The Department of Education's Official 3-Year Student-Loan Default Rate is Baloney

During the First World War, it is said, the British military kept three sets of casualty figures: one set to deceive the public, a second set to deceive the War Ministry, and a third set to deceive itself.

Over the years, the Department of Education has released its annual 3-year student-loan default rate in the autumn, about the time the pumpkins ripen. And every year the default rate that DOE issues is nothing but bullshit. I can't think of another word that adequately conveys DOE's mendacity and fraud.

This year, DOE reported that 11.5 percent of the the 2014 cohort of debtors defaulted on their loans within three years and that only ten institutions had default rates so high that they can be kicked out of the federal student-loan program. That's right: among the thousands of schools and colleges that suck up student-aid money, only ten fell below DOE's minimum student-loan default standard.

Why do I say DOE's three-year default rate is fraudulent?

Economic hardship deferments disguise the fact that millions of people aren't making loan payments. First of all, DOE has given millions of student-loan borrowers economic-hardship deferments or forbearances that allow borrowers to skip their monthly loan payments.  These deferments can last for several years. 

But people who are given permission to skip payments get no relief from accruing interest. Almost all these people will see their loan balances grow during the time they aren't making payments. By the time their deferment status ends, their loan balances will be too large to ever pay back.

The colleges actively encourage their former students to apply for loan deferments in order to keep their institutional default rates down. And that strategy has worked brilliantly for them. Virtually all of the colleges and schools are in good standing with DOE in spite of the fact that more than half the former students at a thousand institutions have paid nothing down on their loans seven years after beginning repayment.

Second,  DOE's three-year default rate does not include people who default after three years.  Only around 11 percent of student borrowers default within three years, but 28 percent from a recent cohort defaulted within five years. In the for-profit sector, the five-year default rate for a recent cohort of borrowers was 47 percent--damn near half.

DOE's income-driven repayment plans are a shell game.  As DOE candidly admits, the Department has been able to keep its three-year default rates low partly through encouraging floundering student borrowers to sign up for income-driven repayment plans  (IDRs) that lower monthly loan payments but stretch out the repayment period to as long as a quarter of a century.

President Obama expanded the IDR options by introducing PAYE and REPAYE, repayment plans which allow borrowers to make payments equal to 10 percent of their discretionary income (income  above the poverty level) for 20 years.

But most people who sign up for IDRs are making monthly payments so low that their loan balances are growing year by year even if they faithfully make their monthly loan payments. By the time their repayment obligations cease, their loan balances may be double, triple, or even quadruple the amount the originally borrowed.

Alan and Catherine Murray, who obtained a partial discharge of their student-loan debt in bankruptcy in 2016, are a case in point. The Murrays borrowed $77,000 to obtain postsecondary education and paid back about 70 percent of that amount. But they ran into financial difficulties that forced them to obtain an economic hardship deferment on their loans.  And at some point they entered into an IDR.

Twenty years after finishing their studies, the Murrays' student-loan balance had quadrupled to $311,000!  Yet a bankruptcy court ruled that the Murrays had handled their student loans in good faith, and they had never defaulted.

DOE is engaged in accounting fraud. If the Department of Education were a private bank, its executives would go to jail for accounting fraud. (Or maybe not. Wells Fargo and Bank of America's CEOs aren't in prison yet.)  The best that can be said about DOE's annual announcement on three-year default rates is that the number DOE releases is absolutely meaningless.

This is what is really going on. More than half of the people in a recent cohort of borrowers have not paid down one penny of their student-loan debt five years into the repayment phase of their loans.  And the loan balances for these people are not stable. People who are not paying down the interest on their student loans are seeing their loan balances grow.

In short, DOE is operating a fraudulent student-loan program.  More than 44 million Americans are encumbered by student-loan  debt that totals $1.4 trillion.  At least half that amount--well over half a trillion dollars--will never be paid back.

Betsy DeVos' job is to keep the shell game going a little longer, which she is well qualified to do. After all, she is a beneficiary of Amway,  "a multi-level marketing company," which some critics have described as a pyramid scheme.

Betsy DeVos: The perfect person to oversee DOE's student-loan shell game

References

Paul Fain. Federal Loan Default Rates Rise. Insider Higher ED, September 28, 2017.

Paul Fain. Feds' data error inflated loan repayment rates on the College Scoreboard. Inside Higher Ed, January 16, 2017.

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

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default rates. Washington, DC: Brookings Institution (2015).

Murray v. Educational Credit Management Corporation, Case No. 14-22253, ADV. No. 15-6099, 2016 Banrk. LEXIS 4229 (Bankr. D. Kansas, December 8, 2016), aff'd, Case No. 16-2838 (D. Kan. September 22, 2017).

Joe Nocera. The Pyramid Scheme Problem, New York Times, September 15, 2015.

Betsy Devos deserves a Congressional censure: It's nothing personal, Betsy; but you are a disaster

Betsy DeVos, President Trump's Secretary of Education, is a disaster. Month after month, she makes decisions to aid the for-profit college industry at the expense of students who have been swindled by the institutions they attended.

As David Halperin said in a recent essay, DeVos' embrace of predatory for-profit colleges is "breathtaking."  Halperin's indictment of DeVos' performance is comprehensive, and you should read it. Here are a few of the highlights of DeVos' reckless malfeasance:

She rolled back an Obama-era regulation that prohibits the for-profits from inserting mandatory arbitration clauses in their student enrollment agreements.  These clauses prevent defrauded students from suing the colleges that defrauded them and usually prohibit students from banding together to file class action lawsuits.

