Senators Elizabeth Warren (D-MA) and John Kennedy (R-LA): Can these two lead a bipartisan effort for student-loan reform?

Congress is more divided along partisan lines than any time since Representative Preston Brooks caned Senator Charles Sumner on the floor of the Senate back in 1856.  No major legislation gets passed with bipartisan support, and Republicans and Democrats seem content to be obstructionists rather than try to do something useful.

Is there no public issue on which Republicans and Democrats can agree? I think there is.

More than 40 million Americans have outstanding student loans, and at least 20 million  can't pay them back.  Last year, 1.1 million college borrowers defaulted on their loans--that's an average rate of 3,000 people a day. People who borrowed to attend for-profit colleges have suffered the most. Nearly half of these hapless souls default within five years of beginning repayment. Among African Americans, the pain is even worse. Three fourths of African Americans who took out student loans to attend for-profit schools eventually default.

Big problems require big solutions. As I have said before, the student loan crisis will not abate until for-profit colleges are kicked out of the federal student-loan program and distressed student debtors are allowed to discharge their student loans in bankruptcy.  But these two fixes are politically impossible right now.

But Congress could approve smaller measures of relief  if our elected representatives would just work together. For example:

• Congress could pass a law barring the federal government from garnishing Social Security checks of elderly student-loan defaulters. Senators Elizabeth Warren and Claire McCaskill introduced a bill along these lines but it has gotten nowhere.

• All student loans should be refinanced at current, low interest rates, something Hillary Clinton endorsed during the 2016 presidential campaign. 

• Our tax code needs to be amended to make clear that people who complete income-based repayment programs are not taxed when the remaining balance on their loans is forgiven. Representatives Mark Pocan and Frederica Wilson (both Democrats) introduced a bill to accomplish this reform but it has not become law. 

Who in Congress--Republican or Democrat--could disagree with these reforms? Even our most Neanderthal representatives could not look their constituents in the eye if they voted against any of these proposals.

If this is so, how can Congress kick-start bipartisan student-loan relief?  Here is a feasible scenario: Senator John Kennedy, a Republican from Louisiana, could contact Senators Warren and McCaskill and offer to co-sponsor their bill to stop the government from garnishing Social Security checks of elderly student-loan defaulters.

Why do I nominate Senator Kennedy for this bipartisan overture? Because Kennedy has shown a commendable reluctance to follow the Republican party line on important policy issues. For example, he was one of only two Senate Republicans to vote against a law that allows financial institutions to force their customers to sign mandatory arbitration agreements.

If Senator Kennedy were to come on board for the Warren-McCaskill bill, other Republican Senators might also signal their support.  Once this bill received some publicity, I predict the Warren-McCaskill-Kennedy bill would be adopted into law without a single dissenting vote in either the House or the Senate.

After this small victory, Republicans and Democrats could join together to provide further relief to suffering college borrowers: lowering interest rates on current student loans, imposing restraints on the government's rapacious debt collectors, revising the tax laws so that participants in income-driven repayment plans aren't taxed on forgiven loan balances.

All these reforms are feasible; indeed they might all pass through Congress with little or no opposition. Some broad-minded legislator just needs to reach across the aisle to get the ball rolling.  Senator Kennedy,  please make that call to Senator Warren and assure her you will support the Warren-McCaskill bill.

Representative Preston Brooks canes Senator Charles Sumner, May 22, 1856

References

Danielle Douglas-Gabriel. The disturbing trend of people losing Social Security benefits to student debt. Washington Post, December 20, 2016.

James Gill. John Kennedy is quickly becoming 'Senator No' when facing Donald Trump.
Baton Rouge Advocate, December 3, 2017.

Anne Gearan and Abby Phillip. Clinton to propose 3-month hiatus for repayment of  student loans. Washington Post, July 5, 2016.

Melanie Lockert. Surprise! Here's When You'll Owe Taxes on Student Loan Forgiveness (and When You Won't). studentloanhero.com (blog), February 27, 2017.

The Wrong Move on Student Loans. New York Times, April 6, 2017.

Trump and DeVos give aid and comfort to For-Profit Colleges: The Democrats should hold hearings on this sleazy industry

As Senator Dick Durbin once observed, the for-profit colleges "own every lobbyist in town." And indeed they do. David Halperin, in a terrific article for The Nation, explained how the for-profit colleges have effectively used lobbyists and lawyers to fight off federal efforts to regulate their sleazy industry.

And now the for-profits don't even have to pay their lobbyists and attorneys. Secretary of Education Betsy DeVos pays them directly!

As the New York Times reported, DOE hired two for-profit insiders to help shape DOE's policy toward the for-profit industry. Robert Eitel is taking an unpaid leave of absence from his job as vice president for regulatory legal services at Bridgepoint Education, Inc.  to take a paid job on the Department's "beachhead team." Bridgepoint, a for-profit education provider, is currently being investigated by the Securities and Exchange Commission. Former Senator Tom Harkin, a longtime critic of the for-profit college industry, called Bridgepoint a "a scam, an absolute scam."

And DOE also hired Taylor Hansen, a former for-profit lobbyist, to be a consultant. At least Hansen had the decency to resign his DOE position after a public outcry was raised.

These hires, along with DOE's decision to delay compliance deadlines for for-profit colleges to meet DOE's "gainful employment" regulations, are a strong indication that the Trump administration will not vigorously regulate this bandit industry.

Senate Democrats could put enormous pressure on Trump and DeVos if they would hold hearings on the for-profit colleges. I would like to see Senators Elizabeth Warren and Bernie Sanders question some of the so-called educators who run these diploma mills.  Nearly half of the students who took out federal loans to attend for-profit colleges default on their loans within five years of beginning repayment.

And Senate Democrats also need to examine the student-loan debt collectors who slap huge fees on student-loan defaulters and engage in high-pressure collection tactics.  Educational Credit Management Corporation (ECMC), for example, was hit with punitive damages last year for repeatedly garnishing the wages of a bankrupt student-loan debtor in violation of the Bankruptcy Code's automatic stay provisions.

Senator Warren might ask Janice Hines, ECMC's CEO, to disclose her compensation package--surely well over $1 million a year. And Senator Sanders might ask Hines how ECMC amassed $1 billion in assets.

Great political theater! So why don't the Democrats get busy and schedule those hearings? I tell you why. Too many politicians--Republicans and Democrats alike--are in bed with the for-profit college industry.  Read David Halperin's article in The Nation for details.

Janice Hines: How much money do you make running ECMC?

References

Patricia Cohen. Betsy DeVos's Hiring of For-Profit College Official Raises Impartiality Issues, New York Time, March 17, 2017.

Patricia Cohen. For-Profit Schools, an Obama Target, See New Day Under Trump. New York Times, February 20, 2017.

Danielle Douglas-Gabriel. Trump administration rolls back protections in default on student loans. Washington Post, March 17, 2017.

