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

Monday, July 30, 2018

A Deep Dive Into the Debtor Blaming 2018 Borrower Defense to Repayment Regulations. Essay by Steve Rhode










By Steve Rhode (originally posted on July 25, 2018)

Today the Department of Education (ED) has released their new rules for the program so let’s jump in and see what the Borrower Defence to Repayment program now looks like. I’m going to read the 433 pages so you don’t have to.The Department of Education put a hold on forgiving federal student loans for students who were victims of fraud by the schools that enrolled them. Under the Obama administration, the program would suspend collections activity while claims were being investigated and total forgiveness was a possible outcome.
Under the Trump administration claims were not approved and the rules were changed to only allow a partial forgiveness for most debtors based on an impractical standard.
It appears ED is trying to shift the responsibility for making good decisions for enrolling in questionable schools by pushing that obligation and blame on the student. The new rules say, “The goal of the Department is to enable students to make informed decisions on the front end of college enrollment, rather than to grant them financial remedies after-the-fact when lost time cannot be recouped and new educational opportunities may be sparse. Postsecondary students are adults who can be reasonably expected to make informed decisions and who must take personal accountability for the decisions they make.”
While ED says educational institutions should not mislead the students and “remedies should be provided to a student when misrepresentation on the part of an institution causes financial harm to that student,” let’s see how much power and practicality those remedies have.
The ED again turns back to putting the responsibility and blame on the student for enrolling in the wrong school that may have misled them. ED says, “students have a responsibility when enrolling at an institution or taking student loans to be sure they have explored their options carefully and weighed the available information to make an informed choice.”
But what seems to be missing from that lofty goal is some sort of pre-screening by the school to review the cost of the education and the expected salary for the chosen field. For example, the other day I wrote about the $90,000 associates degree in web design. Does the school have a responsibility to sell a fair product or is the responsibility now focused on the student for believing the hype?
ED says, “The Department has an obligation to enforce the Master Promissory Note, which makes clear that students are not relieved of their repayment obligations if later they regret the choices they made.” So if your 18-year-old self made a bad choice of schools that provided an overpriced education with little value, that’s your own damn fault.
The proposed rule document says, “As of January 2018, it had received 138,989 claims, of which 23 percent had been processed.” Some of these claims go back more than a year.
It is quite possible those became a major issue with the new ED because Borrower Defense Claims were being submitted and approved. These claims were not approved on no basis but because students had been misled or deceived by the school.
But here is where ED is turning the table on debtors, “the Department is concerned that several features of the 2016 final regulations might have put the Department in the untenable position of forgiving billions of dollars of Federal student loans based on potentially unfounded accusations. Specifically, those regulations would allow the Department to afford relief to borrowers without providing an opportunity for institutions to adequately tell their side of the story.”
These new rules say, students who feel they were misled and deceived by schools to get them to enroll and take out federal student loans, may still submit claims but as long as they are “not in a collections status.” So students who were saddled with questionable loans by a questionable school will have to continue to make monthly payments or stay out of collections while their claim is processed for an undetermined amount of time.
ED wants to encourage students to enroll in income-driven repayment plans and make payments on their loans. These would be the same plans that put people into decades-long repayment plans with potentially big tax bills at the end. Balances in these programs go up, not down, as the monthly payment is insufficient to cover the interest building.
ED is worried that students claiming they were harmed by their schools will strategically default on their otherwise unaffordable debt. As evidence to support this concern, ED cites research by those who intentionally defaulted on their mortgage payments to take advantage of mortgage modifications. Talk about apples and oranges here.
“The Department is trying very carefully to balance relief for borrowers who have been harmed by acts of institutional wrongdoing, with its obligation to the taxpayer to provide reliable stewardship of Federal dollars.” And while that might be true, then why isn’t the Department limiting access to federal funds by schools that engage in questionable practices?
Those questionable practices have led to massive amounts of unaffordable student loan debt sitting in a non-payment status. The lack of oversight by ED to rein in the access to federal student loan dollars by typically for-profit schools who have been approved by questionable accreditation.
So ED says, “With more than a trillion dollars in outstanding student loans, the Department must uphold its fiduciary responsibilities and exercise caution in forgiving student loans to ensure that it does not create an existential threat to a program that lacks typical credit and underwriting standards.”
But where were the underwriting standards for schools selling degrees that students would never be able to afford to repay? Where was the fiduciary responsibility for ED and student loan debtors?
ED appears to say they are not going to get involved in resolving disputes or claims of wrongdoing against schools. That is going to be left up to the individual student to fight with the school through the courts. How students will be able to afford to do that, is a mystery.
And ED is not going to block schools from forcing students into secret arbitration or stopping schools from allowing students to enter class action suits against the schools. Instead, ED says in its press release on the rulemaking “that institutions requiring students to engage in mandatory arbitration or prohibiting them from participating in class action lawsuits provide plain language explanations of these provisions to enable students to make an informed enrollment decision.” So students who decide to go to schools that block access to courts to remedy claims were stupid to enroll.
Here is what the rule says, “it seems reasonable that consumer complaints should continue to be adjudicated through existing legal channels that put experienced judges or arbitrators in the position of weighing the evidence and rendering an impartial decision.”
Even with the Borrower Defense to Repayment program in place, ED again takes the step to say the student was the idiot in this situation when they enrolled at a school they believed. ED says, “As stated in the Master Promissory Note the borrower signs when initiating their first loan, the borrower is expected to repay the loan even if the borrower fails to complete the program or is dissatisfied with the institution or his or her outcomes.”
On the issue of a group discharge of federal student loans if a school is found to have engaged in “a misrepresentation made with knowledge of its false, misleading, or deceptive nature or with a reckless disregard for the truth,” ED punts and says that will be the focus of a different rule. This appears to close the door for bulk discharges of schools found guilty of deception, like in the Corinthian Colleges case.
As evidence why the group discharge would be harmful to students, ED says “Because an institution can refuse to provide an official transcript for a borrower whose loan has been forgiven, group discharges could render some borrowers unable to verify their credentials or work in the field for which they trained and have enjoyed employment.” Maybe the real answer is that is a school was found to deceive students they should still have to provide a transcript.
In the past, schools who enrolled students who never graduated from high school or had a GED could be found to have taken advantage of people who may not have been qualified to enroll in higher education. The proposed rule shifts the burden back to the uneducated student when it says, “We also propose changes to the Department’s current false certification regulations. The Department believes that in cases when the borrower is unable to obtain an official transcript or diploma from the high school, postsecondary institutions should be able to rely on an attestation from a borrower that the borrower earned a high school diploma since the Department relies on a similar attestation in processing a student’s Free Application for Federal Student Aid (FAFSA).”
Where is the underwriting in this process that ED says it engages in?
These new rules would apply to federal student loans first disbursed on or after July 1, 2019.
They would also “require a borrower to sign an attestation to ensure that financial harm is not the result of the borrower’s workplace performance, disqualification for a job for reasons unrelated to the education received, a personal decision to work less than full-time or not at all, or the borrower’s decision to change careers.”
Feel free to read the entire document, here.
My impression of the proposed new rules is the Department of Education wants to shift all the responsibility for falling for school marketing overpriced education to the least informed person in this transaction, the student.
It doesn’t take a crystal ball to see how this is going to work out. Badly for debtors.
If ED is worried about underwriting and a fiduciary responsibility then why are they passing out easy loans with little regard to affordability, to begin with? Does the government have a duty to protect it’s citizens or does it need to protect its poor financial decision making and schools they pump loans through? Or is this new policy all about blaming the victim instead of investigating the claims for validity?

