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

Thursday, October 3, 2019

America is a two-headed snake and both heads are venomous: Nasty politics will destroy us all

My friend David, a herpetologist, recently returned from a research expedition in India where he discovered a two-headed snake. David identified the snake as a banded krait, a venomous creature common in India and Southeast Asia.  The krait's bite is quite lethal, generally killing the victim in less than eight hours. When a banded krait has two heads, both heads are venomous.

A two-headed snake! How does that work?  Not very well.

David told me that both heads have independent executive powers, although one head usually dominates the other. The two heads sometimes disagree about what direction to take and they often fight with each other for food. Because the two heads don't get along well together, they usually die quite soon if left in the wild.

It seems to me that America has become a two-headed snake. Conservatives dominate in the South, the Midwest, and the Rocky Mountain West. Liberals dominate on both coasts and in the large cities--Chicago, Houston, Denver, etc.

At the margins at least, conservatives and liberals hate each other. Liberals are outraged at the election of Donald Trump to the presidency, and some will stop at nothing to overturn the election results. If the Democrats can't impeach him based on the Mueller report, they will try to impeach him for a phone call to Ukraine. If that doesn't work, new justifications will pop into Adam Schiff's head and will continue popping into his head until Trump is out of office.

Meanwhile, legislatures in conservative states are trying to diminish a woman's right to have an abortion, passing laws that may very well be unconstitutional.  And Trump's education secretary, Betsy DeVos, has angered so many people with her reckless and heartless administration of the student-loan program that she needs a personal-security detail that costs the taxpayers $21,000 a day.

Our nation's politics are insane, and we are more politically divided now than at any time since the Civil War. Of course, America has seen nasty politics before: the Know-Nothing party of the 1850s, the rising of the Ku Klux Klan in the 1920s, and the McCarthy era.  But these demented episodes were short because Americans of goodwill came to their senses. But I see no end to our present political madness.

If Trump is re-elected, his enemies in the Democratic Party will continue to undermine him and plot for new ways to impeach him. If a Democrat is elected and some of the candidates' spending schemes are enacted into law, the nation will quickly go bankrupt and the stock market will plummet so far and so fast that 1929 will look like a Methodist picnic by comparison.

Meanwhile, Russia, China, North Korea, and Iran are watching our political antics like a bunch of kids eating popcorn during a Three Stooges movie. They can see we are self-destructing, and it must be fun for them to watch.

American politics has become a venomous, two-headed snake. Our elected leaders are so bent on crushing their political enemies that they are willing to wreck the national economy just to harm their foes. And make no mistake: our nasty politics will destroy us all--no matter which venomous head prevails over the other.









Tuesday, September 24, 2019

Like driving into a CAT 5 hurricane, the Department of Education is taking the student-loan program toward catastrophe

I lived in Houston when Hurricane Rita hit the Gulf Coast in 2005. Weather forecasters predicted that Rita would make landfall in Galveston Bay and that Galveston and towns south of Houston would suffer massive flooding and wind damage. The hurricane predictors also warned that parts of Houston would flood.

Responding to these warnings, hundreds of thousands of people--perhaps a million--fled Greater Houston in every direction. Some Houstonians traveled west toward San Antonio on I-10, some drove up I-45 toward Dallas, and others evacuated to the east on I-10.

My wife and I decided to head east toward Baton Rouge, where we could shelter with family. But we miscalculated. Our major mistake was to evacuate too late. As we drove east on I-10, we discovered that the highway was clogged with cars as were all auxiliary routes and surface roads.

Moreover, as we listened to our car radio, we heard the hurricane experts change their prediction about where Rita would make shore. It would not batter Galveston, they said; it would make landfall in southwestern Louisiana near the town of Cameron.

After about an hour on the road, my wife and I reached these conclusions. First, we would not reach Baton Rouge before Rita made landfall because the Interstate was fast turning into a parking lot. Second, we would run out of gas before reaching our destination and become stranded on the highway. And third--and perhaps most importantly--we were driving straight into the storm!

So we turned around and headed home to Houston. We arrived at a deserted city, but the Alabama Ice House was open and serving cold, draft beer to a small group of patrons. I still remember the taste of my ice-cold Red Stripe, served by a bartender who didn't give a damn about hurricanes. In the end, we suffered no damage from Rita.

After that experience, I vowed to pay closer attention to oncoming storm and evacuate early if I had any indication that a hurricane was headed my way.

The federal student-loan program is the economic equivalence of a CAT 5 hurricane hovering just offshore of our national consciousness. Education Secretary Betsy DeVos has described the program as a looming thunderstorm but she seems intent on driving straight into it.

As everyone knows from listening to the media, 45 million Americans have outstanding student loans that now total $1.6 billion. As DeVos has publicly admitted, more than 40 percent of those loans are "in distress" and only about one debtor in four is paying back both principal and interest on this debt.

More specifically, we know that 7.3 million college borrowers are in income-driven repayment plans that are designed so that people will never pay off their loans. More than 5 million people are in default, and another 6 million have loans in deferment or forbearance.

That's 18 million people whose total indebtedness grows larger by the month. Very few of these 18 million souls will ever pay back their student loans.

What is the U.S. Department doing about it? As I said, Betsy DeVos is driving full speed into the storm.  She refuses to grant significant debt relief to the people who signed up for the Public Service Loan Forgiveness Program--granting only about 1 percent of the applications.

And DeVos's DOE is doing everything it can to deny distressed student-loan debtors relief in the bankruptcy courts. DOE or its hired gunslinger, Educational Credit Management Corporation, fight nearly every student debtor who attempts to discharge student loans by filing for bankruptcy.

