Showing posts with label Department of Education. Show all posts
Showing posts with label Department of Education. Show all posts

Wednesday, April 13, 2016

Feds will forgive student loans of disabled borrowers: Doing the right thing in the right way (cutting through red tape)

The Department of Education announced this week that it will write customized letters to 387,000 disabled student-loan borrowers to inform them they are eligible for loan forgiveness. Good for the feds. DOE regulations authorize student-loan forgiveness for borrowers who are permanently disabled, but most people eligible for forgiveness don't apply. In fact, according to an Inside Higher Ed article, almost half of all disabled borrowers (179,000) are in default!

I applaud DOE for doing the right thing and reaching out to people who are entitled to have their student loans forgiven. This is a stark and pleasing contrast to the Department's position in Myhre v. U.S. Department of Education, when DOE opposed bankruptcy discharge for a quadriplegic debtor whose expenses exceeded his income because he had to pay a full-time caregiver to feed, dress, and bathe him.

Apparently, DOE is going to streamline the loan-forgiveness process for disabled borrowers. According to an article by Jillian Berman in Marketwatch:
The borrowers identified by the Department won’t have to go through the typical application process for receiving a disability discharge, which requires sending in documented proof of their disability. Instead, the borrower will simply have to sign and return the completed application enclosed in the letter.
DOE is to be commended for cutting through red tape to forgive these loans.  Perhaps this streamlined approach can be expanded to include student-loan borrowers who were defrauded by the college they attended--particularly students who attended one of the Corinthian Colleges institutions. Thousands of former Corinthian students have applied for loan forgiveness, but the administrative process has been tedious.

This latest development provides more evidence of the massive suffering experienced by millions of distressed student-loan borrowers. Nearly 400,000 of them are permanently disabled!

References

Jillian Berman. Why Obama is forgiving the student loans of almost 400,000 people. Marketwatch.com, April 13, 2016. Accessible at http://www.marketwatch.com/story/why-obama-is-forgiving-the-student-loans-of-nearly-400000-people-2016-04-12

Friday, April 8, 2016

Artist burns student loan records at private university in South America: What a cool idea!

A friend recently sent me an article from The Guardian about an artist using the name Fried Potatoes (Papas Fritas in Spanish) who sneaked into the vault of Universidad del Mar, a private university in Chile, and burned all the documents pertaining to the university's student loans.  Yep, a half billion dollars in student debt went up in smoke.

What a cool idea!

Of course, destroying all loan documents pertaining to private college loans would be impossible in the United States. There are literally millions of student-loan documents in the U.S. involving hundreds of for-profit colleges. Most are in electronic format and the government  maintains records of these debts, since the government guarantees all loans issued through the federal student-loan programs.

Still, some variation of this idea is worth considering. Let's start with Corinthian Colleges, which filed for bankruptcy last year and now has a $1.2 billion judgment against it for false advertising and misleading lending practices. A California judge ordered Corinthian to pay most of the judgment ($820 million) as restitution to former students who were victimized by its scam. The bulk of this money represents federal loans students took out to pay their tuition bills at one of Corinthian's campuses.

But of course Corinthian doesn't have the money to pay the judgment. At the time it filed for bankruptcy, it claimed to have only $20 million in assets--about one sixtieth of the total California judgment.

Department of Education regulations allow students to apply for loan forgiveness if they were students at a college that closed or if they were defrauded by the college they attended. Thousands of Corinthian alums have applied for relief under these regulations.

But the administrative process for resolving these claims has been tedious, and so far only a small number of ex-Corinthian students have had their loans forgiven.

Why doesn't the Department of Education do what Papas Fritas did and just dissolve the debt? Of course, DOE wouldn't need to actually burn all those loan documents, although I'm sure a bonfire would be personally satisfying to Corinthian's former students. But the loans could be forgiven by government fiat. And that is what DOE should do.

After all, Corinthian's former students will never pay back those student loans. In fact, almost half of all students who attended for-profit colleges eventually default on their federal student loans. Wouldn't it be easier and more just for the government to simply decree that any student who took out federal loans to attend a for-profit college will have those loans forgiven if the college is found guilty of fraud or misrepresentation?

Of course it would, but DOE will never take that straightforward step because the amount of money involved is enormous. It would rather deal with student claims through a cumbersome administrative process, knowing that most students won't go to the trouble of filing a claim.

And here's a better idea. Given the high levels of fraud, misrepresentation, price-gouging and totally worthless educational experiences connected with the for-profit college industry, I think we should simply allow anyone who took out student loans to study at one of these shyster for-profit institutions to discharge those loans in bankruptcy under the same standards that apply to other unsecured debt. In other words, people who are otherwise qualified for bankruptcy relief should have their student loans discharged through the routine process of a bankruptcy filing without the need of filing an adversary proceeding.

