Showing posts with label Income-Based Repayment plans. Show all posts
Showing posts with label Income-Based Repayment plans. Show all posts

Wednesday, August 24, 2022

Biden Administration Extends Pause on Student-Loan Payments Until End of This Year: Has The Government Created A Moral Hazard?

 Moral hazard is a situation in which one party gets involved in a risky event knowing that it is protected against the risk and the other party will incur the cost. 

 The Economic Times

Christmas came early this year for student-loan debtors. First, the Biden administration is extending the pause on student-loan payments until the end of 2022, which means that college borrowers are getting a two-and-half-year holiday from making monthly loan payments. 

That's not all. President Biden will give every borrower under an income cap of $125,000 (or $250,000 for married couples) $10,000 in student-debt relief.

Borrowers who received Pell Grants in college will get $20,000 in debt relief.

That's big news--especially for borrowers who got Pell Grants while in school. If we add the Pell Grant money these student-borrowers obtained while in college, plus the $20,000 loan write-off, many of these people will have gotten a free education.

And there's more. The Biden administration will launch a more generous income-based repayment (IBR) plan that will lower income-based payments for undergraduate loans from 10 percent of discretionary income to just five percent. The Department of Education also intends to raise the amount of income considered nondiscretionary, meaning that undergraduate borrowers will pay less than five percent of their income on their student loans.

Still, Santa's sack of gifts is not empty. Under DOE's proposed rule, the government will cover the unpaid monthly interest for people in IBRs, meaning student debtors on income-based repayment plans won't see their loan balances go up due to negative amortization.

Party poopers like Larry Summers say that all this federal generosity will fuel more inflation, but who cares? Certainly not the student-loan debtors. In fact, rising inflation will be a bonanza for them because they will be paying back student loans with deflated dollars.

Grumps also argue that the Biden student-loan forgiveness scheme acts as a moral hazard, and I think this is true. If students know they will make loan payments based on their income, not the amount they borrowed, they have every incentive to borrow extravagantly.  

And Biden's munificent changes in income-based repayment plans will likely act as a moral hazard for the colleges as well. University leaders have no incentive to keep their costs in line when they know that students will cheerfully absorb tuition hikes because their loan-repayment plans are so generous that it won't matter whether their tuition bills get larger.

In defense of Biden's sweeping student-loan reforms,  I think everyone agrees that many students took out loans to get a college education that wasn't worth much and was too expensive. 

Millions of students were scammed by for-profit colleges or private nonprofit universities that cranked out overpriced, worthless graduate degrees. Surely the victims of the higher education racket deserve some relief. 

Nevertheless, the federal government is headed for catastrophe if it rolls out student-loan repayment plans that are overly generous while doing nothing to rein in the higher-education racket.

Unfortunately, the feds are doing nothing to stop students from being scammed. Instead, federal money is propping up the colleges--both profit and nonprofit, which allows them to raise tuition prices yearly. 

At the same time, the hucksters who run the colleges offer students educational experiences that don't help them get jobs after they graduate. As a consolation, I suppose, the government is making it very easy for ripped-off students to manage their college debt.

The cold war Russian economy, it was said, ran on the principle that the government pretended to pay the workers and the workers pretended to work.

Something like that is going on in American higher education. The colleges are pretending to educate their students, and the students are pretending to pay for it.

This will end badly for everyone--students, colleges, and taxpayers.  

Merry Christmas!



Monday, August 22, 2022

Who Profits From the For-Profit College Industry? Let's Take a Look at Adtalem Global Education

Higher Education in the United States was once considered a civic activity intended to improve people's lives and benefit society. 


Then some people realized they could make money in the education racket, and the for-profit-college industry was born. 


Who makes money from for-profit colleges? Mostly hedge funds, equity funds, and institutional stockholders. 


Let's look at Adtalem Global Education (AGTE), a for-profit education company that owns Walden University, two Caribbean medical schools, and a Caribbean veterinary school. It's trading on the NASDAQ for about $39 a share--near its 52-week high.


Virtually all of Adtalem is owned by institutions, mostly hedge funds and financial companies. 


Which funds own the stock? You would recognize some of them: Blackrock, Berkshire Hathaway, Goldman Sachs, Morgan Stanley, JP Moran Chase, Soros Management, and the California Teachers Retirement System.


Some analysts are bullish on Adtalem and are predicting a higher share price. Certainly, the big financial players think Adtalem is a money maker.


Without a doubt, Adtalelm's educational institutions have been busy little bees. According to the Chronicle of Higher Education Almanac, Adalem's Walden University produced 867 doctoral degrees in 2020--more than Harvard, Yale, or Columbia. It logged 124 doctoral degrees in education and 357 doctorates in psychology and social sciences. That should make investors happy.


Adtalem gets most of its revenues from federal student aid money. Tuition costs are high. Tuition at Adtalem's American University of the Caribbean Medical School is about $25,000 a semester.


My guess is that most of the graduates of Adtalem's medical schools sign up for income-based repayment (IBR) plans that stretch out payments for 20 or 25 years.  


That keeps monthly loan payments down, but often IBR loans are negatively amortizing. In other words, student borrowers in IBRs see their loan balances go up with each passing month because their loan payments aren't large enough to cover accruing interest.


Indirectly, then, taxpayers are subsidizing the for-profit college industry, including Adtalem, because so many of their students will never pay off their student loans.

