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

Saturday, May 9, 2020

Income-Based Repayment Plans for Student Debtors: Flushing Money Down the Toilet

Congress has been dropping "helicopter money" into the national economy--adding significantly to the national debt, which now exceeds $25 trillion.

That's a lot of money for our grandchildren to pay back. My own grandkids are ambivalent about this situation. My four-year-old says he thinks he can do it if his dad will increase his allowance, but my six-year-old doesn't think it's fair for him to pay for his ancestors' wars in the Middle East.

Now let's look at another economic crisis our grandchildren will pay for--the federal student-loan program.

According to the U.S. Department of Education's own numbers, approximately 43 million Americans have student-loan debt totaling $1.5 trillion.  And, if DOE can read its own balance sheet, it will see that it has basically given up on collecting about a third of that debt.

As of the first quarter of this year, 8.1 million student borrowers are in income-driven repayment plans (IDRs). By the very terms of those plans, these borrowers make loan payments based on their income, not the amount they borrowed. Under most of these plans, borrowers at similar income levels make the same sized monthly loan payments regardless of whether they owe $20,000, $50,000, or $100,000.

Virtually everybody in an IDR is making payments so low that the underlying debt grows larger due to accrued interest--interest that is capitalized.  In other words, virtually no one in an IDR is going to pay off his or her student loans.

How much money are we talking about? DOE's recent report tells us that a half-trillion dollars ($507 billion) are owed by people in IDRs.  In fact, 400,000 people in IDRs owe $200,000 or more.  And--inexplicably--300,000 student debtors are in IDRs who owe less than $5,000.

As Education Secretary DeVos publicly acknowledged in late 2018, the federal government carries student-loan debt on its books as performing loans, which a commercial bank could not do. In fact, she made the astonishing admission that outstanding student loans make up 30 percent of all federal assets!

But in fact, at least 8.1 million student loans are not performing. On the contrary, the IDR programs were designed in such a way that borrowers never pay them back.  

Education Secretary Betsy DeVos announced last year that she was hiring McKinsey & Company, a private consulting firm, to determine just how big the student-debt debacle really is.  So far, she has released no report.

But we don't need a high-priced consulting firm to tell us what is going on. The student-loan program is bankrupt. And while Betsy DeVos sails along on her private yacht, DOE lawyers are hounding desperate student-loan borrowers through the bankruptcy courts, demanding that they be put into IDRs. Those IDR plans can last for as long as a quarter of a century, and virtually no one in such a plan will ever pay off their student-loan debt.



References

Ferguson, Adam. When Money Dies: The Nightmare of Deficit Spending, Devaluation, and Hyperinflation in Weimar Germany. New York: Public Affairs Publishing (2010) (originally published in 1975).

Tuesday, May 5, 2020

Betsy DeVos sued for seizing student borrowers' paychecks in violation of the CARES Act: "We don't care. We don't have to."

Betsy DeVos, President Trump's Education Secretary, doesn't just think she's above the law. She IS above the law.

A few days ago, the National Consumer Law Center filed a class-action suit against Betsy DeVos and the U.S. Department of Education asking a federal judge to stop DeVos and DOE from garnishing student borrowers' paycheck in violation of the CARES Act.

Congress passed the CARES Act, you may recall, in response to the coronavirus pandemic, and the law explicitly put a temporary moratorium on collection efforts against student debtors who are in default.

According to the NCLC, the Department of Education, either directly or indirectly, kept on garnishing paychecks in defiance of federal law.  Elizabeth Barber, the lead plaintiff, makes $12.89 per hour working as a home health care aide. She says DOE garnished her paycheck, even though the CARES Act gave her a six-month reprieve from making student-loan payments.

This isn't the first time DeVos and her DOE cowboys have been accused of ignoring the law. Just last fall, Judge Sallie Kim held DeVos and the Department of Education in contempt for failing to stop collection efforts against student borrowers who had attended one of the Corinthian Colleges.  Judge Kim had enjoined DOE from trying to collect from those students, but the agency did not abide by her order. Judge Kim fined DOE $100,000 for its wrongful collection efforts.

DeVos reminds me of Ernestine, Lily Thomlin's telephone-operator character in those Saturday Night Life sketches from the 1970s.  When people complained about their telephone service, Ernestine's response was, "We don't care. We don't have to. We're the phone company."

Betsy DeVos apparently doesn't care about downtrodden student-loan debtors. When participants in the Public Service Loan Forgiveness Program applied for student-debt relief, her agency denied 99 percent of the applications.