Image result for crowd around bonfire

References

Jonathan Franklin. Chile students' debts go up in smoke. The Guardian, May 23, 2014. Accessible at http://www.theguardian.com/world/2014/may/23/chile-student-loan-debts-fried-potatoes

Matt Hamilton. Corinthian Colleges must pay nearly $1.2 billion for false advertising and lending practices. Los Angeles Times, March 23, 2016. Accessible at http://www.latimes.com/local/lanow/la-me-ln-corinthian-colleges-judgment-false-advertising-20160323-story.html

Saturday, March 12, 2016

Predatory for-profit colleges and mandatory arbitration clauses in student contracts: Secretary of Education John B. King Jr. wants to stop for-profits from trying to escape accountability for abuse

In a March 11 press release, the Department of Education announced it is taking steps to protect students from predatory colleges. It's about time. The Obama administration has had seven years to clean up the for-profit college industry, and it has accomplished virtually nothing.

According to the press release, Acting Secretary of Education John B. King Jr. wants to stop colleges from forcing students to sign arbitration agreements that effectively insulate the colleges from liability for their wrongdoing. As DOE explained:
Forced arbitration provisions used by many schools in their enrollment agreements – often buried in the fine print – effectively prevent students from seeking redress for harm caused by their school and hide wrongdoing from the Department and the public. Such agreements often bar students from bringing their legal claims in a group, making it financially impossible for individual students to challenge schools. Some agreements require disputes to be filed in secret tribunals where little or no records are kept; some prohibit students from speaking about the claims they file. The Department will discuss with negotiators how to end such outrageous practices.
 DOE also wants to "incorporate crucial elements of state consumer protection laws" in new regulations. This too is a good thing. But why did DOE wait so long?

And why is DOE seeking to enact reforms through a "negotiated rulemaking process"? These reforms should be nonnegotiable.  All for-profit colleges should be subject to state consumer-protection laws, and all for-profits should be barred from forcing students to sign arbitration clauses that protect the colleges from liability for fraud and wrongdoing.

The next presidential election is eight months away. I predict nothing will get done regarding predatory for-profit colleges before Barack Obama leaves office. And we haven't hear a a peep out of Hillary about cracking down on this sleazy industry. No wonder young voters have rejected her.

References

U.S. Department of Education. U.S. Department of Education Takes Further Steps to Protect Students from Predatory Higher Education Institutions. March 11, 2016. Accessible at http://www.ed.gov/news/press-releases/us-department-education-takes-further-steps-protect-students-predatory-higher-education-institutions?utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery&utm_term=

Sunday, March 6, 2016

Rising Student-Loan Default Rates and Ridiculously High Tuition Costs: The Big Short

We live in an era of fraud in America. Not just in banking, but in government, education, religion, food, even baseball... What bothers me isn't that fraud is not nice. Or that fraud is mean. For fifteen thousand years, fraud and short sighted thinking have never, ever worked. Not once. Eventually you get caught, things go south. When the hell did we forget all that? I thought we were better than this, I really did
Mark Baum (played by Steve Carell)
The Big Short 

The Big Short, the Academy-Award winning movie on the home-mortgage crisis of 2008, shows movie goers how greedy banking institutions created a housing bubble that burst in a shower of home foreclosures and trillions of dollars in financial losses.

A similar bubble has emerged in the federal student-loan program. And although the housing bubble is more complicated than the student-loan bubble, there are some eerie similarities between the collapse of the housing market a few years ago and the student-loan crisis. For example:

Hiding risk. The Big Short includes a scene in which  Mark Baum, a skeptical investment banker played by Steve Carell, quizzes a representative of one the bond rating agencies--Moody's or Standard & Poor. The rating-agency representative admits that  the agency gives mortgage-backed securities  the highest rating--AAA--even  though the agency knows that many of the instruments are packed with risky home mortgages that are headed for foreclosure.

Something similar is happening in the federal student-loan program. Although the Department of Education recently announced that student-loan default rates went down last year--especially in the for-profit sector, that's not really true.  The for-profits have been aggressively signing up their former students in economic-hardship deferment programs that excuse borrowers from making loan payments without being counted as defaulters.

When we look at the five-year default rates in the for-profit sector, the numbers are scary. Almost half the people who took out student loans to attend a for-profit institution default within 5 years of beginning the repayment phase on their loans. And two years after beginning the repayment phase, 3 out of 4 of these students are seeing their loan balances go up--not down--due to accruing interest that is not being paid down.

In short, about half the people who take out student loans to attend for-profit colleges don't pay back their loans. Clearly, this sector of the student-loan program is a train wreck.

Unsustainable rising costs.  As many people still remember, the cost of housing went up rapidly during the early 2000s, with people buying homes and flipping them for huge profits over a matter of months or even weeks. Everybody was making money in real estate--until the housing market collapsed.

Similarly, America has seen college tuition costs rise faster than the inflation rate for many years. The cost of attending law school, obtaining an MBA, or studying at an elite private college has gone through the roof.  I graduated from University of Texas Law School in 1980 and only paid $1,000 a year in tuition. If I enrolled at UT Law School today, it would cost me 36 times as much--$36,000 a year for Texas residents!