Is that a good deal for the American people? No, but it's a good deal for the hedge funds, and that's why the federal government will keep propping up the for-profit college industry.


The hedge funds love the for-profit college industry.


Sunday, March 13, 2022

How Screwed Up is the Federal Student Loan Program? We Can Tell You, But Then We'd Have to Kill You!

 Betsy DeVos, the Wicked Witch of the Midwest, was perhaps the most despised member of President Trump's cabinet. As Trump's Education Secretary, she coddled the for-profit college industry and (in my opinion) bungled the Public Service Loan Forgiveness (PSLF) program.

Nevertheless, in a speech delivered in November 2018, DeVos revealed to the nation just how totally screwed up the federal student loan program really is. She deserves some credit for that.

Here's what DeVos said:

  • The federal government holds $1.5 trillion in outstanding student loans, one-third of all national assets.
  • Only one in four federal student-loan borrowers were paying down the principal and interest on their debt.
  • Twenty percent of all federal student loans were delinquent or in default, which was seven times the delinquency rate on credit card debt.
  • The debt level of individual borrowers had ballooned between 2010 and 2018 because students were borrowing substantially more money.
  • The federal government's portfolio of outstanding student loans constituted 10 percent of our nation's total national debt.
Soon after giving this speech, DeVos engaged a private firm to determine just how bad the student loan crisis was. Jeff Courtney, a former JP Morgan executive, headed up this investigation, and here is what he found:

Although DOE calculated that it would eventually receive 96 cents of every student-loan dollar in default, in fact, it would only recover between 51 and 63 percent.

Courtney also found that DOE allows student-loan defaulters to sign up for new loans, which are used to pay off the defaulted loans. When that happens, the defaulted loans are categorized as paid in full when, in fact, they aren't paid off at all.

DeVos acknowledged that private businesses could not legally operate in this way. In fact, she said, if a private actor engaged in DOE's accounting practices, that person would "probably be behind bars." 

Of course, we know that Courtney's findings aren't the only evidence of DOE's financial skulduggery.  DOE has been putting distressed debtors into income-based repayment plans (IBRP) and counting the loans in these plans as performing loans.

But that is not correct. Approximately 9 million student borrowers are in IBRPs, and their monthly payments are not large enough to pay accruing interest. Thus, IBRP participants see their loan balances grow with each passing month, even when they make regular monthly loan payments. 

In fact, all 9 million IBRP participants are in default--if default means never paying off the debt.

In recent months,  Congressional members have been asking DOE to disclose the actual cost of the federal student loan portfolio, but Education Secretary Miguel Cardona hasn't been forthcoming.

Here is the essence of the matter. DOE knows the federal student loan portfolio is a trainwreck, but it hopes to keep the catastrophe a secret for as long as possible.  

It's like that old joke about the  CIA and classified information: We can tell you the truth about the student-loan program, but then we'd have to kill you.

Sources

Betsy DeVos. Prepared Remarks by U.S. Secretary of Education Betsy DeVos to Federal Student Aid's Training Conference. November 27, 2018. [The DOE link to this speech  was either taken down or obscured.]

Betsy revealed just how screwed up the federal student loan program really is.



Friday, March 11, 2022

Like Prisoners on Death Row: 25 million student debtors may get another reprieve from making their student-loan payments

Around 2,500 prisoners sit on Death Row in American prisons. Nearly 700 condemned men await death in the Golden State of California. A couple hundred are housed on Death Row in Texas, the Lone Star State. And Florida--the Sunshine State-- has 330 prisoners who've been sentenced to die.

How long do condemned prisoners sit in prison before being executed? On average, 19 years. Most men on death row can postpone their execution date by filing multiple appeals in the courts.

Of course, Americans living in freedom cannot compare their situation to the men on Death Row. Nevertheless, student-loan debtors are somewhat like condemned prisoners. They are seeing their lives drain away while the federal government issues multiple stays of execution on their student-loan payments without giving them real relief.

In March 2020, the Department of Education allowed 25 million student debtors to stop making payments on their loans due to the economic disruption of the COVID pandemic.  DOE said it would not penalize borrowers who didn't make their loan payments and wouldn't charge interest on the underlying debt.

That moratorium has been extended four times, and the Biden administration may extend the moratorium yet again.

Are these debt-forgiveness edicts a good thing for the nation's overburdened student-loan borrowers? Yes, of course.

But there are psychological and emotional costs to being burdened by debt that can never be paid back, costs that some federal bankruptcy courts have explicitly recognized. And these costs are not alleviated by giving college borrowers a series of loan holidays.

And allowing 25 million Americans to skip their student-loan payments for two years does nothing to solve the student-loan crisis, which has grown to catastrophic proportions. Together, American college borrowers owe $1.8 trillion in student debt and another $150 billion in private student debt.

Maybe President Biden will forgive $10,000 in personal student debt as he promised during the 2020 presidential campaign. But that will do little or nothing to ease the debt burden of most borrowers.

Perhaps Congress will pass legislation to forgive all federal student-loan debt, or President Biden will do that by executive order. But I think relief of that magnitude is unlikely.

In the meantime, while our legislators and policymakers ponder global solutions,  why doesn't Congres simply amend the Bankruptcy Code to allow insolvent student borrowers to discharge their student loans in bankruptcy?