David Halperin. The Perfect Lobby: How One Industry Captured Washington, DC. The Nation, April 3, 2014.

 Shahien Nasiripour. , Betsy DeVos Hands Victory to Loan Firm Tied to Advisor Who Just Quit. Bloomberg News, March 20, 2017.
  
Predator Colleges May Thrive Again (editorial). New York Times, March 23, 2017, p. A 24.

Hillary Clinton had a good idea for addressing the student loan crisis: The Trump administration should implement her plan

Although many people have forgotten, Hillary Clinton introduced a sensible plan for addressing the student loan crisis while she was campaigning for the Presidency. She proposed a 90-day moratorium on student-loan payments to give college debtors an opportunity to refinance their loans at a lower interest rate.

This is a good idea. Forty-three million people have outstanding student loans, and many borrowed at high interest rates--much higher than today's rates.

For example, in the Murray bankruptcy case, decided last year, a married couple in their late forties consolidated their student loans at an interest rate of 9 percent.  At the time of consolidation, the Murrays owed $77,000; and they paid back 70 percent of that amount. Nevertheless, there were periods when the Murrays did not make payments due to financial stress; and they now owe $311,000, with the growth largely due to their loan's high interest rate.

Likewise, Brenda Butler, whose bankruptcy case was also decided last year, borrowed $14,000 and paid back $15,000. Like the Murrays, Ms. Butler's loans were in deferment from time to time. By the time she entered bankruptcy--almost 20 years after graduating from college--she owed $33,000, more than double what she borrowed. Again, the growing loan balance was largely due to accrued interest.

As Senator Elizabeth Warren has pointed out, millions of student-loan debtors took out student loans at interest rates far above the federal government's current cost of borrowing money.  Therefore, if these people were permitted to refinance their loans at a lower interest rate, as Hillary Clinton proposed last year, their student-loan debt would be a lot easier to manage.

As I said, Hillary Clinton's idea is a good one, but I would like to propose an amendment.  In addition to allowing college borrowers to refinance their loans at lower interest rates, the government should forgive all the default penalties that have been assessed against student-loan  defaulters.

Currently there are 8 million people in default on their student loans, and most of them had a 25 percent penalty attached to the amount they borrowed plus accumulated interest. I have a friend whose daughter borrowed $5,000 to attend college, made loan payments for awhile and then defaulted. How much does she owe now? $12,000!

Are there any downsides to Hillary Clinton's proposal as I have amended it? Yes, the student-loan collectors who have gotten rich chasing down student-loan defaulters would make less money.

But there are no downsides for the government. Why? Because millions of student-loan defaulters and millions more in income-driven repayment plans will never pay off their student loans.  The income-driven repayment plans are nothing more than a fraud on the public that allows the government to claim that people in these plans are not in default.

But in actuality they are in default. Educational Credit Management Corporation, for example, wanted to put the Murrays into an income-drive repayment plan that would cost them around $900 a month. The bankruptcy judge, to his credit, rejected that idea, pointing out that the Murrays' debt was accruing interest at the rate of $2,000 a month. Even if the Murrays made regular payments for 25 years, their debt would balloon from $311,000 to about half a million dollars.

So here's my suggestion. Senator Elizabeth Warren should dust off Hillary Clinton's moratorium idea and propose it to the Trump administration, adding a proviso that default penalties would also be waived.

Donald Trump is not everyone's cup of tea, but I believe he comprehends the world of finance.  He will understand that the government is running a shell game, telling the public that the student loan program is under control when in fact it is a train wreck.

If Republicans, Democrats, and President Trump would adopt Hillary Clinton's amended plan, they would provide immense relief to millions of Americans who are being buried alive by their student loans.

Wouldn't that be a lovely outcome?

References

Butler v. Educational Credit Management Corporation, No. 14-71585, Adv. No. 14-07069 (Bankr. C.D. Ill. Jan. 27, 2016).

Anne Gearan and Abby Phillip. Clinton to propose 3-month hiatus for repayment of  student loans. Washington Post, July 5, 2016. Accessible at https://www.washingtonpost.com/news/post-politics/wp/2016/07/05/clinton-to-propose-3-month-hiatus-for-repayment-of-student-loans/?

Murray v. Educational Credit Management Corporation, Case No. 14-22253, ADV. No. 15-6099, 2016 Banrk. LEXIS 4229 (Bankr. D. Kansas, December 8, 2016).

Ruth Tam. Warren: Profits from student loans are 'obscene.' Washington Post, July 17, 2013.

Louisiana man gets 10 years in prison for stealing a toolbox from a church: A plea for bipartisan cooperation to promote justice

Michael Duplessis, age 34, was sentenced to 10 years in prison for stealing a toolbox from Holy Rosary Catholic Church in St. Amant, Louisiana. Duplessis was sentenced after he agreed to a plea deal to avoid the possibility of  a life sentence.

A life sentence for stealing a toolbox! How could that be?

Michael Duplessis: Sentenced to 10 years in prison for stealing a toolbox from Holy Rosary Church

Apparently, Duplessis is a repeat offender. He had previously been convicted of stealing a cellphone charger from a residence and later a boat battery. Under Louisiana's habitual offender law, Duplessis is a three-time loser and could have been sentenced to life in prison for lifting that toolbox. I imagine the plea bargain looked pretty good to him.

Obviously a law that can send a man to prison for the rest of his life for stealing a cellphone charger, a battery and a toolbox is unjust and inhumane. In fact, Pope Francis has said that life sentences are essentially death sentences.

Surely, reasonable people can work together to repeal such a barbaric statute.

So why aren't Republicans and Democrats working together to do that? In fact there are dozens of unjust laws that could be repealed. As I wrote awhile back, Senators Elizabeth Warren and Claire McCaskill introduced a bill to stop the federal government from garnishing the Social Security checks of elderly student-loan defaulters. Who in Congress could oppose such a bill?

Unfortunately, our elected representatives at the state and national level are so caught up in political warfare that nothing gets done. And the mainstream press has become so obsessed with criticizing President Trump that it has abandoned its traditional role of advocating for justice.

Just today, in my local newspaper, Richard Cohen, a syndicated columnist, published an essay that was nothing more than warmed over criticism of President Trump. In case the public had forgotten, Cohen reminded us that Trump unfairly criticized Senator John McCain and the Hispanic judge who presided over the Trump University litigation. Isn't there something more timely and important that Cohen can write about?

Enough already. Republicans and Democrats should look for problems they can solve together, and the press should resume its traditional roll of publicizing injustices like the one perpetuated on poor Mr. Duplessis. This is how democracy works after all, or how it used to work, before everyone in public life began behaving like children.

References

Richard Cohen. Can't anybody play this game? The Advocate (Baton Rouge), February 17, 2017, p. 5B.

David J. Mitchell. Man gets 10 years in burglary of church. The Advocate (Baton Rouge), February 17, 2016.

