Showing posts with label Betsy DeVos. Show all posts
Showing posts with label Betsy DeVos. Show all posts

Tuesday, July 30, 2019

The Student Loan Crisis: If you aren't concerned, you're not paying attention

Joseph Kennedy, it is said, got out of the stock market after a shoeshine boy gave him a stock tip. When a shoeshine boy is in the stock market, Kennedy reasoned, it is time to get out. And thus Joe Kennedy, JFK's father and a very wealthy man, got out of the market before the 1929 crash.

Signs are all around us that the federal student-loan program is deep underwater, but the nation's colleges and universities keep chugging along like the federal gravy train will keep spewing money forever.

Already a lot of small, obscure liberal arts colleges are shutting down.  But the public universities and the elite private colleges are as heedless of this trend as a herd of wildebeests who keep galloping along while lions pull down the weaker animals at the back of the herd.

So here are some "shoeshine boy" signs of a looming calamity:

The College Board reported that 29 percent of student debtors were in income-driven repayment plans (IDRs)in 2018 and that the amount these people owed constituted almost half of all the student-loan money in repayment.

Think about that. If half of the outstanding student debt is being serviced by borrowers in income-based plans, that means half of the debt is not being paid back.

Then we have the Government Accountability Office's report that one-third of a sample of people in IDRs say that they have no income but actually have annual incomes of at least $45,000.  These folks are paying zero on their student loans but aren't counted as defaulters.

And then we have Education Secretary Betsy DeVos's candid admission that only one out of four student borrowers is paying down interest and principal on their student loans and that 43 percent of all student loans are "in distress."

Senator Bernie Sanders wants to forgive all student debt, and perhaps that's a good idea. After all, what's $1.6 trillion among friends? But we can't wipe out all that debt without cleaning up the corrupt and mismanaged college industry. Will Bernie shut down the sleazy for-profit colleges? Will he put an end to a tenure system that gives mediocre professors lifetime job security? Will he insist on closing third-tier law schools and redundant regional universities? I seriously doubt it.

If you are a fortunate adult who has no student-loan debt, you can gaze on the coming disaster with benign equanimity. And if you are a university administrator pulling down 200 K a year, what do you care? The bubble probably won't burst until after you're drawing your generous pension.

But for the nation as a whole, the student-loan crisis is a calamity, which has destroyed the integrity of our once fine colleges and universities while plunging millions of saps to the "ragged edge of poverty."

Wildebeests: Don't look back, the lions are gaining on us







Saturday, July 27, 2019

Fraud in the Federal Student Loan Program? We're shocked! Shocked!

Everyone knows the federal student-loan program is a train wreck. Even Education Secretary Betsy DeVos described it as a looming thunderstorm and admitted that 43 percent of all student loans are "in distress."

Now the Government Accountability Office has issued a report indicating there may be fraud in the income-driven repayment programs. (IDRs)  This is what GAO reported based on an analysis of a sample of IDR plans:

  • About 95,000 people who are enrolled in a sample of IDRs report they have zero income, which means they are excused from making any payments on their student loans. A GAO analysis found that 34 percent of these people had estimated annual wages of $45,000 or more (p. 12).
  • Monthly payments for people in IDRs are partly determined by family size, with payments adjusted downward for borrowers who have dependents. GAO identified 40,00 IDR plans held by borrowers who claimed to have nine people or more in their families (p. 17). More than a thousand IDR participants claimed to have a family size of 16 people or more!
GAO's report undoubtedly understates the extent of the problem. According to GAO, there are 1.1 million people in IDRs who report having zero annual incomes (p. 36, footnote 8), and GAO did not look at all those individuals. If GAO's findings for a sample of IDRs is representative of all the borrowers who claim to have no income, then about 375,000 people who claim to have zero income are lying.

The GAO report is disturbing because more and more student borrowers are entering income-driven repayment plans. According to the College Board, 29 percent of all student debtors in repayment were in IDRs in 2018 and their debt constituted almost half of all the money in repayment.

Even if all the people in IDRs are honestly reporting their income--and GAO found thousands of liars-- almost everyone in an IDR is making income-based payments that are so low that they are not paying down the loan principal.

In short, the Department of Education's income-driven repayment plans are hemorrhaging red ink, but it is unclear just how many billions of dollars are being lost. No wonder Betsy DeVos commissioned a private accounting firm to audit the student-loan program. Apparently, she wants to know the true scope of this disaster.


Fraud in the student loan program? We're shocked! Shocked!





Tuesday, July 16, 2019

Weingarten v. DeVos: American Federation of Teachers accuses the Department of Education of mismanaging the Public Service Loan Forgiveness program

Last week, Randi Weingarten and the American Federation of Teachers (AFT) sued Education Secretary Betsy DeVos and the U.S. Department of Education, accusing DOE of mismanaging the Public Service Loan Forgiveness program (PSLF). AFT sued on behalf of itself and eight educators whose applications for public-service loan forgiveness were denied. 

Weingarten is president of AFT and she sued the Department of Education in her official capacity as an AFT officer. In a call to reporters, Weingarten was highly critical of DOE's handling of the PSLF program. “This program was not supposed to be negotiable or debatable," Weingarten told reporters.  "It is a right under [the] law. It shouldn’t be a crapshoot, but under Betsy DeVos, that is exactly what it’s become." 

PSLF was enacted by Congress in 2007 to aid student-loan borrowers who desired to enter public service occupations but were deterred by their burdensome student loans. Under the program, student-loan borrowers in qualified public-service jobs who make 120 monthly payments in approved federal loan programs are entitled to have their remaining student-loan debt forgiven. 

The first PSLF participants became eligible for student-loan forgiveness in the fall of 2017, after having made 120 student-loan payments over the previous ten years. When they applied for loan forgiveness, however, DOE denied 99 percent of the applications. Most PSLF loan-forgiveness applications were denied on the grounds that the applicants were not eligible to participate even though their loan servicers had assured them they were eligible.

Why is AFT interested in the way DOE is managing the PSLF program? 

AFT represents 1.7 million teachers and public-service professionals, and many AFT members are hoping to obtain student-loan relief under PSLF. In a survey of its members, AFT learned that 82% of AFT members who had submitted PSLF applications were denied. Many applicants were denied for failing to meet eligibility requirements due to misinformation provided by their loan servicer

According to AFT's lawsuit, DOE disregarded repeated misrepresentations by its student-loan servicers that student-loan borrowers were qualified for PSLF loan forgiveness. 
Those servicers misinformed [AFT members] that they were “on track” for PSLF and making “qualifying” payments for PSLF, even though they did not actually have qualifying loans or were not in qualifying repayment plans. Only years later, after they had made 120 payments and applied for forgiveness, did these public servants learn for the first time that their payments did not count. Had the loan servicers given these Plaintiffs the correct information, they easily could have consolidated their loans, entered qualifying repayment plans, and been eligible for forgiveness under PSLF. 

AFT is suing under two primary legal theories. First, AFT argues that DOE violated the Administrative Procedure Act in the way it handled PSLF loan-forgiveness applications. Second, AFT accuses DOE of violating due process under the Fifth Amendment to the U.S. Constitution. 