Steve's essay was originally posted on The Get Out of Debt Guy web site.


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

Sunday, July 29, 2018

Divorce, birth rates and home ownership: All are negatively affected by crushing student-loan debt

According to Student Loan Hero, about 1 out 8 divorcees queried in a recent survey said that the student loans they took out before getting married eventually led to their divorce.  And the survey also found that more than a third of couples with student debt delayed their divorce because they couldn't afford the expense.

Apparently, student loans are now such a significant marital problem that one New York attorney recommends couples sign a prenuptial agreement specifying that the person helping to pay off the spouse's student loans gets reimbursed in case of a divorce. How romantic!

Experts have long agreed that money problems put a strain on marriages, but student loans are a particularly nasty form of debt. No wonder so many divorcees cited student loans specifically as a major cause of their marital split. Unlike car loans, credit card debt and home mortgages, student-loan debt is almost impossible to discharge in bankruptcy. Moreover, student-loan borrowers have huge penalties slapped on their college-loan debt if they default--25 percent of the amount owed, including unpaid interest.

The Student Loan Hero survey is only the most recent evidence of the pain Americans are suffering from student loans. Earlier this month, the New York Times reported that Americans are having fewer babies; and college loans are one of the reasons.

The Times conducted a survey of men and women in the 20-to-45 age group, and almost two thirds said they planned to have fewer children than their ideal because of financial concerns.  Among people who said they planned to have no children, 13 percent cited student debt.

And the Federal Reserve Bank of New York documented last year that student debt was negatively affecting the housing market. A 2017 Federal Reserve Bank report observed that home ownership among young people declined by 8 percent over an 8-year period (2007 to 2015);  and the Feds concluded that a substantial reason for this decline is rising levels of student-loan debt.

The Fed report also observed that more young Americans are living with their parents than in previous years. In 2004, about one third of 23-25-year-olds lived with their parents. In 2015, 45 percent of people in this age bracket were living with mom and dad--a big increase.

None of this bad news should be surprising as Americans borrow more and more money to go to college. In 2002, only 20 percent of student borrowers owed $20,000 or more. Last year, 40 percent of student debtors owed that much or more. And borrowers owing $50,000 or more jumped from 5 percent to 16 percent during the same time period.

Remarkably, almost no one in the higher education industry even acknowledges a problem with soaring student-loan debt. If there  is a problem, the industry flacks tell us, the easy solution is extended repayment terms. Simply force Americans to pay back their loans over 20 years or even 25 years, university insiders insist.

Do you suppose Betsy DeVos thinks about distressed student borrowers when she sips her martinis on her $40 million yacht, the Seaquest? I doubt it. Based on the way she's running the Department of Education, my guess is that she worries more about protecting the predatory for-profit colleges than the students who got swindled by them.

And who do you suppose Betsy is more likely to invite for drinks on the Seaquest--a single mom who defaulted on a loan she took out to attend the University of Phoenix or an equity-fund manager who owns part of the University of Phoenix?



Betsy DeVos's $40 million yacht--193 feet long!


References

Moriah Balingit. Someone untied Betsy DeVos's yacht in Ohio. Damage EnsuedWashington Post, July 26, 2018.

Jessica Dickler. 1 in 8 divorces is caused by student loans. CNBC.com., July 27, 2018.

Ben Luthi. Survey: Student Loan Borrowers Wait Longer and Pay More to Get Divorced. Student Debt Hero, July 24, 2018.

Claire Cain Miller. Americans Are Having Fewer Babies. They Told Us Why. New York Times, July 5, 2018.

Rick Seltzer. Percentage of Borrowers Owing $20,000 or More Doubled Since 2002. Inside Higher Ed, August 17, 2017.

Zachary Bleemer, et al. Echoes of Rising Tuition in Students' Borrowing, Educational Attainment, and Homeownership in Post-Recession America. Federal Reserve Bank of New York Staff Report No. 820, July 2017.

Steve Rhode. Student Loan Debt Hurts Economy, Consumers, and Retirement SavingsPersonal Finance Syndication Network, September 2017.

Thursday, July 26, 2018

Betsy DeVos, the for-profit college industry's best pal, rolls back regulatory protections for students who were defrauded by for-profit colleges

This week, Betsy DeVos, President Trump's lamentable Secretary of Education, proposed new rules for implementing the Department of Education's Borrower Defense to Repayment Program.

The new rules--433 pages long--outline the DeVos regime's procedures for processing fraud claims filed by students who took out federal loans to attend for-profit colleges and were swindled.  The New York Times and Steve Rhode of Get Out of Debt Guy reported on this development, but Rhode's analysis is more comprehensive and insightful than the Times story. Rhode's essay is the one to read.

Millions of Americans have been defrauded by for-profit colleges--literally millions. Corinthian Colleges and ITT Tech filed for bankruptcy, brought down by regulatory pressures and fraud allegations. Those two institutions alone had a half million former students.