Kathy Schiffer, Pope Francis Opposes Capital Punishment; Calls Life Sentences for Violent Criminals "A Hidden Death Penalty." Seasons of Grace blog site, October 23, 2014.

President Trump and the Democrats: Washington DC has become a kindergarten

A few moments ago, I watched a video showing protesters blocking Secretary of Education Betsy DeVos from entering a public school--a school where she was scheduled to attend a meeting with educators. The video clip wasn't long but I saw one guy shouting at her and I saw someone trying to block Secretary DeVos's vehicle as she was being driven away.  You should watch this video.

In only a matter of weeks, Washington DC has turned into a giant kindergarten. I suppose President Trump bears part of the blame. He has a distressing tendency to lash out at his detractors with tweet messages that only give his most unreasonable critics publicity and credibility. I wish he would take the high road and simply ignore his hysterical attackers.

But I blame the Democrats for plunging political discourse to the level of a playschool.  The Democrats behaved like children during the nomination process for President Trump's cabinet choices. Why did they do that, knowing that the President had the votes to get them all confirmed?

It would be hard to choose the chief tantrum thrower, but I give my vote to Senator Elizabeth Warren. She showed a shocking level of immaturity when she insinuated on the floor of the Senate that Jeff Sessions, one of her colleagues, is a racist.

A lot of people are upset about Donald Trump being our President. I understand that. But disappointment is no reason for political leaders to jettison civility in public discourse. What will that accomplish?

Furthermore, I believe there is bipartisan support around solving several important public policy problems. As I have already written, surely everyone from Senator Mitch McConnell to Congresswoman Nancy Pelosi can agree that the government should not be garnishing the Social Security checks of elderly student-loan defaulter.s  And if I'm right about that, why can't Republicans and Democrats unite around the McCaskill-Warren bill to stop that practice?

Over my lifetime, I have dealt with a lot of people who behaved boorishly toward me, tried to bully me, or behaved deceitfully toward me; and those people upset me. But I learned that I was always better off to retain my dignity and to respond to unprofessional behavior in a reasonable and straightforward manner.

Trump's detractors  seem to think that behaving like kindergarten children is the appropriate way to show their dissatisfaction with the 2016 election results. But they are wrong. If the Democrats don't pull themselves together and begin to behave like grownups, this nation is headed for real trouble--and I don't mean just political trouble.

Congressional Democrats should pressure DeVos to clean up the student-loan collection business

Democrats are critical of Betsy DeVos, President Trump's new Secretary of Education, but one concern is particularly valid, which is this: DeVos has business ties with a student-loan debt collector.

Those ties, which were explained in a Washington Post article are complicated. Here is what the Post said:

Education Secretary nominee Betsy DeVos and her husband have extensive financial holdings through their private investment and management firm, RDV Corporation. . . .

RDV is affiliated with LMF Portfolio, a limited liability corporation listed in regulatory filings as one of several firms involved in a $147 million loan to Performant Financial Corp., a debt collection agency in business with the Education Department.

Twenty-three percent of Performant's revenue is directly tied to its dealings with the Education Department, which had 14 contracts worth more than $20 million with the company in fiscal 2016.

According to the Post, Performant lost a recent contract bid with the Department of Education and is protesting DOE's decision with the Government Accountability Office.

DeVos's complicated ties with a student-loan debt college company is a legitimate worry to Democrats because as Secretary of Education, "DeVos would be in a position to influence the award of debt collection, servicing and recovery contracts, in addition to the oversight and monitoring of the contracts." In addition, the Post article points out, DeVos will also "have the authority to revise payments and fees to contractors for rehabilitating past-due debt--all of which has Senate Democrats concerned."

Senator Elizabeth Warren criticized DeVos because DeVos has no experience in higher education. "As Education Secretary," Warren charged, "Betsy DeVos would be in charge of running a $1 trillion student loan bank. She has no experience doing that." In fact, Warren correctly observed, "Betsy DeVos has no experience with student loans, Pell Grants, or public education at all."

Like Senator Warren, most Senate Democrats senators opposed DeVos to be Secretary of Education primarily on the ground that she has no experience in higher education, which is true. But I think a bigger concern is the fear that DeVos won't regulate the for-profit college industry aggressively and that she won't monitor the government's debt collectors, including the student loan guaranty agencies, which have a ruthless record of collection activities against distressed student loan debtors.

I confess I did not take DeVos's ties with a debt collection agency into consideration during the nomination process. I thought, perhaps naively, that DeVos's lack of experience in higher education might be a plus, since she could look at the student loan program with fresh eyes.

And perhaps she will. But the Democrats can smoke her out by moving aggressively for transparency and an accounting in the student-loan collection business and calling for a reduction in the collection fees and penalties the debt collectors are slapping on defaulted student loans.

Senator Warren could lead the charge by holding hearings on the activities of the student loan guaranty agencies: Educational Credit Management Corporation and the others. The Century Foundation reported that four of these agencies, which are nonprofit organizations, each hold $1 billion in assets.

If Secretary DeVos does not move aggressively to rein in the for-profits and clean up the debt collection business, then the Democrats will have a legitimate charge against her. The best way to see how DeVos will handle her new responsibilities is to hold hearings and introduce legislation to clean up the student loan industry.

If DeVos opposes legitimate calls for reforming the federal student loan program, then the Democrats are right about her.

References

Danielle Douglas-Gabriel. Dems raise concern about links between DeVos and debt collection agency. Washington Post, January 17, 2017. 

Eugene Scott. Warren grills DeVos: 'I don't see how she can be the Secretary of Education.' CNN, January 18, 2017.

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/

Betsy DeVos is the new Secretary of Education: How About Bipartisan Support for Senator Warren & Senator McCaskill's Bill to Stop Garnishing Social Security Checks of Elderly Student-Loan Defaulters?

Any excuse for a slumber party, right?

Yesterday, Democrats kept the Senate in session all night to register their opposition to Betsy DeVos as the  new Secretary of Education. But Vice President Pence broke the tie vote in the U.S. Senate this morning, and today Betsy DeVos is President Trump's new Secretary of Education.

Senate Democrats bitterly opposed DeVos's nomination, but that battle is over. Now is a good time for Democrats and Secretary DeVos to cooperate on a common objective--an objective that should attract broad bipartisan political support.

So here's what I suggest: relief for elderly student-loan debtors.

Senators Claire McCaskill and Elizabeth Warren supported a bill in 2015 that would stop the federal government from garnishing the Social Security checks of elderly and disabled people who defaulted on their student loans.  The bill got nowhere.

The Senators also asked the Government Accountability Office to prepare a report on elderly Americans with student loan debt, and GAO delivered that report last December. The report was widely covered by the media and contained some fascinating information.

• First, "[t]here has been a 10-fold increase in the amount of student debt held by people age 65 or older--from $2 billion in 2005 to $22 billion" in 2015  (quoting the Washington Post).