She set aside a procedure for processing so-called "borrower defense" claims, whereby students can get their student loans discharged on the grounds that they were defrauded by the college they attended.

Under her leadership, the Department has failed to failed (as of July 2017) to process even one of the 65,000 fraud claims that students have filed, including claims filed by students who attended Corinthian Colleges and ITT Tech--two for-profits that filed bankruptcy under a dense cloud of fraud allegations.

DeVos' Department of Education canceled an information-sharing agreement with the Consumer Financial Protection Bureau, an act so irrational that Steve Rhode was prompted to ask whether she was "nucking futs."

DeVos cannot be impeached, because the Constitution only allows impeachment of a cabinet official for "high crimes and misdemeanors;" and I don't think DeVos has done anything criminal. But she certainly deserves to be censured by Congress for conduct that is blatantly contrary to the public interest.

 Wouldn't it be grand if the U.S. Senate formally censured her in a bi-partisan expression of righteous indignation? In my mind's eye, I see Mitch McConnell, Senate Majority Leader, hand-delivering a formal Senate censure resolution.

Perhaps Mitch would borrow a line from The Godfather as he tenders DeVos a blistering condemnation of her public stewardship. "It's not personal, Betsy," McConnell would intone, 'but you're a disater."

It's not personal, Betsy.

References

Collin Binkley. Student-loan forgiveness has halted under Trump, records show. Chicago Tribune, July 27, 2017.

David Halperin. DeVos Embrace of Predatory For-Profit Colleges is Breathtaking. Huffington Post, September 10, 2017.

Andrew Kreighbaum. Few solutions for defrauded borrowers. Inside Higher Ed, June 26, 2017.

Steve Rhode. Is Betsy DeVos Nuckin Futs With Break From Student Loan Debtor Protections? The Debt Out of Debt Guy, September 

Terrific essay by Steve Rhode: Is Betsy DeVos Nuckin Futs With Break From Student Loan Debtor Protections?

This terrific essay by Steve Rhode first appeared on Consumer Debt Guy blog site on September 6, 2017.

***

By Steve Rhode on September 6, 2017

   

The Consumerist is reporting the Department of Education has terminated its cooperation with the Consumer Financial Protection Bureau in dealing with student loan servicer problems.

“DeVos accuses the Bureau of not living up to its end of agreements established in 2011 and 2013, by doing too much to hold loan servicers accountable.”

“DeVos suggests that actions taken by the CFPB to rein in shoddy student loan servicers and collectors only confuses borrowers.

“The Department takes exception to the CFPB unilaterally expanding its oversight role to include the Department’s contracted federal student loan servicers,” DeVos wrote. “The Department has full oversight responsibility for federal student loans.”

However, the Department’s ability to root out fraud was thrown into question last week, when the agency appointed former for-profit college executive Julian Schmoke to run the Department’s enforcement division.

While Schmoke currently works as a high-ranking director at a community college in Georgia, he spent several years working for DeVry University, a college that has been repeatedly accused of fraud by both federal and state authorities.”

“The claim that the CFPB ‘unilaterally’ expanded its oversight role over servicers and collectors of federal student loans is unfounded,” Persus Yu, director of the National Consumer Law Center’s Student Loan Borrower Project, said in a statement.

“Education is now trying to stop the CFPB from handling loan-related complaints, but Education’s failures are what led Congress to give the CFPB authority to help students,” Yu said. “DeVos is prioritizing the interests of predatory for-profit schools, debt collectors, and troubled student loan services over the interests of student loan borrowers.”

This recent action and the fact the Department of Education has not approved Borrower Defense claims leads me to wonder where is any proof the Department of Education gives a damn about student loan debtors.

Charlotte School of Law closed, But Secretary of Education Betsy DeVos has been stingy in granting student-loan relief

Charlotte School of Law closed its doors on August 15, 2017. Thank God!

Before it shut down, CSL was one of the worst law schools in the United States by almost any measure. Based on metrics developed by Law School Transparency, a public interest law-school monitoring organization, 50 percent of CSL's 2014 entering class ran an "extreme" risk of failing the bar exam, and additional 25 percent ran a "very high" risk of failing the exam.

And it fact, less than half of CSL's 2015 graduating class passed the bar. Moreover, less than 25 percent of its 2016 graduates obtained full-time law jobs; and the law school's underemployment rate for that class was 58.8 percent.

Do you want other measures of mediocrity? Not a single CSL graduate in the 2016 graduating class obtained a federal clerkship, which is the most prestigious job a newly graduated attorney can get. The best paying jobs are in large corporate firms; and only 1.5 percent of 2016 graduates landed jobs in large law firms.

And in spite of its monumental mediocrity, Charlotte School of Law--before it shut down--was incredibly expensive. Tuition for the 2017 entering class (had there been one) is $44,284 per year. Law School Transparency estimated the total cost of obtaining a law degree from CSL to be a quarter million dollars!

The ABA put CSL on probation in 2016, and the Obama administration shut off student-loan money in December of last year. Still, the law school lumbered along until its state operating license expired and North Carolina regulators refused to extend it.

Most CSL students took out federal loans to finance their studies and few will be able to pay back their loans. Nevertheless, Betsy DeVos's Department of Education has been stingy in granting loan forgiveness. Only students enrolled on April 12, 2017 or later are eligible to have their student loans forgiven under the closed-school rule.