And now, NCLC says, DeVos and DOE have violated the CARES Act, continuing to collect on student-loan defaulters in open violation of a law that Congress passed less than two months ago.

I don't get it. DeVos is either astonishingly incompetent, or she just doesn't give a damn.


We don't care. We don't have to. We're the Department of Education.




Sunday, May 3, 2020

Rodger Love v. U.S. Department of Education: Betsy DeVos wears no clothes (metaphorically speaking)

According to Urban Dictionary, "The Emperor Wears No Clothes," is a phrase "often used in political or social contexts for any obvious truth denied by the majority despite the evidence of their eyes, especially when proclaimed by the government."

This metaphor came to mind as I read the adversary complaint filed in Love v. U.S. Department of Education.  Rodger Love is asking a Kansas bankruptcy court to discharge his student loans--both federal and private.

As Mr. Love said in his complaint, he "has no hope of paying back the loans, and they have created a noose around [his] neck for the remainder of his economically productive years."

Mr. Love is clearly right. He is 47 years old. Although he is employed full-time, he "does not anticipate receiving substantial raises or promotions in the future." Nevertheless, Love is saddled with $167,000 in student loan debt, apparently to study at Washburn University, where he did not obtain a degree.

He now owes far more than he actually borrowed.  Love took out $29,000 in federal loans and $68,000 in private loans--totally just $97,000. The balance of his debt--about $70,000--is mostly accumulated interest.

Indubitably, Betsy DeVos's Department of Education will oppose a student-loan discharge for Mr. Love. DOE will probably argue that Mr. Love has not done enough to maximize his income--no matter what he has done to improve his financial circumstances. 

If Mr. Love eats a hamburger at McDonald's twice a month, DOE will say he hasn't been frugal.  And no matter what the court records reveal, DOE will almost certainly argue that Mr. Love has not handled his student loans in good faith.

But that will be government bullshit, already packaged in DOE lawyers' canned legal briefs.

I'll bet you dollars to donuts that DOE will tell the bankruptcy judge that Mr. Love should sign up for a 25-year repayment plan.  But, as he pointed out in his complaint, he will be 72 years old before he finishes a 25-year plan.  And since the payments won't cover accruing interest, he will owe more than he owes right now when the plan terminates in 2045.  And whatever amount is forgiven will be taxable to him as earned income.

That's nuts. Why does DOE continue, year after year, to oppose bankruptcy relief for student-loan debtors who are clearly at the end of their rope?

One reason.  DOE forces desperate debtors into long-term repayment plans so it can pretend that mountains of student debt are loans in good standing. But that is not true. Billions of dollars in outstanding student loans is not collectable.

If Education Secretary Betsy Devos believes DOE's opposition to student-loan bankruptcy helps maintain the solvency of the federal student loan program, she is the emperor who wears no clothes.  That stance defies the naked truth, which is this: Forty-five million Americans have outstanding student loans, and at least half of it will never be paid back.

References

Love v. U.S. Department of Education, Case No. 13-41680 (Bankr. D. Kan. Jan. 28, 2020) (complaint).

Hey, Betsy--put some clothes on!


Thursday, April 30, 2020

Massive student-loan forgiveness is now a mainstream idea: Even Al Jazeera is on board

Around 45 million Americans owe a total of $1.6 trillion in student loans, and approximately 20 million of those debtors are not paying them back.  Betsy DeVos, President Trump's Education Secretary, admitted more than a year ago that only one out of four student borrowers was paying down principal and interest on their federal loans. "In the commercial world," DeVos observed, "no bank regulator would allow this portfolio to be valued at full, face value."  

So why not just forgive all this festering debt--debt that is preventing struggling Americans from buying homes, having children, or saving for their retirement?

That notion is now a mainstream idea in American politics. Senator Bernie Sanders got the ball rolling when he called for wiping out all this debt.  Senator Elizabeth Warren proposed something slightly less radical--forgiving student debt up to $50,000.  And Joe Biden, the Democrats' presumptive nominee for the Presidency, wants to forgive all debt owed by individuals who attended a public university or a historically black college (HBCU).

Even Al Jazeera, an Arabic-focused news organization, based in Qatar, wants to forgive all federal student loan debt.  America is experiencing its worst economic crisis since the 1930s, Al Jazeera reporters pointed out, and the U.S. needs to prioritize relief  for "people, not profit." Al Jazeera calls for canceling all student loan debt, which would "help those hit hard by the coronavirus pandemic to "rebuild their futures."