Of course, these tuition hikes can't be justified any more than the dizzying cost of a split-level home in Coral Gables, Florida in 2005.  And of course, those costs must eventually come down.  Already, law school enrollments have plummeted and the schools have lowered admissions standards to attract students.  And the elite private colleges are now giving huge discounts on their posted tuition rates; the average freshman now pays about half the college's sticker price.

Hidden costs and fees. Finally, the home mortgage bubble was fueled by greed and fraud. The bankers who packaged mortgage-backed securities were not taking any risks--they took their fees from the transaction costs.  The banking industry was selling toxic financial instruments to gullible investors, including pension funds and people invested in mutual funds.

Similarly, the college industry is charging a gullible public more than a liberal arts degree is worth, and the suckers enroll because, hey, going to Barnard or Brown or Amherst must be a good investment. And the colleges aren't assuming any risks. Their pliant students are borrowing from the federal student loan program, and the government guarantees the loan. Ivy League U doesn't care if its graduates default on their loans any more than Goldman Sachs cared what happened to the investors who bought their mortgage-backed securities.

And the fees! People who default on their loans get assessed huge collection fees and penalties. People are routinely going into the bankruptcy courts trying to discharge student-loan debt that is two or even three times the amount they borrowed due to accrued interest, penalties, and fees.

So if you haven't seen the Big Short, go see it. And as you watch this riveting drama, think about the student-loan program. A bubble is about to burst at a college near you.


Image result for the big short movie

"I thought we were better than this."

Thursday, February 25, 2016

Loan forgiveness for college students defrauded by for-profit colleges: Why not simply allow defrauded students to take bankruptcy?

The Department of Education is revising the regulations for handling student-debtor requests for debt relief. Under present regulations, student-loan borrowers  are eligible for debt relief if they can show they were victims of misrepresentation by the institution they attended.

But the old regulations are cumbersome, and DOE has been swamped by debt relief requests after Corinthian Colleges closed last year. Corinthian had 350,000 students or former students.

Apparently, the Department of Education is proposing some sort of hearing process where students who claims to be fraud victim can confront the colleges that lured them into enrolling and taking out student loans.

But how will that work? All the for-profit colleges have teams of lawyers, and the defrauded students who confront them at hearings will likely  have no lawyer at all.  That's a crumby idea.

Second, DOE is contemplating some kind of statute of limitation that would bar a student's fraud claim if not filed by some yet-to-be-defined time limit. Another crumby idea. Student-loan creditors can pursue student-loan defaulters any time they want--30 years after a loan was incurred if they choose. That's because there is no statute of limitation on debt collection of a student loan. So why should students be restricted by a time limit to file misrepresentation claims?

Third, the proposed regulations are cumbersome legalese that many students won't understand. Here is a sample of proposal's text:
For loans first disbursed prior to July 1, 2007, the borrower may assert as a defense to repayment, any act or omission of the school attended by the student that relates to the making of the loan or the provision of educational services that would give rise to a cause of action against the school under applicable State law.
Got that?

If the Department of Education were willing to face facts, it would admit that millions of students who enrolled at for-profit colleges have valid misrepresentation claims.  The for-profit industry as a whole has a 5-year default rate of 47 percent--strong evidence that many of the programs the colleges offered did not lead to well-paying jobs.

Rather than construct an elaborate, expensive, and unworkable administrative process for sorting out student fraud claims, the Department of Education should simply allow all students who attended a for-profit college and who are now broke to discharge their student-loan debts in bankruptcy without having to meet the "undue hardship" standard that currently applies to student-loan debtors in the bankruptcy courts. In other words, an insolvent student-loan debtor who attended a for-profit college should be able to discharge student-loan debt in bankruptcy like any other nonsecured debt.

After all, the bankruptcy courts have the expertise and the resources to sort out valid bankruptcy claims from invalid ones.  But DOE won't expedite the loan forgiveness process because it knows that millions of people took out student loans for worthless college experiences. If every student who was huckstered by a for-profit college obtained student-loan debt relief, the cost of loan forgiveness would amount to hundreds of billions of dollars.

References

Michael Stratford. Obama Crackdown on College Fraud. Inside Higher Ed, February 9, 2016. https://www.insidehighered.com/news/2016/02/09/education-department-creates-new-office-crack-down-fraud-colleges?utm_source=Inside+Higher+Ed&utm_campaign=8bca58981a-DNU20160209&utm_medium=email&utm_term=0_1fcbc04421-8bca58981a-198565653

Michael Stratford. New Criteria For Debt Relief. Inside Higher Ed, February 17, 2016. Available at: https://www.insidehighered.com/news/2016/02/17/us-plan-would-cancel-federal-loans-borrowers-misled-their-colleges?utm_source=Inside+Higher+Ed&utm_campaign=60a80c3a41-DNU20160217&utm_medium=email&utm_term=0_1fcbc04421-60a80c3a41-198565653

