Opinions and emotions are running high right now regarding student loan forgiveness.
Tuesday, September 6, 2022
Wednesday, April 27, 2022
As Reported by Steve Rhode in Get Out of Debt Guy, the Federal Trade Commission recently filed an action against St. James School of Medicine, located in the Caribbean. According to the FTC, St. James "deceptively marketed the school's medical license exam test pass rate and residency matches to lure prospective students."
The FTC seeks a $1.2 million judgment against St. James. This judgment, the FTC asserts, will go toward student refunds and cancellation of student debt for aspiring doctors who attended St. James over the past five years.
You may wonder why the FTC asserts jurisdiction over a medical school operating outside the United States. As it turns out, this Caribbean medical school receives federal student-loan money. St. James is hardly in a position to argue that its recruiting activities are none of the FTC's business.
St. James is just one of more than twenty foreign medical schools that receive federal student-loan money. Five of these schools are in the Caribbean, but medical schools in Australia, Canada, Ireland, Israel, and Poland also receive revenue from federal student loans.
Going to a foreign medical school is expensive. According to a U.S. government website, the median cost of completing a medical degree at St. George University's medical school in Grenada is $385,000.
So why not get your medical degree from Ross University in Barbados? The median cost is only $348,000--a bargain!
Why is our federal government subsidizing foreign medical schools? Are there not enough American medical schools to meet the nation's health needs?
If not, why don't we build more medical schools in our own country instead of subsiding medical training in the Caribbean?
Moreover, it can be dangerous for an American to get a foreign medical degree. Why? Because there are more M.D. graduates in the United States than residency programs to train them.
As the New York Times reported recently, more than half of the American residency programs are "unfriendly" toward graduates of foreign medical schools. In fact, only 60 percent of international medical-school graduates get a residency in the United States compared to 94 percent of doctors who graduated from American medical schools.
Most Caribbean medical schools are for-profit institutions, often owned by American investors. Many have very lax admission standards. The admission rate at some Caribbean medical schools is 10 times higher than at American medical programs.
What are the takeaways? First, Americans should be wary of attending a foreign medical school because they run a high risk of not being selected for a residency program that they will need to get a medical license.
Second, Congress should stop subsidizing foreign medical schools, which are horribly expensive and leave many of their graduates with no job prospects.
But the for-profit industry has powerful lobbyists, and Congress is unlikely to act. At the very least, then, Congress should reform the Bankruptcy Code so that jobless graduates of foreign medical schools can discharge their enormous student debt in bankruptcy.
Friday, August 27, 2021
Joss recently wrote Stever Rhode (the Get Out of Debt Guy) and asked for advice about a student loan her father took out to help finance her college education. Joss co-signed the loan but understood that her father would pay the loan back. He didn't.
Josh didn't know her father was not paying down the loan until it showed up on her credit report. Unfortunately, although Josh's dad bailed on his commitment, Joss is responsible for paying back the loan.
Remember that venerable old saying: Never lend money to a friend because you will lose them both.
This same advice applies to co-signing student loans. Just don't do it, because it is an excellent way to break up a family.
Banks that issue private student loans almost always require the student to find a co-signer--and that co-signer is usually Mom, Dad, Gramps, or Grandma.
It may seem like a good idea at the time--one for all and all for one. But if the student doesn't pay back the loan, the bank is coming after Mama, Pop, Granny, or Old Granddad.
Conversely, as in Joss's case, if Pop takes out a student loan to help pay Junior's way through college and Junor co-signs the loan, Junior will be personally on the hook if Pop skips town.
How do people find themselves in the situation of being asked to co-sign a student loan? I think, in most cases, the student maxes out on federal student loans and needs more money to continue going to college.
The student takes out a private student loan and gets Mom or Dad to cosign. Or Mom and Dad take out a private loan, and junior cosigns.
This is never a good idea. In fact, if Junior needs to take out private loans to attend college, Junior should go to Plan B. Junior should either drop out of school, go to work, and save enough money to return, or Junior should transfer to a cheaper college.
If there is an exception to this advice, it does not now occur to me.
|Hell, no! I'm not co-signing your student loans.|
Tuesday, January 5, 2021
Originally published at Get Out of Debt Guy
Originally published at Get Out of Debt Guy
Friday, December 4, 2020
Originally published at Get Out of Debt Guy
Originally published at Get Out of Debt Guy
When it comes to a rapidly accelerating financial burden on American families, there is no greater concern than student loans.
The debt is burdensome and unfair on many levels that I’ll explore below.