• The federal government has increased efforts to garnish Social Security check of student-loan defaulters. According to Senator McCaskill's office, "The number of Americans whose Social Security checks are being garnished by the government to recoup defaulted student loans has increased by 540 percent in the last decade to over 114,000 older borrowers."

• In 2015, 173,000 Americans had their Social Security income offset due to defaulted student loans. This is a dramatic increase from 2002, when the government only applied offsets to 36,000 Social Security recipients (page 11 of GAO report).

• Some Social Security recipients whose income was offset lived below the federal poverty guideline and others dropped below the poverty level after their Social Security checks were reduced (p. 27 of GAO report). In fact, as Senator Elizabeth Warren emphasized in a recent press release, "Since 2004, the number of seniors whose Social security benefits have been garnished below the poverty line increased from 8,300 to 67,300."

• More than 7 million people age 50 and older still owe on student loans, and 870,000 people age 65 and older have student loan debt. Among student-loan borrowers age 65 and older, 37 percent are in default (figure 2, page 10 of GAO report).

• The amount of money the government collects from Social Security offsets is a pittance compared to overall student debt. The government  only collected $171 million from Social Security offsets in 2015, about $1,000 per garnishee.

• Most of the money collected from Social Security offsets went toward paying fees and accumulated interest.  "Of the approximately $1.1 billion collected through Social Security offsets from fiscal year 2001 through 2015 from borrowers of all ages, about 71 percent was applied to fees and interest" (p. 19 of GAO report).

Surely, Senators McCaskill and Warren can muster bipartisan support for legislation that will stop the federal government from garnishing the Social Security checks of elderly student-loan defaulters. Perhaps they might ask for a couple of Senate Republicans to join as co-sponsors. I suggest Senator Lisa Murkowski of Alaska and Susan Collins of Maine. Both voted against Ms. Devos' confirmation.

And I'll bet Senators McCaskill and Warren could get Betsy Devos and the Department of Education to endorse the bill. At least they could ask.

Who would oppose such a bill? I don't think anyone would.  What a wonderful message such a law would send to the American people: the message that our elected leaders--Congress and the Executive Branch--can work together to advance the common good.

On the other hand, if Congress and the U.S. Department of Education can't cooperate to get this wholly beneficial legislation adopted, then the political process is indeed broken.

References

Sandy Baum. Student Debt: Rhetoric and Realities of Higher Education Financingg. New York: Palgrave-Macmillan, 2016.

Jordan Carney. Two GOP senators to vote no on Betsy DeVos. The Hill, February 7, 2017.

Danielle Douglas-Gabriel. The disturbing trend of losing Social Security benefits to student debt. Wall Street Journal, December 20, 2016.

Senator Claire McCaskill Press Release, December 20, 2016. McCaskill-Warren GAO Report Shows Shocking Increase in Student Loan Debt Among Seniors.

Senator Elizabeth Warren Press Release, December 20, 2016. McCaskill-Warren GAO Report Shows Shocking Increase in Student Loan Debt Among Seniors. 

United States Government Accountability Office. Social Security Offsets: Improvement to Program Design Could Better Assist Older Student Borrowers with Obtaining Permitted Relief. Washington DC: Author, December 2016).

Alan and Catherine Murray are Poster Children for the Student Loan Crisis: Income-Driven Repayment Plans for Distressed Student-Loan Debtors are Insane

In a recent post, I wrote about Alan and Catherine Murray, who won a partial discharge of their student-loan debt in a bankruptcy case decided in December 2016.  Educational Credit Management (ECMC), the creditor in their case, is appealing the decision. We should all hope ECMC loses the appeal, because the Murrays are the poster children for the student-loan crisis.

Alan and Catherine Murray: Poster Children for the Student-Loan Crisis

Alan and Catherine Murray, a married couple in their late forties, took out 31 federal student loans to get bachelor's degrees and master's degrees in the early 1990s. In all, they borrowed about $77,000, not an unreasonable amount, given the fact that they used the loans to get a total of four degrees.

In 1996, the Murrays consolidated all those loans, a sensible thing to do; and they began making payments on the consolidated loans at 9 percent interest.  Over the years they made payments totally $58,000--or 70 percent of what they borrowed.

Nevertheless, during some periods, the Murrays obtained economic hardship deferments on their loans, which allowed them to skip some payments. Interest continued to accrue, however; and by 2014, when the Murrays filed for bankruptcy, their $77,000 debt had ballooned to $311,000!

Fortunately for the Murrays, Judge Dale Somers, a Kansas bankruptcy judge, granted them a partial discharge of their massive debt. Judge Somers ruled that the Murrays had managed their student loans in good faith, but they would never be able to pay back the $311,000 they owed. Very sensibly, he reduced their debt to $77,000, which is the amount they borrowed, and canceled all the accumulated interest.

 Educational Credit Management Corporation (ECMC), the Murrays' student-loan creditor, appealed Judge Somers' ruling. The Murrays should have been placed in an income-driven repayment plan (IDR), ECMC argued, which would have required them to pay about $1,000 a month for a period of 20 years.

Obviously, ECMC's argument is insane. As Judge Somers pointed out, interest was accruing on the Murrays' debt at the rate of almost $2,000 a month. Thus ECMC's proposed payment schedule would have resulted in the Murrays' debt growing by a thousand dollars a month even if they faithfully made their loan payments. By the end of their 20-year payment term, their total debt would have grown to at least two thirds of a million dollars.

The Murrays' case is not atypical: Billions of dollars in student loans are negatively amortizing

You might think the Murray case is an anomaly, but it is not. Millions of people took out student loans, made payments in good faith, and wound up owing two, three, or even four times what they borrowed. In other words, millions of student loans are negatively amortizing--they are growing larger, not smaller, during the repayment period.

For example, Brenda Butler, whose bankruptcy case was decided last year, borrowed $14,000 to get a bachelor's degree in English from Chapman University, which she obtained in 1995. Like the Murrays, she made good faith efforts to pay off her loans, but she was unemployed from time to time and could not always make her loan payments.

By the time Butler filed for bankruptcy in 2014, her debt had doubled to $32,000, even though she had made payments totally $15,000--a little more than the amount she borrowed.

Unfortunately for Ms. Butler, her bankruptcy judge was not as compassionate as the Murrays' judge. The judge ruled that Butler should stay on a 25-year repayment plant, which would terminate in 2037, 42 years after she graduated from Chapman University.

Here is sad reality. Millions of people are seeing their total student-loan indebtedness go up--not down--after they begin repayment. According to the Brookings Institution,  more than half of the 2012 cohort of student-loan borrowers saw their total indebtedness go up two years after beginning the repayment phase.  Among students who attended for-profit colleges, three out of four saw their loan balances grow larger two years into repayment.

An analysis by Inside Higher Ed concluded that less that half of college borrowers (47 percent) had made any progress on paying off their student loans 5 years into repayment. In the for-profit sector, only about a third (35 percent) had paid anything down on their student loans  over a 5-year period.

