Showing posts with label Get Out Of Debt Guy. Show all posts
Showing posts with label Get Out Of Debt Guy. Show all posts

Wednesday, August 12, 2020

U.S.. should run a "blue light special" on bankruptcies for consumers and student-loan debtors

As a young man, I practiced law in a three-man law firm in Anchorage, Alaska. In the winter months, the firm occasionally experienced lean times when clients couldn't pay their bills.

But we three were young, optimistic, and confident. I remember one day during an especially lean winter month when our senior partner jokingly announced: "Gentlemen, it's time to introduce our Blue Light Special: Bankruptcy, name change, and a divorce for only $500!"

I have always been a firm believer in bankruptcy--a process that allows "poor but honest debtors" to get a "fresh start." Although few people know it, bankruptcy is enshrined in our Constitution, and the bankruptcy courts are the main reason why America doesn't have debtors prisons.

I never had to file for bankruptcy myself, but several of my law firm's clients did in the mid-1980s when Alaska experienced a real-life depression due to a steep downturn in oil prices.  These people wiped the slate clean of all their financial misfortunes and started over.

Today, millions of once-middle-class Americans are experiencing severe financial stress. As Steve Rhode recently reported in Get Out of Debt Guy, the economy is running on borrowed time.  Mortgage delinquencies are up, with Miami and New York City leading the way.  People are fleeing the big cities. According to the New York Times, five percent of NYC's population left the town over two months this spring--frightened by the coronavirus, soaring crime rates, and a deteriorating economy.

So far, our government has kept the wolves at bay by pumping trillions of dollars into the economy through Payroll Protection loans and enhanced unemployment compensation. Millions of student debtors have stopped making monthly payments on their loans, but the Department of Education granted a temporary forbearance that allows distressed college-loan borrowers to skip payments for a few months.

But significant sectors of our economy are going to come crashing down within the next twelve months. For middle-class families who are being swept up in this tidal wave of economic isolation, bankruptcy is their only hope of regrouping.

Unfortunately, Congress revised the Bankruptcy Code in 2005 at the behest of the banks. The nation's large financial institutions were worried about people shedding their credit-card debt in the bankruptcy courts.  The banks wanted to make consumer debt more difficult to discharge in bankruptcy, and Congress obliged.

The revised Code also made it almost impossible for debtors to discharge their private student loans. Under the 2005 Bankruptcy Reform Act, private student loans are nondischargeable unless the debtor can show "undue hardship," a term the federal courts have interpreted harshly. And, as we all know, that brutal standard also applies to federal student loans.

The corporate world has ready access to bankruptcy, and the federal bankruptcy courts have become a playground for big business.  But the little guys are not treated so kindly.

As the 2020 election season rolls along, we should all think about what it is we want our elected politicians to do.  Number one, in my opinion, is a revision of the Bankruptcy Code. We will never recover as a nation from the financial calamity that is bearing down on us unless working people and student debtors can get a fresh start--the fresh start that the bankruptcy courts were created to provide.











Sunday, May 24, 2020

HEROES bill dishes out thin gruel for student-loan debtors: "Please, sir, I want some more."

In its original form, the HEROES bill was 1,800 pages long; and I am grateful to Steve Rhode of Get Out of Debt Guy for summarizing its essential elements.  The original legislation provided up to $10,000 in student-loan relief for borrowers holding federal or private loans.

By the time the House of Representatives approved the HEROES Act in mid-May, relief for student debtors was watered down considerably. As Mark Kantrowitz reported, the bill that was approved by the House limits relief to "economically distressed borrowers."

Who are the economically distressed borrowers? Mostly these benefits will go to people who are:

  • in default on their loans or whose monthly payments are more than 90 days overdue,
  • People with economic hardship deferments, cancer treatment deferments, or unemployment deferments,
  • People whose loans are in forbearance and whose debt burden exceeds 20 percent of the borrower's income.

The HEROES Act was thin gruel when it was first introduced, but the gruel got even thinner by the time the House of Representatives passed it by a vote of 208 to 199.

Forty-five million Americans are burdened with federal student loans totaling $1.6 trillion, and private-loan borrowers owe about 125 billion. That's a lot of debt, and the HEROES Act offers only a few crumbs of relief.

Assuming the Senate approves the HEROES Act in its present form (which is not likely), most of this money will do nothing more than pay down the interest on borrowers' student-loan balances. People in income-driven repayment plans are seeing their debt grow larger with each passing month due to accruing interest. People whose student loans are in deferment or forbearance are not making their monthly loan payments, but interest is accruing on their loan balances as well.

In short, the HEROES Act is an insult to the millions of people who are being dragged down by unmanageable student loans. Like Oliver Twist, all 45 million student-loan borrowers should shout, "Please, sir, I want some more."


Please, sir, I want some more.

Wednesday, October 9, 2019

Why doesn't Congress do something useful to relieve the student-loan crisis? A couple of modest suggestions

Some famous guy once said that people are prone to see the speck in another person's eye while ignoring the log in their own eye. That observation reminds of our national political scene--nothing but vitriol and no good being done.