Globe University and Minnesota School of Business both lost their authority to operate in Minnesota after a Minnesota trial court ruled they had misrepresented their criminal justice programs.  Last month, the Minnesota Court of Appeals partially upheld the trial court's judgment, finding sufficient evidence to support a fraud verdict on behalf of 15 former students who testified at trial.

In California, DeVry University agreed to pay $100 million to settle claims brought by the Federal Trade Commission that it had advertised its programs deceptively. In the wake of that scandal, the company owning DeVry changed its name from DeVry Education Group to Adtalem Global Education.

The Art Institute, which charged students as much as $90,000 for a two-year associates' degree,
agreed to pay $95 million to settle fraud claims brought against it by the Justice Department, but the settlement is paltry compared to the amount of money borrowed by 80,000 former students.  And there have been numerous small for-profits that have been found liable for fraud, misrepresentation, or operating shoddy programs.

The for-profit scandal is a huge mess. If every student who was defrauded or victimized in some way by a for-profit college were to receive monetary restitution, it would probably cost taxpayers a half trillion dollars.

So how do we fix this problem? The Obama Administration approved rules that would have streamlined the process for resolving student-fraud claims, but Betsy DeVos pulled back those rules just before they were to have been implemented.

The new DeVos rules, summarized by Steve Rhode, put most of the blame on students for enrolling in these fraudulent and deceptive for-profit colleges. According to DeVos' DOE, "students have a responsibility when enrolling at an institution or taking student loans to be sure they have explored their options carefully and weighed the available information to make an informed choice."

DeVos' janky new rules forces fraud victims to continue paying on their student loans while they process their damned-near hopeless fraud claims, while DOE processes those claims--if at all--at a snail's pace.

DeVos nixed the Obama administration's ban against mandatory arbitration clauses that the for-profits have forced students to sign as a condition of enrollment. Sometimes these clauses also bar class action suits. So under Betsy DeVos' administration, many defrauded students will be barred from suing the institutions that cheated them.

Betsy and her for-profit cronies want struggling student debtors to enroll in long-term income-based repayment plans (IBRPs) that last from 20 to 25 years. Payments under those plans are generally so low that student debtors' loan balances are negatively amortizing. Borrowers in IBRPs will see their loan balances go up month by month even if they make regular monthly payments. In other words, most IBRP participants will never pay off their loans.

Some people are predicting the student-loan scandal will eventually lead to a national economic crisis similar to the one triggered by the home-mortgages meltdown. I am beginning to think these doomsday predictors are right. Already we see that student loans have impacted home ownership and may even be a factor in the nation's declining birth rates--now so low that the American population is not replacing itself.

Two things must be done to destroy the for-profit college cancer that is destroying the hopes of millions for a decent, middle-class life:

1) First, the for-profit college industry must be shut down. No more University of Phoenixes, no more DeVrys, no more Florida Coastal Universities.

2) Second, everyone who was swindled by a for-profit school should have easy access to the bankruptcy courts, so they can shed the debt they acquired due to fraud or misrepresentations and get a fresh start in life.

And there is a third thing we need to do. Congress should impeach Betsy DeVos for reckless dereliction of duty and blatant misconduct against the public interest.  Let's send her back to Michigan, where she can enjoy her family fortune as a private citizen and not as a so-called public servant.



References

Mark Brunswick. Globe U and Minn. School of Business must close, state says after fraud rulingStar Tribune, September 9, 2016. 

Christopher Magan. Globe U. and Minnesota School of Business to start closing campusesTwin Cities Pioneer Press, December 21, 2016.

State of Minnesota v. Minnesota School of Business, A17-1740, 2018 Minn. App. LEXIS 277 (Minn. Ct. App. June 4, 2018).

Sarah Cascone, Debt-Ridden Students Claim For-Profit Art Institutes Defrauded Them With Predatory Lending Practices.  Artnet.com, July 23, 2018.

Erica L. Green. DeVos Proposes to Curtail Debt Relief for Defrauded StudentsNew York Times, July 5, 2018.

Claire Cain Miller. Americans Are Having Fewer Babies. They Told Us Why. New York Times, July 5, 2018.

Steve Rhode. A Deep Dive Into the Debtor Blaming 2018 Borrower Defense to Repayment Program. Get Out of Debt Guy (blog), July 25, 2018.

Saturday, June 16, 2018

The New York Times lambasts Republicans and Betsy DeVos for catering to for-profit colleges: The Gray Lady overlooks culpable Democrats

In an editorial last month, The New York Times lambasted Secretary of Education Betsy DeVos, the Trump administration and congressional Republicans for protecting the greasy for-profit college industry. "Try as they might," the Times observed, "the Trump administration and Republicans in Congress cannot disguise that they continue to do the bidding of the for-profit industry, which has saddled working-class students--including veterans--with crushing debt while providing useless degrees, or no degrees at all."

Indeed, the Times grumbled, the Department of Education, under DeVos, "has undermined investigations of the [for-profit college] industry by marginalizing or reassigning lawyers and investigators . . ." Major investigations, the Times reported, have been abandoned, including investigations into the activities of DeVry Education Group, Bridgepoint Education and Career Education Corporation.

The Times is right of course. Betsy DeVos is the shameless lapdog of the for-profit college crowd, which continues to prey on unsophisticated Americans seeking to get a worthwhile education.  The Times predicts that DeVos' behavior may come back to bite the Republicans in the upcoming midterm elections, and perhaps there will be repercussions at the ballot box.

But to be fair, servile obsequiousness to the for-profit colleges is bipartisan. Both Democrats and Republicans have taken campaign contributions from these bandits and both parties have succumbed to the blandishments of the for-profit lobbyists.

In fact, The Nation reported nearly five years ago that two Democratic congressmen were leading an effort to protect for-profit colleges from meaningful regulation.  According to The Nation's reporter Lee Fang, Representative Rob Andrews from New Jersey and Florida congressman Alcee Hastings had taken thousands of dollars from for-profit college executives and for-profit backed political committees.

Andrews is no longer in Congress, but Alcee Hastings is still in office. This is the same Hastings, by the way, who, while sitting as a federal district judge, was charged with bribery, perjury and falsifying documents.  The U.S. Senate impeached him and removed him from his judicial post in 1989.