Kelly Field, "U.S. Has Forgiven Loans of More Than 3,000 Ex-Corinthian Students, Chronicle of Higher Education, September 3, 2015. Accessible at: http://chronicle.com/article/US-Has-Forgiven-Loans-of/232855/?cid=pm&utm_source=pm&utm_medium=en

Tamar Lewin, "Government to Forgive Student Loans at Corinthian Colleges," New York Times, June 8, 2015. Accessible at: http://www.nytimes.com/2015/06/09/education/us-to-forgive-federal-loans-of-corinthian-college-students.html?_r=0

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). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults


Friday, February 19, 2016

Let Justice Roll On Like A River: Richard Precht, A Virginia Man Living on $1200 a Month, Won Bankruptcy Discharge of Nearly $100,000 in Student-Loan Debt

But let justice roll on like a river, righteousness like a never-failing stream!
Amos 5:24
On July 7 2015, the Department of Education issued a letter outlining guidelines for determining when the Department and its student-loan collection agencies would not oppose bankruptcy relief for distressed student-loan debtors. DOE listed 11 factors that it would consider, including these:

1) "Whether a debtor is approaching retirement, taking into account the debtor's age at the time student loans were incurred and resources likely to be available to the debtor in retirement to repay a student loan . . ."

2) "Whether a debtor's health has materially changed since the student loan debt was incurred . . . ."

Frankly, I thought DOE's letter was insincere and that DOE would continue to oppose bankruptcy relief for nearly everyone and that it would persist in insisting that virtually every distressed student-loan debtor must be placed in a long-term income-based repayment plan. But perhaps I was wrong. 

In October 2015, Richard Precht, age 68, filed for bankruptcy and asked to have his student-loan debt discharged.  Mr. Precht as it turned out was the perfect person to test whether DOE meant what it said in its  July 2015 letter.  He was living in retirement and was in ill health and was burdened with almost $100,000 in student-loan debt.

In fact, his circumstances were desperate. Mr. Precht was living on a small pension and a small Social Security check, but both were being garnished by the federal government. His total income was only $1,200 a month and he was forced to live with his adult daughter because his income was not sufficient for him to afford housing.

Precht filed for bankruptcy in Virginia, and the federal court system quickly issued a scheduling order that put his case on track for a trial before a bankruptcy judge. Fortunately, Mr. Precht was ready to proceed with his case without delay. He had prepared nearly a thousand pages of exhibits outlining his financial circumstances, his health status, and his loan payment history over the years.

Initially, DOE opposed Precht's petition for relief. DOE's lawyer filed a motion to strike, asking the bankruptcy judge to order Precht to refile his complaint on technical grounds. But fortunately for Mr. Precht, the bankruptcy judge had read DOE's July 2015 letter. 

At the hearing, the judge pointedly asked DOE's attorney what DOE planned to do about that letter. The attorney's candid reply was, "We don't know."

But apparently, the policy makers at DOE considered the matter and decided to do the right thing. A few days after the hearing on DOE's motion to strike, the DOE attorney called Mr. Precht and said the Department would not oppose bankruptcy relief. DOE prepared an order for the bankruptcy judge to sign that relieved Mr. Precht of all his bankruptcy debt--a miracle of almost biblical proportions.

As the prophet Amos said: "Let justice roll on like a river." Mr. Precht won a life-altering victory for himself, and his case points the way for hundreds of thousands of people similarly situated. More than 150,000 elderly student-loan debtors are having their Social Security checks garnished, and millions of people are now in long-term income repayment plans that obligate them to pay on their student-loans until they are in their 70s, their 80s, and even their 90s!

Personally, I don't think Mr. Precht's victory signals a change of attitude at the Department of Education. I think he was able to prevail because he was prepared to go to trial and his case was so strong.  As of this writing, DOE still opposes bankruptcy relief for almost all student borrowers.

Nevertheless, Mr. Precht's victory is significant. His case demonstrates that truly deserving student-loan debtors who prepare good cases can prevail in bankruptcy court, even if they are not represented by an attorney.

References


Lynn Mahaffie, Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings.  U.S. Dep’t of Educ., July 7, 2015, DCL ID: GEN-15-13.

Precht v. United States Department of Education, AD PRO 15-01167-RGM (Bankr. E.D. Va. Feb. 11, 2016 (Consent Order).

Tuesday, December 22, 2015

The Department of Education's Lynn Mahaffie wrote a disingenuous letter outlining when the Department of Education will not oppose bankruptcy discharge for student-loan debtors under the Undue Hardship rule

The Department of Education's Lynn Mahaffie issued a letter last July outlining when DOE and its debt collectors will not oppose bankruptcy discharge for student-loan debtors.  In fact, Mahaffie's letter is disingenuous.

Reading Mahaffie's letter, you might think DOE and its debt-collecting lackeys would not oppose a bankruptcy discharge for student-loan debtors who are in truly distressing circumstances or when it would be pointless to try to collect the debt. But you would be wrong.