But Congress probably won't do that. For all the sympathetic rhetoric, Congress is content to allow millions of Americans to sit helplessly in a vast debtor's prison without bars--financially unable to buy homes, save for retirement, or start families.

In the meantime, college borrowers live much like the men on Death Row. Like condemned prisoners, they get numerous reprieves from making payments. They get deferments, they sign up for long-term income-based repayment plans, and they get to skip loan payments during the COVID crisis. 

Condemned prisoners whose sentences are postponed again and again will never be free. Some will eventually be executed, but many of them will die of old age.

Likewise, America's student loan debtors can manage their massive loan debt with various types of reprieves. They can apply for economic-hardship deferments. They can sign up for long-term, income-based repayment plans. They can skip payments during the COVID loan-payment pauses.

But millions of them will never be free of their college debt. They will die before it's repaid. That's a high price to pay for going to college.

 

California's death row





Tuesday, November 30, 2021

After a Long Pause, 30 Million Student Borrowers Will Begin Repaying Their Student Loans in February. Most Say They're Not Ready.

 Last year, in response to the COVID pandemic, the Department of Education pressed the pause button on the federal student-loan program. 

In March 2020, DOE allowed 30 million student borrowers to stop making payments on their student loans with no penalty and no accumulation of interest. DOE also stopped collection actions during this moratorium and stopped garnishing wages of student-loan defaulters.

That was nearly two years ago, and the party's almost over. Beginning on February 1, 2022, all these borrowers will be required to start making monthly payments on their student loans. 

And guess what? Almost 90 percent of fully-employed student debtors who responded to a survey said they are not financially secure enough to resume making loan payments. If they are forced to begin making payments on their student loans, they say, they will not have enough money to pay other bills--like rent, car loans, and medical expenses.

And the loan processors are sending signals that they aren't equipped to reboot the student-loan system for 30 million borrowers all at once. Scott Buchanan, a spokesperson for the loan servicers, said this:

From a resource perspective, from a system perspective and from a staffing perspective, this is going to put a lot of strain on the system.

Poor babies! Somehow I don't think the student-loan servicers are going to miss any meals.

 Nevertheless, three loan servicers are getting out of the business. As reported by Inside Higher Ed, the Pennsylvania Higher Education Assistance Agency, Granite State Management & Resources, and Navient announced that they will not be servicing loans when their federal contract expires.

Navient is turning over its loan servicing business to Maximus, a for-profit company that trades on the New York Stock Exchange.  (The current price is about $76 a share.) 

Maximus! The name sounds like one of the gladiators in that Russell Crow movie. Maximus was already in charge of collecting on defaulted student loans, a business that must be profitable. Bruce Caswell, Maximus's CEO, made $6.14 million in 2020. 

Some commentators say the job of jump-starting the student-loan collection process is so massive that DOE should extend the loan-payment holiday for a few more months. Others say DOE should forgive all student loan debt--now touching on $1.8 trillion. As Cody Hounanian, Executive Director of the Student Loan Crisis Center, put it:

We need to think diligently about what it means to start payments and if we're better off just extending this deadline and canceling student loan debt.

In my view, the federal government will not cancel all student debt, although DOE might extend the repayment holiday for a few more months. 

I think it is more likely that Congress and DOE will create more generous income-based repayment plans and make it easier for student borrowers to qualify for debt relief through the Public Service Loan Forgiveness Program.

Those reforms--if that is what one should call them--won't solve the student loan crisis. Tinkering with the system won't fix it. The only fair way to grant relief for distressed student-loan borrowers is to give them reasonable access to the bankruptcy courts.

Note: Quotations come from an article by Alexis Gravely published in Inside Higher Ed.

Willie Nelson: "Turn Out the Lights, The Party's Over"

Tuesday, November 23, 2021

Ashline v. Department of Education: Dental Assistant with Master's Degree from Kaplan U. discharges $230,000 in student loan debt

 Diane Ashline, a 47-year old single mother, worked for 20 years as a dental assistant. Hoping to increase her income, she took out student loans to get an undergraduate degree and a master’s degree from Kaplan University, a for-profit school. Unfortunately, these degrees did not help her financially.

Ashline never defaulted on her student loans. Instead, she put them in forbearance during the times she was unable to make payments. Nevertheless, by the time she filed for bankruptcy in 2016, she had accumulated  $230,000 in student debt. 

The U.S. Department of Education DOE) insisted that Ashline be put in an income-based repayment plan (IBR), which would only require her to pay $65 a month.  But Judge Thad Collins, who presided over Ashline’s bankruptcy proceedings, rebuffed DOE’s arguments and discharged all of Ashline’s federal student debt.

The judge pointed out that “no evidence [had been] produced to suggest that [Ashline] would ever be able to leverage her unused master’s degree to obtain a higher paying job in the future.” In fact, he ruled, there was “no suggestion that her income would increase in any meaningful way over the remainder of her working life.”

Judge Collins emphatically rejected DOE’s demand that Ms. Ashline sign up for an IBR, partly due to her age. At the time Judge Collins issued his decision last December, Ashline was 50 years old. “Upon completion of a hypothetical IBRplan,” the judge observed, “she would be between 69 and 74 years old.”

Under an  IBR, the judge explained, interest on Ashline’s student loans would outpace her payments, and she would never pay off her debt.  Although the unpaid debt would be forgiven if she completed her IBR, the forgiven debt would be taxable to her. Ashline would then face a “student loan forgiveness tax bomb”--a tax bill for the entire amount of the forgiven debt.

