Showing posts with label Chronicle of Higher Education. Show all posts
Showing posts with label Chronicle of Higher Education. Show all posts

Wednesday, August 1, 2018

"Broken and at risk of collapsing": Sandy Baum's excellent recommendations for reforming DOE's income-based student-loan repayment system

Sandy Baum published a short essay yesterday in Chronicle of Higher Education titled "Don't Get Rid of the Income-Based Loan Repayment System. Fix It."  As she said in her essay, the federal student-loan repayment system as it now stands is "broken and at risk of collapsing."

I have a few reservations about Ms. Baum's recommendations (which I will address later), but on the whole her suggestions for reform make sense.

"Create one income-driven repayment plan with clear requirements and provisions." 

As Ms. Baum attests, the Department of Education currently administers a "hodgepodge of repayment programs": PAYE, REPAYE, Public Service Loan Forgiveness (PSLF), etc.  She recommends one plan for everyone with borrowers paying a higher percentage of their income than the 10 percent rate that currently applies to borrowers in PAYE and REPAYE plans.

Baum also recommends that student borrowers be automatically enrolled in an income-based repayment plan just as soon as their repayment obligations begin. In addition, she endorses having student-loan payments added as a payroll deduction to student borrowers' paychecks.

This is a good idea. As Baum pointed out, "[p]ayroll deductions for student-loan payments would make it easier for required payments to adjust quickly when financial circumstances change, and also make it easier for students to meet their payment responsibilities."

More than that, automatic payroll deductions would make it impossible to default on student loans and eliminate the need for student borrowers to obtain economic hardship deferments. If the payroll deduction reform were implemented, it would be put the student-loan servicers out of business. No more 25 percent penalties slapped on loan defaulters; no more interest accruing on loans that are in deferment, no more robocalls from the debt collectors.

"As the total amount borrowed increases, extend the number of payments required to reach loan forgiveness."

Baum argues for longer repayment periods for people who acquired a lot of student debt. And this too makes sense. People who borrowed $20,000 or $30,000 to attend college should have a repayment plan that allows them to be debt free after 10 or 15 years.  But a person who borrows $100,000 or more should expect to make payments for a longer period of time.

"Place reasonable limits on graduate students' federal borrowing."

Student-loan debt is spinning out of control, partly fueled by the GRAD PLUS program that allows people to borrow the entire cost of going to graduate school regardless of the amount. In response to that incentive, universities raised the cost of their graduate programs exponentially--and I mean exponentially. As I have said before, I paid $1,000 a year to attend University of Texas School of Law. The current cost is $35,000 a year--35 times as much as I paid.

Not long ago, I wrote about Mike Meru, who borrowed $600,000 to go to dentistry school. With accrued interest, he now owes $1 million! A cap on the amount a student can borrow to go to graduate school would stop the insane escalation in professional-school tuition.

"Eliminate taxes on all forgiven loan balances.

The IRS considers a forgiven loan to be taxable income. Thus, with the exception of borrowers in PSLF plans, borrowers whose loan balances are forgiven under income-based repayment plans receive a tax bill for the amount of forgiven debt .

This is crazy. I doubt anyone in Congress supports the status quo on this issue. After all, what is the point of people enrolling in income-based repayment plans if they get hit with a big tax bill after faithfully making monthly loan payments for 20 or 25 years?

Baum's other good ideas

In addition to the recommendations she made this week in Chronicle of Higher Education, Baum wrote a book on the student loan program in which she endorsed easier accessibility to the bankruptcy courts for distressed student borrowers. She also supports an end to garnishing Social Security checks of elderly student loan defaulters.

I once opposed all income-based repayment plans on the grounds that they basically turn student debtors into indentured servants--forced to pay a portion of their wages to the federal government for the majority of their working lives simply for the privilege of going to college. I still believe that.

Nevertheless, Baum's proposals address reality--which is that 45 million student debtors now carry $1.5 trillion in student-loan debt.  The proposals Baum put forward this week in Chronicle of Higher Education won't fix this train wreck of the federal student-loan program, but they will make the system more humane.

References

Sandy Baum. Don't Get Rid of the Income-Based Loan Repayment System. Fix It. Chronicle of Higher Education, July 30, 2018.

Sandy Baum. Student Debt: Rhetoric and Realities of Higher Education Financing. New York: Palgrave-MacMillan, 2016.

Jason Delisle. The coming Public Service Loan Forgiveness bonanzaBrookings Institution Report, Vol 2(2), September 22, 2016.