If the Democrats want to distinguish themselves from their Republican colleagues, they need to speak out forthrightly about the for-profit-college scandal. In my view, the for-profit racketeers cannot be tamed through tougher regulations. The only way to stop these predators from stalking unsuspecting and naive young Americans is to shut the industry down. But the Democrats don't have the courage to speak out against the for-profit mobsters. They seem to hope Americans will overlook their silence about the the for-profit college industry and pin all the blame on the Republicans.

Rep. Alcee Hastings (D-Florida): Friend of the for-profit college industry


References

Editorial. Predatory Colleges, Freed to Fleece Students. New York Times, May 22, 2018.

Lee Fang. Two House Democrats Lead Effort to Protect For-Profit Colleges, Betraying Students and Vets. The Nation, December 13, 2013.

United States Senate.  The Impeachment Trial of Alcee L. Hastings (1989) U.S. District Judge, Florida.


Wednesday, March 21, 2018

Betsy DeVos is shilling for debt-collectors and for-profit colleges: The destruction of Americas's middle class

The New York Times published an editorial this week strongly criticizing Secretary of Education Betsy DeVos, whom the Times accurately describe as a "shill" for the student-loan industry.

As the Times reported, DeVos' Department of Education has issued a new policy statement that says federal law can preempt state consumer-protection laws aimed at curbing abuses in the loan-servicing and debt-collection business.  DeVos' Department argues that state consumer-protection laws can undermine uniform administration of the student loan program.

The Times also criticized the Republican-sponsored bill to reauthorize the Higher Education Act. This bill, if it becomes law, will preempt the right of the states to regulate the student-loan business--including student-loan debt collectors and loan servicers.

Betsy DeVos' craven and servile pandering to the student-loan industry is a scandal; and DeVos--not the Russians--should be the focus of Democratic attacks on the Trump administration.  DeVos' behavior belies all the blather coming out of the White House about how Trump policies benefit the middle class. DeVos apparently hopes to remove all restraints on the venal and corrupt student-loan business, which is doing a pretty good job of dismantling the middle class.

In fact, the federal student-loan program is a disaster, with millions of casualties as student borrowers are pushed into default or into long-term repayment plans that never pay off borrowers' loan balances.

Here's what can be done to stop DeVos' mad-dog scheme to line the pockets of her debt-collector cronies:

1) The state attorney generals should sue Betsy DeVos and DOE every time they attempt to dismantle the states' proper role of protecting consumers from fraud.  As the Times noted, this is what the state AGs are doing.

2) Other states should follow the example of the Massachusetts Bar Association and the Massachusetts Attorney General  and organize teams of volunteer lawyers to represent distressed student-loan debtors in the bankruptcy courts.  If just a few more state AGs joined the Bay State--California, Florida, Illinois, and Texas, for example--I believe the bankruptcy courts would begin revising their harsh attitude toward college borrowers in the bankruptcy courts.

3) The Democrats should take every opportunity to question Trump administration officials under oath about the activities of the student-loan guarantee companies who act as DOE's debt collectors. Why do four of these agencies--nonprofit organizations--individually hold $1 billion in assets while they hound elderly debtors in the bankruptcy courts.  Let's see a breakdown of the attorney fees these agencies are paying to hire asshole lawyers to crush student-loan debtors.

Everyone of good will should take heart at Fed Reserve Chair Jerome Powell's candid admission that he could not explain why the Bankruptcy Code treats student-loan debtors so harshly--basically putting them in the same category as criminals.

As someone once said, when a thing can't go on forever, it won't. The abuses of the federal student loan program can't go on forever. More than 40 million borrowers collectively owe $1.5 trillion in student loans (including private loans); and about half of these borrowers will never repay their debt.

The Federal Reserve Bank of New York and other agencies have documented that student-loan debt is hurting the economy--preventing people from buying homes and saving for retirement.

The time has come for American society to decide: Do we want to continue enriching a bunch of crooks in the for-profit college business and the debt-collecting racket or do we want a middle class?

We know Betsy DeVos' answer: she wants to enrich her corrupt buddies even if she helps destroy the middle class.


References

The Student Loan Industry Finds Friends in Washington. New York Times, March 18, 2018.

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016.

Thursday, January 18, 2018

America's harsh treatment of student-loan debtors: Greed, corruption and heartlessness reach Dickensian proportions

That old wheel is gonna roll around once more
When it does it will even up the score
Don't be weak, as they sew, they will reap
Turn the other cheek and don't give in
That old wheel will roll around again

This Old Wheel
Jennifer Ember Pierce, songwriter
Sung best by Johnny Cash

If you haven't read Charles Dickens by now, just skip it. 
Dickens is well worth reading for his descriptions of injustice in Victorian England: the workhouses, the brutal schools, debtors prisons, and the mercilessness of English law. But  contemporary America is descending to the depths of social injustice every bit as sordid as conditions in Dickens' England. If you don't believe me, read Matthew Desmond's Evicted, published less than two years ago.  
In particular, millions of student-loan debtors are suffering just as much as the characters in Oliver Twist, David Copperfield or Pickwick Papers.  College debtors are defaulting at the rate of 3,000 a day. The U.S. Department reports a three-year default rate of 11 percent, but that figure is meaningless. The five-year default rate for a recent cohort of student debtors is 28 percent, for students attending for-profit schools it's 47 percent.
And the default rate only tells part of the story. Millions of people are in the economic-hardship deferment program--excused from making monthly loan payments while interest piles up. Now we see people stumble into the bankruptcy courts owing three and even four times what they borrowed.

Our government treats all student-loan defaulters like criminals. We aren't hanging and deporting debtors like the English did back in the nineteenth century, but they are treated pretty rough.

For starters, there is no statute of limitations on an unpaid federal student loan. Even if you borrowed the money so long ago you can't remember the school you attended, the government's debt collectors can come after you. 

In Lockhart v. United States, our lovely Supreme Court upheld the law permitting the government to garnish the social checks of elderly student-loan defaulters. The vote was  9 to 0. There were no liberals on the Court the day the Lockhart decision came down. 