Judge Collins summarized his ruling in favor of Ms. Collins with these words:

[T]he Court finds that [Ashline] has proven, by a preponderance of the evidence, that not discharging her student loans would impose an undue hardship on her and her dependents. She has maximized her earnings potential. Her future financial condition is not likely to improve to any significant degree. . . . Her expenses are not extravagant. Debtor has made the good faith effort to make payments on her student loans . . . and has deferred those payments when she was unable to make them.

Judge Collins’s decision joins a growing body of case law that rejects the argument that student debtors should sign up for IBRs instead of seeking bankruptcy relief. Indeed, Judge Collins himself has issued two other important decisions in which he discharged student debt.

Gradually, I believe the tide is turning in favor of distressed student-loan debtors in the bankruptcy courts. Increasingly, federal bankruptcy judges are recognizing that forcing college borrowers into IBRs makes no sense.

I hope the Ashline decision and other bankruptcy court decisions in a similar vein will encourage “honest but unfortunate” student-loan debtors to shed their unpayable student loans in a federal bankruptcy court.

References

Ashline v. U.S. Department of Education, Adversary No. 16-09028 (Bankr. N.D. Iowa, Sept. 28, 2021).

Elizabeth Lally, N.D. of Iowa Judge Collins Leads the Way On Discharge of Student Debt in the Eighth Circuit, Goosmann Law Firm (July 28, 2018).

In re Martin, 16-9052 (Bankr. N.D. Iowa Feb. 16, 2018).

Fern v. FedLoan Servicing, 553 B.R. 362 (Bankr. N.D. Iowa 2016), aff’d 563 B.R. 1 (8th Cir. BAP 2017).

You Can Find Justice in the Bankruptcy Court of the NorthernDistrict of Iowa


Fern v. FedLoan Servicing, 553 B.R. 362 (Bankr. N.D. Iowa 2016), aff’d 563 B.R. 1 (8th Cir. BAP 2017).

 


Wednesday, November 17, 2021

Private Student-Loan Debt at an All-Time High: TICAS Releases Snoozer Report

 According to a recent report by the Institute for College Access and Success (TICAS), the 2020 class of college graduates has amassed $136 billion in private student debt.  When this amount is added to the total student debt from federal student loans--about $1.8 trillion, Americans are on the hook for almost $2 trillion in student debt.

Interestingly, students in the District of Columbia had the highest average private-debt level: $51,738. Eight states in the Northeast were in the top ten for high private student debt. The average private student debt in Delaware for the class of 2020 was over $50,000.

As Cody Hounanian, Executive Director of the Student Debt Crisis Center, aptly noted, the TICAS report shows that the costs of higher education have "skyrocketed and are out of control."

But are colleges doing anything to control their costs? Not much. Higher Education thinks it should be congratulated because tuition costs rose less than the inflation rate--the first time in decades that tuition increases didn't exceed inflation. I suppose that's good news of a sort, but the critical fact is that tuition costs go up every year.

TICAS's report concluded with a list of policy recommendations, but they're nothing to write home about.

TICAS recommends more federal grant money for low-income students, more oversight of the private student-loan industry, more loan counselors, and better advertising of income-based repayment plans.

Ho, hum!

TICAS did not recommend bankruptcy relief for student-loan debtors who are overwhelmed by the college debt. It said nothing about cracking down on the private-college industry, other than a vague recommendation to "Tighten Institutional Accountability."

I've been writing about the student-loan crisis for 25 years, and I've read dozens of reports and policy papers by think tanks and policy centers.  

Most of them recommend more money, more transparency, and more lenient income-based repayment programs.  TICAS's recommendations added nothing new.


Another snoozer report on the student-loan crisis!






Tuesday, August 10, 2021

The Feds messed up the federal student loan program: And everything they do to fix it just makes things worse

 Many years ago, when I was a fledgling attorney, my senior partner gave me some advice I never forgot. 

He told me that a competent attorney won't make many errors, but all lawyers will make a mistake at some point in their careers.

When you realize you made an error, he advised me, admit it to yourself and immediately begin trying to repair the damage. 

Why? Because the longer you ignore a blunder, the worse the consequences will be. 

I have tried to follow my senior partner's advice throughout my career--first as a lawyer and then as a professor--and I have learned that this advice is always the right thing to do.

But Congress is not following my law partner's advice. Since it created the student loan program more than 50 years ago, it's made several colossal mistakes, but it muddles on--like a drunk driver who causes a multi-car pileup and then leaves the scene of the accident.

For example, Congress screwed up when it allowed for-profit colleges to participate in the student-loan program.  The evidence of corruption, price gouging, and fraud in that sector is well documented.

But the for-profits are sort of like a deadbeat relative who asks you if he can crash on your couch. Once you let him in and give him a house key, you can't get the sonofabitch out.

Congress also made a mistake when it amended the Bankruptcy Code to make it almost impossible for distressed college borrowers to discharge their student loans in bankruptcy. We now have thousands of people who owe three or four times what they borrowed, but they can't free themselves from that debt in bankruptcy court.

And here's another screwup--the Public Service Loan Forgiveness program (PSLF). PSLF was intended to relieve the student-loan burden for people wanting to take public service jobs:--firefighters, school teachers, nurses, etc.

