Elderly Student-Loan Defaulters Will See Their Social Security Checks Garnished When Pause on Student Loan Payments Ends

In response to the COVID pandemic, the Department of Education stopped garnishing the Social Security checks of elderly student-loan defaulters in March 2020. However, DOE will return to that practice soon--probably by midsummer 2023.

In an article posted on MSN.com, Vance Cariaga estimated that garnishment of Social Security checks will cost senior student-loan defaulters, on average, about $2,500 a year. 

Only a small percentage of elderly Americans have outstanding student-loan debt, but that percentage will likely go up in coming years, partly because millions of college borrowers are signing up for income-based repayment plans that can stretch out for as long as a quarter of a century.

In fact, Variaga cited estimates that 22 percent of Black Social Security beneficiaries will have student-loan debt in the coming years, along with 14 percent of White Social Security beneficiaries and 10.4 percent of Hispanics. 

Think about that. Virtually every American is eligible for Social Security benefits. Thus, if the estimates Cariaga cited are accurate, more than one out of five Black Americans will still have student debt when they reach retirement age.

If we were to poll members of Congress, I doubt that a single one supports garnishing Social Security checks of student-loan defaulters in their senior years. Not only is it heartless, but it's also pointless. A Government Accountability Office report that appeared several years ago found that money collected from garnishing Social Security checks seldom reduced defaulters' loan balances. Most of the garnished funds went toward paying accrued interest.

Why doesn't DOE abandon the practice? Alternatively, why doesn't Congress abolish the practice?

I'll tell you why. Despite all the rhetoric, litigation, and policy proposals, our nation's education and political leaders refuse to focus on the core reality of the student loan crisis, which is that millions of college borrowers have had their lives blighted by student debt they can't pay back. Burdened by student loans, Americans are increasingly unable to buy homes, save for retirement, or even get married or start families.

If Congress truly grasped the magnitude of the student-loan catastrophe, it would do at least these two things: It would abolish the practice of garnishing Social Security checks of elderly student-loan defaulters, and it would allow overburdened student debtors to discharge their student loans in the bankruptcy courts. 

Federal Reserve Bank of Philly: Student-Loan Payment Pause Just Postpones The Day of Reckoning

 In March 2020, the Department of Education suspended required payments on federal student loans due to the COVID crisis. The feds extended the pause six times, meaning that most borrowers have not made student-loan payments for more than two years. 

Nearly four out of five borrowers benefited from the pause on their student-loan obligations during the pandemic. The question now is whether student debtors can resume making payments when the loan-payment moratorium expires next month.

No one can answer that question definitively, but a recent survey by the Federal Reserve Bank of Philadelphia suggests that many college-loan borrowers will have trouble getting back on track with their student-loan payments when the payment pause comes to an end.

According to the Fed report, borrowers' "chronic repayment struggles are not primarily the result of pandemic-related transitory financial shocks but are more systematic in nature." For most student borrowers, the Fed concluded, "[the payment pause] is simply postponing the day of reckoning with loan payments that [survey respondents] consider unaffordable."

About half the respondents to the Fed's survey whose loans were in abeyance said they could resume making loan payments when the moratorium expires. The other half said they could only make partial or no payments on their student loans.

Moreover, the Fed report pointed out, "A common narrative during the pandemic was that the forbearance period enabled many education loan borrowers to save or deleverage [pay down other debts]." The Fed found, however, that among student borrowers who didn't expect to be able to resume making loan payments, very few were using the moratorium to save or pay down other debts.

Like many reports written by government agencies and policy wonks, the Fed's announcement on expected student-loan repayment contains turgid language and an excessive number of bar charts.

Nevertheless, the Philly Fed said plainly that the long pause on making student-loan payments only postponed the day of reckoning for most distressed student-loan debtors.

Meanwhile, American colleges continue to raise their tuition prices, which means that millions of overburdened college borrowers will see their debt burden become even more onerous than it is now.

The Pandemic Forbearance on Student Loan Payments Will End Soon: Federal Reserve Bank Expects Default Rates to Rise

In March 2020, the U.S. Department of Education allowed 37 million student-loan borrowers to pause their monthly loan payments due to the COVID pandemic.  DOE extended the payment moratorium several times, allowing all these college borrowers to skip making payments for two years without accruing interest or penalties.