Writing off all federal student debt is not a crazy idea, especially, as I just said, a bunch of it isn't being paid back anyway. But does Congress have the political will to do it? I don't think so.

After all, the straightforward solution to this crisis would be to simply allow overwhelmed debtors to discharge their student loans in bankruptcy. Bills have been introduced in Congress that would accomplish just that, but those bills have gotten nowhere. 

I've said this before, and I will repeat it. Congress should allow insolvent Americans to file for bankruptcy and discharge their student loans like any other consumer debt: credit cards, car loans, and business obligations. 

And all Congress needs to do to accomplish this sweeping reform is to remove two words from the U.S. Bankruptcy Code: "undue hardship." It is the "undue hardship" language, after all, that the federal courts have interpreted so harshly, and which has denied bankruptcy relief to millions of honest student-loan debtors.

Of course, if Congress abolished the "undue hardship" standard, it would need to appoint a lot more bankruptcy judges to deal with a torrent of bankruptcy filings. And the judges would need to make sure that people who have the financial wherewithal to repay their loans don't fraudulently apply for bankruptcy relief.


In my view, calls to wipe out all student debt are irresponsible because politicians know this is never going to happen. Bankruptcy reform provides an orderly and fair way to give unfortunate student debtors a fresh start while guarding against fraud. 





Wednesday, April 29, 2020

Coronavirus bailouts for the casinos but nothing for harried student-loan debtors: Let'em eat cake!

Congress turned on the money spigot last month and spewed out cash to millions of people and businesses that were hurt by the coronavirus pandemic.

The airlines are getting bailout money, the casinos are eligible for aid, and corporations are accepting loans they don't needAutoWeb, for example, got a $1.4 million federal loan and gave its CEO a $1.7 million bonus one week later.

Meanwhile, millions of Americans are burdened by federal student loans they can't repay.  More than a year before the coronavirus outbreak, Education Secretary Betsy DeVos publicly admitted that only one out of four student borrowers were paying down both principal and interest on their federal loans.  One out of five borrowers, DeVos disclosed, were delinquent on their debts or in default.

Now, with the unemployment rate hovering near 15 percent, and millions of hourly workers out of a job, college-loan debtors are struggling more than ever.

And what has the Department of Education done to assist harried student debtors? Not much.

DOE is giving college-loan borrowers a six-month deferment from making their monthly payments, and it won't assess interest on outstanding loans during that time. DOE has also temporarily stopped seizing wages, Social Security benefits, and tax refunds of people who defaulted on their federal student loans.

In other words, the Trump administration is shoveling big bucks to corporations, while it throws a few crumbs to college-loan borrowers.

Here's an illustration that shows just how meaningless the Trump administration's response to the student-loan crisis has been.

Laurina Bukovics borrowed $20,000 more than 30 years ago to obtain a bachelor's degree from Wisconsin University. Through the years, she made regular monthly loan payments except during times when DOE gave her deferments or forbearances due to her financial difficulties.

Over 25 years, Bukovics repaid $29,000 on her student loans—140 percent of what she borrowed. Nevertheless, by the time she showed up in bankruptcy court, her student-loan debt had grown to $80,000—four times what she had received from the federal loan program.

How much relief does a six-month moratorium on loan payments give to people like  Ms. Bukovics, who have been burdened by student debt for their entire adult lives and have seen their loan burdens double, triple, or even quadruple?

Hardly any relief at all.  The federal government has poured out trillions to alleviate the financial crisis that was triggered by the COVID-19 virus.  But much of this money has gone to corporations and businesses. 

When corporations ask the feds for money to help them get through the coronavirus pandemic, the government responds by saying, "Where do we send the check?"

On the other hand, when beaten-down student-loan debtors try to discharge their student debt in bankruptcy, the federal government almost always opposes relief. Ms. Bukovics, for example, was unemployed while she was in bankruptcy and living temporarily with a friend. She had no car, and she was so impoverished that she qualified for food stamps and Medicaid.

And what was the response by the Department of Education's debt collector to Ms. Bukovics's plight?  ECMC opposed bankruptcy relief because it believed Bukokvics was spending too much money on food.


Betsy DeVos's summer home




Saturday, March 14, 2020

President Trump waives interest on student loans "until further notice": Woefully inadequate relief for distressed student-loan borrowers

In yesterday's speech on the coronavirus crisis, President Trump announced he is temporarily waiving interest on all federal student loans.