In fact, DOE and its debt collectors oppose bankruptcy discharge for nearly everyone.

Here are some examples:

In Myhre v. Department of Education, DOE opposed bankruptcy discharge for a quadriplegic student-loan debtor who was working almost full time but could not make enough money to pay his living expenses, including the cost of a full-time caregiver.

In Roth v. Educational Credit Management Corporation, ECMC, perhaps DOE's most ruthless debt collector, opposed a bankruptcy discharge for a 68-year-old woman with chronic health issues who was living on a Social Security check of less than $800 a month.

In Abney v. U.S. Department of Education, decided after Mahaffie's letter was issued, DOE opposed a bankruptcy discharge for a man living on less than $1200 a month and who rode a bicycle to work because he couldn't afford a car.  This poor guy was making child-support payments that almost equaled his take-home pay and had lost his home to foreclosure. In fact, this man's situation was so desperate that he lived for a time in the cab of of one of his employer's trucks. And DOE demanded that he be put in a 25-year repayment plan!

Mahaffie's letter listed several factors for determining when to oppose a student-loan debtor's bankruptcy discharge, including the debtor's age and health status. But DOE is garnishing the Social Security checks of 150,000 elderly people and fights bankruptcy relief without regard to a student-loan debtor's health status. Hey, if DOE fights bankruptcy discharge for a quadriplegic, it fights it for everyone.

And Mayaffie also indicated that DOE and student-loan creditors wouldn't fight bankruptcy discharge if litigation costs outweighed the likely benefits. But in Kelly v. Educational Credit Management Corporation, ECMC chased a student-loan debtor through the federal courts for seven years!

Frankly, Mahaffie's letter is insincere. Contrary to the representations in her letter, the Department of Education and Educational Credit Management Corporation fight nearly every student-loan bankruptcy with almost desperate ferocity.  It knows that millions of people are entitled to bankruptcy relief from their student-loan debt under standards being laid down by compassionate bankruptcy courts. And it knows if student-loan debtors start getting the relief to which they are entitled under basic principles of fairness and justice, the student loan program will collapse.


Picture of Lynn Mahaffie, Deputy Assistant Secy for Policy, Planning and Innovation, U.S. Dept of Education
Lynn Mahaffie, J.D.
DOE's Deputy Assistant Secretary wrote a disingenous letter

References

Lynn Mahaffie, Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings. CL ID: GEN 15-13, July 7, 2015. 

Myhre v. U.S. Department of Education, 503 B.R. 698 (Bakr. W.D. Wis. 2013).

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).

Friday, October 2, 2015

Goodbye, Arne Duncan. We Hardly Knew Ye. The Secretary of Education Is Leaving Higher Education in a Mess

Arne Duncan is stepping down as Secretary of Education in December. Like all good politicians, Arne knows when it's time to slip out the door and look for a new gig.

Duncan is a photogenic guy and he says everything the progressive community wants to hear. But he did not have the moral courage to clean up the federal student loan program, and he is leaving American higher education in a mess. Duncan didn't do anything substantive to relieve the suffering of millions of people who have  been ripped off by the for-profit college sector. And he didn't do enough to rein in colleges that have high student-loan default rates and low graduation rates.

So where does the nation stand regarding federal student loans? First of all, Americans are carrying at least $1.3 trillion in outstanding student-loan debt (including private student loans, which is perhaps 10 percent of the total).

At least 7 million people are in default, and another 3.9 million are in long-term repayment plans that can stretch payments out for as long as 25 years. A great many of people in these plans will never pay off the principal on their loans.

Of course, the epicenter of the disaster is the for-profit college sector. According to a report released recently by the Brookings Institution, almost half of the people who borrowed money to attend for-profit colleges default within five years of beginning repayment.

And as I have said before, the true magnitude of this train wreck has been hidden from the public because millions of former students have received economic-hardship deferments that relieve them from making loan payments without being counted as a defaulter. The public really has no idea what the true cost of the federal-loan fiasco is.

Moreover, in spite of the fact that the entire higher education industry is heavily dependent on federal student-aid money, a lot of colleges are struggling. Moody's estimates that the number of colleges that are closing will triple by 2017.  True--Moody's estimate translates into only 15 colleges closing in that year, a small percentage of the more than 2000 colleges; but Moody's estimate is probably over-optimistic. The whole private sector is slashing tuition to attract students, so that the actual price of tuition is only about half the sticker price that colleges are advertising.

The higher education industry and its sycophants continually assure the public that all is well. People who graduate from college make more than high-school graduates, we are repeatedly told. We also hear that college costs haven't really gone up that much when inflation is taken into account and we calculate how much colleges are discounting their tuition prices. And we are also told that most of the defaulters owe small amounts of money, so rising college tuition isn't the heart of the problem.

All these excuses carry a certain amount of truth, but the fact remains that millions of people have had their credit ruined, their career hopes dashed, and their dreams of financial security destroyed by borrowing money to attend college that they are unable to pay back.