But that program is so botched up that 98 percent of the people who thought they were in the PSLF program were denied relief. As Steve Rhode said in a recent podcast--PSLF is a "dumpster fire."

And then there are the various income-based repayment plans (IBRPs) that the brainy policy wonks said would relieve the debt burden on people who had taken out so many loans that they could not pay off the debt under ta standard 10-year repayment program.

How's that working out? We now have more than 8 million people in IBRPs that can last for a quarter of a century. And how many of these people have had their deads cleared? According to the National Consumer Law Center--only 32!

And the IRBP participants are making monthly payments that are not large enough to cover accruing interest. Virtually all these people will owe much more than they borrowed when they finish their 25-year repayment plans.

Do you want to talk about the Parent PLUS program, which preys on low-income families and has a ten percent default rate?

Let's face it, the federal student loan program and its toxic offshoots is a calamity--the mother of all calamities. Its impact on the economy and individual lives makes the 2009 home-mortgage scandal look like a Sunday school class.

And now, what has our government done? It has extended the pause on student loan payments until the end of January 2022. That's right, millions of student loan debtors are excused from making their monthly payments for almost two years!

Did that move solve anything? No, it did not. By extending the loan-payment pause, the Department of Education merely postponed the day it will have to admit that the student-loan program is a trillion-dollar screwup.


It is always best to admit your mistakes and do your best to repair the damage.


Saturday, June 19, 2021

Student-loan payment relief during COVID crisis ends soon: Will student debtors start making payments again?

 About 40 million student borrowers got some relief last year when the Department of Education allowed student debtors to temporarily skip their loan payments due to the COVID crisis.

Even better, DOE did not charge interest on student loans during the forbearance period. 

But DOE's relief program ends on September 30, and the feds expect all borrowers to resume their loan payments in October. Will borrowers begin writing those monthly checks?

Maybe not. Navient reported in April of last year that 40 percent of federal student-loan borrowers requesting COVID repayment relief held loans that previously had been delinquent or in forbearance.  In other words, millions of student debtors were not making payments on their loans even before the COVID crisis.

Student loans are kind of like overdue library books. They are easy to forget about.

The Department of Education's website lists a host of options for borrowers as the COVID-forbearance plan winds down. If you are a distressed student debtor, you should take a look at that site.

But here's my advice. If you are financially unable to repay your student loans under DOE's standard 10-year repayment program, sign up for the most generous income-based repayment plan  (IBRP) you can find. IBRPs are a terrible option because your loan payments will not be large enough to cover accruing interest. Thus, your loan balance will keep growing in the years to come, even if you make regular monthly payments.  

But your monthly loan payments will be lower under an IBRP and allow you to tread water until some sort of comprehensive relief program is put in place.

As I have said a thousand times, Congress needs to revise the Bankruptcy Code to allow overburdened college borrowers to discharge their student loans in a bankruptcy court. But that may never happen.

Some politicians are calling for wholesale student-loan relief. Just wipe out $1.7 trillion in student debt, they say. But that may never happen either. 

The student-loan catastrophe is enormous and getting bigger with each passing day. If you haven't taken out federal student loans yet, choose a college program that will lead to a job and do everything you can to avoid taking on onerous levels of student debt.  

If you already have a mountain of student-loan debt, get into an IBRP and wait for Congress to clean up the mess. But don't hold your breath.

And one more piece of advice. Don't ask your parents to take out a Parent PLUS loan, and don't take out loans from a private lender.  











Tuesday, May 4, 2021

Independent expert predicts student loan program will lose a half trillion bucks: Is he right?

 In 2018, Education Secretary Betsy DeVos hired Jeff Courtney, a former JP Morgan executive, to do a forensic analysis of the federal student loan program.  DeVos suspected the program was generating huge losses. 

In fact, in November 2018, DeVos said publicly that only one in four student borrowers were paying down both principal and interest on their debt. She also acknowledged that 20 percent of all federal student loans were either delinquent or in default.

Mr. Courtney's analysis confirmed Secretary DeVos's suspicions. Courtney concluded that roughly one-third of the Education Department's student-loan portfolio will never be paid back. That's about a half-trillion-dollar loss.

The Department of Education rejects Mr. Courtney's conclusions. DOE says his "analysis used incomplete, inaccurate data and suffered from significant methodological shortcomings . .  . ."

Maybe. But we don't need a sophisticated economic model to know that the federal student-loan program is underwater.  We know that 8 million student borrowers are in income-based repayment programs and are making payments too small to pay down their loans' principal plus accruing interest.

So, that is 8 million student debtors who will never pay back their loans. That fact alone should dispel any notion that the federal student loan program is solvent.

Policymakers on the left and on the right can continue arguing about the student-loan crisis as if it were merely a political issue.  But it is not--it is an economic calamity for millions of distressed student-loan debtors. 

We know for sure that burdensome student-loan debt is hindering young Americans from buying homes, having children, and saving for their retirement.  Granting partial student-debt relief, as some politicians propose, will do little to relieve widespread suffering.

In my view, the way to address the student-loan mess is for Congress to amend the Bankruptcy Code to allow insolvent student borrowers to discharge their loans in bankruptcy like any other consumer debt.

Congress also needs shut down the Parent PLUS program, which has a high default rate, particularly among minority and low-income families. 