"I've waived interest on all student loans held by federal government agencies ... until further notice," Trump said in his speech "That's a big thing for a lot of students that are left in the middle right now. Many of those schools have been closed."

I appreciate President Trump's effort to assist distressed student borrowers, but yesterday's action is totally inadequate.  Millions of distressed student borrowers need broad and immediate relief, and a temporary waiver of interest offers almost no help at all. 

Around 45 million Americans have outstanding student loans totaling $1.6 trillion.  For many college-loan debtors, interest has already accrued, causing their loan balances to double, triple, and even quadruple.  Temporarily waiving interest on that debt is almost meaningless.

Besides, I think President Trump may have overestimated the Department of Education's ability to implement his moratorium.  Adjusting interest costs for 45 million student borrowers is no small task. Many student debtors have more than one student loan, and these loans have varying interest rates. (In fact, I met a woman yesterday who has five separate student loans.)We're probably talking about interest adjustments on more than 100 million individual loan agreements.

Frankly, I don't think Betsy DeVos's DOE is up to the job. DOE completely botched the Public Service Loan Forgiveness Program, denying 99 percent of the applications for PSLF debt relief. Last year, a federal judge ruled that DOE had managed the program arbitrarily and capriciously and in violation of the Administrative Procedure Act.

Also last year, a California federal judge held Secretary DeVos and DOE in contempt for not abiding by the judge's order to stop trying to collect on student loans taken out by people who had attended schools operated by the now-defunct Corinthian Colleges. I don't think DeVos and her crew intentionally disregarded the judge's order. I think they simply don't know what they are doing.

If DOE cannot manage its routine responsibilities, how can it manage adjustments on student loans held by 45 million people?

As Steve Rhode wrote a few days ago, "People in denial about the impact of COVID-19 may be adequately protected with emergency savings, good health insurance, and paid time off of work. But those of us who work in hourly paid jobs are at a very high risk of having finances slaughtered by this virus."

Mr. Rhode's observation is particularly applicable to college students and former college students.  A lot of people with substantial student-loan burdens are working in temporary jobs that pay low wages. In the coming weeks, these jobs are going to be lost as the public stops eating out, shopping, and traveling. The people who held these lost jobs are going to be unable to service their student loans, and many of them will default.

Giving overburdened student debtors a temporary break from the interest on their loans is like putting a bandaid on a compound fracture (a hackneyed analogy, I admit).  President Trump and Congress need to take far more drastic action.

Specifically, Congress must revise the Bankruptcy Code to allow insolvent student-loan debtors to discharge their student loans in bankruptcy.  

Ultimately, our politicians will be forced to confront the fact that the student-loan program is a colossal disaster, and the coronavirus epidemic is going to make it worse. Now is a good time to do what needs to be done. And what needs to be done is bankruptcy reform.







Wednesday, March 11, 2020

Calvillo Manriquez v. Devos: Judge Sallie Kim holds U.S. Department of Education in contempt for failing to abide by her injunction in the Corinthian Colleges case

Corinthian Colleges, a for-profit chain of colleges, went bankrupt in 2015 under a shower of fraud accusations. More than 100,000 former students filed claims with the U.S. Department of Education, seeking relief from federal student loans they took out to attend the defunct chain’s schools.

Corinthian students maintained that they were lured to attend the school by the college chain's job placement rates, which turned out to be inflated. Initially, DOE granted full relief to some claimants.

In 2017, however, DOE unilaterally changed the way it processed these claims and only granted partial relief from student loans under a formula that calculated the income of borrowers who had been enrolled in Corinthian programs. A group of former Corinthian students sued DOE for arbitrarily changing the rules and Judge Sallie Kim certified the lawsuit as a class action.

Judge Sallie Kim issues a preliminary injunction against DOE

While this litigation was ongoing, Judge Kim issued a preliminary injunction against DOE, ordering the agency to “cease all efforts to collect debts from Plaintiffs” (Calvillo Manriquez v. DeVos, p. 538). Corinthian appealed Judge Kim’s preliminary injunction to the Ninth Circuit Court of Appeals, and Judge Kim stayed all proceedings while the appeal was pending.

Later, the student plaintiffs filed a motion asking Judge Kim to lift the stay and enforce her injunction. Judge Kim then ordered DOE to file a report regarding the status of its compliance with her injunctive order.

DOE filed a “Compliance Report,” in September 2019, admitting that it had erroneously sent a notice to 16,034 borrowers that student-loan payments were due. In response to that notice, more than 3,000 borrowers made one or more payments on their student loans.