But there are several things Congress can do--uncontroversial things in my opinion, which would help relieve the massive student-loan crisis.  For example, Steve Rhode recently wrote an essay on a new California law that requires colleges to give students their transcripts--including students who have unpaid debts to their college.

As Mr. Rhode quoted, the new law (AB-1313) states: "Schools and colleges have threatened to withhold transcripts from students as a debt collection tactic. The practice can cause severe hardship by preventing students from pursuing educational and career opportunities, and it is therefore unfair and contrary to public policy." Does anyone in Congress disagree with that statement?

The law's dictate is quite simple:
Whenever a student transfers from one community college or public or private institution of postsecondary education to another within the state, appropriate records or a copy thereof shall be transferred by the former community college, or college or university upon a request from the student.
Withholding transcripts and diplomas because a former student is indebted to the college is a common practice among the for-profit institutions, which prompts an obvious question. Why are colleges lending money to students in the first place?

There are two answers to that questions. Some for-profit colleges are not content simply to suck up Pell Grant money and federal student-loan money. They want more cash, and many have no qualms about forcing their students to take out loans--often at high interest rates--in order to continue with their studies.

Second, many for-profits have trouble meeting the Fed's 90/10 rule, which requires a for-profit college to receive no more than 90 percent of its operating revenues from federal student-aid money.  One strategy for getting the 10 percent of auxiliary funding that they need is to loan their students money.

California passed a sensible law, and Congress should adopt it so that the law's restrictions apply nationwide. I repeat--does any person in Congress disagree with what the California legislature did?

Just this morning, Steve Rhode  responded to a a man who claimed that his entire Social Security check was garnished by some outfit called Account Control Technology due to an unpaid student-loan debt. As Mr. Rhode pointed out, the Internal Revenue Service cannot deduct more than 15 percent of an individual's Social Security check as a garnishment. So there is a screw-up somewhere for this individual to lose his entire Social Security check.

But why should elderly Americans have any of their Social Security checks garnished due to unpaid student loans? As the General Accountability Office reported some time ago, these garnishments almost always go toward paying accumulated interest and penalties; and the sums collected do nothing to actually pay down the underlying debt. So what's the damn point?

Senators Elizabeth Warren and Clair McCaskill introduced a bill a few years ago to stop the practice of garnishing Social Security checks to collect on defaulted student loans, but the bill went nowhere. Why can't Congress get off its fat ass and pass that bill?






Wednesday, May 22, 2019

How Can I Get Out of the Student Loan I Cosigned for My Son? Advice from Steve Rhode, the Get Out of Debt Guy

If you are thinking about taking out a Parent PLUS loan to finance your child's college education or co-signing a relative's loan, you should read Steve Rhode's essay, first published at Get Out of Debt Guy, a consumer counseling web site.

Question:
Dear Steve,
It took my son 6 years to get a BA degree. By the 5th year, I ran out of money so I co-signed a private loan for him. For the past 4-5 years, I pay on this loan diligently every month because he refuses to the pay the loan or give me anything towards the payment and I don’t want to jeopardize my credit.
The original loan amt was 34K it is now only down to 29K because the interest rate keeps going up ..now it is at 7.75%. Additionally, he refuses to re-finance the loan
How can I get out from under the responsibility of his debt without jeopardizing my credit?
Sue
Answer:
Dear Sue,
Your son is being kind of a jerk. You helped him finish school and he can at least make some payment, even if he can’t pay it all each month.
Unfortunately, when you cosigned the loan you agreed to be 100% responsible for the loan. There is nothing good in cosigning if you are the one signing. My universal law of cosigning is don’t do it.
If you don’t want to ding your credit then you either need to pay the loan off in full or keep making at least the minimum monthly payment.
If you wanted to remove your liability for the debt you can do that but it will have a credit impact. Some of those options include filing bankruptcy or paying less than you owe on the balance as a settlement. However, you will need to go delinquent to settle it and the balance forgiven may be reported as a bad debt and be taxable.
The only way to make this situation different without harming your credit or costing you a big chunk of change would be to go back in time to the minute before you cosigned for him.

*******
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. 

Monday, March 11, 2019

What the hell? Financing a Harley at 22 percent interest!

Steve Rhode, the Get Out of Debt Guy, answers questions from his blog-site readers about consumer complaints. A few days ago, a woman named Mary wrote Steve about a Harley Davidson motorcycle her husband bought and financed at an interest rate of 22 percent.

Mary asked Steve if it was legal to apply an entire monthly loan payment to interest just because the payment was a few days late. She also asked if her husband could simply return the motorbike.


First of all, he pointed out, most loan payments typically go primarily to interest in the early months of the repayment period. "This is especially true," Mr. Rhode added, "if the outstanding balance includes late fees that get added to the account balance.

Taking the Harley back to the dealer, Mr. Rhode advised, is usually a bad option because a voluntary repossession will lead Mary and her husband with a big bill. The couple could sell the bike but they would need to sell it for at least enough to cover what they owe or come with the difference between the sales price and what they owe. Otherwise, they could not get the title to transfer.