In some ways, AFT's lawsuit is similar to the one filed by the American Bar Association (ABA) against the Department of Education in 2016. The ABA accused DOE of wrongly denying ABA the right to participate in the PSLF program. It also sued on behalf of four public-service lawyers whose applications for PSLF loan forgiveness were denied.

Judge Timothy Kelly ruled on the ABA lawsuit last February and the ABA won a partial victory. Judge Kelly ruled that the ABA had no legal right to be recognized as a qualified participant in the PSLF program. On the other hand, Judge Kelly ruled that DOE violated the Administrative Procedure Act when it denied PSLF loan-forgiveness applications by three of the lawyer-plaintiffs in the ABA's lawsuit. In Judge Kelly's view, DOE had acted arbitrarily and capriciously in handling the lawyers' PSLF applications. Judge Kelly ordered DOE to reconsider the lawyer's PSLF applications in accordance with his opinion. 

Judge Kelly elected to rule in the ABA lawyers' favor based solely on Administrative Procedure Act violations and did not consider the ABA's due process claims.  Now AFT is raising a constitutional due process claim in its own case. 

Why are these developments important to the 45 million people who have outstanding student loans? 

PSLF  an important avenue of relief for people who are heavily burdened by student loans and can't pay them back. If these individuals work in approved public-service jobs for ten years and make 120 payments on their student loans, they are entitled to have their remaining loan balances forgiven. 

Thus, the Trump administration's decision to deny PSLF eligibility to 99 percent of applicants is alarming. If AFT prevails in its lawsuit, that victory could pave the way for PSLF relief for millions of other Americans working in public-service jobs.


*****


Note: The individual plaintiffs in AFT's lawsuit are: Cynthia Miller, Crystal Adams, Connie Wakefield, Deborah Baker, Janelle Menzel, Kelly Finlaw, Gloria Nolan, and Michael Giambona.




Saturday, May 11, 2019

Education Secretary Betsy Devos Hires Private Accounting Firm to Audit the Student Loan program: Asking For Bad News

Secretary of Education Betsy Devos hired McKinsey & Company, a global consulting firm, to audit the federal student loan program. Why did she do that?

After all, the Congressional Budget Office, the Government Accountability Office or the Inspector General could have done the job. Why hire a private firm?

I'm thinking Secretary DeVos and the Trump administration realize the federal student-loan program is under water. They know the news is bad, but they want to know just how bad it is. After all, Secretary DeVos compared the program to a looming thunderstorm in a speech she made last November.

It took 42 years, DeVos pointed out, for the federal student-loan portfolio to reach half a trillion dollars (1965 until 2007). It took only 6 years--2007 to 2013--for the portfolio to reach $1 trillion. And in 2018--just five years later--the federal government held $1.5 trillion in outstanding student loans. In fact, uncollateralized student loans now make up 30 percent of all federal assets.

This wouldn't be a problem if student borrowers were paying off their loans. But they're not. As DeVos candidly admitted last November, "only 24 percent of FSA borrowers—one in four—are currently paying down both principal and interest." One in five borrowers are in delinquency or default, and 43 percent of all loans are "in distress" (whatever that means).

Although DeVos did not say so explicitly, she basically acknowledged that we've arrived where we are because the government is cooking the books. Student loans now constitute one third of the federal balance sheet. "Only through government accounting is this student loan portfolio counted as anything but an asset embedded with significant risk" DeVos said. "In the commercial world, no bank regulator would allow this portfolio to be valued at full, face value."

We can hope that McKinsey and Company will give us an accurate accounting. But we already know the news will be catastrophic.  More than 7.4 million people are in income-based repayment plans (IBRPs) that stretch out for 20 and even 25 years. IBRP participants make loan payments based on their income, not the amount they borrowed. Virtually no one in these plans will ever pay off their loans. 

Millions more have their loans in deferment or are prolonging their education to postpone the day they will be obligated to start making loan payments. Thus--as DeVos disclosed--only a quarter of student-loan borrowers are paying back both principal and interest on their loans.

Over the past 15 years or so, presidential administrations have juggled the numbers to postpone the day of reckoning. "After us, the deluge," has been the watchword.  Meanwhile, university presidents are saying nothing about this looming thunderstorm. They hope the deluge won't come until they are drawing their pensions.

The McKinsey report, when it comes, will be a shock to the public consciousness. And there is only one solution. We must admit that the federal student-loan program is totally out of control and allow its victims to discharge their loans in bankruptcy.

Before the deluge: Photo Credit Yale Center for British Art

References

Michelle Hackman, Josh Mitchell, & Lalita Clozel. Trump Administration Hires McKinsey to Evaluate Student-Loan Portfolio. Wall Street Journal, May 1, 2019.

Tuesday, April 16, 2019

More than a thousand college campuses closed over the past five years: The for-profit scourge

Earlier this month, Chronicle of Higher Education reported that 1,200 college campuses have closed over the last five years, displacing nearly half a million students. As Chronicle reporters Michael Vasquez and Dan Bauman explained, most of these campuses were operated by for-profit colleges, which often have campuses in multiple locations.

For example,Vatterot College, Education Corporation of America, and Dream Center Education Holdings closed their doors during the last six months, and together these colleges operated 126 campuses.

As the Chronicle article pointed out, college closures can be traumatic events for students, who are forced to interrupt their studies and search for replacement colleges. Low-income and minority students are disproportionately affected. Seventy percent of the students who attended the closed institutions received Pell Grant aid, and 57 percent are black or Hispanic.

Betsy DeVos's Department of Education is doing everything it can to prop up the venal for-profit college industry, and yet this sleazy sector continues to be under stress. The for-profits are facing increased competition from public universities, which are rolling out their own online degree programs and encroaching on the for-profit colleges' target population. Arizona State University and Purdue University, both public institutions, now have big online footprints.

In addition, more and more Americans have figured out that a degree from a for-profit college almost always costs more than a comparable degree from a public institution and rarely leads to a good job. No wonder the student-loan default rate among for-profit-college students is so high. More than half of the students who borrow money to attend a for-profit college default within 12 years after beginning repayment--four times the default rate of students who attended community colleges.

It is regrettable that so many for-profit college students are having their lives disrupted by the closure of their institutions, but these shutdowns are a blessing in disguise.  Some students will transfer to low-cost community colleges, which will allow them to take out smaller student loans or avoid student loans altogether.  Those that transfer to public institutions are likely to  have more rewarding educational experiences than they were getting at these dodgy for-profit outfits.

In short, it may seem shocking that so many for-profit colleges are closing, but it is undoubtedly a good thing. In spite of everything that Trump's Department of Education has done to aid the for-profit college racket, this industry is in trouble. The for-profit colleges are a blight on American higher education. Let us look forward to the day when they are extinct.


Friday, April 12, 2019

Democrats are "woke" about Public Service Loan Forgiveness: Senators Kaine and Gillibrand file legislation to overhaul PSLF

The Trump Administration hates the Public Service Loan Forgiveness Program (PSLF). Signed into law by President George W. Bush in 2007, PSLF allows student-loan debtors who work in public-service jobs to have their student loans forgiven if they make 120 student-loan payments in a qualified repayment plan.