However, there is a straightforward and simple solution for dealing with all of this outside of struggling to develop a fair forgiveness strategy. I’ll talk about that after we look at common opinions on the subject.
Is Student Loan Forgiveness Fair?
The talk of forgiveness is a difficult topic because how do you reach any level of fairness.
As Howard Dvorkin, Chairman of said, “Only one-third of the people in this country get a four-year college education. The two-thirds without a college education is expected to subsidize their education when it is very likely that they earn less than the people who are receiving the educational subsidy.”
Dvorkin went on to say, “The issue of forgiving debt is complicated. What about all the people that have already struggled to pay their debts, and now other people get loans forgiven. That’s not fair.”
Student Loans – Another Financial Mistake for Many
A 2019 student by New York Life of 2,200 adults found the average participant reported taking 18.5 years to pay off their student loans, starting at age 26 and ending at 45.
That is a significant portion of life to have to be tied to a student loan payment that should have been directed to saving for retirement and then mushroomed into a giant nest egg. It can take decades to recover from that financial mistake. But that’s not the only financial regret people have.
What is shocking is the number of people that have student loan debt but who never graduated. I’ve seen statics as high as 75 percent of people with any student loans never obtained the degree.
And the wave of for-profit schools that have oversold education to people that never should have purchased their product is another national disaster.
“For-profit schools are not worth the money,” said Dvorkin. “As an employer, I hire people with traditional non-profit college degrees before I would hire someone with a for-profit degree.”
The Federal Reserve Bank of New York said, “Students who attend for-profit institutions take on more educational debt and are more likely to default on their student loans than those attending similarly selective public schools.”
The study went on to say, “Overall, our results indicate that, on average, for-profit enrollment leads to worse student loan outcomes for students than enrolling in a public college or university, which is driven by higher loan takeup and worse labor market outcomes. This is an important set of findings for several reasons. First, a substantial amount of public funds go to for-profit institutions through the financial aid system. Our estimates indicate the return to such expenditures may be quite low. Second, the results suggest that students who attend local for-profit institutions when there is a negative labor demand shock may be making mistakes: they would be better off attending the local public college or university instead.”
But even non-profit schools are ramping up tuition and selling students into seats that maybe should not have been admitted.
Student loan debt is a life sentence in painful debt for many: The Impossibility of Forgiveness
Opinions on forgiveness range all over the place. Betsy DeVos, the current Secretary of Education , “Policies should never entice students into greater debt. Nor should they put taxpayer dollars at greater risk. There are too many politicians today who support policy that does both.”
She also labeled student loan forgiveness as an “insidious notion of government gift giving. We’ve heard shrill calls to “cancel,” to “forgive,” to “make it all free.” Any innocuous label out there can’t obfuscate what it really is: wrong.”
Forgiveness is never going to be fair, and it’s not going to a quick and effective way to stimulate the economy in a difficult time from a pandemic, as some claim.
Today, student loan forgiveness would result in people not making loans they are already in default on or making payments that are too low to pay the debt off. At most, it will result in people not having to make some loan payments monthly.
The economic impact will be felt over a long period of time rather than the boost and support the economy needs now.
As the federal student loan program stands now, there is $1.37 trillion of outstanding debt to students, and the Education Department has determined that borrowers will only pay back $935 billion. That leaves the program in the red and holding for $435 billion of bad loans.
To deal with that shortage, “Congress will have to raise taxes, cut services or increase the deficit to cover the losses.” That solution is also not fair to the many that repaid their loans.
So the Battles and Arguments About Student Loan Forgiveness Are Complicated
We can argue and politically position ourselves around the idea of forgiving student loans is either the best thing or the worst thing ever to happen.
It is actually a moot point since the program is in so much trouble already.
People that can’t afford their student loans will suddenly be required to begin payments again. Defaults will explode even more.
As it stands now, the Department of Education’s base position is students should feel lucky they can enroll student loan debt in an program (IDR) that will give them a loan payment based on income. But, as I wrote before, .
As it stands now, while a student loan debtor might enroll in an income-based repayment program, the minimum payment is not enough to cover the interest being charged on the loan, and the balance owed grows. While people say, “certainly Congress will change that.” The reality is they have not, over the many years the programs have been in place.
So the way the “lowest payment” solution works right now is that the government lets you pay less than is due, that grows the balance, and in two decades, when the exploded balance is forgiven, people will owe income tax on that debt unless they are insolvent. It sounds crazy, but it is true.
says, “How could the judge conclude that Hladly might someday pay off her student loans when the amount she initially borrowed had tripled since the time she graduated from law school? If Hlady could not pay off $40,000 in student loans over 14 years, how will she ever pay $140,000 over the next 25 years, especially since her loan balance grows by $20 a day in accruing interest?