These millions have only one real route toward a second chance in life--discharge of their loans in bankruptcy. But the Department of Education opposes almost all efforts to discharge student loans in the bankruptcy courts other than people who have catastrophic health problems. In fact, DOE--Arne Duncan's DOE--opposed bankruptcy relief for a quadriplegic student-loan debtor who held a job but was unable to provide for himself and pay the full-time caregiver that he needed in order to survive.  And DOE had unleashed its lackey, Educational Credit Management Corporation, to hound debtors in the bankruptcy court. ECMC is as ruthless  as a character from a Dickens novel, but Duncan did nothing to bring this outfit under control.

So goodbye, Arne Duncan; and good riddance. I'm sure he will toddle off to a cushy university job where he will be working for one of the elite and over-priced institutions that benefited from the shameful federal student-loan program.

But Arne is still young enough to be forced to appear at a congressional hearing ten years from now, when irate Congresspeople will be asking questions about the student-loan bubble that ultimately burst. I can envision him flanked by high-priced lawyers; and I can hear the cameras clicking while he reads his prepared statement to cranky legislators glaring at him over their bifocals.  I'm sure he will be just as glib on that day as he is today, and I'll bet he'll be wearing a nice suit.

Obama administration resignations and firings



References

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). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults

Kellie Woodhouse, Closures to Triple. Inside Higher Education, September 25, 2015

Kellie Woodhouse. Discounting Grows Again. Inside Higher Education, August 25, 2015.

  

Monday, September 21, 2015

The deluge is upon us: University of Phoenix students owe the taxpayers $35 billion; and 45 percent default within five years

Earlier this month, the Brookings Institution published a report on student-loan default rates; and some of its findings are truly shocking.  The report ranked institutions based on their students' total accumulated outstanding loans. University of Phoenix, a for-profit college company, ranked number 1; almost 1.2 million University of Phoenix students have racked up more than $35 billion in outstanding student-loan obligations.

And ponder this: 45 percent of the students in the University of Phoenix's 2009 cohort defaulted on their student loans within five years  
(Looney & Yannelis, 2015, table 5).

Image result for "university of phoenix" images

Brookings' researchers also reported that about three quarters of students (74 percent) who attended for-profit schools owed more than they originally borrowed two years after beginning repayment (for the 2009 cohort).  And nearly half of students who attended for-profit schools (47 percent) defaulted within five years of beginning repayment.

These are astonishing figures. And when we consider that a lot of former students who attended for-profit schools are enrolled in economic-hardship deferment programs and are not making loan payments, this sobering fact seems indisputable: more than half of the people who borrow money to attend for-profit colleges eventually default on their loans.

The Brookings Institution argues that the nation's high student-loan default rate can mostly be attributed to students who are "non-traditional borrowers," which it defines as students who attended for-profit colleges or two-year schools. Among all students who began repayment on their loans in 2011 and defaulted by 2013, 70 percent were nontraditional borrowers.

Loaning money for students to attend for-profit schools is irresponsible.

Based on these numbers, even a child can conclude that the federal government should not be loaning money to students who enroll in for-profit programs because taxpayers are going to get less than half of it back.  And--what is far worse--a lot of minority students and students from disadvantaged backgrounds will have student-loan debt hanging around their necks for the rest of their lives.  For these students, attending a for-profit school did not improve their lives; attending a for-profit school made their lives worse. 

Arne Duncan's Department of Education knows that the for-profit college sector is out of control, and it is made some efforts to provide student-loan debtors a little relief. For example, DOE granted loan forgiveness to about 3,000 students who attended one of Corinthian Colleges' campuses after Corinthian went bankrupt earlier this year. But there are more than 300,000 former Corinthian students.

Reasonable bankruptcy relief is the only humane remedy for non-profit students who default on their loans.

I do not think Congress or the Department of Education will ever shut off the federal-loan spigot to the for-profit colleges. This industry has protected itself with lobbyists, attorneys, and strategic campaign contributions.  Year after year, misguided students will continue to enroll at for-profit schools, and at least half will eventually default.

But  in the name of common decency, can't we at least give student-loan defaulters, who are suffering by the millions, some effective relief?  Do we have to make it so difficult for student-loan defaulters to file for bankruptcy and get a fresh start? Do we really want to force them into 25-year repayment plans, basically turning them into economic serfs for the balance of their working lives?

References

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). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults

Thursday, June 11, 2015

Student Loan Forgiveness for Students Who Attended One of the Schools Owned by Corinthian Colleges: I Recommend Chiang Kai-Shek's Fire Hose Approach

Chiang Kai-shek was the  leader of the Nationalist government of China for many years, but he was also a Methodist of sorts. I read somewhere that he once baptized his soldiers en masse, using a fire hose.  I'm not sure that story is true, but I like to think of all those Chinese soldiers who became Methodists. I'm sure it did them a world of good.