The first PSLF participants to have accumulated 120 student-loan payments became eligible for debt relief in 2017--10 years after the program was introduced. As has been widely reported, the Department of Education approved less than 1 percent of the applications for PSLF forgiveness that it had processed as of  September 2018.  In fact, DOE said 70 percent of the applicants were not eligible for PSLF participation.

So far, over one million student-loan borrowers have applied to DOE to have their employment certified as PSLF eligible, and millions more are counting on PSLF for debt relief but haven't applied yet. It's a mess.

And it is especially a mess for people who borrowed $100,000 or more to get a law degree or other graduate degree. According to the American Bar Association, the average debt load for people who attended a private law school is $122,000. For many of the people who accumulated six-figure student-loan debt to finance their graduate studies, PSLF is the only viable option for debt relief.

Betsy DeVos, Trump's Secretary of Education, apparently does not care that her agency has frightened or angered millions of people who are counting on PSLF to manage their student loans. According to a news report, a senior DOE official said that DOE does not support PSLF and would not implement it if it were not legally obligated to do so.

But the Democrats are "woke" about this problem. This week, Senators Tim Kaine and Kirsten Gillibrand introduced a bill to overhaul the PSLF program. Thirteen Democratic senators signed on as co-sponsors, including all the U.S. Senators running for President (Elizabeth Warren, Kamala Harris, Bernie Sanders, Amy Klobuchar and Cory Booker).

The Kaine-Gillibrand proposal defines eligible public-service organizations broadly to include all federal, state, and local government agencies and all charitable organizations that qualify  for tax-exempt status under 501(c)(3) of the tax code. As Jason Delisle pointed out in a 2016 analysis of PSLF, that definition applies to one quarter of the American workforce.

In fact, the bill's definition of public service differs markedly from the one developed by DeVos's DOE. DOE defines a public service organization as one that is primarily involved in public service,thus excluding organizations like the American Bar Association, which is primarily devoted to serving the legal profession, although it engages in some public service work.

The Kaine-Gillibrand bill also specifies that all student-loan debtors qualify for PSLF, regardless of the federal loan program or repayment plan they are in. This provision also expands eligibility for PSLF participation far beyond what the DeVos DOE permits.

I support passage of the Kaine-Gillibrand bill, and I hope it is enacted by Congress. But we should not deceive ourselves about the cost of PSLF. Thousands of people seeking debt relief under PSLF owe $100,000 or more. Most of these people are making income-based monthly payments on their loans that are not large enough to cover accruing interest. Their debt load is increasing month by month as accrued interest gets capitalized and added to their loan balances. If these people's student-loan debts are forgiven after 10 years, the government will essentially be forgiving the entire amount that was borrowed plus a lot more due to the accrued interest that will also be forgiven.

Remember Josh Mitchell's story in Wall Street Journal about Mike Meru, who borrowed $400,000 to go to dental school? Dr. Meru is making payments of about $2,000 a month in an income-based repayment plan, but his debt has grown to $1 million due to accrued interest. If Meru gets a qualified public-service job and holds it for ten years, DOE will forgive the entire $1 million plus additional interest!

This is a huge problem, and the Kaine-Gillibrand bill won't solve it. Under the GRAD Plus program, graduate students can borrow the total cost of their graduate education--tuition, books, and living expenses--no matter what the cost. It is not surprising then that graduate-school tuition prices went up dramatically after the GRAD Plus program was enacted.

If the bill becomes law, the Kaine-Gillibrand proposal will give relief to millions of student-loan borrowers. But the bill is just a stop-gap measure. As I have said, the only solution to the student-loan crisis is bankruptcy relief for honest debtors who can't pay back their student loans.  More than 45 million Americans have outstanding student loans. I think most of them would vote for a presidential candidate who endorses bankruptcy relief for distressed student-loan debtors.




Wednesday, March 13, 2019

It's Magic! Betsy DeVos' Department of Education allows Grand Canyon University to call itself non-profit while its parent company reports profit margin of 27 percent

David Halperin, the nation's best investigative reporter on the for-profit college industry, wrote an article recently on Grand Canyon University, which has been advertising itself lately as a non-profit university.

Well, sorta. As Halperin explained, Betsy DeVos' Department of Education "has blessed a series of troubling deals that allow a [not-]for profit college to be 'serviced by connected for-profit companies."

To what purpose?As Halperin reported:
The non-profit school benefits from the elimination of the for-profit stigma, reduced regulations, elimination of taxation, and eligibility for more state and charitable grants. Meanwhile, the for-profit, and its owners and executives, get to siphon off a lot of the revenue, much of it from taxpayer-funded grants and loans.
Thus in the fairyland world that Betsy DeVos has created, Brian Mueller wears two hats. He is president of Grand Canyon, a non-profit entity. He is also CEO of the university's parent for-profit corporation, Grand Canyon Education.  GCE trades on NASDAQ at $115 a share and reported a profit margin of 27 percent at the end of 2018.

Mueller conducted an earnings call to his investors recently in which he complained about non-profit colleges warning potential students not to enroll at a for-profit college. Through DeVos' mumbo jumbo, Grand Canyon can now call itself a nonprofit college, which has boosted its enrollment.

As Mueller boasted: "They see our ad & call Grand Canyon and within 72 hours everything is done. Applications filled out. Transcripts evaluated. Financial aid is done. They go to our website, they see who Grand Canyon is and say, 'this sounds good,' and they start."

As Halperin accurately observed, "the Donald Trump-Betsy DeVos Department of Education . . . has done everything possible to eliminate rules that protect students and taxpayers from predatory college abuses."

In fact, according to a Century Foundation report, which analyzed colleges with large online enrollments, Grand Canyon only spends 17 percent of its tuition money on educating students (as summarized by Halperin). Some non-profit!

I once thought that DeVos was simply incompetent and making decisions that benefited for-profit colleges out of ignorance. But DeVos knows exactly what she is doing, and she must know that the for-profit college industry as a whole is committing economic rape on unsophisticated young people, including first-generation college goers.

In a November speech, DeVos admitted that the student-loan program is in crisis. This is what she said:
  • The federal government holds $1.5 trillion in outstanding student loans, one third of all federal assets.
  • Only one in four federal student-loan borrowers are paying down the principal and interest on their debt.
  • Twenty percent of all federal student loans are delinquent or in default. That's seven times the delinquency rate on credit card debt.
Of course, the for-profits aren't responsible for all the carnage in the student-loan program, but they are responsible for a lot of it. Adam Looney and Constantine Yannelis, writing for the  Brookings Institute, reported awhile back that the 5-year default rate for one cohort of students who attended for-profit colleges was 47 percent! Several for-profits have been shut down in a shower of fraud allegations.

But even for DeVos, this latest scheme, which allows a college to call itself non-profit while its for-profit parent reports a profit margin of 27 percent, is outrageous.


President of Grand Canyon University and CEO of Grand Canyon Education.










Monday, February 18, 2019

Cooking the Books: Federal Reserve Bank Says $166 Billion in Student Debt is Delinquent, But the Crisis is Worse Than That

Most Americans have confidence in what the Federal Reserve Bank says about the national economy. I know I do. But when the Federal Reserve Bank of New York reported that $166 billion in student debt is delinquent, it vastly understated the enormity of the student-loan crisis.