As Judge Scarcella observed, Ms. Hlady is 48 years old. Her 25-year repayment plan will terminate when she is 73. By that time, her loan balance will be more than a quarter of a million dollars. This amount will be forgiven, but the forgiven debt will be taxed as income unless Hlady is insolvent at the time.”
With IDR Plans, the Government Has Already Accepted the Loan Forgiveness Proposition
In my opinion, with federal student loan forgiveness programs already on the books, policymakers have already accepted some form of loan forgiveness. Yet, the current talk of student loan forgiveness ranges from its “socialism” to its “a right.”
As it stands today, the federal government already runs a student loan program that is rapidly increasing in delinquencies, defaults, and repayment plans that will only grow the balance.
The only current winners in the student loan cycle are the schools that can sell students on attending and get easy money from the federal government.
Students enroll, schools get paid and accept almost no responsibility for the outcome. When a student loan debtor was sold education, they could never logically or mathematically afford and later defaults; the school does not have to pay back the loan.
Student Loan Forgiveness is Much-Ado-About-Nothing and Misdirected
I hate to state the obvious here, but rather than worry about the inequities of forgiveness and who wins and loses, the most rational and logical option is to roll back the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).
BAPCPA made private student loans harder to discharge in bankruptcy. And private student loans are growing as well.
The issue is students are drowning in debt. It can be argued that because of student loan debt, they are also having to take out other debt and reduce retirement savings.
When those people are old enough and can no longer work, the lack of retirement savings will create a public safety net drain. No matter how you look at this, the systemic problem of easy money for education has driven up the debt, and we will all pay for it in one way or another.
The Solution Seems So Apparent
Up until 1976, all student loans were dischargeable in bankruptcy. Bankruptcy is a legal right for consumers to get a fresh financial start, and it is even a part of the U.S. Constitution. Those that file for bankruptcy generate an immediate stimulus for the economy and have a second chance to do better, having learned hard lessons from mistakes.
Returning to allowing both federal and private student loans to be discharged in bankruptcy has many features:
1. It is a current and accepted legal process with clear rules and guidelines.
2. The debt is forgiven tax-free.
3. It allows people a chance to get a fresh start from an impossible situation. Oftentimes these issues are the result of accidents, injuries, medical issues, pandemics, etc.
4. A bankruptcy Trustee and Judge must review and approve the discharge plan. If a consumer has too much income for a full immediate discharge, they will be required to enter a five-year repayment plan in a Chapter 13 bankruptcy.
5. Forgiveness will be restricted to only those that qualify.
6. The fact the loans may now be dischargeable should force lenders to make better loan decisions before just handing the money to anybody.
7. If loans are less abundant or actually just based on repayment ability, then schools would have to ratchet back tuition fees. Less easy money would be available.
8. This process would be restricted to those who need and meet the accepted legal standards for bankruptcy.
9. People that can afford to repay their loans will have to do so through their Chapter 13 repayment plan.
10. We can eliminate this ridiculous game and administration of student loans that will never be repaid and have to be dealt with.
If We Restore Bankruptcy Student Loan Debt Elimination to All Then We Can Focus on Doing Better
There is no argument that education leads to opportunity. I don’t care if that is education at a trade school, some other hands-on education, or a degree in some college subject at the best school in a 200-mile radius.
I heard recently about a “toilet paper” degree program. That’s where plumbers make much more than people to go to college. I do know some very rich electricians and plumbers. I guess that’s a raw subject for me since I’ve spent $3,000 in plumbing bills in the last 30 days.
We have a wonderful system in place to allow people to have affordable access to start their education. The local community college is a fantastic place to start.
It is affordable, and as Dvorkin said, “When thinking of how to get started on the journey of education, community college is a great investment. Think about this: why pay much higher tuition to take classes that use the same books as the community college class uses. Start affordably and then transfer to a more expensive school if you want to continue to finish your college degree.”
The power of community colleges is not new. It is proven. My very own father started his education from a farm in Michigan at the local community college. He then went on to become the very first Ph.D. graduate in Political Science at Michigan State.
So let’s all stop trying to reinvent the wheel here. Just restore the bankruptcy provision for all student loans and require some commonsense and responsibility on future lending.
There will never be any universally accepted plan for past forgiveness of student loans that were flawed from the start.
We are a great country and instead of looking back, let’s do better moving forward.