According to Judge Kim, DOE did not notify any of the borrowers that it had made a mistake and did not issue refunds to borrowers who had made payments in violation of the preliminary injunction. (p.538)

Moreover, in violation of Judge Kim’s injunctive order, DOE “provided adverse reports to credit reporting agencies for 847 Corinthian borrowers and collected on the loans of 1,808 Corinthian borrowers through wage garnishment or offsets from tax refund[s].” (pp. 538-39).

Judge Kim finds DOE in contempt of her preliminary injunction

After hearing the evidence, Judge Kim held DOE in contempt. In her order, the judge wrote:
[T]here is no question that [DOE] violated the preliminary injunction. There is also no question that [DOE’s] violations harmed individual borrowers who were forced to repay loans either through voluntary action or involuntary methods (offset from tax refunds and wage garnishment) and who suffered from the adverse credit reporting. Defendants have not provided evidence that they were unable to comply with the preliminary injunction, and the evidence shows only minimal efforts to comply with the preliminary injunction. The Court therefore finds Defendants in civil contempt. (p. 540)
Judge Kim then fined DOE $100,000.
The Court finds that a monetary sanction of $100,000 paid by [DOE], to a fund held by Plaintiffs’ counsel, is the best method to remedy [DOE’s] wrongful acts. Given that there are over 16,000 borrowers who have suffered damages from [DOE’s] violation of the preliminary injunction and given that there may be some administrative expenses to remedy the harm, the Court finds the amount reasonable. (p. 540)
Conclusion

Calvillo Manriquez v. DeVos is simply one more sign that the U.S. Department of Education holds distressed student debtors in contempt and Judge Kim’s contempt order was certainly appropriate.

Nevertheless, the $100,000 fine that Judge Kim issued against DOE is totally inadequate to get DOE’s attention.  A $100,000 fine is just pocket change to DOE Secretary Betsy DeVos—probably less than the annual maintenance costs on her yacht.  And $100,000 distributed to the 16,000 Corinthian students who were injured by DOE’s conduct amounts to only about eight bucks apiece.

Corinthian Colleges filed for bankruptcy nearly five years ago, and some of the plaintiffs were injured earlier than that. Five years is too long to wait for justice. The Department of Education should be ordered to forgive all student-loan debt acquired by students who attended for-profit colleges that have been found guilty of fraud and deception.  In other words, all the poor souls who attended Corinthian Colleges should have their student loans forgiven in their entirety.

References

Calvillo Manriquez v. DeVos, 411 F. Supp. 3d 535 (N.D. Cal. 2019).


The Seaquest: Betsy DeVos's yacht



Sunday, January 19, 2020

Trump Administration is "woke" to the student-loan crisis: What can it do in 2020?

Love 'em or hate 'em, student-loan debtors owe a debt of gratitude to Bernie Sanders and Elizabeth Warren for putting the student-loan crisis on the front burner of national politics. Liz proposes to forgive the first $50,000 of student debt if she is elected President. Bernie says--what the hell--let's forgive it all.  That's $1.6 trillion!

Meanwhile, as the Democrats offer to help college borrowers, Trump’s Department of Education (DOE), led by Education Secretary Betsy DeVos, is doing everything it can to alienate a very large constituency--45 million student-loan debtors.  

But last month, the Trumpers became "woke" to the student-loan catastrophe.  As reported by the Wall Street Journal's Josh Mitchell and Andrew Restuccia, the Trump administration is considering some relief options, including allowing borrowers to shed their student-loan debt in bankruptcy.

According to the WSJ, the Trump administration is mulling a policy adjustment whereby DOE "would essentially decline to contest borrowers’ requests before [bankruptcy] judges to have their student loans canceled.” The beauty of this proposal is Trump could make this adjustment without congressional approval.

Better than that, Trump could claim that he is only following the policy announced by the Obama administration in 2015 when DOE's Lynn Mahaffie said in a letter that DOE would not oppose bankruptcy relief for student borrowers if it did not make economic sense to do so.

Of course, DOE never followed that policy. Instead, it has allowed Educational Credit Management Corporation to oppose virtually every student debtor’s petition to shed student-loan debt in the bankruptcy courts.  And this has been DOE’s practice under both the Obama and the Trump administration.

All President Trump needs to do to grant significant relief to college debtors is tell ECMC to fire its battalions of lawyers and file formal non-opposition documents when worthy student debtors seek to discharge their student loans in bankruptcy.