Rhode then went on to estimate what the Harley is going to cost Mary and her husband if they continue with their repayment plan. Assuming, they financed the bike with a 72-month note, monthly payments would be $628 a month for 72 months. When they paid off the note after six years, they would have made payments totally $45,000 to pay off a $25,000 purchase.

Since Mary and her husband seem willing to just to give the bike back to Harley, they obviously realize they made a bad deal. They would have been better off to have saved enough money for a hefty down payment so they could have taken out a smaller loan. And assuming they had good credit, they could have financed the bike with a credit card at a lower rate of interest.

Some people reading Mary's story might conclude that she and her husband made a bad decision and have no one to blame but themselves. But I disagree. In a fairer and more just economy, laws and regulations would have prohibited this very bad transaction.

People forget that not too long ago, states had usury laws that placed strict limits on the interest that could be charged for a consumer transaction. In the state where I practiced law, a statute limited the interest rate to 10.5 percent--less than half the rate that Mary and her husband were charged.

But the banks figured out how to base their operations in states that permitted very high interest rates. Remember sending those credit card payments to South Dakota or Delaware? Then, in 1978, the Supreme Court allowed out-of-state credit card companies to charge interest rates that were higher than the interest rate allowed in their customers' own states. (Pat Curry explains this in a 2010 essay.)

Even student-loan debtors can fall into the trap of paying high interest rates. I've read a couple of recent bankruptcy court decisions in which people refinanced their student loans at 9 percent--a hefty rate indeed when we consider that the interest rate on a 10-year treasury bond is less than 2.7 percent right now.

Tragically, millions of Americans are financing consumer transactions to purchase stuff they don't need or is virtually worthless. This is also true for people who take out student loans to attend for-profit colleges that are not providing students with fair value--or any value at all in many cases.

As the 2020 political season heats up, voters need to ask presidential candidates if they endorse legislation that would effectively regulate consumer transactions and the student-loan industry. If a candidate has nothing to say about the massive exploitation of ordinary Americans by the banks, the student-loan racket, and the consumer-finance industry, voters need to find someone else to vote for.


Photo credit: Harley Davidson

Tuesday, January 29, 2019

Why is the Department of Education Sugar Coating Student Loans? Essay by Steve Rhode

By  (Originally posted at Get Out of Debt Guy on January 21, 2019)

I’d love to take credit for this observation but a reader sent me an email and said, “My granddaughter got this email. The Department of Education is marketing their product by saying “maximize the financial aid you may receive.” Nowhere in here does it use the word “loan.” Just the DOE looking for prey among uninformed young almost adults.”
The reader has a very good point.
The term “financial aid” certainly can have a different meaning than “student loan.”
For example, the Department of education also talks about free education benefits as financial aid. This includes educational awards, training vouchers, scholarships, military service aid, etc.
The government website says, “The U.S. Department of Education awards more than $120 billion a year in grants, work-study funds, and low-interest loans to more than 13 million students. Federal student aid covers such expenses as tuition and fees, room and board, books and supplies, and transportation. Aid also can help pay for other related expenses, such as a computer and dependent care. Thousands of schools across the country participate in the federal student aid programs; ask the schools you’re interested in whether they do!” – Source
And while the marketing hype from the government does say student loans, it also says low-interest which is also a bit of a sugar coat on reality.
While the interest rates are in the 5% to 7.6% range there is no warning that you will be easily eligible to borrow more than you may be able to afford to repay.
For once maybe I’m not blaming the Department of Education for poor rules and horrible service. This issue about talking factually about money for higher education permeates all of society from schools to parents to high school counselors.
I wonder if student loans were portrayed accurately instead of sweet frosted “financial aid” if the very people blamed for taking out excessive loans, the 18-year-olds, would get a real jolt?
Consider this. Instead of talking about access to financial aid, prospective students received a cigarette package like warning notice.

WARNING: This product may cause life long debt and keep you from saving for retirement or buying a house.

At the very least, what if borrowing money for college had a window sticker on it like when you purchase a car.
We want the borrower to be held responsible for taking out the loan so let’s give the borrowers the facts.
Fact 1: This is a loan. You will have to repay this loan with interest. The repayment cost of this loan will be more than the amount you borrow. It may be substantially more.
Fact 2: If you don’t finish school or obtain your degree you will still have to repay this loan.
Fact 3: The degree program you are enrolling in typically results in a salary of $X. This may be insufficient to be able to afford to repay the amount of money you are borrowing. Your chosen school has an X% graduation rate for this degree program.
Fact 4: Your obligation to repay your student loans may result in the reduced ability to save for retirement, purchase a home, or live on your own.
Fact 5: Failure to repay your federal student loans may result in a garnishment of your wages, forfeiture of any tax refund, and the garnishment of future Social Security payments.
The terms parents and schools use when freshman are headed to college don’t accurately reflect the financial reality of borrowing for education. If we want to blame borrowers then let’s give them the facts and not sugar coat it before they leap.

******


I highly recommend Mr. Rhode's blog site, getoutofdebtguy.org--a robust ongoing commentary on consumer debt issues.