And Congress and the courts have conspired to deprive distressed student-loan debtors access to the bankruptcy courts. Under the "undue hardship" standard nestled in 11 U.S.C. sec. 523(a)(8),  debtors cannot discharge their student loans unless they can show undue hardship, which the courts have interpreted harshly.

In recent years, there have been some compassionate and sensible decisions by the bankruptcy courts: the Abney case, the Lamento decision, and the Acosta-Conniff decision out of Alabama (which was reversed on appeal).

But the Department of Education, Educational Credit Management Corporation, and other debt collection agencies have appealed many of these decisions; and few student debtors have the financial or emotional resources for court fights that stretch on for years.  In the Hedlund case, for example, a graduate of Whittier Law School fought in the federal courts for ten years before he finally won a partial bankruptcy relief from his student loans.

Several federal appellate courts have softened the "undue hardship" standard somewhat: the Roth decision by the Ninth Circuit Bankruptcy Appellate Panel, the Seventh Circuit's Krieger decision, and the Eighth Circuit BAP Court's Fern opinion.

By and large, however, the bankruptcy courts have abdicated their role of providing honest but unfortunate debtors a fresh start. No wonder the myth prevails that it is impossible to discharge student loans in bankruptcy. And the Department of Education perpetuates this myth by opposing bankruptcy for people who are in severe distress, like the quadriplegic in the Myhre case.

Now we are enduring the Trump presidency. Betsy DeVos, Trump's Secretary of Education, has a nasty disposition toward student-loan debtors. She is busily dismantling the Obama administration's modest initiatives to rein in the corrupt for-profit college industry. The Republican dominated House Education Committee recently released a bill that would do away with all student--loan forgiveness programs. And a bill has just been introduced to protect attorneys from being sued for engaging in unfair debt collection.

America's financial industry, cheered on by the business news channels, chirp the Panglossian notion that Americans are living in the best of all possible worlds. The stock market soars ever skyward, and the economist says we have virtually reached full employment. The economy is growing at a healthy rate, and everyone is becoming wealthier.

But that's bullshit. The reality is this: millions of Americans are living day to day, burdened by consumer debt they can't repay. Student-loan indebtedness now exceeds accumulated credit card debt and car loans. Our Congress, our President, our Secretary of Education, and our courts are indifferent to the stark reality that we are constructing a society very much like Dickensian England.

Justice, Johnny Cash assures us, will eventually be restored. "That old wheel is gonna roll around once more. When it does it will even up the score." I hope Johnny is right. It will be a good sign if DeVos is forced from the Education Secretary's job and publicly disgraced. 

Don't give in; that old wheel is gonna roll around again.

References

Abney v. U.S. Department of Education, 540 B.R. 681 (Bankr. W.D. Mo. 2015).

Matthew Desmond. Evicted: Poverty and Profit in the American City. New York: Broadway Books, 2016.

Fern v. Fedloan Servicing563 B.R. 1 (8th Cir. BAP 2017).

Lamento v. U.S. Department of Education, 520 B.R. 667 (N.D. Ohio 2014).

Lockhart v. United States, 546 U.S. 142 (2005). 

Krieger v. Educational Credit Management Corporation713 F.3d 882 (9th Cir. B.A.P 2013).


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

Steve Rhode. Proposed Law Will Make it More Likely Debtors Will be Sued Faster if in n Collections. Get Out of Debt Guy (blog), January 18, 2018.
Roth v. Educational Credit Management Corporation490 B.R. 908 (B.A.P. 9th Cir. 2013).

The Wrong Move on Student LoansNew York Times, April 6, 2017.


Wednesday, January 17, 2018

Dept of Ed Puts Fraud First Over Students and Common Sense. Essay by Steve Rhode

By SteveRhode, January 3, 2018

Secretary of Education Betsy DeVos seems to be waging a terrible war against student loan debtors who have been defrauded by their schools in order to extract federal student loan money. Since the Trump administration took over the Department of Education has not actually delivered relief to a single Borrower Defense to Repayment claim. Yet they brag as of December 20, 2017 they have just approved “12,900 pending claims submitted by former Corinthian Colleges, Inc. students, and 8,600 pending claims have been denied.”
Under that Department of Education program the student previously would be forgiven from the student loans obtained by deception and the government would claw back the money the school got.
Most of these claims have been submitted by students of for-profit schools who played fast and loose with their marketing.
But it seems the government is turning its back on students who have been misled by schools to get their student loan money. Not only is the Department of Education changing the rules but they are also proposing rules that students who land better jobs after graduation should not be forgiven from the loans they were defrauded by. Either you are or are not a victim of fraud but the proposed policy create a middle ground where victims get to be only partial victims.
Under the deadline of “Improved Borrower Defense Discharge Process Will Aid Defrauded Borrowers, Protect Taxpayers” the government proposes what they say is more fair. Department of Education Secretary DeVos says “No fraud is acceptable, and students deserve relief if the school they attended acted dishonestly.” But then goes on to say relief is conditional based on gainful employment. – Source

While the Department of Education brags about their recent wave of Corinthian College Borrower Defense to Repayment claims they also disclose “rather than taking an “all or nothing” approach to discharge, the improved process will provide tiers of relief to compensate former Corinthian students based on damages incurred.”

Relief from fraud will be dependent on the current earnings of the victims. Victims earning 70% and above of the income of their peers will only receive a 30 percent forgiveness of the fraudulent student loans. So to be clear, that income test is against the other students who were the victims of the same fraud and not the general population.
As a bonus the Department of Education gives fraud victims this carot “to mitigate the inconvenience for how long it has taken to adjudicate claims, the Department will apply a credit to interest that accrues on loans starting one year after the borrower defense application is filed.”
So the Department of Education will take forever to deal with the forgiveness application and then only tack on a year worth of interest while they drag their feet.
Now to add insult to injury the Department of Education is proposing making it much harder for students to prove they were subject to misrepresentation to induce enrollment in an effort to extract money from students loan debtors.
The proposed forgiveness plan is to eliminate any successful judgment against a school by an Attorney General as proof of deception. Instead the individual student would have to obtain an individual judgment against the school. This would require a legal action that nearly all students would never be able to afford to file. Additionally the defrauded student would have to show clear and convincing evidence they were intentionally misled and that misrepresentation let to monetary harm.
“They’ve made it almost impossible for borrowers to meet the misrepresentation standard by requiring them to demonstrate the intent of the school especially when students don’t have the power of discovery” to examine the inner workings of a school, said Clare McCann, deputy director of higher education policy at New America, who worked on the Obama-era policy. “They took every dial and dialed to the far extreme. It really tries to make [the regulation] as useless as possible.”
Pretty soon we are going to need a Department of Education Victim Helpline to assist people soon to be screwed over by a government department that clearly appears to be putting for-profit colleges first.