And Congress must put some realistic cap on the amount of money students can borrow for their college education. It is insane for private colleges to peg their tuition rates at $25,000 a semester. They can only get away with this highway robbery because students can take out federal loans to finance their studies.

Mr. Jeff Courtney believes one-third of student-loan dollars will never be paid back. If Congress doesn't address the college-loan crisis forthrightly and very soon, the losses will be much higher than that.

Bard College: Tuition is $56,000 a year







Friday, April 2, 2021

President Biden ponders $50,000 student-loan cancelation: That doesn't go nearly far enough

 President Biden has asked Education Secretary Miguel Cardona to prepare a memo on the president's legal authority to cancel up to $50,000 in student debt.  

If he did that, the experts tell us, President Biden would forgive all college-loan debt for 36 million people--about 80 percent of all borrowers. 

Is that a good idea? 

Sort of. Anything the federal government does to provide relief to distressed student-loan debtors is good, so I support a massive cancelation of student debt.

Nevertheless, one-time debt forgiveness is the wrong approach. 

Wiping out student debt without reforming the student-loan program is like fixing a flat tire on a broken-down car and then putting it back on the highway with no brakes. Someone down the road is going to get hurt.

The whole damned, rotten student-loan system has to be torn down. Otherwise, the corrupt, venal, and incompetent American higher education system will continue ripping off the American people.

Obviously, massive reform can't be accomplished overnight.  But here is what we need to do for starters:

1) Congress must remove the "undue hardship" clause from the Bankruptcy Code and allow insolvent student-loan debtors to discharge their loans in bankruptcy. 

2) We've got to shut down the Parent Plus program.

3) The federal government has got to stop subsidizing the for-profit colleges, which have hurt so many young people--especially people of color and low-income people.

4) We've got to stop shoving student borrowers into 25-year, income-based repayment plans that are structured such that no one in these plans can ever pay off their loans.  There almost 9 million people in IBRPs now. 

5) The universities have got to start offering programs that help their graduates get a real job. Degrees in ethnic studies, diversity studies, LGBT studies, and gender studies only prepare people for jobs teaching ethnic studies, diversity studies, gender studies, and LGBT studies.

6) Finally, we must restore the integrity of the nation's law schools.  We've got too many mediocre law schools. California alone has more than 50 law schools, with only 18 accredited by the American Bar Association.   And the law schools need to go back to admitting students based on objective criteria--the LSAT score, in particular.

If we had fewer but better-trained lawyers, we'd have less litigation and fewer attorneys who see their job as being hired political hacks.

Will the Biden administration do any of the things I've outlined? I doubt it.

Higher education is in desperate need of reform. A college education is far too expensive, and much of what is taught at the universities is not useful.  Wiping out student debt will bring some relief to millions of college borrowers. But if the colleges don't change how they do business, the student-debt crisis will not be solved.








Sunday, January 31, 2021

When did university book stores become T-shirt shops?

 I live about a mile from the Barne & Noble bookstore, the official bookstore for Louisiana State University. Yesterday, I walked over for a cup of hot chocolate at the bookstore's Starbucks coffee shop.

While the barista was constructing my cocoa (a laborious business), I contemplated the murals above the counter. Overhead, I saw some of the great English-language authors: Faulkner, Hardy, Joyce, Kipling, Melville, Nabakov, Shaw, Whitman, and others. 

I found myself wondering whether Barnes & Noble sold any books by the authors who are celebrated at Starbucks.  It is a college bookstore, after all.

So I went upstairs to the store's tiny "fiction and literature" section and looked for works by these famous writers.  Most of them I couldn't find: no Kipling, no Nabakov, no Whitman. 

I did see some comic books, however, in a section titled "graphic novels."  And I saw a hell of a lot of  $20 LSU T-shirts, $70 LSU sweatshirts, and hundreds of LSU ballcaps, selling for $25 a pop.

I also saw $9 LSU wine glasses and $27 LSU waterbottles. And I saw a pile of stuffed animals depicting Mike, the LSU tiger mascot.

In fact, as I scanned both floors of LSU's bookstore, I realized that Barnes & Noble's campus address isn't a bookstore at all; it's a T-shirt shop.  Yes, it sells some textbooks in an obscure corner, but most of the space is dedicated to overpriced souvenirs. 

I am not saying LSU students should be reading the authors who are memorialized at the Starbooks coffee shop.  I've read some Faulkner, some George Bernard Shaw, some of Henry James's excruciatingly dull novels. In my opinion, students can skip all that.

But I find it unsettling to see LSU students swiping their credit cards to buy exorbitantly priced junk and $5 lattes. Why? Because I know many of these students are purchasing that stuff with their student-loan money. 

If these students graduate and can't find good jobs--and many of them won't--what will be their best option? For millions, it will be to sign up for a 25-year income-based repayment plan. That's a high price to pay for an LSU T-shirt.






Wednesday, January 20, 2021

Immigrant obtains medical degree, can't find MD job. Bankruptcy judge discharges $400,000 in student-loan debt

Seth Koeut was born in Cambodia and came to the United States as a child. Like many immigrants, he applied himself energetically to obtain a better life. He graduated 6th in his high school class and went on to earn two bachelor's degrees from Duke University.

Mr. Koeut then went to medical school and received an MD from Ponce School of Medicine in Puerto Rico. Somewhere along the way, he learned to speak English, Cambodian, Spanish, French, and Italian.