Tuesday, January 8, 2019

Department of Education's Heightened Cash Monitoring List: Students should check to see if their college is in financial trouble

Steve Rhode performed a valuable public service last month when he published the U.S. Department of Education's most recent Heightened Cash Monitoring List.  This is DOE's list of schools that have various financial concerns, including accreditation problems or missing audits, as well as schools that are on financially shaky ground.

DOE does not make the list easy to review. I could discern no organizational pattern. Public schools, private nonprofits, proprietary schools, and foreign schools are all listed together. In total, there are more than 500 schools on the list.

Not surprisingly, more than half the schools with financial concerns are proprietary schools--a total of 275 for-profit institutions.  A good share of these schools are devoted to hairstyling or beauty. Forty-six schools on DOE's HCM list have the word Beauty or Cosmetology in their names; and there are three massage schools on the list.

The list also includes a large number of private, nonprofit colleges or universities: 128 schools in all. A fair number have religious affiliations. Seven schools on the list have the word Baptist in their name, and three school names include the word Wesleyan, indicating a Methodist affiliation.  Twelve colleges have the word Christian in their titles, and there were several other schools with names suggesting a religious connection: Bethel, Bethany, Bible, Seminary, etc.

DOE listed 35 foreign colleges and universities on its Heightened Cash Monitoring List. You might find it surprising that the federal government is funding foreign study at the same time the national parks are closed, but it does. Among the 35 foreign schools with various financial concerns are Hebrew University of Jerusalem, Universiteit Van Amsterdam in the Netherlands, University of Aukland in New Zealand, Centro De Estudios Universitarios Xochicalco in Mexico; and Poznan University of Medical Sciences in Poland.

DOE's list includes a category of schools with high student-loan default rates. Schools with a three-year default rate of 40 percent and schools that have a three-year default rate of at least 30 percent for three years are ineligible for federal student-aid money. 

Remarkably, none of the 500 plus schools on DOE's HCM list were flagged for having a high student-loan default rate. How could that be when Secretary of Education Betsy DeVos herself said that only 24 percent of student borrowers were paying down the principal and interest on their loans?

In my view, DOE's HCM list under reports the number of American colleges and schools that are in financial trouble. Nevertheless, the list is useful. 

First, the list confirms that a large number of small, private nonprofit colleges are in trouble, including many with religious ties. 

Second, we can see from the list that the largest share of financially troubled schools are for-profit institutions.

Finally, the list is a reminder that the U.S. Department of Education is loaning money for Americans to go to school overseas, which seems insane given the excess capacity in American higher education.

Of course not all schools on DOE's HCM list are experiencing serious financial problems. Some are on the list due to accrediting issues, inadequate administrative support, or audit irregularities. Nevertheless, all  postsecondary students should check the list to see if their school is on it. And parents who are helping their children decide where to go to college should also check the list. No one wants to enroll in a college that may close before the student graduates.

References

Rhode, Steve. Schools on the Warning List by the Department of Education--December 2018. Get Out of Debt Guy (blog), December 26, 2018.

Wednesday, December 5, 2018

"Education Corporation of America, Virginia College, and Brightwood College Turn Out the Lights": Important Advice to ECA students from Steve Rhode

By  (originally posted on December 5, 2018)
I just received a comment from an awesome reader that said, “Just got reports (from several campuses) that ECA has decided to close down all schools (teach out and go forward) effective immediately. Apparently, ACICS pulled their accreditation. Current employees are being let go immediately with no severance or insurance after Friday, 12/7. Don’t know all details yet as its only been a few hours and the media and news outlets have not picked up the story. I wanted to let you know since you have reported the most accurate coverage on ECA’s unraveling. It’s very sad to see ECA end like this. Many people that worked for the colleges truly cared about the students and making a difference in their life. There will be many students that will not be able to finish their education and many remaining employees that will be without a job right before Christmas. This is all so very sad.”
It does appear that ECA and Virginia College are turning out the lights. WRDW 12 in Georgia said yesterday, “A news photographer on the scene spoke with at least two people who say employees were called into a meeting this morning and told the College was being closed. Workers were reportedly told to go home and that they will not be receiving further paychecks. People we spoke to also say they were told this is occurring at locations in other states.” – Source
WTVC in Tennessee has reported similar closures in Chattanooga. – Source
Virginia College in Birmingham Alabama is reported to have closed as well. Officials at this campus are reported to have said they don’t know why this is happening. – Source
Another ECA school, Brightwood College in Texas have announced its closure as well. – Source
Inside Higher Ed is reporting, “In an email to campus employees Wednesday morning, ECA president Stu Reed said that the Department of Education had added new restrictions on its access to Title IV student aid. And on Tuesday night, the Accrediting Council for Independent Colleges and Schools suspended the colleges’ accreditation. Those steps meant the company couldn’t secure the additional capital needed to operate its campuses, he said.
The company also told employees that it would complete current course modules, which will finish in the next two weeks. A skeleton crew of employees will remain on campuses to assist students with obtaining documentation on their programs.”
The schools said they will work with students to access transcripts.
Students who owe federal student loans should immediately talk to their loan servicer regarding the process for a full discharge of their federal student loans if there is no available teach-out program offered by ECA.
By receiving a closed school loan discharge,
  • you have no further obligation to repay the loan,
  • you will receive reimbursement of payments made voluntarily or through forced collection, and
  • the record of the loan and all repayment history associated with the loan, including any adverse history, will be deleted from your credit report.
To be eligible for a full discharge of your student loans, your loans must have been “William D. Ford Federal Direct Loan (Direct Loan) Program loans, Federal Family Education Loan (FFEL) Program loans, or Federal Perkins Loans.”
Loans most easily eligible for forgiveness are ones if:
  • you were enrolled when your school closed;
  • you were on an approved leave of absence when your school closed; or
  • your school closed within 120 days after you withdrew.
For more information on obtaining a closed school discharge, click here.

