Department of Education pauses collection efforts against student-loan debtors: Guaranty agencies garnish wages anyway

In response to the COVID pandemic, the Department of Education allowed student-loan debtors to skip their monthly loan payments without penalty until September 30, 2021.  That pause was recently extended to January 30, 2022. 

Thanks to the Department's forbearance, millions of college-loan borrowers are enjoying a respite from making loan payments, knowing that DOE will not charge interest and penalties during this grace period and that their wages will not be garnished due to nonpayment. 

But guess what? Loan guaranty agencies continued garnishing the wages of student-loan borrowers despite the federal moratorium.  According to the Student Borrower Protection Center, the guarantee agencies garnished $27.2 million in May 2021 and $12.9 million in June 2021.

Will student borrowers recover these lost wages? Probably. But it will probably take a long time. After all, the Department of Education didn't forgive all student loans taken out by people who were defrauded by ITT Tech until five years after the for-profit college filed for bankruptcy.

The federal student loan program has enormous problems, and some of them will be difficult to fix. But surely, the Department of Education can require the loan guarantee agencies to abide by Department policy and the law.

But apparently, the guaranty agencies think they are above the law. In 2016, Educational Credit Management was assessed punitive damages for repeatedly garnishing the wages of a bankrupt student debtor in violation of the Bankruptcy Code. 

In an earlier case, ECMC was sanctioned for violating the Bankruptcy Code by collecting on a debt discharged in bankruptcy. 

Perhaps, you might conclude, the guaranty agencies inadvertently violate the law because they don't have the financial resources they need to keep track of their legal obligations. But that conclusion would be incorrect. According to a report issued by the New Century Foundation in 2016, Educational Credit Management, a nonprofit corporation, had more than $1 billion in nonrestricted assets.

Congress has a lot to do to clean up the student-loan mess, but it might start by holding hearings to examine the practices of the guaranty agencies.  Congress might begin by asking why some of the guaranty agencies are so rich. It might also inquire into the agencies' attorney fees the agencies run up chasing distressed student-loan debtors into the bankruptcy courts. 

Finally, Congress might look into how much the guaranty agencies are paying their senior management.  More than ten years ago, Bloomberg reported that the current CEO of ECMC was making more than $1 million a year.  What do you think ECMC's current CEO makes?  My guess--somewhere in the high seven figures. 

We don't need no stinkin' pause on student-loan collections.

"Luxury" apartments for college students: How will the kids pay the rent?

Bloomberg Businessweek carried a story recently about the emergence of luxury housing for college students. In recent years, real estate developers have been building "amenity-rich luxury apartments" near universities. These new apartment complexes are very attractive to students, especially when compared to the often run-down dormitories that the universities operate.

But these so-called luxury apartments are expensive, and they've contributed to the rising cost of student housing. As Bloomberg writer Ali Breland reported, "the estimated cost of on- and off-campus room and board at a four-year public university climbed by more than 82 percent, adjusted for inflation." During the same time period, rents across the nation as a whole only rose 19 percent.

How are students paying for their fancy digs? Many of them are paying the rent with student loans. The average college graduate now leaves school with $35,000 in student debt, and for many students, a significant chunk of that money was spent on housing.

So what's the problem?

First of all, a lot of students are taking out student loans for housing they really can't afford. When their student-loan bills come due, a lot of them will wish they had lived more modestly while they were working on their degrees in medieval literature.

Second, by borrowing money to pay for "luxury" living, students are living a lifestyle they can't sustain after they finish their studies and go looking for a job. It is hard for college students to accept the reality that their standard of living will go down once they've obtained their college degrees.

The upscale student-housing boom imposes a cost on college communities as well.  A lot of this so-called luxury student housing isn't luxurious at all.  Student-housing complexes may have swimming pools, clubhouses, and shiny appliances, but many of them are shoddily constructed, with plastic interior doors and particle-board cabinets.

I live just a few blocks from some of these student-oriented apartment complexes, and even the newer ones are beginning to look the worse for wear.  The day is fast approaching when these faux-luxury apartment buildings will just be slums.

But the real estate developers don't care. These complexes are being packaged and sold to investors as commercial real-estate-backed securities--very similar to the mortgage-backed securities that were being peddled before the housing crisis of 2008.

In my view, the luxury student-housing boom is a bubble. Too many of them are being built. No wonder the default rate on student-oriented housing mortgages has rocketed up to 9 percent!

Luxury student housing: Living the good life while still in college