And the Wall Street Journal reported recently that half the students at more than a thousand colleges and schools had not reduced their loan balances by one dime seven years after their repayment obligations began.

The Federal Student Loan Program is a Train Wreck

Awhile back, Senator Elizabeth Warren accused the federal government of making "obscene" profits on student loans because the interest rates were higher than the government's cost of borrowing money. Warren's charge might have been true if people were paying back their loans, but they are not.

Eight million people are in default and millions more are seeing their student-loan balances grow larger with each passing month.  The Murrays are the poster children for this tragedy because they handled their loans in good faith and still wound up owing four times what they borrowed.

In short, the federal student loan program is a train wreck. Judge Somers' solution for the Murrays was to wipe out the accrued interest on their debt and to simply require them to pay back the principle. This is the only sensible way to deal with the massive problem of negative amortization.

References

Butler v. Educational Credit Management Corporation, No. 14-71585, Adv. No. 14-07069 (Bankr. C.D. Ill. Jan. 27, 2016).

Paul Fain. Feds' data error inflated loan repayment rates on the College Scoreboard. Inside Higher Ed, January 16, 2017.

Andrea Fuller. Student Debt Payback Far Worse Than Believed. Wall Street Journal, January 18, 2017.

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default rates. Washington, DC: Brookings Institution (2015).

Murray v. Educational Credit Management Corporation, Case No. 14-22253, ADV. No. 15-6099, 2016 Banrk. LEXIS 4229 (Bankr. D. Kansas, December 8, 2016).

Ruth Tam. Warren: Profits from student loans are 'obscene.' Washington Post, July 17, 2013.

A Bipartisan Solution to the Student Loan Crisis: What if Betsy DeVos and Senator Elizabeth Warren Worked Together to Craft A Fix?

At the conclusion of Betsy DeVos's Senate hearing last week, Senator Elizabeth Warren refused to shake DeVos's hand. If this is a sign of enmity between Senate Democrats and the Trump administration over education policy, this is a scary development for distressed student-loan debtors.

Millions of borrowers are drowning in student loan debt--now pushing $1.4 trillion dollars. Eight million have defaulted, and millions more are teetering on the edge of default. Now is the time for Republicans and Democrats to work together.

What if Secretary of Education DeVos and Senator Warren cooperated to solve the student loan crisis? Thinks what they could achieve.

Here's a plausible scenario:

1. During the first month of the Trump administration,  Secretary of Education DeVos calls a press conference to announce that the federal government will stop garnishing Social Security checks of elderly student-loan defaulters.

At the press conference, Secretary DeVos is flanked by several U.S. Senators, including Senators Warren, Bernie Sanders, and Lamar Alexander. Senator Warren announces she will introduce legislation barring the government from garnishing Social Security checks of student-loan defaulters.

2. Next, DeVos issues a directive to DOE bureaucrats, ordering them to speed up the process for processing so-called "Borrower Defense" claims by students who are trying to get their student loans discharged on the grounds that their colleges defrauded them.

DOE responds quickly, and thousands of debtors who were scammed by shady for-profit colleges get their loans discharged. Warren and her Senate compadres issue press releases praising DeVos's action.

3.  Shortly thereafter, DeVos tells reporters that she agrees with the Obama administration's stance on arbitration clauses in student enrollment documents. The for-profits routinely require their students to sign these clauses, which forces students to arbitrate their fraud claims in unfriendly forums.  The Obama administration said it opposed these clauses but did not do anything to stop them from being used.

DeVos says, as of the day of her announcement, DOE will not allow any for--profit college to participate in the student-loan program that forces students to sign coercive arbitration agreements. Senators Warren and Senate Democrats applaud DeVos's step.

4.  In spring of 2017, Senator Warren holds Senate hearings on the student loan guaranty agencies, which rake in millions of dollars in fees from collecting student loans. Warren points out that four of these agencies have each amassed $1 billion in unrestricted assets, even though they are non-profit companies. She subpoenas the agencies' records and learns that the guaranty agencies' CEOs are paid millions in salaries and benefits for harassing destitute student borrowers.

DeVos testifies at Warren's Senate hearing, pledging DOE will do what it can to rein in the debt collectors.  DeVos makes good on her pledge by terminating its contract with Education Credit Management Corporation, perhaps the nation's most ruthless student-loan debt collector.

5. A bill passes Congress that disbands the student-loan guaranty agencies and abolishes all fees and penalties that have been applied to defaulted student loans over the past 20 years. President Trump signs the bill.

6. With bipartisan support and Trump's blessing, another bill is approved by Congress to amend the Bankruptcy Code to eliminate the restriction on discharging private student loans in bankruptcy.

Trump signs these bipartisan student-loan reform bills and give the bill-signing pens to Senator Warren. Senator Warren then shakes Secretary DeVos's hand.

What will it take for Senator Warren to shake Betsy DeVos's hand?

References

Paul Crookston. Betsy DeVos Hearing Ends with Handshakes — Except from Elizabeth Warren. National Review, January 18, 2017.

Natalie Kitroeff. Loan Monitor is Accused of Ruthless Tactics on Student Debt. New York Times, January 1, 2014. Acccessible at http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html?_r=0

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/

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

Social Security offsets imposed on elderly student-loan defaulters: Heartless and Pointless

You can be young without money but you can't be old without it.

Tennessee Williams

If you are in your late 50s or early 60s, you've probably obtained an estimate for how much Social Security income you will receive when you retire. Most retired Americans depend on their Social Security checks to provide a significant amount of their overall retirement income. 

But if you defaulted on a student loan, you may not receive your full Social Security benefit. The government may deduct part of your Social Security income and apply the deduction to your unpaid student loans. 

A few weeks ago, the U.S. Government Accountability Office issued a lengthy report  (82  pages) on the government's Social Security offset activities. Here are some of the highlights.

• In 2015, 173,000 Americans had their Social Security income offset due to defaulted student loans. This is a dramatic increase from 2002, when the government only applied offsets to 36,000 Social Security recipients (page 11).

• Some Social Security recipients whose income was offset lived below the federal poverty guideline and others dropped below the poverty level after their Social Security checks were reduced (p. 27). In fact, as Senator Elizabeth Warren emphasized in a recent press release, "Since 2004, the number of seniors whose Social security benefits have been garnished below the poverty line increased from 8,300 to 67,300."

• More than 7 million people age 50 and older still owe on student loans, and 870,000 people age 65 and older have student loan debt. Among student-loan borrowers age 65 and older, 37 percent are in default (figure 2, page 10).

• The amount of money the government collects from Social Security offsets is small beer. The government  only collected $171 million from Social Security offsets in 2015, about one eighth the amount Hillary Clinton raised for her 2016 presidential campaign ($1.4 billion). 

• Most of the money collected from Social Security offsets went toward paying fees and accumulated interest.  "Of the approximately $1.1 billion collected through Social Security offsets from fiscal year 2001 through 2015 from borrowers of all ages, about 71 percent was applied to fees and interest" (p. 19).