*********

This article first appeared on Get Out of Debt Guy blog site.

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here. 

Tuesday, August 28, 2018

Student Loan Ombudsman at CFPB Can’t Take the BS Anymore. Quits in Scathing Letter Telling Director Mulvaney He Sucks. Essay by Steve Rhode

By Steve Rhode

Seth Frotman, an Assistant Director and Student Loan Ombudsman at the Consumer Financial Protection Bureau, told CFPB Director Mick Mulvaney to shove it and quit in an honest resignation. His experience inside the slowly gutted consumer protection agency was enough to say he’s mad as hell and not going to take it anymore.

Frotman’s resignation letter said, “It is with great regret that I tender my resignation as the Consumer Financial Protection Bureau’s Student Loan Ombudsman. It has been the honor of a lifetime to spend the past seven years working to protect American consumers; first under Holly Petraeus as the Bureau defended America’s military families from predatory lenders, for-profit colleges, and other unscrupulous businesses, and most recently leading the Bureau’s work on behalf of the 44 million Americans struggling with student loan debt. However, after 10 months under your leadership, it has become clear that consumers no longer have a strong, independent Consumer Bureau on their side.


Each year, tens of millions of student loan borrowers struggle to stay afloat. For many, the CFPB has served as a lifeline — cutting through red tape, demanding systematic reforms when borrowers are harmed, and serving as the primary financial regulator tasked with holding student loan companies accountable when they break the law.

The hard work and commitment of the immensely talented Bureau staff has had a tremendous impact on students and their families. Together, we returned more than $750 million to harmed student loan borrowers in communities across the country and halted predatory practices that targeted millions of people in pursuit of the American Dream.

The challenges of student debt affect borrowers young and old, urban and rural, in professions ranging from infantrymen to clergymen. Tackling these challenges should know no ideology or political persuasion. I had hoped to continue this critical work in partnership with you and your staff by using our authority under law to stand up for student loan borrowers trapped in a broken system. Unfortunately, under your leadership, the Bureau has abandoned the very consumers it is tasked by Congress with protecting. Instead, you have used the Bureau to serve the wishes of the most powerful financial companies in America.


As the Bureau official charged by Congress with overseeing the student loan market, I have seen how
the current actions being taken by Bureau leadership are hurting families. In recent months, the Bureau has made sweeping changes, including:

Undercutting enforcement of the law. It is clear that the current leadership of the Bureau has abandoned its duty to fairly and robustly enforce the law. The Bureau’s new political leadership has repeatedly undercut and undermined career CFPB staff working to secure relief for consumers. These actions will affect millions of student loan borrowers, including those harmed by the company that dominates this market. In addition, when the Education Department unilaterally shut the door to routine CFPB oversight of the largest student loan companies, the Bureau’s current leadership folded to political pressure. By undermining the Bureau’s own authority to oversee the student loan market, the Bureau has failed borrowers who depend on independent oversight to halt bad practices and bring accountability to the student loan industry.

Undermining the Bureau’s independence. The current leadership of the Bureau has made its priorities clear — it will protect the misguided goals of the Trump Administration to the detriment of student loan borrowers. For nearly seven years, I was proud to be part of an agency that served no party and no administration; the Consumer Bureau focused solely on doing what was right for American consumers. Unfortunately, that is no longer the case. Recently, senior leadership at the Bureau blocked efforts to call attention to the ways in which the actions of this administration will hurt families ripped off by predatory for-profit schools. Similarly, senior leadership also blocked attempts to alert the Department of Education to the far-reaching harm borrowers will face due to the Department’s unprecedented and illegal attempts to preempt state consumer laws and shield student loan companies from accountability for widespread abuses. At every turn, your political appointees have silenced warnings by those of us tasked with standing up for service members and students.

Shielding bad actors from scrutiny. The current leadership of the Bureau has turned its back on young people and their financial futures. Where we once found efficient and innovative ways to collaborate across government to protect consumers, the Bureau is now content doing the bare minimum for them while simultaneously going above and beyond to protect the interests of the biggest financial companies in America. For example, late last year, when new evidence came to light showing that the nation’s largest banks were ripping off students on campuses across the country by saddling them with legally dubious account fees, Bureau leadership suppressed the publication of a report prepared by Bureau staff. When pressed by Congress about this, you chose to leave students vulnerable to predatory practices and deny any responsibility to bring this information to light.

American families need an independent Consumer Bureau to look out for them when lenders push products they know cannot be repaid, when banks and debt collectors conspire to abuse the courts and force families out of their homes, and when student loan companies are allowed to drive millions of Americans to financial ruin with impunity.