*****

Steve's essay was originally posted on The Get Out of Debt Guy web site.
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here. 



Tuesday, January 16, 2018

Student Loan Default Crisis grows worser and worser: Brooking Institution says minorities and for-profit students are hardest hit

First of all, I realize that the word "worser" is not standard English. Nevertheless, "worser" appears in Hamlet (act 3,scene 4). If it is good enough for Shakespeare, it is good enough for me.

Now to the topic at hand. Judith Scott-Clayton recently published a report for the Brookings Institution on the student-loan default crisis. Twelve-year default rates are going up--with minority students and for-profit-college attenders experiencing the highest default rates.

For the 2004 cohort of borrowers who attended a for-profit college, the 12-year default rate was 46.5 percent (darn near half). For African American borrowers from the same cohort, 37.5 percent defaulted within 12 years. The black default rate was three times higher than the white default rate (12.4 percent) and six times higher than the rate for Asians (only 6.2 percent).

Scott-Clayton's report makes clear that the crisis in student-loan defaults among African Americans is acute. Based on the current trajectory, she projects 70 percent of black borrowers will default on their student loans by the end of 20 years.

Scott-Clayton points out that African American default rates are high even for black students who graduate from college. The default rate for African American graduates is five times higher than the default rate among white graduates.  In fact, she points out, the default rate for black college graduates is higher than the default rate for white college dropouts.

African Americans also borrow more money than white students. For the 2004 entry cohort, black students borrowed twice as much as white students for their undergraduate education.

The Scott-Clayton report is alarming, but a 2015 Brookings report (which Scott-Clayton referenced) is even more alarming. Looney and Yannelis, authors of the 2015 report, found that 47 percent of the people in the 2009 cohort of borrowers who took out loans to attend for-profit colleges defaulted within 5 years. For the cohort as a whole, the default rate was 28 percent.

Basically, however, the Scott-Clayton report and the Looney-Yannelis report told us what we already knew.  Student borrowers who attend for-profit colleges have shocking student-loan default rates; and African American students have much higher default rates than white students.

Scott-Clayton concluded her report with some tepid suggestions, which I will quote:
[T]he results suggest that diffuse concern with rising levels of average debt is misplaced. Rather, the results provide support for robust efforts to regulate the for-profit sector, to improve degree attainment and promote income-contingent loan repayment options for all students, and to more fully address the particular challenges faced by college students of color.
Frankly, I disagree with Scott-Clayton's bland recommendations. First, of all, we should be very concerned about the rising level of student debt across all sectors of higher education--not just the for-profit sector.  Millions of student borrowers are suffering, and some of those sufferers are white graduates of Ivy League colleges.

Secondly, although it is easy to call for more "robust" regulation of the for-profits, Betsy DeVos is headed in the opposite direction. DeVos is doing all she can to prop up the corrupt for-profit college industry and to lift all regulatory constraints against the for-profit institutions.  In my view, the best way to deal with the for-profit colleges is to cut off their federal funding and shut them down.

And I stridently disagree with Scott-Clayton's blithe call to promote income-contingent repayment plans. Most of the people in those plans are not making monthly payments large enough to service accruing interest.  At the end of their 20- or 25-year repayment plans, many will owe more than they borrowed.

Moreover, although people who complete long-term repayment plans will have any remaining debt forgiven, the amount of the forgiven debt will be taxable to them.

I suspect the Brookings Institution is advancing a hidden agenda with its reports on the student-loan crisis. Brookings wants the public to focus on minority students and the for-profit colleges while ignoring the fact that debt levels are rising across all sectors of higher education and injuring millions of student borrowers--not just students of color.

Let's face facts. The for-profit colleges are not the only institutions ripping off their students. The Ivy League schools are exploiting students as well. And with each passing day, the crisis gets worser and worser.




References

Adam Looney and Constantine Yannelis. A crisis in student loans? How changes in the characteristics of borrowers and the institutions they attended contribute to rising loan defaults. Brookings Papers on Economic Activity, 2015.

Judith Scott-Clayton. The looming student loan default crisis is worse than we thought. Brooking Institution, January 11, 2018.



Sunday, January 14, 2018

Attention, Student-Loan Debtors: You Are Being Evicted from the Middle Class

Evicted: Poverty and Profit in the American City tells the story of how greed and the nation's legal system have driven poor Americans to the brink of homelessness.  Author Matthew Desmond follows the lives of eight Milwaukee residents who scramble from day to day to avoid being evicted from their homes and thrown into the street. It is a good read, and I highly recommend it.

As I read Desmond's book, I was struck by the similarity between the low-income housing crisis and the student-loan crisis.  As Martin Luther King observed, "Every condition exists simply because someone profits by its existence." Slumlords profit from renting substandard housing to the poor; stockholders and hedge fund owners profit from for-profit colleges.

And slumlords and for-profit colleges both rely on the government to help them exploit the poor. Slumlords can call on the local sheriff to evict tenants for nonpayment; and for-profit colleges rely on Betsy DeVos's Department of Education to protect their venal interests. Landlord-tenant laws favor the landlords, and the Bankruptcy Code protects the banks, which loan money to students at exorbitant interest rates, knowing that student debtors will find it almost impossible to discharge their onerous debts in the bankruptcy courts.

As Desmond wrote in Evicted, "The United States was founded on the noble idea that people have 'certain inalienable Rights, that among these are Life, Liberty and the pursuit of Happiness."  Indeed, the nation's founders considered these rights to be God-given and "essential to the American character."

Desmond argues that "the ideal of liberty has always incorporated not only religious and civil freedoms but also the right to flourish." In twenty-first century America, people need decent housing to flourish and they also need freely accessible education.