GAO also reported that several hundred thousand people who have experienced Social Security offsets are totally disabled and entitled to have their student loans forgiven, but only a minority of these people have applied for loan forgiveness (p. 31). Commendably, DOE has suspended offsets for people who are totally disabled whether or not they applied for loan forgiveness.  Unfortunately, the government treats the amount of the forgiven debt as taxable income (p. 31).

The GAO report is packed with additional information and findings, but the bottom line is this: The government is hectoring elderly and disabled student-loan defaulters even though the amount of money the government collects is a pittance. Most of the money collected goes toward paying down fees and accumulated interest and does not reduce the individual defaulters' loan balances.

In short, the Department of Education's Social Security offset practices is pointless. Elderly or disabled people who defaulted on their student loans and are surviving on their Social Security checks will never pay off their loans. 

Sandy Baum, a widely renowned expert on student loans, recommended in her recent book that the government stop offsetting the Social Security checks of defaulted student-loan debtors. Does anyone disagree? 

In fact, the government's Social Security offset practices strike me as an administrative form of sadism--the bureaucratic equivalent of small children who joylessly tear the wings off of insects.

Senator Elizabeth Warren has called for an end to the practice of garnishing student-loan defaulters' Social Security checks. Surely she can gather legislative support for a law that bans this practice. If she can't get that done, then Senator Warren is really not much of a consumer advocate.

References

Sandy Baum. Student Debt: Rhetoric and Realities of Higher Education Financing. New York: Palgrave-MacMillan, 2016.

Senator Elizabeth Warren Press Release, December 20, 2016. McCaskill-Warren GAO Report Shows Shocking Increase in Student Loan Debt Among Seniors. 

United States Government Accountability Office. Social Security Offsets: Improvement to Program Design Could Better Assist Older Student Borrowers with Obtaining Permitted Relief. Washington DC: Author, December 2016).

U.S. Department of Education mistreats bankrupt Corinthian Colleges' former students and Senator Elizabeth Warren complains

Corinthian Colleges closed its doors and filed for bankruptcy last year, leaving about 80,000 currently enrolled students in the lurch.  Corinthian was besieged with charges of fraud and misrepresentation at the time it went belly up and subsequently had a $1.5 billion judgment entered against in California.

A couple of days ago, Senator Elizabeth Warren wrote Secretary of Education John King a letter complaining about how DOE has treated Corinthian's former students who have outstanding student loans. She said about 80,000 former Corinthian students are eligible for debt relief relief under DOE's "closed school" program, but are in some form of debt collection.

According to Warren:

• More than 30,000 student borrowers are in "administrative offset" and could have tax refunds and Social Security checks seized for nonpayment of their loans.
• More than 4,000 borrowers are having their wages garnished by the federal government for loan nonpayment.
• Less than 4,000 former Corinthian students have had their loans forgiven under DOE's "borrower defense" discharge, far fewer than the number who are entitled to relief.
• Only 23,000 former Corinthian students have even applied for borrower defense discharges, less than a third of the number of Corinthian students who have been put into DOE's collection process.

I've been critical of Senator Warren in the past, but I commend her for her vigorous efforts to help former Corinthian students who have outstanding student loans. As Warren herself put it in her letter to Secretary King, Corinthian's meltdown "left an estimated 350,000 students with worthless degrees or credits and mountains of fraudulent debt." There is ample evidence of wrongdoing throughout Corinthian's operations, and all its former students deserve to have their loans forgiven.

What would that cost? According to the New York Times, if all 350,000 former Corinthian students had their loans forgiven, it would cost taxpayers about $3.5 billion.

But that is what should be done. Instead of requiring hundreds of thousands of former Corinthian students to file applications for discharge under DOE's cumbersome administrative process, every student loan taken out to attend a Corinthian campus should be forgiven.

And let's not forget the Corinthian students who may still be attending Corinthian campuses that were sold to a subsidiary of Educational Credit Management Corporation in a deal engineered by DOE.  ECMC created a subsidiary named Zenith Education Group to run 53 Corinthian campuses that ECMC bought for peanuts--$24 million or less than half a million dollars per campus.

According to an Inside Higher Ed article, the Zenith-run campuses are not doing well. Zenith has consolidated some of the campuses it bought and is closing others. It seems quite possible that the Zenith-run operation will also shut down. In any event, any relief granted to former Corinthian students should include all students who continued their studies on campuses operated by Zenith.

References

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

Paul Fain. More Cuts for Zenith. Inside Higher Ed, March 28, 2016. Accessible at  https://www.insidehighered.com/news/2016/03/28/nonprofit-owner-former-corinthian-colleges-campuses-loses-100-million-while

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

Andrew Kreighbaum, Warren: Education Dept. Failing Corinthian Students. Inside Higher Ed, September 30, 2016. Accessible at https://www.insidehighered.com/quicktakes/2016/09/30/warren-education-dept-failing-corinthian-students

Senator Elizabeth Warren to Secretary of Education John B. King, Jr., letter dated September 29, 2016. Accessible at https://www.warren.senate.gov/files/documents/2016-9-29_Letter_to_ED_re_Corinthian_data.pdf

Senators Elizabeth Warren and Charles Schumer spoke on CNN news program about the student loan crisis and said ABSOLUTELY NOTHING!

President Obama will give his State of the Union address tonight and is expected to address the student loan crisis. In anticipation of that event, Senators Elizabeth Warren and Charles Schumer came on CNN television this morning to speak about student loans, and both said ABSOLUTELY NOTHING!

First of all, both mouthed the old canard that the government is making a profit off the student loan program because it is lending money at a higher interest rate than it pays to obtain the money.  It is true that the interest rate on the 10-year treasury note is about 2. 2 percent, while the federal student-loan program charges approximately 6 percent.

But of course, the government is only making a profit on student loans if students pay back the money--and a high percentage of them do not.

As the Brookings Institution reported recently, 47 percent of the students from a recent cohort who borrowed money to attend for-profit colleges defaulted on their student loans within five years.  That's pretty darn near half. And that number does not include the borrowers who are on economic hardship deferments or long-term repayment plans who are seeing their loan balances grow larger due to accruing interest.

 The same Brookings report noted that over 70 percent of students who attended for-profit institutions were seeing their loan balances go up two years after entering repayment.  In fact, among student borrowers as a whole, more than half (57%) saw their loan balances go up two years after entering the repayment phase of their loans.  People in repayment whose loan balances are growing are either  in default, in deferment, or in long-term repayment plans. For almost all these people, their student-loan debt is growing larger during the repayment phase, not smaller, due to accruing interest.

The government can pretend that all that accrued interest is an asset because someday millions of student loan borrowers will pay back their loans, but that is baloney.  The government is not making a profit on the student-loan program, and Senator Warren and Senator Schumer either know that and are being purposely deceptive or they are fools.