In my time at the Bureau I have traveled across the country, meeting with consumers in over three dozen states, and with military families from over 100 military units. I have met with dozens of state law enforcement officials and, more importantly, I have heard directly from tens of thousands of individual student loan borrowers.

A common thread ties these experiences together — the American Dream under siege, told through the heart wrenching stories of individuals caught in a system rigged to favor the most powerful financial interests. For seven years, the Consumer Financial Protection Bureau fought to ensure these families received a fair shake as they as they strived for the American Dream.

Sadly, the damage you have done to the Bureau betrays these families and sacrifices the financial futures of millions of Americans in communities across the country.

For these reasons, I resign effective September 1, 2018. Although I will no longer be Student Loan Ombudsman, I remain committed to fighting on behalf of borrowers who are trapped in a broken student loan system.

Sincerely,
Seth Frotman
Assistant Director 5 Student Loan Ombudsman
Consumer Financial Protection Bureau – Source

Steve Rhode, the Get Out of Debt Guy



`*****

This essay by Steve Rhode originally appeared on August 27, 2018 at Getoutofdebtguy.org I highly recommend Mr. Rhode's blog site--a robust ongoing commentary on consumer debt issues.



Monday, July 30, 2018

A Deep Dive Into the Debtor Blaming 2018 Borrower Defense to Repayment Regulations. Essay by Steve Rhode










By Steve Rhode (originally posted on July 25, 2018)