This moratorium gave student debtors much-needed relief during the corona crisis. According to the Wall Street Journal,  borrowers saved almost $200 billion due to DOE's debt holiday. 

But that debt-payment moratorium ends in May unless President Biden extends it. Will all borrowers be financially able to begin making payments again?

Probably not.  The Federal Reserve Bank of New York recently analyzed repayment data from three student-loan programs, including two programs that did not allow student borrowers to skip payments during the pandemic.  It concluded that the default rate for FFEL loans (the program that allowed borrowers to miss payments) will go up when all those 37 million borrowers are required to start making monthly loan payments again in May. 

According to some insiders, President Biden is likely to extend the student-loan payment moratorium yet again, perhaps until after the 2022 midterm elections. Would that be a good thing?

In some ways, yes. The two-year break from making monthly loan payments gave millions of Americans much-needed financial relief. Some probably took advantage of the payment holiday to continue paying down their loans while interest wasn't accruing.  

But I think there may be a downside to DOE's pause on collecting student loans. People have gotten used to having extra money in their pockets, and it will be hard for them to begin writing those monthly checks again.

In some ways, the debt moratorium is like that loan from your brother-in-law. If he doesn't set a firm deadline for getting his money back, you are less inclined to repay the debt. Maybe your brother-in-law will forget all about it.

It would be lovely if the federal government forgave all federal student loans, a scenario millions of student debtors devoutly wish for.

But it will be difficult for our government to write off $1.8 trillion in student debt when that debt makes up about a quarter of all federal assets.

It is easier for everyone to treat the federal student loan program like a brother-in-law loan.  Hey, no hurry about paying it back.

Hey, brother-in-law: About that money you loaned me . . . .

Princeton bars students from leaving Mercer County: False Imprisonment?

You've seen those old crime movies. Detectives wearing fedoras arrive unannounced at some poor schmuck's home and accuse the guy of committing murder.

"Am I under arrest?" the schmuck askes nervously.

"Not yet," a detective snarls, "but don't leave town."

American universities are beginning to act like movie detectives. To stem the tide of COVID, they have become dictatorial and autocratic.  Last December, hundreds of students were quarantined in their dorm rooms and forbidden to walk their campuses due to the COVID crisis.

For example, the Washington Post recently reported on Oscar Lloyd, an undergraduate at Columbia University, who was isolated in a cell-like room for ten days after testing positive for COVID. The university fed him and presumably let him out to shower, but he was not allowed to leave his assigned room to exercise. His life for ten days must have been very much like being in jail.

And at Princeton, the university recently took the extraordinary step of confining all students within the boundaries of Mercer County, where Princeton is located.  

What will happen if a Princeton student breaks out of stir and makes a run for Hoboken? Will the campus police pursue him, sirens wailing and guns blazing, like a scene from a Jimmy Cagney movie?

False imprisonment is a civil offense under the common law. According to the Restatement (Second) of Torts, people are subject to liability for false imprisonment if they confine a person within fixed boundaries against that person's will and the confined person knows he is confined. 

Can universities be sued for false imprisonment when they quarantine their students? I doubt it.

After all, the detained student can always elect to drop out of school and leave the campus. And a genuine health emergency can sometimes justify draconian measures.

Nevertheless, the COVID pandemic is in its second year, and colleges and universities are becoming increasingly inhospitable and tyrannical. 

In my view, elite colleges can't justify tuition rates at extortion levels while forcing their students to take online classes, submit to being quarantined, or be restricted from moving freely when they are off-campus.

It costs students almost $80,000 a year to study at Princeton. Do you think a student laying out that kind of bread wants to be confined to Mercer County?

You're not under arrest yet, but don't leave Mercer County.

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.

Online teaching sucks: Don't pay $50,000 a year to take classes in your pajamas

 American universities are in a tight spot. When the coronavirus pandemic hit in March 2020, almost all of them closed their campuses and switched to online instruction.