Here's a second point to make about Senator Warren and Senator Schumer's CNN interview. NEITHER SENATOR MADE A SINGLE SUGGESTION ABOUT HOW TO SOLVE THE STUDENT LOAN CRISIS.

My guess is they will support a bill to lower interest rates on student loans.  Senator Warren has ridden that hobby horse before.

But neither senator said anything about the government's practice of garnishing elderly people's Social Security checks. Neither said anything about the insanity of putting millions of borrowers into long-term student-loan repayment plans that will result in massive amounts of student-loan debt being forgiven. Neither said anything about reforming the bankruptcy process for distressed student-loan debtors.

Why? Because Senator Schumer is a lackey of the banking industry, and Senator Warren is a lackey of the higher education industry.

The fact that these idiots stepped forward to talk about the student loan crisis on CNN without saying anything at all is disgraceful. In fact it is frightening.

Is Senator Elizabeth Warren a Paper Tiger? Her Bill to Lower Interest Rates Was a Non-Starter

A lot of people think Senator Elizabeth Warren is a fierce advocate for college-loan debtors, a feisty bulldog who strives mightily to get some relief for the millions of young Americans who are burdened with crushing student loans. I once thought so myself.

But I've become skeptical.  So far,Warren's basic thrust has been to advocate for lower interest rates on federal student loans. Lower interest rates will give college-loan borrowers some relief, of course; but lower interest rates will do nothing to stop the spiraling cost of higher education--which has forced students to borrow more and more money every year in order to attend college. 

And lowering interest rates will do nothing to clean up the fraud and abuse in the for-profit college industry--a problem that Warren says little about.

Earlier this week, Warren's bill to lower student-loan interest rates failed in the U.S. Senate, killed by the Republicans.  The bill never had a chance of passing because it included a provision to raise taxes on the wealthy--something Republicans would never vote for.

And of course Warren knew that. Basically the bill was a cynical attempt to paint the Democratic Party as the friend of indebted college students while embarrassing the Republicans by portraying them as hardhearted protectors of the rich.

All fine theater of course, but did anything get accomplished? No--not a damn thing.

I realize of course that getting real student-loan reforms through Congress will be difficult. The for-profit industry and its lobbyists are very powerful; and the for-profits make strategic contributions to key legislators like Speaker of the House John Boehner.

But Warren could render real service simply by publicizing just how bad the student-loan mess is.  She should demand, for example, that the Department of Education release information about the true default rate--not the watered-down rate that it publishes every October.

In addition, she could team up with outgoing Senator Tom Harkin and publicize how the for--profit colleges are exploiting low-income and minority students.

She could advocate for a reform of the Bankruptcy Code so that millions of insolvent student-loan debtors could discharge their loans in the bankruptcy courts.

But no--she is content to sponsor legislation that she knows will go nowhere simply to embarrass the Republicans.

I suspect that Senator Warren's core constituency in Massachusetts--all those corpulent, self-satisfied and arrogant colleges like Harvard, Boston University, Brandeis, etc. etc.--are quite happy to see their senator engage in sound and fury regarding the student loan program. They know Senator Warren's bombast will never lead to any legislation that would threaten their interests.

So just keep yakking, Elizabeth; go right on yakking.

References

Julie Hirschfield Davis. In School Speech, Obama Deplores Blocking of Student Debt Bill. New York Times, June 12, 2014, p. A20.

Such hypocrisy! The Obama administration urges private college-loan lenders to play nice with student borrowers

Obama administration officials summoned the leading private student-loan creditors to a meeting at the Treasury Department yesterday to urge them to do more to help student-loan borrowers who are in danger of default.

Who attended this meeting?  Arne Duncan, Secretary of Education, and Richard Cordray, chief of the Consumer Financial Protection Bureau, represented the government.

And these are some of the banks that attended: Sallie Mae, Wells Fargo, JP Morgan Chase, RBS Citizens Financial, PNC Financial Services, SunTrust Banks, and Discover Financial Services.

The Obamacrats delivered their usual blather about easing the plight of overburdened student-loan borrowers.  This is how a government  spokeswoman described the meeting.

Participants discussed strategies to assist borrowers in successfully managing their private student loans, including servicing best practices and approaches to private student loan modifications and refinancing.

Yak, yak, yak.  The only way to get the private banks to behave decently toward indebted college students is to force them out of the student-loan business altogether.  And this could be done so easily.

In 2005, Congress amended the Bankruptcy Code to make private student loans nondischargeable in bankruptcy absent "undue hardship"--the same standard that applies to federal student loans. Consequently, private student loans--like federal student loans--are almost impossible to discharge in a bankruptcy court.

All Congress needs to do to reform the private student-loan industry is repeal the 2005 law and allow insolvent debtors with private student loans to discharge those loans in bankruptcy. I guarantee you, this single legislative change would dry up the private student-loan industry overnight.

But Congress won't do the straightforward thing.  No--it will tinker with all kinds of cosmetic fixes and allow the private banks to continue exploiting colleges students.  

Hands down, Sallie Mae is the chief offender. According to a 2012 news story, Albert Lord, Sallie Mae's CEO, made $225 million between 1999 and 2004 and was building his own private golf course.  What do you think his total compensation is today?

Democrats seem to think they can establish their liberal credentials simply by expressing sympathetic platitudes. Arne Duncan talks about helping student borrowers but hasn't done a damn thing to alleviate the student loan crisis.  And Senator Elizabeth Warren, a self-proclaimed consumer's  advocate, is all bark and and no bite.

Thanks, Arne,ever so much!

Why doesn't Congress act more aggressively to give college students some relief? Maybe because the private lenders and private-college industry hire well-paid lobbyists to protect their interests and make strategic campaign contributions to powerful politicians.

Personally, I won't start believing the so-called liberal Democrats who express concern about the student-loan crisis until some of them throw their support behind some straightforward and simple reforms.  First and foremost, insolvent students who took out private loans to finance their education should have access to bankruptcy.  

References

U.S. Urges Private Lenders and services to Help Borrowers. Inside Higher Education, January 20, 2014. Accessible at: http://www.insidehighered.com/quicktakes/2014/01/10/us-urges-private-lenders-and-servicers-help-borrowers

Sophia Zamen. "Education is Worth It": Students Take on Sallie Mae CEO Albert Lord at Shareholder Meeting.  Alternet.org, May 21,2012. Accessible at: http://www.alternet.org/newsandviews/article/932971/%22education_is_worth_it%22%3A_students_take_on_sallie_mae_ceo_albert_lord_at_shareholder_meeting

Note: My description of the meeting at the Treasury Department comes from the Inside Higher Education story.  My references to Sallie Mae are taken from Sophia Zamen's essay for Alternet.org

Obama Signs a Bill to Reduce Interest Rates on Student Loans: This is Just a Side Show

Earlier this month, Congress passed a bipartisan bill to reduce interest rates on student loans, and President Obama signed the bill into law this week.  Under the new law, the interest rate on this year's undergraduate loans is set at 3.9 percent. For graduate loans, the rate is 5.4 percent. For loans taken out by parents, the new rate is locked in for this year at 6.4 percent.