In its most recent quarterly household debt report, the Fed pegged total outstanding debt at $1.46 trillion as of the end of December. According to the Fed, about 11 percent of that debt ($166 billion) is delinquent or in default. That's a startling number. But the picture is far bleaker than that.

Just two months ago, Secretary of Education Betsy Devos stated publicly that only one out of four student borrowers (24 percent) are paying down the principal and interest on their loans. "As for FSA's portfolio today," DeVos said, "too many loans are either delinquent, in default, or are [in] plans on which students are paying so little, their loan balance continues to grow." In total, DeVos admitted, "43 percent of all loans are currently considered 'in distress,'" and 20 percent of all federal student loans are delinquent or in default.

DeVos also implicitly acknowledged that the federal government is cooking the books by classifying a lot of student debt as performing loans even though millions of people are not paying them back. "Only through government accounting is this student loan portfolio counted as anything but an asset embedded with significant risk," DeVos observed. "In the commercial world, no bank regulator would allow this portfolio to be valued at full, face value."

In addition to the millions of people who have defaulted on their loans, millions more are in various plans that allow borrowers to skip their loan payments without being counted as defaulters. As of last summer, 7.4 million people were enrolled in long-term income-based repayment plans who are making payments so low that interest continues to accrue on their loans.

Think about that: 7.4 million people whose loans are labeled as performing even though their loan balances get larger with each passing month. You can label that scenario any way you like, but we're talking about 7.4 million additional defaulters.

The Department of Education has been scamming the public for a quarter of a century regarding student-loan defaults. For years, it only reported the percentage of loans that defaulted within two years of entering repayment. To keep their default rates down, colleges encouraged their former students to enter into economic-hardship deferments, which excused them from making payments without officially putting them in default.

Then DOE began reporting three-year default rates, which showed defaults ticking up slightly to the neighborhood of 11 percent. But the Brookings Institute (in a paper written by Looney and Yannelis) reported in 2015 that the 5-year default rate for a recent cohort was 28 percent--more than double the three-year rate.

In other words, for a cohort of borrowers that the Brookings researchers analyzed, more than one out of four student borrowers was officially in default after five years. According to the same Brookings report, the five-year default rate for students who attended for-profit colleges was 47 percent--nearly half!

Of course, loan default rates vary some from cohort to cohort, but there is no sign that the percentage of student borrowers paying off their loans is going up. In fact, the data show the opposite.

In short, the Fed's recent report may be technically accurate but it understates the magnitude of the student-loan crisis. When the Department of Education finally comes clean and gives us some accurate figures, I think we will find that half of all outstanding student loans are not performing--about 20 million borrowers with collective debt totally three quarters of a trillion dollars.



 


Wednesday, February 13, 2019

We are all peasants now: The student-loan crisis is destroying the middle class

As the world changed, we reverted to social divisions that we'd thought were obsolete.  . . . A plain majority of the townspeople were laborers now, whatever in life they had been before. Nobody called them peasants, but in effect that's what they'd become.
World Made By Hand
James Howard Kunstler 

American higher education is the emperor who wears no clothes. College leaders boast that our nation's universities are the envy of the world while they rake in so-called federal "student-aid" and parade about in medieval regalia peddling worthless degrees.



And America's young people are the losers. They've been gulled into thinking they can gain a middle-class lifestyle by getting a college degree and maybe a graduate degree as well. But millions are finding that their college degrees gained them little more than massive debt. And those online MBAs and doctorates they purchased with borrowed money--just junk.

According to the Federal Reserve Bank, outstanding student-loan debt reached $1.56 trillion last January. Around 45 million Americans have student-loan obligations and 7.4 million are enrolled in long-term repayment plans that stretch out for as long as a quarter of a century.  As Secretary of Education Betsy DeVos admitted with shocking candor last November, only one out of four student borrowers are paying off the principal and interest on their loans.

It is now well documented that student-loan debt is contributing to the nation's declining birth rates--now near a record low. People can't afford children because they're paying off student loans.

Young people can't afford to buy homes, they can't save for retirement, they can't pay off their debts.  Their liberal arts degrees, their shoddy law degrees, their fluffy MBAs and doctoral degrees qualify them to become baristas and clerical workers.

We are now in the early stages of the 2020 presidential election season, and what do our politicians talk about? Russia, border walls, free health care, and the Green New Deal.  We should be discussing the New Raw Deal--the deal our government and our universities have imposed on guileless young people.

For too long, Americans have bought the line that our colleges and universities operate for the public good and that the people who run them are wise and kindly. We particularly revere the ivy league colleges where we get nearly all our prune-faced Supreme Court justices and most of our presidents.

But if the folks who run Harvard are so goddamned wise, how could they have fallen for Elizabeth Warren's scam that she's a Cherokee? And if our elite college leaders are sensitive and kindly, how did little boys wind up getting raped in a Penn State shower room? And how could dozens of female athletes get groped by Larry Nasser while he was on Michigan State's payroll?

No, let's face the truth. Many American colleges and universities are not run by wise and kindly people; most are run by administrators who are primarily concerned with the bottom line. And far too often, higher education is not preparing young Americans to enter the middle class. On the contrary, by forcing people to take on oppressive levels of debt to get a college degree, colleges are setting up millions of Americans for a lifetime of peasantry.








Saturday, February 2, 2019

Kamala Harris, presidential candidate, promises cost-free college for most Americans. What will she do for millions of student debtors who are suffering right now?

Senator Kamala Harris (D. Cal.) is running for President, and she promises a free college education for most Americans if she gets elected.

How will that work? Back in 2017, Senator Harris and Senator Bernie Sanders (D-Vt) introduced legislation for free college, and here are the details:
  • Attendance at a public institution will be free for families making $125,000 or less, which Harris claims will benefit about 80 percent of all Americans.
  • The federal student-loan program will remain in place, but interest rates on loans will be slashed to less than 2 percent.
  • Students from low-income families can attend private colleges and universities that serve "underrepresented minority communities" (she probably means HBCUs) at reduced tuition rates.
  • The Harris-Sanders plan will also help students "afford books, housing, and transportation, and other fees." 
Free college! It's like bourbon flowing out of the office water cooler. Who could oppose that?

But here's the big problem with the Harris-Sanders proposal. Their plan would leave the current student-loan program in place.

The federal student-loan program is a colossal disaster, as Secretary of Education Betsy DeVos admitted last November; and it needs to be radically reformed.

Secretary DeVos said only 1 out of 4 student borrowers are paying down principal and interest on their loans, and 43 percent of outstanding federal loans are "in distress." The Harris-Sanders plan won't do anything to relieve the suffering of millions of Americans who are being crushed by student loans except cut interest rates.

In any event, Senator Harris's free college plan is never going to happen. It simply is not possible for the federal government to finance free college education to millions of Americans while we have $1.56 trillion in accumulated student loan debt--at least half of which will never be repaid.

However, there are specific things that Congress and our President can do to relieve the suffering of distressed student-loan borrowers, and I will support any presidential candidate who promises to "treat the wounded."