Although he passed his Medical Board exams, Koeut could not obtain a residency, which is a prerequisite to obtaining a medical license. After applying for residencies for five years, he gave up hope of becoming a licensed physician in the United States.

Over the years, Koeut held various jobs, including sales clerk at Banana Republic, a dishwasher at a Mexican restaurant, and parking lot signaler.

Finally, Koeut filed for bankruptcy and asked Bankruptcy Juge Margaret Mann to discharge his student-loan debt, which totaled $440,000. A vocational evaluation expert assessed Koeut's job prospects and said Koeut would need additional training to meet his employment potential.

The U.S. Department of Education (DOE) opposed Koeut's application for a student-loan discharge and argued that he should be put in a long-term, income-based repayment plan (IBR). DOE also said Koeut failed to reach his employment potential because of a lack of initiative.

But Judge Mann disagreed. "A medical school graduate who works as a parking attendant and dishwasher cannot be described as lazy," she observed. She approved of Koeut's decision not to sign up for an IBR, which he rejected "because he could not carry the burden of his student debt without harming his opportunities for advancement."

In the end, Judge Mann discharged almost all of Koeut's student debt, finding that his current income and expenses did not permit him to maintain a minimum standard of living--even without making loan payments.

The Koeut case may be a sign that the bankruptcy judges are weary of DOE's incessant demands to put distressed student-loan debtors into IBRs. And perhaps they have grown tired of DOE's insistence that every bankrupt debtor's financial distress is entirely the debtor's fault.

Indeed, one cannot read Judge Mann's opinion without concluding that Seth Koeut had done everything possible to improve his standard of living and had handled his massive student-loan debt in good faith. Let us hope for more bankruptcy court decisions like Koeut v. U.S. Department of Education.


References

Koeut v. U.S. Department of Education, 622 B.R. 72 (Bankr. S.D. Cal. 2020).




Thursday, January 7, 2021

Pro quarterback Tom Brady gets $1 million in PPE money plus tax break, but no tax breaks for distressed student loan debtors

 According to CNBC, Tom Brady, the Tampa Bay Buccaneers' highly-paid quarterback, got a check for $960,00 from the Smal Business Administration's Payroll Protection Plan. Why? Because, besides playing football, Mr. Brady owns a sports and nutrition company.

Does Mr. Brady need the money? Earlier this year, he signed a $50 million two-year deal to play football for the Buccaneers.

And Mr. Brady gets a tax break that goes with that $960,000 check.  Brady and everyone who received a PPP check can deduct their business expenses for the year, even if they paid those expenses with the federal government's free money.

Is this a great country or what!

Meanwhile, nine million student-loan debtors who are enrolled in long-term income-based repayment plans (IBRPs) have enormous tax bills hanging over their heads.  

IBRPs allow college-loan borrowers to make monthly payments on their loans based on their income. If they make regular payments for 20 or 25 years, the balance on their loans is forgiven. However, the amount of forgiveness is considered taxable income by the IRS.

I do not quarrel with Congress's COVID-relief legislation. Perhaps it is good public policy to give Tom Brady a million bucks while my relatives get a lousy $600.

I just hope my children and grandchildren will become rich enough someday to qualify for government handouts.





Saturday, January 2, 2021

Say goodbye to your golden years: 100 million Americans have no retirement savings

According to the  National Insitute on Retirement Security, more than 100 million Americans have no retirement savings whatsoever. 

As Diane Oakley, NIRS executive director, observed:

The facts and data are clear. Retirement is in peril for most working-class Americans . . . When all working individuals are considered--not just the minority with retirement accounts--the typical working American has zero, zilch, nothing saved for retirement.

The NIRS partly blamed the 2007 recession for the bad news. But the report was issued in 2018--before the coronavirus put millions of people out of work.  Over the past year, Americans have dipped into their savings and their retirement accounts just to pay today's bills.

 A 2019 survey also reported bad news for American retirees. A GobankingRanks survey concluded that almost two out of three Americans (64 percent) will retire broke. And--shockingly--nearly half of the people surveyed said they'd didn't care!

Clearly, millions of Americans are not preparing for their retirement years. Many workers don't make enough money to fund a retirement account, and others are overwhelmed with consumer debt--home mortgages, car payments, and credit card bills.

And student-loan debt is a significant contributor to Americans' precarious financial status. More than 40 million people have outstanding student debt, and less than half that number are paying it off. Nine million student-loan debtors are in long-term income-based repayment plans, which means they will never pay down their loan balances.

What is going to happen to all these impecunious Americans when they reach retirement age?

A great many will just keep working until they die or become too incapacitated to be a Walmart greeter. Others will tap the equity in their homes or draw down their meager savings just to pay their utility bills. Some will move in with their kids--who will have their own financial troubles.

As a recent New Yorker article noted, there is a growing movement to increase the minimum wage to $15 an hour. I hope Congress does exactly that.

Nevertheless, even if the minimum wage is roughly doubled, elderly Americans who work full-time at Wendy's for $15 an hour will generate just enough income to keep them above the poverty line.

Working on their feet for eight hours a day will be difficult for people in their seventies.  Many will have to pop Chinese-manufactured Advils to keep their arthritis under control.  But it can be done.