The Department also has a "borrower defense" process, whereby students can seek student-loan forgiveness if they can show they were defrauded by the institution they attended. More than 500 former CSL students have filed those claims, but DeVos put the borrower-defense regulations on hold. As of July 2016, DeVos's DOE had not approve any borrower-defense claims.

What a mess!

In my mind, there is only one fair remedy for all the people who took out student loans to attend CSL and failed to get jobs that paid well enough to pay back their loans.  Secretary DeVos should forgive student-loan debt for everyone who took out student loans to attend Charlotte School of Law.

But that would not be fair, DeVos might respond. After all, at least a few people graduated from CSL and got good law jobs.  Yes, but not many.  The administrative cost of sorting out who benefited and who failed to benefit doesn't justify the effort.

Everyone who attended this crummy law school should get 100 percent debt relief.  Unfortunately, that's not going to happen.  And there are several more bottom-tier law schools that are still operating and still raking in federal student-loan money.

Photo credit: abovethelaw.com

References

Andrew Kreighbaum, As Charlotte Law makes closure official, Education Department sets loan discharge rules. Inside Higher ED, August 25, 2017.

Andrew Kreighbaum, The Slow Death of a For-Profit Law School. Inside Higher Ed, August 16, 2017.

Department of Education Punts on Borrower Defense to Repayment Rules. Essay by Steve Rhode

I’m still waiting to be pleasantly surprised by the Trump Department of Education (ED) under Secretary DeVos. It has not happened yet.

From the recent actions to remove critical information from consumer notices to wanting to get a single loan servicer to handle all federal loans, the current incarnation of ED seems to be moving in a direction that provides less support and help for debtors.

On October 2016, the then ED announced new regulations to go into force on July 1, 2017. “The U.S. Department of Education today announced final regulations to protect student borrowers against misleading and predatory practices by postsecondary institutions and clarify a process for loan forgiveness in cases of institutional misconduct. These final regulations further cement the Obama Administration’s strong record and steadfast commitment to protecting student loan borrowers, deterring harmful practices by institutions, safeguarding taxpayer dollars and holding institutions accountable for their actions.” – Source

The Betsy DeVos ED is delaying the implementation of the Borrower Defense to Repayment rules. The ED announced today “Postsecondary institutions of all types have raised concerns about the BDR regulations since they were published on Nov. 1, 2016. Colleges and universities are especially concerned about the excessively broad definitions of substantial misrepresentation and breach of contract, the lack of meaningful due process protections for institutions and “financial triggers” under the new rules.” – Source

So the current ED is going to start over again and says, “The Department plans to publish its Notice of Intent to Conduct Negotiated Rulemaking on BDR and GE in the Federal Register on June 16, 2017. The Department will conduct public hearings on BDR and GE on July 10, 2017, in Washington, D.C. and July 12, 2017, in Dallas, Texas.” Goodness knows how long this new process if going to take and what opportunities student loan debtors will have to actually have their loans discharged due to misrepresentation by colleges and schools who received federal student loans.

For example, the ED previously said, “Many of these claims are from borrowers who attended programs that the Department found had been publicized with misleading job placement rates.” – Source

What do you think, should schools who misrepresented the success of their programs or actual employment rates to induce students to enroll, get a free pass and eliminated from the new rules? Let me know what you think by posting your comment below.

Even under the old administration the Borrower Defense to Repayment processing was less than optimal. There are students that have been waiting years for a conclusion to their claims and the next changes will only serve to slow down the entire process of assisting harmed student loan debtors.

As an example, ED previously said they had ” received a total of approximately 82,000 claims.” And while a previous report on the status of the program said 16,000 had been processed and approved, the current ED press release says, “Nearly 16,000 borrower defense claims are currently being processed by the Department, and, as I have said all along, promises made to students under the current rule will be promises kept,” said Secretary DeVos. So where are the rest of the claims?

Steve Rhode

Get Out of Debt Guy – Twitter, G+, Facebook

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

Bethune-Cookman University reports $17.8 million operating loss as administrators' salaries go up

Bethune-Cookman University, a Florida HBCU, reported an operating loss of $17.8 million in its most recent tax return. That's a 12-fold increase over the previous year, when it reported a budget deficit of only $1.5 million.  Fitch Ratings downgraded the school's bond rating for the second time in six months. B-CU's bond rating now hovers just above junk status.

Should B-CU tighten its belt and cut expenses to deal with this crisis? Hell no!

According to the Daytona Beach News-Journal, salaries jumped from $41.5 million to $49.2 million in just one year.

Here are the details, quoted verbatim from the Daytona Beach News-Journal article:

• Salaries at the school jumped nearly $8 million, from $41.5 million to $49.2 million, accounting for a large chunk of the increased expenses.

• The school's top leadership took away a combined $2.69 million in compensation--an average of $207,000 for each of the 13 [executive] employees. The previous year, its leadership took in $1.4 million, an average of $175,000 for only eight top executives.

• While his base pay was lowered, [President Edison] Jackson received a raise of $40,000 when additional compensation was factored in, giving him a total salary of nearly $410,000.

• Fifty employees were paid at least $100,000, up from only eight in the previous year.

And there's more. B-CU borrowed $7 million from its endowment funds, about 13 percent of the total. Five million dollars of that amount was to pay--you guessed it--administrative expenses. Meanwhile, its investments suffered a 11 percent loss, even though the stock market was going up.

In short, it appears that B-CU's senior administrators are giving themselves raises while the school's budget deficit spirals out of control.