Two things need to be done:

1) Congress must eliminate the "undue hardship" language from the Bankruptcy Code so that overburdened college debtors can discharge their student loans in the bankruptcy courts.

2) The for-profit-college industry must be shut down.

Kamala Harris says she is "for the people." And in fact, she aggressively prosecuted Corinthian Colleges, a predatory for-profit college racket, when she was California's attorney general.  Her office obtained a billion dollar judgment against Corinthian, which filed for bankruptcy and shut down.

Very impressive!

Nevertheless, as a presidential candidate, Harris must continue to attack the sleazy for-profit industry. And she should endorse bankruptcy relief for millions of honest Americans who have been victimized by student loans.

Right now, Harris's higher education platform is nothing more than "Free beer tomorrow." Let's see if she proposes substantive reforms for the federal student-loan program and a serious crackdown on the for-profits.






Monday, January 21, 2019

Steven Brint says American higher education Is doing great!: Pardon me Professor Brint, but what planet do you live on?

 Steven Brint, a professor at UC Riverside, wrote an essay for Chronicle of Higher Education titled "Is This Higher Education's Golden Age?" Brint didn't answer this question directly, but his article argues that American higher education is doing great.

Here's his evidence:

Lotsa money! Brint boasts that the demand for postsecondary education has remained steady in spite of rising tuition, which is true. Families are still willing to pay college tuition at nosebleed levels, at least at the elite colleges.  The most prestigious colleges continue packing in the suckers. A quarter million dollars for an Ivy League degree? Hey, no problem!

And, as Brint points out, the federal government is still higher education's sugar daddy. Brint notes that the feds shovel  $65 billion a year in Pell grants, work study, and tax benefits; and a lot of that money eventually winds up in college coffers.  Federal research money amounts to about $30 billion a year, Brint says; and the Department of Education pumps out  another $100 billion a year in student loans. And there's no sign the government will ever shut off the money spigot. So that's good news from Professor Brint's perspective.

More degrees! Brint also celebrates the rising number of college degrees. In 1970, American colleges produced 840,000 college graduates. In 2015, 1.9 million people received bachelor's degrees. Over that same time period, American higher education tripled its annual production of master's degrees and more than doubled the number of doctorates. In fact, in 2015, American universities dispensed more than three quarters of a million doctoral degrees.

That's certainly good news for the universities, their deans, and their professors. But graduate degrees have become insanely expensive, and it is now clear that a lot of people who got law degrees or MBA degrees from second-and third-tier universities were throwing their money away--not to mention the people who got master's degrees in the fine arts.

More professors! The United States is employing more college teachers than ever before, and Professor Brint thinks that's good news. In 2005, the nation employed 1.3 million postsecondary teachers. By 2015, the number had grown to 1.9 million--an increase of 300,000 professors and instructors in just ten years.

More research! And all those professors are doing more and more research. As Brint reports: "[T]he Web of Science indexed 12,000 journals, 160,000 conference proceedings in more than 250 disciplines, and reached a total count of 90 million records and more than a billion citations."

Professor Brint is the director of the Colleges & Universities 2000 Project at his home university and the author of a book about higher education. So we should presume, I suppose, that he knows what he's talking about.

But in fact, Brint's article is nonsense. Sure, higher education is doing great from the perspectives of the insiders: tenured professors and over-paid administrators. As Brint points out, the professors managed to eke out annual raises even during the recession of 2008 when millions of Americans lost their homes in foreclosure and millions more saw their retirement accounts deflate. Unlike most Americans, college professors enjoy lifetime employment, defined-benefit pensions, and gold-plated health insurance. Yes, for the professors, life is indeed beautiful.

But are we supposed to cheer because the Web of Science lists 12,000 journals and contains 90 million research documents? Have you read the titles of some of those articles and conference presentations?

I'm sorry, Professor Brint, but your insouciant boast about the value of research reminds me of that scene in the movie Out of Africa where Meryl Streep's character tries to convince a Kikuyu chief to allow the children in his village to be taught how to read.  The chief is skeptical. "The British know how to read," he pointed out, "and what good has it done them?"

The education research community has produced thousands of books, articles and scholarly presentations over the past 30 years on education topics. Are American kids better educated?

And the law schools turn out literally thousands of law-review articles every year. Do we have more justice?

I would like Professor Brint to think a moment about higher education's students--a constituency he said precious little about in his essay. Almost 45 million Americans owe on student loans. According to the Federal Reserve Bank, as of this month, total outstanding student-loan indebtedness has reached $1.56 trillion.

Secretary of Education Betsy DeVos gave a speech last November in which she reported that only 1 out of four student debtors (24 percent) are making payments on both principal and interest on their loans.  In fact, she acknowledged, 43 percent of all outstanding student loans are "distressed."

Although academia is a pleasant place for Professor Brint,the federal student-loan program is a train wreck. Millions of people have their loans in deferment, which means they aren't making loan payments while interest accrues on their loan balances. Another 7.4 million are in income-based repayment programs and are making monthly payments so small that their loans are negatively amortizing.

And the disastrous student-loan program is pulling down the small, nonprofit liberal arts colleges, especially in New England the Mid-Atlantic states and the upper Midwest. Legal education has been corrupted by the flow of student-loan money, with bottom-tier law schools turning out lawyers who can't find jobs.

And then there is the for-profit college industry, rife with corruption, fraud, and cronyism. Professor Brint said nothing about that problem.

So is higher education in a Golden Age, Professor Brint? I don't think so.

I close by noting that Professor Brint is a sociology professor. I was once told that sociology is nothing more than the painful enumeration of the obvious. But after reading Brint's essay, I would modify that observation. In fact, sociology is the painful enumeration of the oblivious.

Professor Steven Brint
Universities are stronger than ever?

Saturday, January 19, 2019

Income-Based Repayment Plans for Student Debtors: Is Betsy DeVos a Slave Trafficker?

To my astonishment, Betsy DeVos, President Trump's Secretary of Education, publicly admitted that the federal student-loan program is a disaster. In a speech she gave last November, DeVos acknowledged that only 1 out of 4 student debtors (24 percent) is making loan payments that cover both principal and interest and that 43 percent of all student loans are in "distress."

Unfortunately, DeVos's Department of Education and its contracted debt collectors are making this crisis worse.  Probably 20 million Americans would be eligible to discharge their student loans in bankruptcy if these loans were treated like any other consumer debt (credit cards, auto loans, etc.) But the Bankruptcy Code's "undue hardship" rule, interpreted harshly by many bankruptcy judges, has pushed millions of distressed student-loan debtors into lifetimes of servitude.

Every few months, however, a bankruptcy judge rules compassionately and sensibly and discharges some student loan debt. There is now a good-sized body of cases that have ruled in student debtors' favor.

You would think the Department of Education would encourage this trend, which would hasten relief to millions of destitute student borrowers. If DOE would endorse the Seventh Circuit's ruling in Krieger, the Eighth Circuit Bankruptcy Appellate Panel's decision in Fern, the Sixth Circuit's ruling in Barrett, the Tenth Circuit's ruling in Polleys, and the Ninth Circuit Bankruptcy Appellate Court's ruling in Roth, we would be moving a big step forward toward granting debt relief to millions of honest but unfortunate student borrowers.