Saturday, October 24, 2015

The Department of Defense Suspends University of Phoenix from Military Tuition Benefits Program: Senators John McCain, Jeff Flake and Lamar Alexander Ask DOD to Reconsider

The Department of Defense recently sanctioned the University of Phoenix by suspending it from participation in the U.S.  Military's tuition benefits program. Why? Allegedly, Phoenix sponsored improper recruiting events and inappropriately used the DOD's seal.

Senators John McCain, Jeff Flake and Lamar Alexander got involved in this matter on behalf of whom? Soldiers? No--they came to the aid of the University of Phoenix. The senators argued that the university had only committed "vague, technical violations" that UP had already fixed or promised to fix.

According to the senators, "The University of Phoenix has a long history of serving working adults and others for whom traditional university schooling is unavailable" and noted that the university had more than 200,000 students in 17 states. But the senators neglected to note that almost 1.2 million University of Phoenix students have accumulated $35 billion in student-loan debt and that UP's five-year default rate is 45 percent!

Why do you suppose these old croakers came to the aid of the University of Phoenix? It is headquartered in Arizona, which might explain Senators McCain and Flake's intervention. But even so, don't these guys have an obligation to protect the University of Phoenix's students--not the university itself? And doesn't the Department of Education deserve support when it tries to rein in abuses to the federal student aid program?

The reason the for-profit college industry is out of control is because this rapacious sector of higher education makes strategic campaign contributions and hires lobbyists to protect its interests in Washington. I couldn't find any evidence that the University of Phoenix has made campaign contributions to Senator John McCain, but I did find evidence that McCain's biggest contributors include Goldman Sachs, which owns a stake in a for-profit college, and Bank of America, one of the biggest players in the private student-loan market.

If you want to better understand how the for-profit colleges have ripped off American taxpayers, you should read David Halperin's article in The Nation.  "Many of America's for-profit colleges have proven themselves a bad deal for the students lured by their enticing promises--as well as for US taxpayers, who subsidize these institutions with tens of billions annually in federal student aid," Halperin wrote.

As Halperin explained, more than half of the students who enroll in for-profit colleges drop out within about four months.  Many of these colleges have been caught using deceptive advertising and misleading information about job placement rates.  And although the for-profits only enroll about 13 percent of postsecondary students, they account for nearly half of student-loan defaults.

How do they get away with this? By hiring lobbyists and making  campaign contributions to powerful federal legislators. According to Halperin, the industry's lobbyists include past Senate majority leader Trent Lott and Penny Lee, a former aid to Senate majority leader (now minority leader) Harry Reid.  In fact, as Senator Dick Durbin put it, the for-profits "own every lobbyist in town" (as quoted in Halperin's article).

And why, you might ask, haven't supposedly independent voices in the higher-education policy world spoken out more forthrightly about the abuses in the for-profit college industry? Why hasn't Chronicle of Higher Education taken a stand? Why hasn't the National Urban League been more aggressive in its policy recommendations for higher education? Perhaps it is because the for-profits advertise in the Chronicle and  Corinthian Colleges (now bankrupt) gave $1 million to the National Urban League.

As Halperin summarized at the end of his lengthy article, "There's a word for this state of affairs: corruption." And knowingly or unknowingly, Senators McCain, Flake and Alexander came to the aid of one of the for-profit industry's worst actors: University of Phoenix.  Senator McCain deserves this nation's respect for his heroism in the Vietnam War. How sad and how shameful to observe him in his dotage serving as a shill for the for-profit college industry.

References

Adam Looney & Constantine Yanellis.  A Crisis in student loans? Brookings Institution, September 10, 2015. Accessible at: http://www.brookings.edu/~/media/projects/bpea/fall-2015_embargoed/conferencedraft_looneyyannelis_studentloandefaults.pdf

David Halperin. The Perfect Lobby: How One Industry Captured Washington, DC. The Nation, April 3, 2014. Accessible at:  https://www.thenation.com/article/perfect-lobby-how-one-industry-captured-washington-dc/

Senator John McCain Press Release. Senators McCain, Flake & Alexander Question DOD's Probation Decision Regarding the University of Phoenix's Participation in the Military Tuition Assistance Program. October 22, 2015. Accessible at: http://www.mccain.senate.gov/public/index.cfm/press-releases?ID=d7d2b065-3df2-42ce-9763-82ed0310a6e6

Senator John McCain's Top Contributors. Center for Responsive Politics. Opensecrets.org. Acessible at: http://www.opensecrets.org/politicians/contrib.php?cycle=Career&cid=n00006424