Today the Department of Education (ED) has released their new rules for the program so let’s jump in and see what the Borrower Defence to Repayment program now looks like. I’m going to read the 433 pages so you don’t have to.The Department of Education put a hold on forgiving federal student loans for students who were victims of fraud by the schools that enrolled them. Under the Obama administration, the program would suspend collections activity while claims were being investigated and total forgiveness was a possible outcome.
Under the Trump administration claims were not approved and the rules were changed to only allow a partial forgiveness for most debtors based on an impractical standard.
It appears ED is trying to shift the responsibility for making good decisions for enrolling in questionable schools by pushing that obligation and blame on the student. The new rules say, “The goal of the Department is to enable students to make informed decisions on the front end of college enrollment, rather than to grant them financial remedies after-the-fact when lost time cannot be recouped and new educational opportunities may be sparse. Postsecondary students are adults who can be reasonably expected to make informed decisions and who must take personal accountability for the decisions they make.”
While ED says educational institutions should not mislead the students and “remedies should be provided to a student when misrepresentation on the part of an institution causes financial harm to that student,” let’s see how much power and practicality those remedies have.
The ED again turns back to putting the responsibility and blame on the student for enrolling in the wrong school that may have misled them. ED says, “students have a responsibility when enrolling at an institution or taking student loans to be sure they have explored their options carefully and weighed the available information to make an informed choice.”
But what seems to be missing from that lofty goal is some sort of pre-screening by the school to review the cost of the education and the expected salary for the chosen field. For example, the other day I wrote about the $90,000 associates degree in web design. Does the school have a responsibility to sell a fair product or is the responsibility now focused on the student for believing the hype?
ED says, “The Department has an obligation to enforce the Master Promissory Note, which makes clear that students are not relieved of their repayment obligations if later they regret the choices they made.” So if your 18-year-old self made a bad choice of schools that provided an overpriced education with little value, that’s your own damn fault.
The proposed rule document says, “As of January 2018, it had received 138,989 claims, of which 23 percent had been processed.” Some of these claims go back more than a year.
It is quite possible those became a major issue with the new ED because Borrower Defense Claims were being submitted and approved. These claims were not approved on no basis but because students had been misled or deceived by the school.
But here is where ED is turning the table on debtors, “the Department is concerned that several features of the 2016 final regulations might have put the Department in the untenable position of forgiving billions of dollars of Federal student loans based on potentially unfounded accusations. Specifically, those regulations would allow the Department to afford relief to borrowers without providing an opportunity for institutions to adequately tell their side of the story.”
These new rules say, students who feel they were misled and deceived by schools to get them to enroll and take out federal student loans, may still submit claims but as long as they are “not in a collections status.” So students who were saddled with questionable loans by a questionable school will have to continue to make monthly payments or stay out of collections while their claim is processed for an undetermined amount of time.
ED wants to encourage students to enroll in income-driven repayment plans and make payments on their loans. These would be the same plans that put people into decades-long repayment plans with potentially big tax bills at the end. Balances in these programs go up, not down, as the monthly payment is insufficient to cover the interest building.
ED is worried that students claiming they were harmed by their schools will strategically default on their otherwise unaffordable debt. As evidence to support this concern, ED cites research by those who intentionally defaulted on their mortgage payments to take advantage of mortgage modifications. Talk about apples and oranges here.
“The Department is trying very carefully to balance relief for borrowers who have been harmed by acts of institutional wrongdoing, with its obligation to the taxpayer to provide reliable stewardship of Federal dollars.” And while that might be true, then why isn’t the Department limiting access to federal funds by schools that engage in questionable practices?
Those questionable practices have led to massive amounts of unaffordable student loan debt sitting in a non-payment status. The lack of oversight by ED to rein in the access to federal student loan dollars by typically for-profit schools who have been approved by questionable accreditation.
So ED says, “With more than a trillion dollars in outstanding student loans, the Department must uphold its fiduciary responsibilities and exercise caution in forgiving student loans to ensure that it does not create an existential threat to a program that lacks typical credit and underwriting standards.”
But where were the underwriting standards for schools selling degrees that students would never be able to afford to repay? Where was the fiduciary responsibility for ED and student loan debtors?
ED appears to say they are not going to get involved in resolving disputes or claims of wrongdoing against schools. That is going to be left up to the individual student to fight with the school through the courts. How students will be able to afford to do that, is a mystery.
And ED is not going to block schools from forcing students into secret arbitration or stopping schools from allowing students to enter class action suits against the schools. Instead, ED says in its press release on the rulemaking “that institutions requiring students to engage in mandatory arbitration or prohibiting them from participating in class action lawsuits provide plain language explanations of these provisions to enable students to make an informed enrollment decision.” So students who decide to go to schools that block access to courts to remedy claims were stupid to enroll.
Here is what the rule says, “it seems reasonable that consumer complaints should continue to be adjudicated through existing legal channels that put experienced judges or arbitrators in the position of weighing the evidence and rendering an impartial decision.”
Even with the Borrower Defense to Repayment program in place, ED again takes the step to say the student was the idiot in this situation when they enrolled at a school they believed. ED says, “As stated in the Master Promissory Note the borrower signs when initiating their first loan, the borrower is expected to repay the loan even if the borrower fails to complete the program or is dissatisfied with the institution or his or her outcomes.”
On the issue of a group discharge of federal student loans if a school is found to have engaged in “a misrepresentation made with knowledge of its false, misleading, or deceptive nature or with a reckless disregard for the truth,” ED punts and says that will be the focus of a different rule. This appears to close the door for bulk discharges of schools found guilty of deception, like in the Corinthian Colleges case.
As evidence why the group discharge would be harmful to students, ED says “Because an institution can refuse to provide an official transcript for a borrower whose loan has been forgiven, group discharges could render some borrowers unable to verify their credentials or work in the field for which they trained and have enjoyed employment.” Maybe the real answer is that is a school was found to deceive students they should still have to provide a transcript.
In the past, schools who enrolled students who never graduated from high school or had a GED could be found to have taken advantage of people who may not have been qualified to enroll in higher education. The proposed rule shifts the burden back to the uneducated student when it says, “We also propose changes to the Department’s current false certification regulations. The Department believes that in cases when the borrower is unable to obtain an official transcript or diploma from the high school, postsecondary institutions should be able to rely on an attestation from a borrower that the borrower earned a high school diploma since the Department relies on a similar attestation in processing a student’s Free Application for Federal Student Aid (FAFSA).”
Where is the underwriting in this process that ED says it engages in?
These new rules would apply to federal student loans first disbursed on or after July 1, 2019.
They would also “require a borrower to sign an attestation to ensure that financial harm is not the result of the borrower’s workplace performance, disqualification for a job for reasons unrelated to the education received, a personal decision to work less than full-time or not at all, or the borrower’s decision to change careers.”
Feel free to read the entire document, here.
My impression of the proposed new rules is the Department of Education wants to shift all the responsibility for falling for school marketing overpriced education to the least informed person in this transaction, the student.
It doesn’t take a crystal ball to see how this is going to work out. Badly for debtors.
If ED is worried about underwriting and a fiduciary responsibility then why are they passing out easy loans with little regard to affordability, to begin with? Does the government have a duty to protect it’s citizens or does it need to protect its poor financial decision making and schools they pump loans through? Or is this new policy all about blaming the victim instead of investigating the claims for validity?

Steve's essay was originally posted on The Get Out of Debt Guy web site.


*****
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here. 

Thursday, May 10, 2018

CFPB to Shift Focus From Protecting Student Loan Debtors to Something Else. Essay by Steve Rhode

By  on May 10, 2018
Recently the Trump administration has tried to change the law so individual states would not be able to enforce ;laws covering student loan debt collectors.

The new head of the Consumer Financial Protection Bureau (CFPB), Mick Mulvaney, has just released the updated agenda for the CFPB.
According to the new agenda, the CFPB would drop its efforts to push forward regulations of student loan collectors and scrap “student loan servicing” from its focus.
Mulvaney has also indicated the CFPB will retreat from doing anything regarding student loans in general.
“This defangs the watchdog and instead turns the office into a lapdog for the industry,” said Chris Peterson, a former top CFPB official who is now director of financial services at the Consumer Federation of America.
The unit which has been the tip of the spear on these CFPB student loan efforts to protect debtors has been informed they will be reorganized into the CFPB Office of Financial Education. Now there is a department title which just screams no enforcement.
“This is a very significant change in the mission of the student office,” said Christopher Peterson, a law professor at the University of Utah and former enforcement attorney at the CFPB.
“America is facing an ongoing student debt crisis, with outstanding student debt surpassing $1.5 trillion and over 8 million borrowers in default on their student loans. Closing the office for students is like shuttering the fire department in the middle of a three-alarm fire,” Alexis Goldstein, the senior policy analyst at Americans for Financial Reform, said.
I don’t get it. All actions that have been taken by the Department of Education and now the new modified CFPB have the net effect of restricting supervision of student loan collectors, limit state authority to protect citizens from student loan collection abuse, reduce debt elimination from federal student loan fraud by schools, and give easier access to student loan money by for-profit schools.
You don’t need to read the tea leaves here to see what is going on, you just need to look at the billboard.
I don’t care what your political stripes are. With all these changes any student with any student loan debt should expect to be less protected from collector misinformation, bad advice, and poor servicing.
If you don’t believe me, just go ahead and file a complaint against your student loan servicer and see how much protection you get. Your new friend will be the word NONE.