Regardless of the truth of that story, I believe the Department of Education should adopt Chiang Kai-shek's  fire-hose technique when designing a student-loan forgiveness program for all the people who attended one of  institutions operated by Corinthian Colleges--which is now bankrupt.


Chiang Kai-shek(蔣中正).jpg
Chiang Kai-shek: Did he baptize his troops with a fire hose?
The Department of Education is designing a process whereby students who attended a Corinthian campus can apply for loan forgiveness, which at least some of them are legally entitled to do due to Corinthian's shutdown. According to the New York Times, DOE estimates that 350,000 people attended one of the Corinthian  campuses over the past five years. If all of them apply for loan forgiveness and receive debt relief, it will cost taxpayers $3.5 billion.

In the past, DOE has utilized a cumbersome loan-forgiveness process for  students who attended colleges that closed, and DOE says that only 6 percent of students who were eligible for debt relief due to a college closure  actually applied for that relief (as reported in the New York Times).


Secretary of Education Arne Duncan promises a streamlined loan-forgiveness process for former Corinthian students. "We will make this process as easy as possible for them, including by considering claims in groups wherever possible" Duncan said.


But why make Corinthian students jump through hoops to have their student loans forgiven--any hoops at all? Why not adopt Chiang Kai-shek's methods and forgive all those loans en masse? I agree with Luke Herrine, a member of the Debt Collective, who argued that all Corinthian students should be given "blanket relief."


Why give blanket loan -forgiveness to former Corinthian students? First of all, the government is not going to get that money back anyway. In all likelihood, a majority of Corinthian students will either default on their loans or apply for economic-hardship status that will exempt them from making loan payments until they get on their feet financially, which for many Corinthian victims will be never.


Second, the Department of Education is morally responsible for the mess it created by shoveling student-aid money to for-profit colleges that paid their executives lavish salaries while delivering substandard educational programs. A quarter of all student-aid money goes to for-profit colleges, which have the highest default rates. 


The for-profits have kept this shell game going by hiring lobbyists to represent their interests, employing lawyers to file lawsuits to stop DOE's regulatory efforts, and making campaign contributions to strategic members of Congress.  In fact, Corinthian's bankruptcy filings lists its lobbyists as some of its creditors.

No, DOE needs to spray all these students with a metaphorical fire hose, forgiving Corinthian's former students' loans through executive action. These unfortunate folk have been through enough. Duncan shouldn't make them fill out any more forms in order to rid themselves of student-loans they took out to attend one of Corinthian's colleges.



References


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


Help for Victims of College Fraud (Editorial). New York Times, June 10, 2015, p. A24.

Thursday, April 30, 2015

By the thousands, student-loan borrowers are dropping out of income-based repayment plans

Thousands of student-loan borrowers are dropping out of income-based repayment plans, the U.S. Department of Education admitted recently. As reported by the Chronicle of Higher Education, almost 700,000 borrowers dropped out of the plans during the course of  just one year--57 percent of the total number of people who signed up for them.

Why did they drop out? DOE says they lost eligibility because they didn't file their annual income documentation--data the government needs to set borrowers' individual monthly payments.

What happened to those dropouts?  DOE says some of them signed up for economic-hardship deferments, some went back into standard 10-year repayment plans, and some slipped into delinquency.

This must be an astonishing turn of events for the Obama administration, which has aggressively promoted income-based repayment plans as a way to keep student-loan default rates down and give student borrowers some relief from high monthly loan payments. Most people who make monthly payments based on their income have lower payments than people who pay off their loans under the federal government's standard 10-year repayment plan.

There's a catch of course. Income-based repayment plans stretch borrowers' monthly payments out over 20 or even 25 years. Moreover, if borrowers' monthly payments are set too low, the payments will  not cover accruing interest, in which case student-loan debtors will see their loan balances go up rather than down, even if they faithfully make all their monthly payments.

Nevertheless, for student-loan borrowers who are unemployed. marginally employed, or simply borrowed too much money, income-based repayment plans are a lifeline because they can dramatically lower the amount of a student-loan borrower's monthly payments.

So what is the Obama administration doing to turn this situation around? According to the Chronicle,  the Department of Education will soon take over the process of notifying borrowers of their annual income-reporting obligations.  DOE is even consulting with "social and behavioral scientists" in order to craft more effective notices. Lots of luck, guys.

Personally, I was astonished to learn that so many people are falling out of income-based repayment plans--the most generous student-loan repayment programs that the federal government offers.. This development is simply another indication that the federal student-loan program is out of control.

Let's review the evidence one more time:

  • The two-year student-loan default rate (the percentage of students from the most recent cohort who default on their loans within two years of beginning repayment) doubled in just seven years, according to DOE's own data. In 2007, DOE reported a two-year default rate of 4.7 percent. In 2013, the two-year default rate was 10 percent.
  • Almost 9 million people in the repayment phase of their loans have economic-hardship deferments and are not making payments on their student loans. Meanwhile, their loan balances are increasing due to accruing interest.
  • About 1.5 million people have signed up for income-based repayment plans, but more than half of them have already dropped out due to the fact that they didn't file their obligatory annual income reports.
We can tinker with the student-loan program in many ways as the Department of Education and the policy tanks are now doing. But the fact remains that millions of student-loan debtors are under water financially and have basically dropped out of the economy. This reality is illustrated by the fact that more that half of the people in the generous income-based repayment programs are not bothering to file their annual income reports.