You may remember that Bethune-Cookman made the news recently when many of its students turned their backs on Secretary of Education Betsy DeVos and booed her when she spoke at the university's spring graduation exercise.

Isn't it remarkable how college students turn their anger on external parties instead of examining the competence of their own institution's leadership? Most of Bethune-Cookman's students have taken out student loans to finance their studies at a university that apparently does not know how to manage its own financial affairs. B-CU's students booed the wrong person at last spring's graduation exercises. They should have been booing President Edison Jackson.

References

Erica L Green. Bethune-Cookman Graduates Greet Betsy DeVos with Turned Backs. New York Times, May 10, 2017.

Scott Jaschick. Large, Growing Losses at Bethune-Cookman. Inside Higher Ed, June 26, 2017.

Seth Robbins. Tax documents show B-CU losses mounting to $17.88 million. Daytona Beach News-Journal, June 24, 2017.

Valerie Straus. Booing students at Betsy DeVos's commencement speech told to shut up or get diplomas sent in mail. Washington Post, May 10, 2017.

Federal court orders the Department of Education to rule on Everest College student's request for debt cancellation: Sarah Dieffenbacher v. Betsy DeVos

Dieffenbacher v. U.S. Department of Education: A Student Borrower seeks debt relief on grounds of fraud

From 2007 to 2012, Sarah Dieffenbacher attended Everest College-Ontario Metro, a for-profit college located in Ontario, California. She took out $50,000 in federal student loans to fund her studies.

In March 2015, Dieffenbacher filed a "borrower defense" application with the U.S. Department of Education, petitioning to have her loans cancelled on the grounds that Everest had engaged in fraudulent conduct in violation of California law.

In August 2015, Dieffenbacher defaulted on her loans. Educational Credit Management Corporation, her loan servicer, sent her a notice stating that it intended to begin garnishing her wages.

Dieffenbacher filed a timely objection and a request for a hearing. This objection consisted of a 29-page letter accompanied by 254 pages of exhibits. These exhibits included Diefenbacher's sworn statement and records from the California Attorney General's Office showing documented misconduct by Everest and its parent company, Corinthian Colleges.

On January 20, 2017, Dieffenbacher's attorney received a letter from the Department of Education stating that DOE was denying Dieffenbacher's objection to having her wages garnished. DOE said its decision was conclusive and that Dieffenbacher's only recourse was to file a lawsuit in federal court.

This Dieffenbacher did. In her lawsuit, Dieffenbacher claimed that DOE's decision was arbitrary and capricious and violated the Administrative Procedure Act.

Without admitting fault, DOE filed a motion to remand Dieffenbacher's case back to the Department so that its decision could be "reconsidered and re-issued in a way that would not be arbitrary, capricious, or contrary to law."

Judge Virginia Phillips' decision

Last week, Judge Virginia Phillips, a California federal judge, denied DOE's request for a voluntary remand. In Judge Phillips' view, the Department "[had] not established a substantial or legitimate concern guiding its request for a remand."

The judge pointed out that Dieffenbacher's application for loan forgiveness had been pending for more than two years and that the Department had made contradictory arguments about what it intended to do.

Indeed, Judge Phillips' suggested that the Department of Education was attempting to get Dieffenbacher out of court so that it could garnish her wages. "The Department's request for remand appears to be an attempt to evade judicial review so that it can retain the ability to garnish [Dieffenbacher's] wages without a conclusive ruling as to the enforceability of her loans," the judge observed. "Under such circumstances, the remand request appears both frivolous and in bad faith" [emphasis supplied].

Judge Phillips concluded her opinion by ordering DOE to rule on Dieffenbacher's loan cancellation application within 90 days. If the Department fails to comply, the judge added, she would proceed to hear Dieffenbacher's claims on the merits.

The Dieffenbacher case: More Evidence of the Department of Education's Stall Tactics

The Dieffenbacher case is the latest example of the Department of Education's efforts to avoid dealing with student borrowers' legitimate applications for loan forgiveness.

In the Price case, which I wrote about recently, DOE took six years to rule on a University of Phoenix graduate's application for loan forgiveness based on her claim that Phoenix falsely certified that she had a high school diploma when she began her studies. Ultimately, DOE disallowed the claim. A federal court in Texas countermanded DOE's ruling and discharged the debt.

Last January, DOE sent a letter to 23,000 former students at Corinthian Colleges, assuring them that their loans had been approved for cancellation and that the loans would be forgiven within the next 60 to 120 days. Almost six months later, DOE has not kept its promise, which prompted a protest letter from 19 states' attorneys general.

So what's going on?

I think Betsy DeVos's DOE pencil pushers have added up the costs associated with discharging students loans under DOE's own rules and regulations and have found those costs to be enormous. DOE is trying to put the brakes on its administrative loan forgiveness process. The Department announced this week that it is rewriting the "borrow defense" regulations that Dieffenbacher relied on.

BUT IT IS TOO LATE. DeVos's efforts to slow down the loan forgiveness process will not withstand scrutiny in the federal courts, as the Price case and the Dieffenbacher case demonstrate.

The Consumer Financial Protection Bureau said in a recent report that eight million student borrowers are in default, with nearly 1.1 million defaulting in 2016 alone. As CFPB pointed out, people are defaulting at the rate of 2 borrowers every minute!

Two things must be done to bring the federal student loan program under control. First, the federal government must stop sending student aid dollars to for-profit colleges, which have shockingly high student-loan default rates.

Second, Congress must amend the Bankruptcy Code to allow distressed student borrowers to discharge their student loans in bankruptcy like any other unsecured consumer debt.

But Betsy DeVos's Department of Education refuses to face reality while it stalls for time. In the end, this approach is going to enrage millions of student borrowers. These borrowers are also voters, and they will vote for any politician who promises real debt relief to the legions of student borrowers who will never pay back their loans.

References

Dieffenbacher v. U.S. Dep't of Educ., ED CV 17-342-VAP (KK) (C.D. Cal. June 9, 2017).

Seth Frotman & Rich Williams. New data documents a disturbing cycle of defaults for struggling student loan borrowers. Consumer Financial Protection Bureau, May 15, 2017.

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

Andrew Kreighbaum. Court Orders Education Department to End Delay in Ruling on Loan Discharge. Inside Higher ED, June 9, 2017.

Andrew Kreighbaum. Education Department to hit pause on two primary Obama regulations aimed at for-profits. Inside Higher ED, June 15, 2017.

Andrew Kreighbaum. State AGs Want Action on Student Loan Discharge. Inside Higher Ed, June 6, 2017.

Lisa Madigan, Illinois Attorney General. Letter to Betsy DeVos, US. Secretary of Education, June 5, 2017.

Price v. U.S. Dep't of Educ., 209 Fed. Supp. 3d 925 (S.D. Tex. 2016). [Link is to U.S. Magistrate's opinion, which was affirmed by a U.S. District Judge.] 

Department of Education is slow to forgive loans of student borrowers defrauded by Corinthian Colleges: State Attorneys General urge DOE to move more quickly

Yesterday, nineteen state attorneys general and the Director of the Hawaii Office of Consumer Protection delivered a letter to Betsy DeVos, U.S. Education Secretary, urging the Department of Education to quickly process fraud claims brought by former students of Corinthian Colleges.

The state AGs asked DeVos to approve "swift automatic group discharge" to students in Corinthian cohorts where fraud has been found. Alternatively, the AGs asked DeVos to process individual fraud claims faster.

Corinthian Colleges closed and filed for bankruptcy in 2015, leaving behind more than 350,000 former students who took out loans to pay Corinthian's tuition. Many of these student borrowers were induced to attend Corinthian through fraud, and the nineteen AGs claim there are defrauded Corinthian students in all 50 states.

So far, DOE has discharged 27,000 borrowers from their federal loan debt, but that number is a small fraction of the former students who are entitled to debt relief. Thousands have filed "borrower defense" claims, asking DOE for loan forgiveness, but DOE is not processing these claims quickly. Meanwhile, many Corinthians students are still paying on their loans or defaulted and are subject to having their wages garnished and their credit ruined.

According to the state AGs, DOE notified 23,000 Corinthian student borrowers in January that their loan forgiveness applications had been approved and that "forgiveness should be completed within the next 60-120 days." It's been nearly 180 days since that announcement, and these loans have still not been discharged.

What's going on?

I think the Department of Education is simply overwhelmed by the meltdown of the student loan program. Almost half the people in a recent cohort of students who attended for-profit colleges defaulted within five years. According to a recent article in the Wall Street Journal, half the students who attended more than 1,000 colleges and schools have not paid down one dime of their student loans seven years after their repayment obligations began.

In addition, the first beneficiaries of the Public Service Loan Forgiveness Program will be eligible for debt relief before the end of this year, and DOE has no idea how many people are eligible to have their loans discharged under that program.

Personally, I think Secretary DeVos should adopt the AGs' suggestion and grant swift automatic group discharges to all Corinthian students who were in DOE's "Designated Fraud Cohorts." Or better yet, I think DOE should forgive the loans of all 350,000 former students.

Admittedly, there are probably some people who completed a Corinthian program and actually got a good job, but I'll bet there aren't many. Undoubtedly, the default rate for Corinthian students is extraordinarily high largely due to the fact that Corinthian's students did not get well-paying jobs at the conclusion of their studies.

I recognize there are risks associated with a mass loan forgiveness program. If all 300,000 of Corinthian's former students are granted a discharge, then ITT Tech's former students will ask for blanket loan forgiveness. ITT Tech also closed and filed for bankruptcy, and it has 200,000 former students.

It is shocking to contemplate, but millions of Americans will never pay back their student loans. In addition to the for-profit college students, there are the law graduates who accumulated mountains of debt and can't find law jobs. And then there are the poor saps who got liberal arts degrees from expensive liberal arts colleges; many of them will never pay back their loans.

The 19 state AGs are right to urge Secretary DeVos to grant automatic group discharges for thousands of former Corinthian students. But Corinthian Colleges is the tip of the iceberg. Millions of student borrowers will never pay back their loans, and the ultimate loss to taxpayers will be in the billions.

References

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

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

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default rates. Washington, DC: Brookings Institution (2015).

Andrew Kreighbaum. State AGs Want Action on Student Loan Discharge. Inside Higher Ed, June 6, 2017.

Lisa Madigan, Illinois Attorney General. Letter to Betsy DeVos, US. Secretary of Education, June 5, 2017.

Betsy DeVos should resign as Education Secretary and Trump should replace her with a junkyard dog

Betsy DeVos should resign as Secretary of Education in the Trump administration. I say this for two reasons:

First, Ms. DeVos is too nice a person to be President Trump's Secretary of Education.

No matter what you think of her politics or her education philosophy Betsy DeVos is not a toxic person. She did not deserve to be shut out of a public school, as District of Columbia protesters tried to do shortly after she took office.

And she did not deserve to have students boo her and turn their backs on her when she spoke at a college graduation exercise this spring. If I were her, I would tell the whole wide world to stick the Secretary of Education's position where the sun doesn't shine and go home to Michigan and spend time with my grandchildren.

Second. Betsy DeVos knows next to nothing about higher education policy.

The federal student loan program is in meltdown, destroying the lives of millions of people and undermining the integrity of higher education. Numerous small private liberal arts colleges are on the verge of closing; law schools are admitting students of a lower and lower quality, and huge swaths of the for-profit college industry are defrauding their students--or, at the very least, they are gouging their customers. The federal student loan program bears a big share of the blame for this dismal state of affairs.

Betsy DeVos knows next to nothing about the student loan crisis. She has shown no capacity to deal with this enormous problem, and she has already made a number of missteps. For example, she hired some empty suits from the for-profit sector to advise her--the wrong move, in my opinion.

Trump needs to hire a junkyard dog to run the Department of Education

President Trump needs to gracefully accept DeVos' resignation, praise her extravagantly in a tweet message, and then appoint a junkyard dog to replace her.

By junkyard dog, I don't mean a vicious person or an unethical person; I mean a tough person.  The next Education Secretary needs to be tough enough to confront the for-profit college industry, tough enough to handle higher education's legions of lobbyists, and tough enough to get rid of the student loan guaranty agencies that have amassed billions of dollars in cash hounding distressed student loan debtors.

The next Secretary of Education needs to be tough enough to tell the public the truth about the student loan crisis, which is this: Millions of people have taken out student loans they will never pay back.

What a junkyard dog do if  appointed Education Secretary?

• First, the Consumer Financial Protection Bureau's 2013 report, A Closer Look at the Trillion, needs to be updated. How many people have defaulted on their loans, and how many are delinquent? How many are not making payments because their loans are in deferment or forbearance? How many are in income-driven repayment plans (IDRs) and making monthly payments so low that their payments don't cover accruing interest?

• Second, the new Secretary should endorse the Democrats' bill to protect student loan defaulters from having their Social Security checks garnished.  This is a small matter in terms of the overall student loan crisis, but symbolically, such a move would signal that the Trump administration is not completely heartless.

• Third, the Education Secretary should cancel the performance bonus program for DOE's student-loan bureaucrats. James Runcie, Chief Operating Officer for the student loan program, received $430,000 in bonuses--an outrage. The new Secretary of Education should fire everyone who got a performance bonus.

• Fourth, the DOE Secretary needs to streamline the process whereby students who file administrative claims based on the closed-school rule or the so-called borrower defense can have their claims resolved quickly.

• Fifth, DOE's junkyard dog should dismantle all the student loan guaranty agencies, starting with Educational Credit Management Corporation. While the termination process is taking place, DOE should stop paying the agencies' attorney fees to hound suffering student borrowers in the bankruptcy courts.

• Sixth, the Secretary of Education, as junkyard dog, should revise Lynn Mahaffie's 2015 letter outlining when DOE will not oppose bankruptcy discharge of student loans to clarify to the federal courts that DOE supports a bankruptcy discharge of student loans under the same terms that apply to other unsecured consumer debt.

Obviously, any Secretary of Education who attempts to carry out the agenda I outlined will need to be tough as a junkyard dog. Betsy DeVos is not a junkyard dog, and I mean that as a compliment to her.

The next Secretary of Education should be a junkyard dog.

References

Lauren Camera. Protesters Disrupt DeVos School Visit. U.S. News & World Report, February 10, 2017.

Rohit Chopra. A closer look at the trillion. Consumer Financial Protection Bureau, August 5, 2013.

Erica L. Green. Bethune-Cookman Graduates Greet Betsy DeVos With Turned Backs. New York Times, May 10, 2017.

The Department of Education Fumbles the Public Service Loan Forgiveness Program

The Public Service Loan Forgiveness Program: The Best Option for Student borrowers With Six-Figure Debt

A few years ago, law professor Paul Campos wrote an advice book for people thinking about going to law school. If you borrow a lot of money to go to a second- or third-tier law school and graduate in the bottom half of your class, Campos warned, you probably won't make enough money to pay back your loans.

In such event, Campos advised, your only viable option is to get a job in the public sector and enroll in the Public Service Loan Forgiveness Program (PSLF). If you go that route, you will make monthly payments on your student loans for ten years based on a percentage of your income. When you've made 120 payments, the balance of your loan debt will be forgiven.

Campos's advice is good for anyone who is buried by student loans. If you racked up $100,000 or more in student loans and can't find a good job in the private sector, the PSLF program may be your only viable option. It is the financial equivalent of the last train out of Paris in the movie Casa Blanca. If Rick doesn't get on that train before the Nazis arrive, he's doomed.

The Department of Education Fumbles the PSLF Program: Is Betsy DeVos Out of Her Element?

Congress created the PSLF program in 2007, and the Department of Education has been promoting it ever since. DOE has instructed  PSLF participants to send their Employment Certification Forms (ECF) to FedLoan Servicing, DOE's approved PSLF processor, on an annual basis to verify they are in fact employed by a public service organization. More than half a million people are enrolled in the PSLF program, confident that their indebtedness will be cancelled after 10 years of public service employment..

But now it seems DOE may be reneging on its PSLF obligations. The American Bar Association sued DOE for not living up to its PSLF commitments, and DOE recently answered that law suit. In essence, DOE denied it had any obligation to honor FedLoan Servicing's decision to certify public service employment.

This is shocking. As Steve Rhode said in his blog about this development, "People who have worked ten years in jobs assuming their loans would be forgiven are potentially going to get some nasty surprises."

I don't know what to make of DOE's response to the ABA's lawsuit. If the PSLF program collapses, Betsy DeVos's credibility as the Secretary of Education, already compromised by her ties to the for-profit industry, will be completely destroyed.

To paraphrase  Walter Sobchak's remark to Donny in The Big Lebowski, "Betsy, you may be out of your element." DOE may come to its senses and straighten out the PSLF mess; in fact, I think that will probably happen.  But the political consequences of this episode will reverberate for a long time.

"Donny, you're out of your element."

References

Stacy Cowley. Student Loan Forgiveness Program Approval Letters May Be Invalid, Education Dept. Says. New York Times, March 30, 2017.

Steve Rhode. Public Service Loan Forgiveness Program Teeters With Unmitigated Disaster. Personal Finance Syndication Network, PFSyn.com, May 2, 2017.

Trump Administration Cancels Grace Period and Adds on Big Student Loan Collection Charges: Article by Steve Rhode

This excellent essay by Steve Rhode appeared earlier on the Personal Finance Syndication Network, PFSyncom and on Mr. Rhode's web site titled Get Out of Debt Guy.  contains a variety of good advice and information about all manner of consumer debt problems, including student loans. You can learn more about Steve Rodes here.

******

If the recent position by the Department of Education under the Trump administration is any indication of what is to come for federal student loan debtors, watch out.

On March 16, 2017 the Department of Education rolled back protections and policies impacting those who hold FFEL federal student loans. The most recent numbers say about 4.2 million loan holders are in default on these loans at this time. Millions will be impacted by this policy change effective immediately as FFEL loan holder default.

The Obama administration had issued guidance in 2015 that when someone defaulted on a FFEL student loan that they had 60 days to bring the loan back into compliance and current and avoid the tacked on collection charges of up to 16% of the loan balance. This could be accomplished through programs such as the student loan rehabilitation program. It would all debtors to get back on track without exploding their student loan balances with massive collection costs beyond the already unaffordable amounts due.

Under the Obama administration policies, “A guaranty agency cannot charge collection costs to a defaulted borrower who, within the 60-day period following the initial notice, enters into a repayment agreement, including a rehabilitation agreement, and who honors that agreement.” – Source

The rationale given for this clarification was the distinction between a debtor who defaulted but intended to repay and one who was not going to make arrangements and thus cost significantly more to collect from. If a debtor defaulted and then entered into a repayment arrangement what would justify 16% of the loan balance in collection costs? Nothing.

But this policy of giving defaulted FFEL loan holders a grace period to get back on a payment plan goes back to the 1980s and 1990s. This was not an Obama policy.

In 1986, the Department of Education adopted regulations to establish the procedures for referring defaulted debt, which include giving the debtor notice of the proposed offset and an opportunity to avoid the offset by entering into a satisfactory repayment agreement. This policy was restated in 1992 when the then Department of Education said “the borrower could avoid the adverse consequences (report of the default status of the debt, liability for collection costs, and further collections actions) by making a timely agreement to repay the debt voluntarily.”

That’s all changed now. According to the “Dear Colleague” letter that was just released, the Trump Department of Education is withdrawing those policies and so debtors who default on FFEL student loans will have no grace period and will now face large collection fees to be immediately tacked on to the loan balance due. In essence, those who can least afford the default will be penalized and have no incentive to rehabilitate their loans. – Source

The Betsy DeVoss Department of Education says the reason to roll back these rules and policies is because there was an insufficient public comment period when the policies were put into place. Does anyone really believe the FFEL student loan debtors would argue against such a policy? It leaves you wondering why the policy could not have been left in place during a new public comment period and then a decision made. To me it sure seems like a Ready-Fire-Aim approach at dealing with student loan collections and student loan debtors in trouble.

But then of course, the immediate and obvious beneficiary of such a position is going to the be collectors and guaranty agencies who administer those loans.

What do you think? Comment below.

Steve Rhode

Get Out of Debt Guy – Twitter, G+, Facebook

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance 

3,000 people a day are defaulting on student loans and Betsy DeVos rewards the student loan indusry. You broke our hearts, Betsy!

Yesterday, the New York Times published an editorial scolding Secretary of Education Betsy DeVos for allowing the student-loan servicers to slap a 16 percent penalty on student borrowers who default on their loans.

 And let's remember this: That 16 percent penalty is not 16 percent on the amount borrowed; its 16 percent on the unpaid balance plus accumulated interest.  Millions of debtors have their student loans in forbearance or deferment for years while their debt grows due to accruing interest. Thus, when they default, they may owe double, triple, or even quadruple what they borrowed. The 16 percent penalty is calculated by the total debt--not just the original loan amount.

And the lenders apply that penalty even when debtors immediately start the process of bringing their loans back into good standing. That stinks.

Secretary of Education DeVos made a big mistake when she caved in to the student-loan industry at the expense of struggling student debtors. I can think of only two explanations. Either she doesn't know what she's doing or she's in the pocket of student loan guaranty agencies and their collection agents.

But it doesn't really matter why she did it. After all, Fredo Corleone didn't know what he was doing when he betrayed his brother Michael in Godfather II. But Michael didn't cut Fredo any slack. Remember what Michael said? "I know it was you, Fredo – you broke my heart – you broke my heart!"

 As the Times noted in its editorial, 3,000 people a day in the government's direct lending program defaulted on their student loans last year--about a million people. That's a lot of people having penalties slapped on their loan balances--that's a lot of suffering that Betsy DeVos could have stopped.

It is now clear: student debtors can't look to the Trump administration for assistance. The bankruptcy courts are their only hope.

I know it was you, Betsy--you broke my hear, you broke my heart!

References

Editorial. The Wrong Move on Student Loans. New York Times, April 6, 2017.

Trump administration cozies up to for-profit college industry: "I was wrong, I know, I know"

But I want you to know that I was wrong, I know, I know
I just wanna say that I was wrong, I know, I know
Well, I want you to know that I was wrong, I know, I know
And I just wanna say that I was wrong, I know, I know

I Was Wrong

  David Labuguen, Nathan Esquite, Zachary Hannah 

Patsy Cline gave one of the greatest lyrical apologies in music history when she sang, "I'm sorry, so sorry that I was such a fool." And of course about half of all country music songs are sung by some guy who says he's sorry for cheating on his girlfriend.

But for my money, the all- time best musical apology was sung by Arizona. So I want you to imagine me singing "I just want you to know that I was wrong, I know, I know."

I was willing to give Donald Trump and Betsy DeVos the benefit of the doubt regarding the student-loan crisis. I naively hoped Trump and DeVos would view this catastrophe with fresh eyes and take action to relieve massive suffering. 

But I was wrong.

Trump's Department of Education cozies up to for-profit college industry

Last week, Trump's Department of Education rolled back protections afforded to people who defaulted on their bank-based federal loans (the FFEL program). The Obama administration had instructed debt collectors not to assess penalties against FFEL defaulters if they entered a rehabilitation program within 60 days of default.

That relief is now off the table, and debt collectors are free to slap defaulters with a 16 percent penalty on the principal and accrued interest of defaulted bank-based loans.

And the New York Times reported that DeVos's Department of Education recently hired Robert Eitel to be a paid member of a "beachhead" team that advises DOE on regulatory matters. Mr. Eitel is taking an unpaid leave of absence from his job as vice president for regulatory legal services at Bridgepoint Education, Inc., a for-profit college company that operates Ashford University and the University of the Rockies.

As the Times reported, the Securities and Exchange Commission is currently investigating Bridgepoint to determine whether the company violated the 90 percent rule that requires for-profits not to receive more than 90 percent of their revenue from the federal student aid program. Attorneys generals in California and Massachusetts are also investigating Bridgepoint,

And there have been more allegations of wrongdoing against Mr. Eitel's employer. Last September, Bridgepoint reached  a $31.5 million settlement with the Consumer Financial Protection Bureau to resolve allegations that Bridgepoint deceived students into taking out private loans that were more expensive than advertised. And in 2014, Bridgepoint reached a $7.5 million settlement to resolve charges against it brought by the Iowa attorney general.

And now Bridgepoint's chief legal counsel is a paid consultant for DOE. And DeVos also hired Taylor Hansen, a former for-profit lobbyist, to join DOE's beachhead team. (According to Bloomberg News, Hansen resigned his DOE post last Friday.)

Is Betsy DeVos in the for-profit industry's pocket?

This stinks, and it is a strong sign that Betsy DeVos, Trump's new Secretary of Education, is in the for-profit college industry's pocket.

The for-profit industry is betting that Trump will reduce the regulatory pressure on it, and for-profit stocks have soared since Trump took office. Bridgepoint's stock is up 40 percent. DeVry Education Group's stock is also up 40 percent and Grand Canyon Education's stock rose by 28 percent.

I think we can conclude that the Obama administration's strict regulation of the for-profit industry has come to an end. And to be strictly accurate, Obama's DOE did not get serious about cracking down on the for-profits until the last two years Obama was in office.

Bottom line is this. The for-profit industry will continue to exploit unsophisticated Americans who are only trying to better themselves by investing in post-secondary education.  This sleazy industry's track record is terrible, and the 5-year default rate for people who borrowed to attend for-profit schools is almost 50 percent!

Bankruptcy may be the only option for overburdened student-loan debtors

Millions of student-loan borrowers are now drowning in debt, which includes the penalties and interest tacked on to the amounts they borrowed. Based on recent events, they can expect no relief from Betsy DeVos's Department of Education.

God help the people who took out student loans to enroll in worthless for-profit programs that did not lead to good jobs.  President Trump apparently has no sympathy for these people--even though he claims them as his core constituency.

College borrowers who have been driven into default on their student loans now have only one avenue for relief: the bankruptcy courts. As the bankruptcy courts become better educated about the student-loan crisis, I think we can expect more compassionate decisions by bankruptcy judges. So let us turn our eyes toward the bankruptcy courts because struggling student-loan debtor have no other place to turn.

Robert S. Eitel of Bridgepoint Education: On DOE's ""beachhead" team

References

Patricia Cohen. Betsy DeVos's Hiring of For-Profit College Official Raises Impartiality Issues, New York Time, March 17, 2017.

Patricia Cohen. For-Profit Schools, an Obama Target, See New Day Under Trump. New York Times, February 20, 2017.

Danielle Douglas-Gabriel. Trump administration rolls back protections in default on student loans. Washington Post, March 17, 2017.

 Shahien Nasiripour. , Betsy DeVos Hands Victory to Loan Firm Tied to Advisor Who Just Quit. Bloomberg News, March 20, 2017.