But that has not been what Betsy's DOE has done. DOE and its student-loan servicing companies (primarily Educational Credit Management Corporation) have fought bankruptcy relief in bankruptcy courts all over the United States.(The Roth, Myhre and Abney cases are particularly shocking).

And here's one current example. Vicky Jo Metz, a 59-year old woman, attempted to discharge her student loans in bankruptcy, and a sympathetic Kansas bankruptcy judge granted her a partial discharge. Metz had borrowed  $16,663  back in the early 1990s to attend community college but she was never able to pay off her student loans. In fact, she filed for bankruptcy relief more than once.

By the time she was in her late 50s, Metz's student -loan debt had grown to $67,000, because her loan balance continued to grow due to negative amortization.  Judge Robert Nugent concluded Metz could never pay back what she borrowed plus the accumulated interest, and he crafted a sensible and compassionate ruling. Judge Nugent forgave the accumulated interest on Metz's debt and ordered her to pay back the principal--$16,663.

That's a fair solution, and in my opinion, Judge Nugent's ruling was consistent with guidance from the Tenth Circuit Court of Appeals in the Polleys decision. (Metz's Kansas bankruptcy court is in the Tenth Circuit.) The Polleys ruling had instructed lower courts not to interpret the Bankruptcy Code's "undue hardship" provision in a way that would nullify the central purpose of bankruptcy, which is to give an honest debtor a "fresh start."

ECMC, DOE's chief pugilist in the bankruptcy courts, appealed Judge Nugent's decision. Metz should be placed in a long-term income-based repayment plan, ECMC argued, a plan that would require Metz to make monthly payments on her debt for as long as 25 years.

Judge Nugent had rejected ECMC's arguments in his court, pointing out that Metz would be 84 years old when her payment obligations ended. Moreover, Judge Nugent noted, Metz's debt would continue to grow because Metz's payments would not be large enough to cover accumulating interest. Judge Nugent calculated that Metz would owe $157,000 when her payment obligations ended--9 times what she borrowed back in the 1990s!

ECMC's arguments in Vicky Jo Metz's case are either deeply cynical or insane. Basically, ECMC, DOE's hired gun in this dispute, is asking a federal court to sentence Vicky Jo Metz to a lifetime of servitude--paying on a student-loan debt, which will grow bigger with each passing month.

In effect then, the Department of Education and ECMC are slave traffickers, condemning millions of Americans to repayment programs which can stretch over their entire lives.

In my view, the federal courts are poised to craft more compassionate standards for discharging student loans in bankruptcy, which would allow decent people like Ms. Metz to clear away debt they will never repay.  Unfortunately Betsy DeVos's Department of Education and ECMC are doing every thing they can to persuade the federal judiciary not to rule compassionately.

After all, there's a lot of money in the slave trade.



Cases

Abney v. U.S. Dept. of Educ. Corp.  (In re Abney), 540 B.R. 681 (Bankr. W.D. Mo. 2015).

Barrett v. Educ. Credit Mgmt. Corp., (In re Barrett), 487 F.3d 353 (6th Cir. 2007).

Educ. Credit Mgmt. Corp. v. Polleys (In re Polleys), 356 F.3d 1302 (10th Cir. 2004).

Fern v. FedLoan Servicing (In re Fern), 553 B.R. 362 (Bankr. N.D. Iowa 2016), aff’d, 563 B.R. 1 (B.A.P. 8th Cir. 2017).

 Krieger v. Educ. Credit Mgmt. Corp., 713 F.3d 882 (6th Cir. 2013).
Metz v. Educ. Credit Mgmt. Corp., 589 B.R. 750 (Bankr. D. Kan. 2018), on appeal

Murray v. Educ. Credit Mgmt. Corp. (In re Murray), 563 B.R. 52 (Bankr. Kan. 2016), aff’d, No. 16-2838, 2017 WL 4222980 (D. Kan. Sept. 9, 2017).

Myhre v. U.S. Dep’t of Educ. (In re Myhre), 503 B.R. 698; 2013 (Bankr. W.D. Wis. 2013).

Roth v. Educ. Educ. Mgmt. Corp. (In re Roth), 490 B.R. 908 (B.A.P. 9th Cir. 2013).

References

DeVos, Betsy, Secretary of Educ., Prepared Remarks by U.S. Secretary of Education Betsy DeVos to Federal Student Aid’s Training Conferences (Nov. 27, 2018). Available at https://www.ed.gov/news/speeches/prepared-remarks-us-secretary-education-betsy-devos-federal-student-aids-training-conferencet.



Tuesday, January 8, 2019

Department of Education's Heightened Cash Monitoring List: Students should check to see if their college is in financial trouble

Steve Rhode performed a valuable public service last month when he published the U.S. Department of Education's most recent Heightened Cash Monitoring List.  This is DOE's list of schools that have various financial concerns, including accreditation problems or missing audits, as well as schools that are on financially shaky ground.

DOE does not make the list easy to review. I could discern no organizational pattern. Public schools, private nonprofits, proprietary schools, and foreign schools are all listed together. In total, there are more than 500 schools on the list.

Not surprisingly, more than half the schools with financial concerns are proprietary schools--a total of 275 for-profit institutions.  A good share of these schools are devoted to hairstyling or beauty. Forty-six schools on DOE's HCM list have the word Beauty or Cosmetology in their names; and there are three massage schools on the list.

The list also includes a large number of private, nonprofit colleges or universities: 128 schools in all. A fair number have religious affiliations. Seven schools on the list have the word Baptist in their name, and three school names include the word Wesleyan, indicating a Methodist affiliation.  Twelve colleges have the word Christian in their titles, and there were several other schools with names suggesting a religious connection: Bethel, Bethany, Bible, Seminary, etc.

DOE listed 35 foreign colleges and universities on its Heightened Cash Monitoring List. You might find it surprising that the federal government is funding foreign study at the same time the national parks are closed, but it does. Among the 35 foreign schools with various financial concerns are Hebrew University of Jerusalem, Universiteit Van Amsterdam in the Netherlands, University of Aukland in New Zealand, Centro De Estudios Universitarios Xochicalco in Mexico; and Poznan University of Medical Sciences in Poland.

DOE's list includes a category of schools with high student-loan default rates. Schools with a three-year default rate of 40 percent and schools that have a three-year default rate of at least 30 percent for three years are ineligible for federal student-aid money. 

Remarkably, none of the 500 plus schools on DOE's HCM list were flagged for having a high student-loan default rate. How could that be when Secretary of Education Betsy DeVos herself said that only 24 percent of student borrowers were paying down the principal and interest on their loans?

In my view, DOE's HCM list under reports the number of American colleges and schools that are in financial trouble. Nevertheless, the list is useful. 

First, the list confirms that a large number of small, private nonprofit colleges are in trouble, including many with religious ties. 

Second, we can see from the list that the largest share of financially troubled schools are for-profit institutions.

Finally, the list is a reminder that the U.S. Department of Education is loaning money for Americans to go to school overseas, which seems insane given the excess capacity in American higher education.