The only way out of this morass is to admit how bad the crisis is, which will require DOE to tell the truth about the student-loan default rate. Then we need to crack down on higher-education institutions that are exploiting college students. Finally, we must open up the bankruptcy process to allow honest but unfortunate student-loan debtors to discharge their student loans in bankruptcy.

Bleep it, Dude. Let's go bowling. 

References

Robert Cloud & Richard Fossey, Facing the Student-Debt Crisis: Restoring the Integrity of the Federal Student Loan Program. Journal of College & University Law, 40, 467-498.

Kelly Field. Thousands Fall Out of Income-Based Repayment Plans. Chronicle of Higher Education, April 2, 2015.

















Tuesday, November 25, 2014

When It Comes to Student-Loan Crisis, The Department of Education Is a Wizard of Oz Outfit: No Brains, No Courage, and No Heart

As the The Chronicle of Higher Education reported recently, the U.S. Department of Education has relaxed it standards for regulating student loans in ways that benefit certain segments of the higher education industry at the expense of students.

Specifically, DOE spared two or three dozen colleges from the consequences of having high student-loan default rates, it loosened standards for awarding Parent Plus Loans, and it dropped the "cohort-default-rate metric" from DOE's new "gainful employment" rule--a rule that is intended to rein in for-profit colleges that are not producing good student outcomes.

Relaxing standards for PLUS Loans

First, DOE relaxed standards for receiving Parent PLUS loans, loans parents take out to pay for their children's college educations. This may be good for historically black colleges and universities (HBCUs), which  have lobbied DOE to undo changes in DOE eligibility rules for Parent Plus loans because the stricter eligibility rules had hurt enrollment rates at some HBCUs.

But by relaxing its eligibility standards for PLUS loans, DOE may have hurt parents who are struggling to put their children through college. PLUS loans are a dangerous way to finance a college education because parents who sign them are personally liable along with their children for paying back those loans. And parents who take out PLUS loans will find it almost impossible to discharge those loans in bankruptcy even if health problems or a job loss makes it difficult to pay those loans back.

Dropping the "cohort-default rate" 

Likewise, dropping the "cohort-default rate" metric from DOE's new gainful employment rule will be good for HBCUs and the for-profits, both of which tend to have relatively high student-loan default rates. This change will make it easier for them to continue being elibible for participation in the federal student loan program--their life's blood.

Nevertheless, as critics noted, "the revised rule, which only looks at graduates' debt-to-income ratios, will allow 'dropout factories,' to pass simply by limiting the debt of the few students who finish" (Field, 2014). Allowing dropout factories to continue participating in the student loan program cannot be good for the students who are lured into attending them.

Sparing colleges from consequences of high student-loan default rates

Finally, sparing some colleges from the consequences of their high default rates, as DOE did last fall, is good news for the institutions that were spared (somewhere between 20 and 30).  But to allow a handful of high-default-rate colleges to continue receiving federal student-aid money may not be good news for the students who will continue borrowing money to enroll in colleges where a high percentage of students are unable to pay back their student loans.

DOE's approach to student loan crisis: No brains, no courage and no heart

The US. Department of Education: No brains, no courage, and no heart

The Chronicle quoted Maxwell John Love, president of the United States Student Association, as saying that DOE's actions "reinforces concerns the system is rigged in favor of the industry and special interests" (Field, 2014). And of course Love is right.

President Obama, Secretary of Education Arne Duncan, and the Department of Education's senior officials know that the student loan program is out of control.  Their feeble attempts to rein in the for-profits are evidence of that.

But the for-profits will never be brought under control.  They have consistently fought DOE's efforts to regulate them either by lobbying or through litigation. In fact, the Association of Private Sector Colleges and Universities sued DOE again this month, trying to block DOE's latest reiteration of its gainful employment rule (Field, 2014). This is the industry's third lawsuit against DOE that I know about.

In short, the Obama administration is a Wizard of Oz operation when it comes to confronting the student-loan crisis.  Its approach to fixing this massive problem lacks political courage; its regulatory efforts are cumbersome and unimaginative; and--at bottom--Obama and his minions are without genuine sympathy for the millions of people who have been hurt by the federal student loan program, by the for-profit colleges, and by the banking industry that has made millions in profits by offering private student loans

No brains, no courage, and no heart: this is the epitaph of the Obama administration's pathetic efforts to address the student loan catastrophe.

References

Kelly Field. ON College Accountability, Will Education Dept. Blink Again? The Chronicle of Higher Education, November 20, 2014. Accessible at: