies. Likewise, DOE attorneys overwhelm student-loan debtors who go to bankruptcy court without lawyers, beating them down with canned legal briefs they keep on the hard drives of their government computers for just such contingencies.

The metaphor isn't perfect, of course. The "walkers" that Daryl drills through the brain with his arrows are frightening creatures, while the poor folks dispatched by DOE's lawyers are decent human beings entirely deserving of our pity and our aid. And of course, I would be  slandering Daryl to compare him to a DOE attorney!

But overall, I like the metaphor. Our insolvent student-loan debtors are very much like the zombies in The Walking Debt, and the Department of Education's lawyers are quite like Daryl, quietly picking off the "walkers" who make their way into the bankruptcy courts.

I don't know how this series will end, but I feel pretty sure some scary episodes lie ahead. If there is any justice in the world, distressed student-loan debtors will rise up one day by the millions; and America's cowardly politicians, college presidents, and policy wonks will wind up eating stale canned goods while holed up in the real-life equivalent of The Walking Dead's abandoned Center for Disease Control.

Quiet! Don't let the walkers hear you.
References

Myhre v. U.S. Department of Education, 503 B.R. 698 (Bankr. W.D. Wis. 2013).

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).

Stevenson v. Educational Credit Management Corporation, 436 B.R. 586 (Mass. Bankr. 2011).


Sunday, March 22, 2015

Susan Dynarski wrings her hands because we don't have enough information about the student debt crisis. But we know enough to take action.

Susan Dynarski recently wrote a half-page article in the Sunday Times, complaining about the government's lack of useful data about the federal student loan program. She's right of course.

The U.S. Department of Education releases very little useful information about the student-loan crisis. The Federal Reserve Bank of New York, which has issued alarming reports on the problem, relies on Equifax, a private credit reporting agency, for most of its information--not DOE. 

Why don't we have better data? Dynarski quotes a former DOE official who says "lack of will" on the part of DOE's data  collectors is part of the answer, along with "reluctance of senior political leadership in the Department of Education to press for action."

In other words, the Obama administration and Arne Duncan's Department of Education don't want the public to know just how bad the student loan crisis really is.

Barack Obama and Arne Duncan just want to get out of town before the federal student loan program collapses. They are like those American officials during the Vietnam War who scrambled to get on one of the last helicopters leaving Saigon before the city fell to the North Vietnamese.

Barack & Arne just want to get out of town before the student loan crisis blows up.
Make no mistake. Barack and Arne know what's going on. They know the lid is about to blow off this smoothly managed crisis.  And they are trying to strew a little evidence around to show they are trying to address the problem without really doing anything about it. For example, President Obama released his laughable and toothless "Student Bill of Rights" earlier this month.

Solving the student-loan crisis will take more than empty platitudes. It will take courage.
  • It will take courage to rein in the for-profit college sector, which is raping low-income and minority students by enticing them to enroll in high-cost educational programs that don't lead to good jobs.
  • It will take courage to amend the Bankruptcy Code so that insolvent student-loan debtors can get reasonable access to bankruptcy relief.
  • It will take courage to stop garnishing the Social Security checks of elderly debtors who defaulted on their student loans.
  •  It will take courage to stop the private student-loan debt collectors from tacking huge penalties on to the loan balances of defaulted student-loan debtors.
And it will also take a sense of human decency, which President Obama's Department of Education apparently does not have.

Thus, in the Myhre bankruptcy case,  we see the Department of Education opposing bankruptcy relief for a quadriplegic student-loan debtor who was working full time and was still unable to support himself financially, much less pay off his student loans.

And in the Lamento bankruptcy case, the Department of Education opposed bankruptcy relief for a single mother of two who was working full time and was only able to put a roof over her children's heads because she was living rent free with her mother and stepfather.

In both the Myhe case and the Lamento case, DOE wanted these unfortunate student-loan debtors to sign up for 25-year repayment plans. And that has been the Obama administration's overall strategy for dealing with the student loan crisis.

Yes, rather than do the decent thing and work for bankruptcy relief for worthy student-loan debtors, President Obama's Department of Education is trying to force most oppressed student-loan debtors into 25-year repayment plans.

And why is DOE doing that? Because if President Obama and Arne Duncan's Department of Education were forced to publicly admit that millions of student-loan debtors are insolvent and will never pay off their loans, the whole sorry business of the federal student loan program would collapse.

But they won't admit it. And that is why, Ms. Dynarski,  the Department of Education is not releasing useful data about the student-loan crisis.

But I'll bet you already knew that, didn't you, Ms. Dynarski? After all, you are one of President Obama's advisers.

Susan Dynarski: We need more information!
 References

Susan Dynarksi. So Much Student Debt, So Little Information. New York Times, March 22, 2015, Business section, p. 5.

Richard Fossey & Robert Cloud. In re Lamento: An Honest But Unfortunate Debtor is Entitled to Sleep at Night Without Worrying About Unpayable Student-loan Debt. Teachers College Record, February 23, 2015.

In re Lamento, 520 B.R. 667 (Bankr. N.D. Ohio 2014).

Myhre v. U.S. Department of Education, 503 B.R. 698 (Bankr. W.D. Wis. 2013).