Of course not all schools on DOE's HCM list are experiencing serious financial problems. Some are on the list due to accrediting issues, inadequate administrative support, or audit irregularities. Nevertheless, all  postsecondary students should check the list to see if their school is on it. And parents who are helping their children decide where to go to college should also check the list. No one wants to enroll in a college that may close before the student graduates.

References

Rhode, Steve. Schools on the Warning List by the Department of Education--December 2018. Get Out of Debt Guy (blog), December 26, 2018.

Thursday, December 6, 2018

Public Service Loan Forgiveness Program is a "disaster" according to DOE official: A hurricane is coming to PSLF

In a recent speech, Secretary of Education Betsy DeVos called the federal student loan program "a thunderstorm loom[ing] on the horizon." Only 20 percent of borrowers are paying down the principal and interest on their loans, DeVos said, even as students borrow more and more money to finance their higher education.

Comparing the student loan program to a thunderstorm may be an understatement. It might be more accurate to compare the program to a hurricane bearing down on the Gulf Coast at 150 miles an hour. And--extending my hurricane analogy a bit further, we might say the Public Service Loan Forgiveness Program (PSLF) is the "dirty side of the storm."  In fact, Diane Jones, a senior DOE official, called PSLF a "disaster" earlier this week. Jones said the Department of Education does not support PSLF, although it will meet its legal obligations to administer the program.

But DOE is not administering the PSLF program, or--to be more accurate--DOE is not administering the program competently.  As has been widely reported, DOE had processed 28,000 PSLF loan forgiveness applications by late September and only approved 96! What's going on?

Personally, I think DOE number crunchers looked at PSLF and realized that the program will be extremely expensive if it is administered correctly--shockingly expensive. DeVos and her senior minions know the program will cost taxpayers billions of dollars if DOE processes loan-forgiveness applications in accordance with PSLF participants' reasonable expectations.

As Jason Delisle said in a 2016 paper for the Brookings Institute, by at least one interpretation, PSLF's definition of eligible participants is quite broad. Delisle estimates that one quarter of the entire American workplace is a public service worker and all these people are eligble to participate in PSLF if they have student loans.

Delisle cited a 2015 General Accountability Office report in support of  his conclusion. On page 10, footnote 19, GAO said borrowers are eligible for loan forgiveness under PSLF if they are "employed full time by a public service organization or serving in a full-time Americorps or Peace Corps position."

What is a "public service organization? This is what GAO said:
Qualified public service organizations include those in federal, state, local government; 501(C) nonprofits; and other nonprofit organizations providing a variety of public services. 
That definition is a lot broader than the common perception that PSLF is open primarily to nurses, police officers, and first responders. I know for a fact that many student borrowers who work at public universities and community colleges believe they are eligible for loan forgiveness through PSLF.

We will get some guidance about who is eligible for PSLF when the American Bar Association's lawsuit against DOE is decided. ABA sued DOE in 2016 when it denied PSLF eligibility to public-service lawyers working under ABA's auspices. ABA wants a federal court to rule that its employees are eligible for PSLF; and ABA and DOE have both filed motions for summary judgment.

If a federal court declares ABA to be a public service organization whose employees are eligible for PSLF student-loan forgiveness that will be an indication that DOE's narrow interpretation of a public service organization is far too narrow and legally incorrect.

In the meantime, almost a million people have applied to have their student loans certified as eligible for PSLF.  Of the 28,000 people who filed for loan forgiveness  since last September, DOE granted forgiveness to less than 1 percent. DOE declared that seventy percent of the applicants were ineligible.

Millions of people working in the public sector took out student loans in the reasonable belief they are eligible for loan forgiveness after ten years of public service.

DOE has taken the position that most of these student-loan borrowers are wrong. No wonder DOE Undersecretary Diane Jones calls PSLF a "disaster."

PSLF is a "disaster" according to DOE official


References

American Bar Association v. U.S. Department of Education, Complaint for Declaratory and Injunctive Relief, Case No. 1:16-cv-02476-RDM (D.D.C. Dec. 20, 2016).

Stacy Cowley. 28,000 Public Servants Sought Student Loan Forgiveness. 96 Got ItNew York Times, September 27, 2018.

Stacy Cowley. Student Loan Forgiveness Program Approval Letters May Be InvalidNew York Times, March 30, 2017. 

 Jason Delisle. The coming Public Service Loan Forgiveness bonanzaBrookings Institution Report, Vol 2(2), September 22, 2016.

Betsy DeVos. Prepared Remarks by U.S. Secretary of Education Betsy DeVos to Federal Student Aid's Training Conference. November 27, 2018.

Casey Quinlan. Education Department official slams Public Service Loan Forgiveness program as 'disaster.' thinkprogress.org, December 4, 2018.

Jordan Weissmann. Betsy DeVos Wants to Kill a Major Student Loan Forgiveness ProgramSlate, May 17, 2017.

U.S. Government Accountability Office. Federal Student Loans: Education Could Do More to Help Ensure Borrowers are Aware of Repayment and Forgiveness Options. GAO-15-663 (August 2016). 


Friday, November 30, 2018

Betsy DeVos compares the student-loan program to a thunderstorm looming on the horizon

Betsy DeVos, President Trump's Secretary of Education, gave a speech a few days ago in which she candidly acknowledged that the federal student-loan program is in crisis. In fact, she compared the student loan program to a "thunderstorm loom[ing] on the horizon."

Here is what Secretary DeVos said in her speech:
  • The federal government holds $1.5 trillion in outstanding student loans, one third of all federal assets.
  • Only one in four federal student-loan borrowers are paying down the principal and interest on their debt.
  • Twenty percent of all federal student loans are delinquent or in default. That's seven times the delinquency rate on credit card debt.
  • The debt level of individual borrowers has ballooned since 2010. Most of this growth is due to the fact that postsecondary students are borrowing substantially more money than they did just eight years ago.
  • The federal government's portfolio of outstanding student loans now constitutes 10 percent of our nation's total national debt.
DeVos basically admitted that a lot of federal student loans will never be paid back. In the commercial world, she said, no bank regulator would value the government's massive portfolio of student loans at full value. And she also admitted that the Department of Education, by itself, could only make "a few, small tactical measures" to address this enormous problem.

 In my view, DeVos's speech is the most useful statement about the student-loan program coming from a federal official since  the publication of A Closer Look at the Trillion, released more than five years ago by the Consumer Financial Protection Bureau's Student Loan Ombudsman, Rohit Chopra.

As I have said repeatedly, the student-loan crisis will not be resolved until the for-profit college industry is shut down and struggling debtors have access to the bankruptcy courts to discharge their student loans.

But those reforms are not politically possible right now. In the meantime, Congress should join DeVos in adopting some "small tactical measures" to ease massive suffering. Here are some suggestions:
  • Congress should adopt legislation banning the federal government from garnishing the Social Security checks of elderly student-loan defaulters. As the Government Accountability Office pointed out two years ago, most of the money collected from garnishing Social Security checks goes to paying off interest and penalties  and not paying down the principal on the debt.
  • Disabled veterans should have their student loans forgiven automatically by the government without the necessity of making a formal application.
  • The Department of Education should streamline the loan-forgiveness process for borrowers who signed up for the Public Service Loan Forgiveness Program (PSLF).  As of a few months ago, DOE had approved less than 100 of 28,000 PSLF applicants.
  • Insolvent tudents who took out private student loans and financially distressed parents who co-signed student loans for their children or who took out  Parent PLUS loans should have free access to the bankruptcy courts.
These measures, if adopted, would do little to relieve the massive suffering caused by mountains of student loan debt. But they would be a token of good faith by our government and a sign that our political leaders finally understand that the federal student loan program is out of control and has ruined the lives of millions of Americans who took out student loans in the naive hope that a college education would lead to a better life.

