Obama's Department of Education grants automatic loan relief for all students who attended the American Career Institute: A puny effort--too little, too late

Last Friday, the U.S. Department of Education granted automatic debt relief to all students who attended American Career Institute. As Inside Higher Ed pointed out, this is "the first time the department has granted automatic loan relief to all students of a college without requiring individual applications." About 650 former ACI students received closed school discharges; but the rest--about 3,900 students--are getting their loans discharged en masse. In addition, DOE also announced it will grant Borrower Defense discharges to 28,000 student who had attended Corinthian Colleges.

This is a good thing, of course; but why now? And why so small a gesture?

After all, Corinthian Colleges, which closed and filed bankruptcy under allegations of fraud, had more than 300,000 students; and ITT, which also filed bankruptcy, had 191,000 enrollees.  Yet so far, DOE has only grant Borrower Defense discharges to 28,000 former Corinthian students.

As for the small size of the gesture, I think Luke Herrine, legal director of the Debt Collective, got it right. "There's just no coherent logic whatsoever," he said. "The only thing I can think of is it would be deeply embarrassing for them to stop collecting on so much debt." It is one thing to forgive the loans of 4,000 ACI students and a small percentage of Corinthian students; it is quite another to discharge the debt of a half million people.

As for the timing, I think the Obama administration has known for quite a while that the only responsible thing to do about millions of people who took out loans to attend flaky for-profit colleges is to grant massive debt relief to nearly everyone without the necessity of reviewing each case individually. But that is a difficult thing to do politically.

I think DOE waited until a week before Obama leaves officer to offer token relief to ACI students in order to highlight the student-loan crisis when there is no time left for the Obama administration to do something substantive.

Like a retreating army that spikes its cannons before being overwhelmed by the enemy, the Obama administration may have wanted to publicize the student loan crisis to create difficulties for Trump.

Here are my thoughts on DOE's surprising but welcome action:

1) Granting debt relief to ACI students is the first small step toward doing what the federal government will inevitably be forced to do: forgive student debt to nearly all of the millions of people who attended for-profit colleges and received no economic benefit.  Billions of dollars in student loans will eventually be written off.

2) I think Obama's DOE took the action that it did for ACI students because the Obama team thinks Trump, who takes office in a few days, will try to prop up the for profits at the expense of exploited students.

But the Obamacrats may be wrong. After all, President-elect Trump knows how to read a  balance sheet, and he may quickly grasp the fact that the student loan program is a catastrophe. 

And if Mr. Trump realizes the enormity of the student loan crisis, he might actually take decisive action.  Everyone agrees that Mr. Trump understands bankruptcy and its value for distressed debtors.  President Trump might surprise everyone and ease the path to bankruptcy relief for millions of student loan debtors who will never be able to pay back their college loans.

References

Andrew Kreighbaum. Education Department announces thousands of new loan discharges. Inside Higher Ed, January 16, 2017.

ITT Tech's former students announce a strike against student loan payments: Who will notice?

Several years ago, U.S. Post Office workers threatened to strike, but the public didn't care. I recall a cartoon with two images: The first image depicted a sleeping Post Office employee covered with cobwebs and was labeled "Post Office Employee at Work." The second image, which depicted the same sleeping Post Office worker, was labeled "Post Office Worker on Strike."

The cartoon's message was clear. If Post Office employees went on strike and refused to deliver the mail, no one would notice.

I think ITT Technical Institute's former students will get a similar ho-hum reaction to their announcement that they are on strike and refusing to make their student-loan payments. Who will notice?

After all, almost 50 percent of students who took out student loans to attend a for-profit college default on those loans within five years of beginning repayment. Some former for-profit students are making loan payments under income-contingent repayment plans, but most of these borrowers are making payments so small that they aren't even paying off their loans' accruing interest.

So a student-loan strike, like a postal worker strike, is basically a non-event.

That is not to say that ITT Tech's former students don't have real grievances. ITT has more than 40,000 students on 130 campuses. When  it closes tomorrow, all of ITT's students will be left in the lurch. Who can blame them for refusing to make payments on their student loans?

Students who are enrolled at ITT at the time it closes are eligible for  a "closed school" discharge of their federal student loans. According to Inside Higher Ed, about a thousand ITT students have applied for a "closed school" discharge. But why should they be forced into an administrative process to get their loans forgiven? Why doesn't the Department of Education simply forgive the loans of everyone who was enrolled at ITT at the time of its closure or who withdrew from their ITT studies within the last six months?

And, as I've said before, why doesn't DOE admit that a high percentage of the people who enrolled at ITT over the years did not get good value for their tuition dollars and forgive the student loans of all ITT's former students?

That would be a fair thing to do but damned expensive. That's why most of ITT's former students will be on the hook for their student-loan obligations even if their ITT studies were a complete waste of their time.

References

Ashley Smith. ITT Tech Students Launch Debt Strike. Inside Higher Ed, September 15, 2016. Accessible at https://www.insidehighered.com/quicktakes/2016/09/15/itt-tech-students-launch-debt-strike?utm_source=Inside+Higher+Ed&utm_campaign=c72eec25d2-DNU20160915&utm_medium=email&utm_term=0_1fcbc04421-c72eec25d2-198565653&mc_cid=c72eec25d2&mc_eid=1b70c08403

Ashley Smith. The End for ITT Tech. Insider Higher Ed. September 7, 2016. Accessible at https://www.insidehighered.com/news/2016/09/07/itt-tech-shuts-down-all-campuses