But the days when Americans referred to retirement as the Golden Years are over.  For many Americans, their last years will not be golden. They will be difficult, bitter, and depressing.

photo credit: finance.yahoo.com



Friday, January 1, 2021

Post-Modern America is as vicious and dysfunctional as Victorian England, the Weimar Republic, and 17th century France

If you get your news from network television, you are being bombarded by commercials about prescription medicines and financial services. 

These ads typically show prosperous older Americans who look remarkably fit, live in lovely homes, and spend their days cooking gourmet meals, wind-surfing, and flyfishing with their adorable grandchildren.

These advertisements purport to show life in 21st century America--the best of all possible worlds where everyone is healthy, happy, and financially secure.

But I don't live in that America, and you don't either. Instead, most of us live in a society that is remarkably similar to dysfunctional regimes of bygone centuries.

Our government is printing money at a frightening pace to prop up the financial markets, much like the Weimar Republic did in the 1920s. And we know how that turned out. Germany experienced runaway inflation that set the stage for Adolph Hitler.

We may celebrate the fact that the United States abolished debtors' prisons, but 21st century America treats debtors much the way England treated them in the Victorian age. 

We don't deport debtors to Australia or put them in jail as England did in Charles Dickens' time, but we've created a virtual prison for student-loan borrowers, millions of whom are trapped in income-based repayment plans that last 25 years. Compounding student-debtors' misery, our supposedly benevolent Congress has made it almost impossible for insolvent student-loan debtors to get relief in the bankruptcy courts.

And the American tax system is remarkably like the tax regime in Louis XIV's France. W.H. Lewis, who wrote a masterful social history of seventeenth-century France, described the French tax structure this way;

[T]he whole fiscal system was in itself radically and incurably vicious; as a contemporary remarks, if he Devil himself had been given a free hand to plan the ruin of France, he could not have invented any scheme more likely to achieve that object than the system of taxation in vogue, a system which would seem to have been designed with the sole object of ensuring a minimum return to the King at a maximum price to his subjects, with the heaviest share falling on the poorest section of the population.

Doesn't that sound like the American tax system? Sure it does. As financial tycoon Warren Buffett has repeatedly observed, he pays federal taxes at a lower rate than his secretary.

And the COVID pandemic didn't change the system at all. Indeed, the latest coronavirus relief package includes 100 percent deductibility for the so-called "three-martini lunch." Think about it: wealthy Americans can write off extravagant meals that can cost more than $1,000, while the working stiff gets a $600 coronavirus-relief check.

 In short, although Americans may deceive themselves into believing that our society is evolving into a paradise based on the principles of equity, diversity, and inclusion, in fact, we live in a world not so very different from Victorian England, Weimar Germany, and 17th century France.

Louis XIV: Is everybody happy?


Monday, December 7, 2020

Is massive student-loan forgiveness off the table? The insiders prefer long-term, income-based repayment plans and that's what student debtors are likely to get

Remember the heady days of the 2020 presidential primaries? Democratic nominees proposed massive student-loan forgiveness, and some promised a free college education. 

This is what Vice President Joe Biden promised last April:

The concept I’m announcing today will align my student debt relief proposal with my forward-looking college tuition proposal. Under this plan, I propose to forgive all undergraduate tuition-related federal student debt from two- and four-year public colleges and universities for debt-holders earning up to $125,000. . . . The federal government would pay the monthly payment in lieu of the borrower until the forgivable portion of the loan was paid off. This benefit would also apply to individuals holding federal student loans for tuition from private HBCUs and MSIs.

But the election is over, and the political insiders have had time to reflect on massive loan forgiveness. As the Washington Post editorialized just a few days ago,

[W]wholesale debt relief is actually the antithesis of progressive policy. Most benefits would flow to upper-income households, which, despite the undeniable burden of debt for lower-income families, actually owes a disproportionate share of the total [student-loan] dollars. 

 The Post disapproves of the relief plan put forward by Senators Elizabeth Warren and Charles Schumer.  They want Biden to forgive student-loan debt up to $50,000 per borrower.  Biden himself has trimmed back his April proposal and now only wants Congress to forgive $10,000 in student debt.

I think massive student-loan relief is off the table. Instead, I think the Department of Education--acting with or without Congressional action--is more likely to offer more generous income-based repayment plans.

In fact, that is exactly what the Washington Post is endorsing. Citing a study by Sylvain  Catherine and Constantine Yanellis, the Post says the feds should "mak[e] sure that everyone who qualifies enrolls in an existing plan that links repayment to a borrower's income."

But tinkering with income-based repayment plans (IBRPs) will not solve the student-loan crisis. 

Nine million people are in them now, and virtually none of them are paying down the principal on their loans.  College borrowers who stick it out will eventually get their student loans forgiven, but the canceled debt is considered taxable income by the Internal Revenue Service.

Making IBRPs more generous, which the new administration might do, is just a student-loan forgiveness program in disguise.  It would do nothing to change the status quo, allowing students to borrow too much money to attend college and the universities to charge tuition that is far too high.

As Steve Rhode argued in a recent essay, the solution to the student-loan crisis is to ease restrictions on bankruptcy relief for distressed college-loan borrowers.  All that needs to be done is to remove the "undue hardship" language from the Bankruptcy Code and allow student-loan debtors who are truly insolvent to discharge their loans in bankruptcy.

But perhaps that solution is too simple for the crafty minds of our politicians and our college leaders.  Instead of giving student borrowers a fresh start in bankruptcy,  they will likely concoct another complicated and labyrinthine IBRP.