Interest rates will rise if the interest rate on 10-year treasury notes goes up, which it is expected to do, but the maximum interest rate under the new law is capped at 8.25 percent for undergraduate loans. The cap for graduate student loans is set at 9.5 percent and parents' loans are capped at 10.5 percent.

The new law is good news, I suppose, and nullifies the 6.8 percent interest rate that undergraduates were paying before it was enacted. But make no mistake--the recent Congressional squabble about interest rates on student loans is just a side show. 

Why? Because almost everyone participating in the congressional debate on student-loan interest rates assumed that the borrowers will pay back the money. As I noted in a previous blog, the New York Times and Senator Elizabeth Warren talked as if the government would make an unseemly profit if the interest rate on student loans wasn't lowered.

 

Out of Control

All this is nonsense.  The student loan default rate is so high that the government is going to lose money no matter what interest rate it charges on student loans.  How high is the default rate? No one knows for sure because the Department of Education hasn't released the data.  But DOE itself estimates that 46 percent of students who borrow money to attend for-profit institutions will default on their loans at some point during the repayment period.

And, as everyone knows, DOE has been underestimating student-loan default rates.  So if DOE says 46 percent of students who borrow to attend for-profit colleges are going to default, it is a safe bet that the real default rate for this group is well over 50 percent. 

Furthermore, a lot of former students have gotten economic hardship deferments that temporarily excuse them from making loan payments; and these people aren't counted as defaulters. Nevertheless, a lot of these folks will never pay off their loans. 

As Senator Harkin's Senate Committee report pointed out, people whose loans are in deferments are excused from making loan payments, but the interest on the loans continues to accrue for most borrowers, causing students' overall debt to grow larger with each passing month.  Thus, economic hardship deferments are making it harder for debtors who obtain them to ultimately pay off their loans.

How many people have loans in deferment status? DOE hasn't released the number, but it could be millions.  As the Harkin Report explained, for-profit colleges are aggressively encouraging their former students to apply for economic hardship deferments in order to keep their institutional default rates down.  And these deferments are ridiculously easy to get.  According to the Harkin Committee,  sometimes it is just a matter of a phone call.

No--the federal student loan program is like an out-of-control express train that is headed straight for a cliff.  Congress doesn't care--those guys and gals plan on getting off at the next station. No, it is students--especially students attending for-profit colleges--who are going over the cliff with the train.

References

Josh Lederman and Philip Elliott. Obama Signs Student Loan Deal. MSN Money, August 9, 2013. Accesible at: http://money.msn.com/business-news/article.aspx?feed=AP&date=20130809&id=16792937

Memo to Senator Elizabeth Warrren: The Student Loan Program Doesn't Have the Sniffles; It Has Cancer

Don't get me wrong. Senator Elizabeth Warren has been a faithful and sincere advocate for indebted college students.  Likewise, the New York Time has repeatedly editorialized against abuses in the student loan program, and its reporters have done a great job documenting some of those abuses.

Just a little case of the sniffles?
photo credit: politico.com

But for Senator Warren and the New York Times to state that the federal government is making a profit on the federal student loan program shows how ignorant they are about the true state of that program.

Senator Warren, advocating for lower student-loan interest rates, stated emphatically that the government is making a profit on the new interest rate that went in effect on July 1. “Instead of helping our students, the government is making a profit on student loans,” Warren told a group of young people.  That is wrong, Warren declared. “That’s more than wrong. It’s obscene.”

And the New York Times is also under the mistaken impression that the government is turning a profit on student loans.  In an editorial entitled "The Student Loan Debacle," the Times cited a report from the Congressional Budget Office that concluded the government will make $184 billion on loans issued over the next ten years if it continues charging the current student-loan interest rate.

Of course, the CBO report is a complete fantasy. You can go on the web and read many excellent critiques of the CBO's accounting practices with regard to that report.  But you don't have to do that to know that all the talk about the government making a profit on student loans--obscene or otherwise--is pure baloney.

Let's look at some simple facts. Less than two weeks ago, the Ombudsman for the Consumer Financial Protection Bureau--a federal agency--said that total outstanding student-loan indebtedness had grown 20 percent in just 18 months!  The Ombudsman estimates the total student loan debt at 1.01 trillion.

We know that the amount of money students borrow from the federal student loan program has gone up every year for a long time now, and that the average amount students borrow has gone up as well.

Finally, and most importantly, we know the student-loan default rate is going up.  The government puts the default rate at 13 percent based on the number of borrowers who default during the first three years of the repayment period. But everyone knows the real default rate is much higher.  (I have written about this many times.)

Do you see any profit for the government in any of this? Of course not.If Senator Warren and the New York Times really believe the federal government is making a profit from the program, then they've failed to grasp the fact that the government is losing billions of dollars due to student-loan defaults.

The current Congressional debate about the proper interest rate for student loans is a side show. Obviously, it would be a good thing for students if interest rates are kept low. But keeping interest rates low for future students does nothing for the millions of people who have already defaulted on their student loans.

Frankly, it disturbs me to hear Senator Warren demonstrate such a shocking lack of understanding about the federal student loan crisis.  Or perhaps she understands the crisis but is afraid to speak out more forthrightly because a big part of her constituency base is in Boston, with its large number of colleges and universities. Many of those colleges could not survive without the federal student loan program.

But Senator Warren came to the U.S. Senate with a reputation for being a courageous and vigorous advocate for the poor and middle class families. If she wants to keep that reputation, she needs to push legislation far more radical than simply keeping interest rates low for student loans. 

What should she do?

• Senator Warren should support passage of  a law that will allow insolvent student-loan debtors to discharge their student loans in bankruptcy.
• She needs to push for repeal of the 2005 law that makes it almost impossible for people to discharge student loans from private lenders like Wells Fargo and Bank of America.
• Senator Warren should propose legislation to protect elderly insolvent student-loan debtors from having their Social Security checks garnished.
• Finally, she needs to introduce legislation that will give student-loan debtors the right to sue colleges that have engaged in misrepresentation and fraud regarding their student aid practices.

Advocating for lower student-loan interest rates is simply tinkering around the edge of the student loan crisis.  We must remember that the student loan program is not a healthy entity with a little case of the sniffles. It is a cancer that is destroying the lives of millions of Americans.

 

 References

Editorial. The Student Loan Debacle. New York Times, July 24, 2013, pa. A22.

Ruth Tam. Warren: Profits from student loans are 'obscene." Washington Post, July 17, 2013. Accessible at: http://www.washingtonpost.com/blogs/post-politics/wp/2013/07/17/warren-profits-from-student-loans-are-obscene/

Wayne Winegarden. Uncle Sam's Phantom Loan Revenues. Wall Street Journal, June 21, 2013. Accessible at: http://online.wsj.com/article/SB10001424127887323394504578608071549952576.html