Steve's essay was originally posted on The Get Out of Debt Guy web site.


*****
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here. 

Tuesday, November 14, 2017

Department of Education Coming to Jesus Moment With For-Profit Schools. Article by Steve Rhode

By  on November 10, 2017
99 percent of student loan fraud claims come from for-profit colleges and schools.
I’d love to tell you I absolutely think the current Trump administration Department of Education is going to get the message that for-profit colleges are problematic, but I doubt it.
The Century Foundation has obtained data from the U.S. Department of Education through a Freedom of Information Act (FOIA) request which paints a very clear picture of issues surrounding for-profit schools and student loan fraud issues. I can’t wait to see the magic the Department of Education uses to make these facts go away or not be relevant.
Out of the total of 98,868 complaints reviewed by TCF, for-profit colleges generated more than 98.6 percent of them (97,506 complaints). Of these complaints nonprofit colleges generated 0.79 percent (789 complaints) and public colleges generated 0.57 percent (559 complaints).
Approximately three-fourths of all claims (76.2 percent) were against schools owned by one for-profit entity, the now-closed Corinthian Colleges (75,343 claims). Removing Corinthian from the analysis, the vast majority of claims, over 94 percent, were still against for-profit colleges (22,160 of the 23,525 non-Corinthian claims).
Claims are concentrated around fifty-two entities—forty-seven for-profit companies and five nonprofit institutions—that have each generated twenty or more borrower defense claims. Of these five nonprofits, three converted from for-profit ownership.
The backlog of fraud complaints—currently numbering 87,000 not yet reviewed—is increasing, with the number of new claims submitted per month averaging approximately 8,000 since mid-August.”
The data uncovered while for-profit schools account for ten percent of student enrollment the students who attended were 1,100 times more likely to file a fraud claim.

*******

This article appeared on The Get Out of Debt Guy site. Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve here.

Wednesday, September 27, 2017

Student Loan Debt Hurts Economy, Consumers, and Retirement Savings, essay by Steve Rhode

When you live in a society like ours that is dependent on consumers to consumer goods and services, a reduction in the ability for growing sections of society to do their job and purchase stuff is going to lead to slower growth. That’s not good.

When growth slows there is less of a need for workers, jobs are cut, wages go flat, and life becomes tougher for many.

Historically, people accumulated wealth through homeownership and savings. When reaching the age of retirement the home could be sold and the equity created could be withdrawn. With less access to this type of wealth accumulation and the inability to save for retirement due to growing student loan debt, tragedy is on the horizon.

Student loan debt is hurting an entire generation of consumers who are setup for financial failure at this point.

The easy access to student loans has led to a growing for-profit private student loan industry that since 2009 has been drawing in many through loans and co-signing. Private student loans exploded with the advent of the for-profit schools. As an example, read Navient Knew Loans Were Garbage When They Saddled Students With Them. Yet the current Department of Education under Secretary Betsy DeVos seems resistant to crack down on protections from these schools.

Federal government student loans have been a blessing for many to obtain funds to attend higher education but they have been a curse as well. Schools who were qualified to receive federal funds looked at that easy money as a way to make an easy sale of a student into a seat regardless of the ability of the student to benefit from the loan and school.

Data published by the Federal Reserve Bank said, ” findings are consistent with American youth having accommodated tuition shocks not by forgoing schooling, but instead by amassing more debt.”
The Federal Reserve Bank of New York goes on to say, “Further analysis demonstrates that the tuition hike and student debt increase, despite leaving higher educational attainment unchanged, can explain between 11 and 35 percent of the observed approximate eight percentage-point decline in homeownership for 28-to-30-year-olds over 2007-15 for these same nine cohorts. The results suggest that states that increase college costs for current student cohorts can expect to see a response not through a decline in workforce skills, but instead through weaker spending and wealth accumulation among young consumers in the years to come.”

At the same time as homeownership has been declining, kids are living with their parents at an increasing rate.


As a society nothing good is going to come from lower amounts of wealth accumulation, and weaker spending.

Unless we tackle the growing problem of excessive student loan debt and allow those with unmanageable student loan debt to have access to a fresh start in bankruptcy, the economic future of the days ahead is going to be less than it could have been.

Steve Rhode


This article appeared on the Personal Finance Syndication Network web site and also on The Get Out of Debt Guy site. Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve here.