References

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/.

Betsy DeVos. Prepared Remarks by U.S. Secretary of Education Betsy DeVos to Federal Student Aid's Training Conference. November 27, 2018.

United States Government Accountability Office. Social Security Offsets: Improvement to Program Design Could Better Assist Older Student Borrowers with Obtaining Permitted Relief. Washington DC: Author, December 2016).

Thursday, November 1, 2018

Education Corporation of America brazenly uses an Alabama court to delay lawsuits against it. Is this a great country or what?

Education Corporation of America (ECA), a for-profit college chain, brazenly filed a federal lawsuit in Alabama last month, asking Judge Abdul Kallon to put it into receivership and enjoin all litigation against it. ECA hopes to delay its creditors and other litigants while continuing to receive federal student-loan money.

What a cocky, shameless and impudent strategy!

Judge Kallon initially obliged ECA, ordering a halt to all litigation against ECA until October 29. Then, on October 29, the judge  extended the injunction until November 5. Parties opposing ECA's Alabama litigation must find lawyers to represent them in Alabama, which will be costly.

For example, Gleneagles Office, LLC, a Maryland corporation, filed a lawsuit in Maryland last month, seeking to collect almost $100,000 in back rent and late fees from Virginia College, which ECA owns. Judge Kallon's injunction, issued seven days after Gleneagles filed its lawsuit for back rent, halted that litigation.

Gleneagles hired an Alabama law firm to oppose ECA's attempt to enjoin lawsuits against it. Gleneagles pointed out that ECA guaranteed the Virginia College lease and agreed that any dispute about the lease would be litigated in Maryland. Gleneagles also argued that Judge Kallon does not have jurisdiction over it.

A Texas company also joined the Alabama lawsuit to oppose ECA's request for an injunction. The Texas company is landlord to a Brightwood College campus in Arlington, Texas. Brightwood is another college owned by ECA.

Perhaps ECA's various landlords and creditors have the financial resources to fight ECA in Alabama, but ECA's former students do not. ECA's list of litigation against it (or its subsidiary affiliates) include several suits by former students. ECA managed to force many of these suits into arbitration, probably because ECA required students to sign arbitration agreements as a condition of enrollment.

So what's going on?

ECA is in financial trouble. Enrollments have dropped, and it is in danger of losing its accreditation. Meanwhile it has been sued by landlords, former students, and former employees on a variety of grounds.  ECA managed--temporarily at least--to halt all the litigation against it based on the signature of one Alabama federal judge, who may not have jurisdiction over any of this litigation. Some creditors have joined the Alabama lawsuit to stop this charade, but most of ECA's former students and employees don't have the financial wherewithal to do that.

Essentially, ECA's Alabama lawsuit has given ECA  all the benefits of bankruptcy without the downside of losing federal student loan money.  And when it becomes advantageous to do so, ECA can stroll into bankruptcy court any time it likes.

Isn't it ironic that ECA can use the courts to its advantage while its students are barred from suing it based on arbitration agreements ECA or its subsidiaries required them to sign as a condition of enrollment?

And isn't ironic that ECA can file for bankruptcy whenever it chooses (which it will probably do eventually), while ECA's students face enormous obstacles to discharging their student loans in bankruptcy?

Is this a great country or what?



References

Joinder of  Pioneer Industrial LLC and Pioneer Parking Lot, LLC to National Retail Properties LP's Memorandum in Opposition to Emergency Motion for The Appointment of a Receiver and Entry of a Temporary Restraining Order and Injunctive Relief, filed October 29 2018 in Education Corporation of America v. U.S. Department of Education, Case No. 2:18-CV-01698-AKK.

Non-party Gleneagles Office, LCC's Opposition to Plaintiff's Motion for Preliminary Injunction, filed October 29, 2018 in Education Corporation of America v. U.S. Department of Education, Case No. 2:18-CV-01698-AKK.

Order Extending Temporary Injunctive Relief, signed on Octobe 29, 2018 in Education Corporation of America, et al. v. United States Department of Education, 2:18-CV-01698-AKK.




Tuesday, October 2, 2018

Department of Education slow rolls the Public Service Loan Forgiveness Program: Like a drunk weaving through traffic

For many years, the Department of Education has managed the federal student-loan program like a drunk creeping through heavy traffic. It has stumbled, reeled, dissembled, weaved and bobbed, but always avoided a head-on collision with reality.

But that time is over. Under Betsy DeVos's colossal mismanagement (and her predecessors), DOE has messed up the Public Service Loan Forgiveness Program (PSLF), thereby telegraphing to 44 million student-loan borrowers that Betsy Devos is either fiendishly devious or spectacularly incompetent.

The PSLF program is not complicated.  Under federal law, student-loan borrowers who work for a qualified employer (governmental agency or non-profit) and make 120 student-loan payments under an approved repayment plan are eligible to have remaining student-loan debt cancelled. (It's a little more complicated than that, but not much.)

Almost 1.2 million borrowers have applied to have their employment certified for PSLF eligibility. More than a quarter million applications were denied. That alone is a startling fact.

But it gets worse. About 28,000 people who are in the PSLF program (or at least believe they are in it) applied to have their student loans forgiven based on their representation that they had made the 120 required student-loan payments. How many people have obtained debt relief so far? Less than 100!

What are we to make of this gigantic snarl?

First, DOE has made the PSLF program needlessly complicated. After all, the government only needs to answer two questions to determine who is eligible for debt relief. Did the applicant work for an approved employer for 10 years? Did the applicant make 120 one-time payments on his or her student loans?

Second, the PSLF program was poorly designed, and DeVos's DOE has reached the startling realization that the program is astonishingly expensive.  In my opinion, DOE is dragging its feet about processing PSLF claims to postpone the reckoning day, when it will have to publicly admit that PSLF is going to cost taxpayers billions of dollars.

The Government Accountability Office (GAO) released a report almost two years ago that concluded DOE had underestimated the cost of various student-loan repayment options. I'm guessing DOE did not figure on the huge debt loads some PSLF applicants were accumulating from going to graduate school: MBA degrees, medical degrees, law degrees, etc.

According to GAO, the average amount of forgiven debt for the first 55 people who received student-loan forgiveness is almost $58,000. If  this average continues to hold, and all 890,000 people whose loans and employment were certified eventually get debt relief, the cost will be $50 billion! Meanwhile, DOE can expect PSLF requests for certification and debt relief to continue being filed into the indefinite future.

No wonder DOE is slow rolling the PSLF loan-forgiveness process.



 References

Stacy Cowley. 28,000 Public Servants Sought Student Loan Forgiveness. 96 Got It. New York Times, September 27, 2018.