Undoubtedly, a few unscrupulous people would try to use the bankruptcy courts to shed debt they have the means to repay and which they should repay. But filing a fraudulent bankruptcy claim is a federal crime, and the bankruptcy judges know how to sniff out deceitful claims.

If Trump were to follow through with this proposal, we will need a lot more bankruptcy judges because millions of people would be entitled to bankruptcy relief.  Where will we get the money?  Let’s take the cash that DOE is funneling to ECMC and its lawyers and use it to hire some judges. 

Pretty simple really.  

"What do you say, Betsy? Let's tell ECMC to piss up a rope."




Monday, November 18, 2019

Pew Foundation says one out of four student-loan borrowers default within 5 years: But we already knew that.

The Pew Foundation issued a report recently with this snoozer title: Student Loan System Presents Repayment Challenges.  Really? That's like saying that icebergs posed a challenge to the Titanic.

The Pew Foundation's most interesting finding--picked up by the media--was this: Almost one out of four student-loan debtors default on their loans within five years.  But this should not be a shocker. Looney and Yannelis reached basically the same finding five years ago in their report for the Brookings Institution. These researchers reported that the five-year default rate for the 2009 cohort of borrowers was 28 percent (p. 49, Table 8).

And the Pew study probably understates the crisis. The report itself acknowledged that for-profit colleges were underrepresented in its study (p. 5), and we know that almost half of the students who attend for-profit colleges default within five years.

Most importantly, the Pew study did not address the "challenge" faced by more than 7 million college borrowers who are in income-based, long-term repayment plans (IBRPs). IBRP participants are not paying off their student loans even though they are in approved repayment programs. Why? Because people in IBRPs aren't making monthly payments large enough to pay down loan accruing interest, and this interest is capitalized and rolled into their loans' principal.

As much as it pains me to say this, Education Secretary Betsy DeVos gave a clearer picture of the student-loan crisis than the Pew Foundation.  A year ago, DeVos publicly acknowledged that only one out of four student borrowers are paying down principal and interest on their loans and that 43 percent of student loans are "in distress."

For me, the most disappointing thing about the Pew report was its tepid, turgid, and tedious recommendations for addressing the student-loan crisis, which I will quote:
  • Identify at-risk borrowers before they are in distress . . .
  • Provide [loan] servicers with resources and comprehensive guidance . . .
  • Eliminate barriers to enrollment in affordable repayment plans, such as program complexity . . .
Thanks, Pew Foundation. That was really, really helpful.

Note that the Pew Foundation said nothing about bankruptcy relief for distressed college borrowers, tax penalties for borrowers who complete their IBRPs, or the government's shameful practice of garnishing elderly defaulters' Social Security checks. Moreover, Pew said nothing about the Education Department's almost criminal administration of the Public Service Loan Forgiveness program.  And we didn't read anything about the out-of-control cost of higher education.

Let's face it.  College leaders, the federal government, and so-called policy organizations like the Pew Foundation refuse to acknowledge that the federal student-loan program is destroying the lives of millions of Americans. Instead, they are content to tinker with a system that is designed to shovel money to our bloated and corrupt universities.

America's colleges are addicted to federal money. Like a drug addict hooked on Oxycontin, they must get their regular fixes of federal cash.  After all, they've got to fund the princely salaries of college administrators and lazy, torpid professors.

Like first-class passengers on the Titanic who were sipping champagne when their ship hit an iceberg, the higher education industry thinks the flow of student-loan money will go on forever.  But a crash is coming.

Unfortunately, the people who created the student-loan crisis will be the ones floating away in the lifeboats--living off their cushy pensions and obscene retirement packages. The people who were exploited by the federal student-loan program, like the third-class passengers on the Titanic, will go down with the ship.

Lifeboats reserved for college presidents and DOE senior administrators


Sunday, October 27, 2019

Impeach DeVos, Not Trump: Democrats should focus on Betsy DeVos' outrageous mismanagement of the student-loan program

Let me start by saying this: I am a registered Democrat who voted for Bernie Sanders in the 2016 Democratic primary race in Louisiana. I will vote for a Democrat in Louisiana's 2020 primary election, although I am not happy with my choices.  I am neither a MAGA Republican nor a Never-Trumper; I just want a decent person to be President. Is that too much to ask?

I admit that I am just an old white guy who lives in Flyover Country--and a cisgendered old white guy at that. Nevertheless, I don't get the Democrats' obsession with impeaching President Trump. Congressman Schiff wants to impeach Trump over a phone call? What's that about?