But our federal student-loan program is designed to extinguish the American right to pursue happiness and to flourish. The federal government allows corrupt for-profit colleges to lure vulnerable people into enrolling in education programs that are far too expensive and often worthless. The victims are forced to take out student loans. And the federal government stands by to be every student's sugar daddy--distributing about $150 billion a year in various forms of student aid.

The for-profit colleges get more than their fair share of federal money. In fact, many of them receive from 80 to 90 percent of their entire operating budgets from federal student loans and federal Pell grants.

Then when student-loan victims are unable to find well-paying jobs to service their debt, our once generous government becomes a tyrant. The Department of Education opposes bankruptcy relief for nearly everyone--even a quadriplegic (Myhre v. U.S. Department of Education, 2013) and people on the edge of homelessness (Abney v. U.S. Department of Education, 2015).

America will not begin solving the student-loan crisis until our nation's leaders acknowledge that the federal student-loan program is a massive human rights violation that is evicting millions of people from the middle class. Students who took out loans to attend for-profit colleges have been especially hard hit; almost half the students who took out loans to attend a for-profit college default on their loans within five years.

Student debtors are defaulting at the rate of 3,000 people a day, which ruins their credit and leaves them vulnerable to having their wages garnished. The government can even seize part of an elderly defaulter's Social Security check.

How can higher education return to decency and sanity? First, we must remove Betsy DeVos from her post as Secretary of Education. DeVos is about as qualified to run the Department of Education as the late Charlie Manson. And then we must revise the Bankruptcy Code to allow honest but unfortunate student debtors to discharge their loans in bankruptcy court. And finally, we must shut down the for-profit college industry, which DeVos so assiduously protects.

Student-loan debtors: Evicted from the middle class
References

Abney v. U.S. Department of Education, 540 B.R. 681 (Bankr. W.D. Mo. 2015).

Matthew Desmond. Evicted: Poverty and Profit in the American City. New York: Broadway Books, 2016.

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

The Wrong Move on Student LoansNew York Times, April 6, 2017.



Friday, January 12, 2018

Betsy DeVos is trying to nullify a federal law intended to give defrauded students relief from student loans: Our government is shielding crooks

Betsy DeVos is in bed with the corrupt for-profit college industry. Her slavish pandering to the for-profit-college racketeers is truly shocking. Now she is trying to nullify a law that gives relief to students who were defrauded by for-profit colleges.

In 1994, Congress passed a law giving students an avenue for getting their student loans discharged if they were defrauded by the college they attended.  The law was not used much until Corinthian Colleges--a for-profit college group--collapsed and filed for bankruptcy. At the time of its demise, Corinthian had over 300,000 students or former students; and several thousand filed so-called borrower defense applications seeking to get their student loans discharged on the grounds they were defrauded by Corinthian.

The Obama administration adopted regulations for implementing the borrower-defense rule, which provided a regulatory avenue for reviewing fraud claims. But Betsy DeVos nullified those regulations. DeVos said the Obama regulations would allow students to wrongly obtain "free money" at the expense of for-profit colleges.

DeVos launched a new round of administrative review, and DOE said the new regulations would probably not be implemented until 2019. The DeVos DOE's new borrower-defense rules are very different from what the Obama administration had fashioned. In fact, the DeVos regulations, if implemented, will basically invalidate the federal borrower-defense statute altogether.

David Halperin, writing in Huffington Post, observed that "the DeVos-Trump draft borrower defense rules . . . essentially nullify the 1994 law that gives former students who are ripped off by their colleges . . . the right to seek cancellation of their student loans."

As Halperin explained, the DeVos rules erect "numerous and redundant barriers to students getting the benefit of that law." The DeVos draft rules are so draconian that a representative of the for-profit college industry admitted that the new rules "feels a little stacked against the student."

For example, under the rules DeVos proposes, students will have to prove their fraud claims by "clear and convincing evidence." This is a very high legal barrier, especially when you consider that the colleges--not the complaining students--have access to the evidence of fraud.

Of course, state attorneys general have been suing the for-profits for fraud.  Surely a former student could present a judgment for fraud against a for-profit college as evidence that the student herself is a fraud victim. No, DeVos' new regulations will not permit a fraud victim to present a judgment against a for-profit college as part of the student's own fraud claim. As Steve Rhode wrote recently:
The proposed forgiveness plan is to eliminate any successful judgment against a school by an Attorney General as proof of deception. Instead, the individual student would have to obtain an individual judgment against the school. This would require a legal action that nearly all students would never be able to afford to file.
If the DeVos rules go into effect, fraud victims will rarely if ever obtain relief from their student loans. Abbey Shafroth, an attorney with the National Consumer Law Center, said this: "I really think [the DeVos rules] would effectively do away with borrowers' ability to get relief in almost all circumstances."

The DeVos Department of Education's proposed borrower-defense rules demonstrate that it has abandoned all pretense of fairness and decency toward student-loan debtors. DeVos herself is nothing more than obsequious book licker for the for-profit college industry, and Congress seems unable or unwilling to rein her in.

Last July, Eighteen Democratic state Attorneys General sued DeVos and the Department of Education, seeking to force the Department to implement the Obama-era borrower defense rules. I hope they are successful because what DeVos is essentially trying to do is eviscerate a 1994 statute passed by Congress for the express purpose of  providing student fraud victims with well deserved relief from their student loans.




References

David Halperin. Backing DeVos Repeal of Obama Rules, For-Profit Colleges Vilify Students. Huffington Post, January 9, 2018.

Andrew Kreighbaum. Few Details on Tougher Borrower-Relief Standards. Inside Higher Ed, January 9, 2018.

Andrew Kreighbaum. Devos: Borrower-Defense Rule Offered 'Free Money'Inside Higher Ed, September 26, 2017.

Steve Rhode. Dept of Ed Puts Fraud First Over Students and Common Sense. Getoutofdebtguy.org (blog), January 3, 2018.

Editorial: Scamming for-profit schools roar back under Betsy DeVos. Chicago Sun-Times, December 25, 2017.