DeVos is also slowing down and complicating the process whereby college borrowers can have their student loans forgiven on the grounds that their college or school defrauded them.

Is the student-loan program in a bubble similar to the housing bubble of 2008? Yes, it is. In fact, when the student-loan bubble bursts, the suffering will be greater than the home-mortgage disaster.

The Democrats are "woke" about this crisis and Senators Warren and Sanders propose massive debt relief.  As I have said in a previous commentary, I am OK with their proposals; but politically that is not likely to happen.

As I have been saying for a quarter-century (yes, really), the best solution to this train wreck is to allow insolvent student-loan debtors to discharge their loans in bankruptcy. The Democrats have introduced legislation to accomplish this, and several Democratic presidential candidates are among the bill's co-sponsors.

But that bill is going nowhere, in spite of the fact that the Democrats hold the House of Representatives.  So we have two political parties that are ignoring the hurricane warnings. The Democrats decry the situation without doing anything about it in Congress, and the Republicans are racing to the center of the storm, oblivious to the human disaster that is building like a tropical depression in the Gulf of Mexico.

This will not end well for anyone.



Sunday, September 8, 2019

Wall Street Journal decries "The Great Student-Loan Scam": But the flimflam is even worse than WSJ describes

Last month, the Wall Street Journal published an editorial titled "The Great Student-Loan Scam," in which the newspaper excoriated the Obama administration for the way it handled the federal student loan program. According to WSJ, Democrats "nationalized" the student-loan market in 2010 to help pay for Obamacare.  Eliminating private lenders, Democrats said, would save taxpayers money.

Indeed, the Congressional Budget Office treated the federal student-loan program as a profit center during the Obama years by projecting that it would actually make money. Remember when Senator Elizabeth Warren accused the program of raking in "obscene" profits?

But of course, the student-loan program is not a profit center. It's been bleeding red ink for years.  The Obama administration's generous income-based repayment plans (PAYE and REPAYE) were touted as compassionate programs to relieve overburdened student borrowers and keep them out of default. But the plans were structured so that most borrowers aren't paying down the principal of their loans.

As one Obama-era advisor recently admitted, "There will be substantial amounts of student debt that will never be repaid." Oh, yeah. Most of it will never be repaid.

In fact, the student-loan crisis is worse than the Wall Street Journal characterized it. A Brookings Institution report, issued several years ago, projected that almost half of all student loans taken out to attend for-profit colleges would be in default within five years after entering repayment.

Education Secretary Betsy DeVos, of all people, candidly acknowledged how bad the situation is last November.  "[O]nly 24 percent of FSA borrowers--one in four--are currently paying down both principal and interest," DeVos said in a speech. Almost 20 percent of borrowers are delinquent on their loans or in default. And, by DeVos's calculations, 43 percent of all outstanding loans "are in distress" (whatever that means).

 Unfortunately, although DeVos is honest about the scope of the student-loan crisis, she is doing all the wrong things. DeVos's DOE bungled the Public Service Loan Forgiveness program, rejecting 99 percent of the initial applications for debt relief. And just a few days ago, the Education Department issued new regulations that make it more difficult for student borrowers to bring fraud claims against for-profit colleges.

In short, the Wall Street Journal accurately labeled the federal student-loan program as "the great student-loan scam." But the program is much worse than that. About 45 million Americans hold a combined total of $1.6 trillion in federal student loans, and at least half of those people will carry their student-loan debt to their graves. Yes, the federal student-loan program is more than a giant scam, it's a national catastrophe.







Monday, August 19, 2019

Trump hires a fox to run the chicken house: Former student-loan servicing exec named as new Student-Loan Ombudsman

President Trump and Education Secretary Betsy DeVos remind me of the two bullies in The Christmas Story: Scott Farkus and Grover Dill, who spend their days terrorizing elementary-school kids.

Since Trump was elected, his administration has aggressively signaled that it does it not give a goddamn about student-loan debtors. In fact,  his people seem to be looking for ways to demean them and increase their misery. Here's the latest:

The Trump administration recently announced that it is appointing Robert G. Cameron, a former executive of a student-loan servicing company as the Student Loan Ombudsman for the Consumer Financial Protection Bureau. Cameron is a former senior executive of the Pennsylvania Higher Education Assistance Agency (PHEAA), which operates nationally under the name of Fedloan Servicing, the outfit that royally screwed up the Public Service Loan Forgiveness program.

There's good money in being a student-loan servicing company. According to Mother Jones, PHEAA gave out $2.5 million in bonuses to executives in 2007 and spent hundreds of thousands of dollars a year on board retreats that included $150 cigars and falconry lessons.

As the Government Accountability Office reported last year, Fedloan Servicing (which GAO did not identify by name) processed more than one million people's applications to have their employment certified as eligible for student-loan forgiveness. Fedloan approved 75 percent of those applications.

Then when the borrowers filed to have their student loans forgiven, the Department of Education denied more than 90 percent of their claims. Fedloan Servicing has been sued for giving student borrowers inaccurate information, and the Department of Education has been sued for arbitrarily and capriciously denying public-service loan forgiveness claims.

So why would the Trump administration appoint an executive from a thoroughly discredited student-loan servicing outfit to be the Student Loan Ombudsman? Obviously, they don't care about the optics.

Trump and DeVos are blithely indifferent to the fact that there are 45 million student-loan borrowers in the United States, and most of them will vote in the 2020 election. They're "screwing over" an important constituency while Democratic presidential nominees are promising student-loan forgiveness.

By appointing Robert Cameron as Student Loan Ombudsman, Trump hired a fox to run the chicken house. But Trump forgot one important fact-- these chickens can vote.


Donald Trump and Betsy Devos: Modern-day bullies 

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).