I hate to be the one to break it to you, Adam, but impeachment is never going to happen.  Nancy Pelosi will never call for a vote on the matter, and the Senate will never impeach the President. The 2020 election is only 12 months away--12 months! Why don't the  Democrats focus on nominating a reasonable candidate who can defeat Trump in 2020?

On the other hand, Trump's Education Secretary, Betsy DeVos, is eminently impeachable and should be impeached. I've commented on her outrageously incompetent management of the federal student-loan program on several occasions. DeVos simply refuses to administer the government's various student-loan forgiveness programs in a competent manner. She's screwed up the Public Service Loan Forgiveness Program and the Borrower Defense program, and her agency opposes bankruptcy relief for distressed student-loan debtors--no matter how desperate a debtor's circumstances.

And now she has been held in contempt by a federal judge for defying a court order. U.S. Magistrate Judge Sallie Kim ruled that DeVos and DOE violated Judge Kim's preliminary injunction to stop collecting on student loans owed by students who attended Corinthian Colleges, a defunct for-profit college.

Judge Kim was actually pretty steamed about DOE's intransigence. At one point, the Judge said, "I'm not sending anyone to jail yet, but it's good to know I have that ability."

The unlawful collection activities were actually carried out by DOE's contracted student-loan servicers, not DOE itself. But DOE is responsible for the servicers' actions. Mark Brown, a senior DOE official, acknowledged a screw-up. "Although these actions were not done with ill intent," Brown said, "students and parents were affected and we take full responsibility for that."

If the Democrats were smarter, they would focus their impeachment energy on DeVos, not President Trump.  An impeachment inquiry could speed ahead with full compliance with due process.  There would be no need to hold secret hearings in the basement of the Capitol. DeVos' malfeasance is adequately documented by competent evidence, including several adverse court rulings against DeVos and DOE. And I predict that some Republicans in both the House and the Senate would support impeachment once the facts of her maladministration were brought to light.

And impeaching DeVos would publicize to every beaten-down student-loan debtor that the Trump administration doesn't care about them.  President Trump's total indifference to the student-loan train wreck could be exploited by the Democratic candidates who are calling for student-loan forgiveness.

But the Democrats' aren't interested in doing something sensible. Like Captain Ahab chasing the great white whale in Moby Dick, they scour the oceans of bureaucratic nonsense looking for some way to impeach President Trump.  And Trump, like Moby Dick, may wind up putting a great big hole in the Democrats' boat.

Will the Great White Whale sink the Never-Trumpers?








Friday, October 25, 2019

Education Department official says he will resign and calls for massive student-loan forgiveness: Does he have a good idea?

Mr. A. Wayne Johnson, the Department of Education's "chief strategy and transformation officer," announced his resignation this week and called for massive forgiveness of student-loan debt.

 Johnson, who was appointed to his DOE position by Education Secretary Betsy DeVos, proposes to forgive all federal student loan debt up to $50,000 per student. And he's also calling for a $50,000 tax credit for people who have already repaid their loans.

Senators Bernie Sanders and Elizabeth Warren, both presidential candidates, are also calling for wholesale forgiveness of student loans. Johnson's plan is more generous than Senator Warren's proposal, which puts income caps on student-loan forgiveness. On the other hand, Senator Sanders'  plan is even more generous than Johnson's. Bernie calls for forgiving all student-loan debt--about $1.6 trillion dollars with no income cap. Johnson's proposal would cost taxpayers less--an estimated $925 million.

Is massive student-loan forgiveness a good idea? I think it is. Johnson is right; the student loan program is "fundamentally broken." Even Secretary DeVos compared the program to a looming thunderstorm and admitted last year that only 24 percent of student debtors are paying back both principal and interest on their loans.

Indeed, virtually no one in the government's income-based repayment plans (IBRPs) will pay back their student loans because their monthly payments are not large enough to pay down accumulating interest on borrowers' underlying debt.  About 7.3 million people are in IBRPs, and millions more have defaulted on their loans or have them in deferment.

We know that massive student-loan indebtedness is hindering young people from getting married, having children, and buying homes. Researchers at Bard  College's Levy Economics Institute concluded that student-loan forgiveness would actually stimulate the national economy by freeing up money for student debtors to purchase houses and consumer goods.

Personally, I'm OK with all three student-loan forgiveness proposals: Johnson's, Warren's and Sanders'. Let's face facts; most of these loans will never be paid back.