Result? Students filed hundreds of lawsuits against the colleges, claiming--rightly in my opinion--that online teaching is inferior to face-to-face instruction and wasn't what they paid for. In many of these cases, students were paying tuition priced north of $25,000 a semester, yet they could not personally interact with a single professor.

Now, as the 2021 fall semester approaches, colleges must decide what to do.  Basically, they have three choices:

First, they can continue with online instruction, hoping that students will consent to another year of taking courses on their home computers.

Second, colleges can reopen their campuses but require students to wear masks and maintain social distancing. But such a policy imposes onerous burdens on students, which many of them probably won't accept.

Third, colleges and universities can reopen their campuses for face-to-face learning while insisting that all students get the COVID vaccine.

In my opinion, most colleges have no real choice--they've got to get professors and students back in the classroom under more or less normal conditions, and they've got to require everyone in the campus community--students, instructors, and staff-- to get vaccinated. 

If colleges continue teaching in an online format, they will experience significant losses in enrollment.  Why? Because online learning sucks, and everyone knows it.

 A recent report by the Brookings Institution confirmed what everybody already knew: "Online coursework generally yields worse student performance than in-person course work." Moreover, the Brookings researchers reported, "The negative effects of online course-taking are particularly pronounced for less academically prepared students and for students pursuing bachelor's degrees."

College bureaucrats may worry about getting sued if they make professors and students get vaccinated.  But the Seventh Circuit, in a decision issued in early August, ruled that Indiana University can require its students to be vaccinated as a condition of enrollment.

So--the bottom line is this--universities have the legal authority to require students to get vaccinated against COVID and refuse admission to students who won't get their shots.

And that's what they had better do. Because students and their parents won't put up with another year of online instruction that costs 25 grand a semester.

College professors: They're alive! They're alive!

References

Klaassen v. Trs. of Indiana Univ., No. 21-2326, 2021 WL 3281209 (7th Cir. Aug. 2. 2021).

All Sales Final! No Refunds! Students lose lawsuit for tuition reimbursement against four Rhode Island universities that closed their campuses during COVID pandemic

Almost exactly one year ago, American higher education shut down in response to the COVID pandemic.  All across the United States, universities closed their campuses and switched from face-to-face instruction to online teaching.

Over the past several months, students brought dozens of lawsuits against their colleges, seeking partial tuition refunds for the 2020 spring semester. They argued that the quality of teaching suffered when teaching shifted to computerized learning.

Some student plaintiffs found sympathetic courts, but a federal judge in Rhode Island dismissed students' lawsuits against four Rhode Island schools: Brown Univesity, Johnson & Wales University, Roger Williams University, and the University of Rhode Island.

 Judge John McConnell ruled that the four universities had no contractual obligation to deliver in-person instruction during the spring of 2020.  In Judge McConnell's view, the universities' recruitment materials, which touted lovely campuses and stimulating classroom environments, were mere "puffery" and did not amount to a contractual obligation to teach classes face-to-face.

I think Judge McConnell ruled correctly. Confronted with the coronavirus pandemic, American colleges and universities had no choice but to switch instruction from the classroom settings to an online format.

I sympathize with the students who brought these lawsuits, particularly the one brought against Brown University, an elite Ivy League school. Brown's tuition and fees total $58,000 per year. Students did not shell out that kind of money to take classes by sitting in front of a commuter in their parents' basements. 

Nevertheless, America's college leaders were justified in closing their campuses last spring. It was the only responsible thing to do. Surely they realize, however, that they cannot teach students via computers over the long term, even if the coronavirus pandemic stretches out for many months or years to come.

The total cost of attending America's most prestigious colleges now amounts to about $70,000 a year or even more. Most students will have to take out student loans to cover the bill.

If Brown's academic leaders think their students will take out student loans indefinitely for computerized instruction, they are in for a rude awakening.  No one will go into six-figure debt to get an online diploma, even if the credential is from Brown University.

Thus if the COVID pandemic isn't quickly brought under control, it will be the end of expensive private-college education.  After all, a young person smart enough to be admitted to Brown is smart enough not to pay $58,000 a year for an online college degree.

References

Burt v. Board of Trustees of the University of Rhode Island, __ F.3d ___, C.A. No. 20-465-JJM-LDA (D.R.I. March 4, 2021).