Thursday, January 4, 2018

Forget the Russians: Democrats should focus their energy on removing Betsy DeVos from Trump's Cabinet

Almost 44 million Americans are student-loan debtors, and every single one of them should see Betsy DeVos as their mortal enemy. Since President Trump appointed her as Secretary of Education, DeVos has done nothing to ease the suffering of college borrowers. On the contrary, she has done everything she can to prop up the venal and corrupt for-profit college industry, which has preyed on vulnerable and naive students, many of them minority members or just plain poor.

We have known for years that the for-profit college racket is a cancer. Senator Tom Harkin's 2012 report on the for-profits made that fact absolutely clear. And we know that a high percentage of people who take out student loans to attend these shyster colleges default on their loans. Nearly half of a recent cohort of borrowers who attended for-profit colleges defaulted within five years. It was recently reported that more than half of the students who took out student loans to attend 1,000 colleges and schools had not paid down one dime of their student loans seven years into repayment. Most of those 1,000 institutions are for-profits.

Minorities have been especially injured by the for-profit colleges. Three quarters of African Americans who take out loans to study at a for-profit college and then drop out eventually default.

In my view, the Obama administration did not do a great job of reining in the for-profit racketeers, but it did make an effort. The combined efforts of the Obama Department of Education and several state attorney generals brought down two bad actors: Corinthian Colleges and ITT Tech. These two organizations had a total of a half million students and former students at the time they closed and filed for bankruptcy.

And the Obama administration put regulations in place to process students' fraud claims--claims against Corinthian in particular. But Betsy DeVos derailed those regulations and appears intent on protecting the for-profits from fraud claims. She's cooked up a bogus formula for resolving fraud claims, awarding only partial compensation to victims.

As Steve Rhode noted in a recent essay, the DeVos DOE has not provided relief to a single student borrower who was defrauded by a for-profit college, although it has approved around 13,000 claims by former Corinthian students (while rejecting 8,600 pending  claims).

DeVos also nullified an Obama-era regulation that would prohibit the for-profits from forcing their students to sign covenants not to sue as a condition of enrollment.  In addition, DeVos is slow rolling the Public Service Loan Forgiveness Program (PSLF), which provides debt relief to people who devote ten years to public service. Indeed, the Trump administration proposes to do away with the PSLF program.

And if that weren't enough, the Republicans sent a bill out of the House Education Committee that would do away with student-loan forgiveness altogether. DeVos has not formally endorsed this bill, but she called it a "starting point."  The bill, if it becomes law, would give student borrowers only two options--pay off their loans in ten years or go into a perpetual income-based program that would not end until the loans are paid off or the student borrower dies. Oh yes, and the bill would eliminate the authority of state attorney generals to police the student loan industry.

And what have the Democrats done in response to DeVos' shockingly obsequious behavior toward the for-profit college racketeers? Not a friggin' thing. Senator Elizabeth Warren--self-proclaimed consumer advocate, writes stern letters to DeVos and other government bureaucrats, but she can't point to a single accomplishment in terms of student-loan relief.

I give the Democrats grudging credit for at least introducing legislation that addresses the student-loan crisis. The Delaney-Katko bill (co-sponsored by 25 Democrats and one Republican) would open the bankruptcy courts to deserving student borrowers, which is really the only comprehensive solution to the crisis. But that bill will never make through a Republican dominated Congress that is totally beholden to the financial industry.

In my mind, the litmus test for Congress in terms of student-loan relief is the Warren-McCaskill bill that would bar the federal government from garnishing the Social Security checks of elderly student-loan defaulters. Passing this bill would at least alleviate the suffering of the 114,000 older Americans who are seeing their Social Security income reduced due to unpaid student loans.

 It is not enough for Senators Warren and McCaskill to simply file this bill; they need to get it to a vote. What Republican would vote against that bill? Can't Senator Chuck Schumer and Representative Pelosi walk across the aisle and get Warren-McCaskill bill signed into law with bipartisan support?

Frankly, if there is not enough good will between Republicans and Democrats to enact the Warren-McCaskill Social Security relief bill, which only provides puny student-debt relief, then student debtors should say the hell with both parties and form a third political party.

In the meantime, Democrats should focus on getting Betsy DeVos out of Trump's cabinet. I don't know if her slavish catering to the for-profit-college gang amounts to high crimes and misdemeanors for impeachment purposes, but this I know: Betsy has got to go.

Image credit: GQ Magazine


References

Douglas Belkin, Josh Mitchell, & Melissa Korn. House GOP to Propose Sweeping Changes to Higher EducationWall Street Journal, November 29, 2017.

Jillian Berman. House Republicans seek to roll back state laws protecting student loan borrowers. Marketwatch.com, December 7, 2017.

Danielle Douglas-Gabriel. GOP higher ed plan would end student loan forgiveness in repayment program, overhaul federal financial aidWashington Post, December 1, 2017.

Danielle Douglas-Gabriel. Dems raise concern about possible links betwen DeVos and student debt collection agencyWashington Post, January 17, 2017.


Danielle Douglas-Gabriel. Elizabeth Warren wants the Education Dept.'s use of earnings data investigated. Washington Post, January 2, 2018.

Paul Fain. Half of black student loan borrowers default, new federal data showInside Higher Ed, October 17, 2017.

Andrea Fuller. Student Debt Payback Far Worse Than BelievedWall Street Journal, January 18, 2017. 

Andrew Kreighbaum. DeVos on Higher Education Act Rewrite. Inside Higher Ed, December 15, 2017.

Jack Moore. Betsy DeVos may be Gearing Up to Screw Over Public Service Workers Who Expect Student Loan Forgiveness. GQ.com, August 3, 2017.

Representative John Delaney press releaseDelaney and Katko File Legislation to Help Americans Struggling with Student Loan Debt, May 5, 2017.

Senator Claire McCaskill Press Release, December 20, 2016. McCaskill-Warren GAO Report Shows Shocking Increase in Student Loan Debt Among Seniors.

Senator Elizabeth Warren Press Release, December 20, 2016. McCaskill-Warren GAO Report Shows Shocking Increase in Student Loan Debt Among Seniors

Steve Rhode. Dept of Ed Puts Fraud First Over Students and Common Sense. Getoutofdebtguy.com, January 3, 2017.

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).

United States Health, Education, Labor and Pension Committee. For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. July 2012. Accessible at: http://www.help.senate.gov/imo/media/for_profit_report/PartI.pdf