But I think a better option would be for Congress to remove impediments to discharging student loans in bankruptcy, which it can easily do.  Congress just needs to pass a law that would remove the words "undue hardship" from the 11 U.S.C.  § 523(a) of the Bankruptcy Code.

Amending the Bankruptcy Code would allow federal bankruptcy judges to decide, on a case-by-case basis, which student-loan borrowers are truly insolvent and deserving of relief. These judges have the experience and the authority to weed out fraudulent claims and restrict debt relief to worthy candidates.

Massive student-loan debt relief without regard to individual circumstances would allow all 45 million student-loan borrowers to shake off their student debt--even those who obtained good value from their educational experiences and have the financial means to pay off their loans. I don't think that is good public policy.

Nevertheless, if the choice is between massive student-loan relief and the present system, I'm in favor of the plans put forward by Mr. Johnson, Senator Warren, and Senator Sanders. As I said, most of these loans will never be paid back and forcing millions of distressed student-loan debtors into 20- or 25-year income-based repayment plans just subjects them to a lifetime of stress, anxiety, and needless suffering.

A. Wayne Johnson will resign from Department of Education: Bye-bye, Betsy











Saturday, October 19, 2019

Betsy DeVos' Education Department is a clown car, but no one is laughing

For the last three years, the national political debate has focused on international issues: Russia, Ukraine, and now Syria. But look at what's happening at home. More than 45 million people are indebted by student loans, and more than half of these debtors cannot repay what they borrowed. In effect, they are victims of financial homicide.

Betsy DeVos, President Trump's Education Secretary, is spectacularly indifferent to this crisis, and she has made the crisis worse by her callousness and craven obsequence to the for-profit college industry. Without a doubt, she is guilty of malfeasance and venality. Let's summarize her reprehensible conduct:

Public Service Loan Forgiveness. The Department of Education has flatly refused to administer the Public Service Loan Forgiveness program (PSLF) competently.  More than three-quarters of a million borrowers were qualified for the  PSLF program by Navient, DOE's contracted loan servicer. But DOE has only approved roughly 1 percent of the applications for loan forgiveness. Apparently, DOE takes the position that 99 percent of the people who believed they were qualified for PSLF loan forgiveness were mistaken.

A federal judge ruled last February that DOE had administered PSLF arbitrarily and capriciously in a lawsuit brought by the American Bar Association. Later, the American Federation of Teachers sued DOE, arguing, like the ABA, that DOE was administering DOE in violation of the Administrative Procedure Act.  Has Betsy made amends? No.

Borrower Defense Program.  The federal government has a"borrower defense" process in place for student-loan borrowers to have their student loans forgiven if they can show that their for-profit college defrauded them. A few weeks ago, DOE issued new rules for administering the program. Betsy will allow the for-profit colleges to force students to sign covenants not to sue and waive their right to join class-action lawsuits. DOE's revised rules for processing borrower-defense claims are so onerous that DOE itself estimates that only 3 percent of applicants will get relief.

Student-Loan Bankruptcies.  DOE continues to take the position that distressed student-debtors are ineligible for bankruptcy relief, no matter how desperate the debtor's circumstances.  DOE has a policy in place (perhaps unwritten) that authorizes Educational Credit Management Corporation to assume the right to fight student-bankruptcy cases, and ECMC fights them all.  ECMC, by the way, has accumulated a billion dollars in unrestricted assets--a fat reward for naked brutality.

Betsy DeVos, a multi-millionaire who owns a huge yacht, presides over this clown car of an Education Department, which she has stuffed with cronies from the for-profit college industry. And the taxpayers provide her with a personal security detail that costs almost $8 million a year.

This clown car is not funny. Surely DeVos' maladministration of the Public Service Loan Forgiveness program, apart from everything else she has done or failed to do, provides ample grounds for impeachment.  I feel sure that if the Democrats voted articles of impeachment against her in the House of Representatives, some Republicans would vote for it.

And, if her reckless and lawless behavior was brought to the U.S. Senate, I think there would be enough bipartisan votes to remove her from office.

 Without question, 45 million student-loan borrowers would be interested in the outcome of any impeachment proceedings, and several million of these people are probably single-issue voters. In other words, millions of college-loan debtors will vote for the presidential candidate in 2020 who promises student-loan debt relief.  That candidate is not the guy who appointed Betsy DeVos to run the Department of Education.

Betsy DeVos's Education Department is a clown car.



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!