Showing posts with label Social Security. Show all posts
Showing posts with label Social Security. Show all posts

Wednesday, June 15, 2016

PAYE and REPAYE: Long-term student loan repayment plans are a bad option for older student-loan debtors

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

Tennessee Williams

President Obama's Department of Education is pushing distressed student-loan debtors into long-term income-based repayment plans. Five million people are in them now, and DOE hopes to enroll two million more by the end of next year.  Without a doubt, DOE will reach this goal. In fact, I predict at least 10 million people will be enrolled in long-term repayment plans within four years.

To advance this goal, the Obama administration launched two new income-based repayment programs: PAYE and REPAYE. These are the most generous of the government's eight income-based repayment plans. PAYE and REPAYE allow debtors to make payments equal to ten percent of their adjusted gross income for 20 years. At the end of that time, any unpaid debt is forgiven, although debtors may be forced to pay federal income tax on the forgiven portion of their loans.

As I have argued repeatedly, long-term income-based repayment plans are nothing more than a cynical scheme to hide the magnitude of the student-loan crisis.  By lowering monthly payments, the Feds hope to keep the student-loan default rate down even though most people in these programs are making payments so low that they will never pay off their student loans.

Nevertheless, I understand why debtors are signing up for these plans. If they've had their loans in deferment for any considerable length of time, their loan balances will have ballooned to double the amount they borrowed or more because of accrued interest. Once that happens, they will never be able to pay off their student loans over the conventional 10--year repayment term.  In short, people with large loan balances and low-paying jobs have no choice--they are forced to enter 20- or 25-year repayment plans in order to avoid default.  

But long-term repayment plans are a terrible option for older student-loan debtors. People in their forties, fifties and sixties need to maximize their retirement savings in order to be able to retire with dignity; and most of them of them can't do that if they are making student-loan payments equal to  10 or 15 percent of their annual income.

In fact, the evidence is mounting that the baby boomer generation is not ready for retirement; and millions are facing dire poverty if they lose their jobs. A recent article in the Star Tribune reported that two thirds of households in the 55-64 age group have savings that equal less than their annual income and one third have no savings at all.

According to the National Institute on Retirement Security, the median retirement account savings among households in the 55-64 age range is only $14,500! Due to the recent recession and stagnant wages, millions of Americans have been forced to cash out their retirement accounts just to meet daily living expenses. More than 40 percent of Americans have elected to take Social Security benefits early in recent years because they need the cash, even though early participation reduces annual benefits by 25 percent.

Obviously, the last thing financially strapped Americans need as they grow older is a 20-year obligation to contribute a percentage of their income to pay off student loans.  Although long-term repayment plans can be defended for people who enroll in them when they are young, they are a disaster for people who sign up for PAYE or REPAYE or the six other income-based repayment plans when they are in their forties or even older.

But the government  and the student-loan creditors insist on pushing student-loan debtors into these plans regardless of their age.  For example, in the Halverson case, decided in 2009, Educational Credit Management Corporation argued that Steven Halverson should enter a 25-year income-based retirement plan even though he was 65 years old, had chronic health problems, and had an income of only about $13 an hour.  (Fortunately, a Minnesota bankruptcy judge was sympathetic to Mr. Halverson's plight and discharged his student-loan debt.)

And in the Stevenson case, a Massachusetts bankruptcy judge insisted that a woman in her fifties sign up for a long-term income-based repayment plan even though she had a record of homelessness and was living on only $1,000 a month.

Perhaps most famously, ECMC hounded Janet Roth through the courts all the way to the Ninth Circuit Bankruptcy Appellate Panel, heartlessly arguing that Roth should be on an income-based repayment plan to pay off more than $90,000 in student-loan debt even though she was 68 years old, had  chronic health problems and was living entirely off her Social Security income of $780 a month.

As a matter of public policy, the federal government simply must stop pressuring student-loan debtors who are in their forties or older into long-term repayment plans because this practice is making it impossible for these people to prepare for retirement.

We should occasionally remind ourselves why the federal student-loan program was inaugerated in the first place. The program's sole purpose is to enable people to get postsecondary education that will improve their lives.  

But for millions of Americans, the federal student-loan program has driven them to the brink of indigence. And if they are forced to make loan payments until they are in their sixties, their seventies, or their eighties, we will have created a class of elderly debtors who will spend their final years in poverty and want.  

In short, no one who is 40 years old or older should be forced into a 20- or 25-year student-loan repayment plan,  No one.  Older student-loan debtors who are otherwise eligible for bankruptcy relief should be able to shed their student-loan debt in the bankruptcy courts rather than be saddled with monthly student loan payments that will extend into their retirement years.


References

Bob Brenzing. AP Poll: Many take Social Security before full retirement, May 26, 2016.Fox News 17. Accessible at http://fox17online.com/2016/05/26/ap-poll-many-take-social-security-before-full-retirement/

 Michael Greenstone and Adam Looney. The Uncomfortable Truth About American Wages. Brooking Institution, October 23, 2012. Accessible at http://www.brookings.edu/research/opinions/2012/10/22-wages-greenstone-looney

Katy Read. The real story about retirement: Millions of baby boomers face financial crisis.  Star Tribune, Ocrober 21, 2015.  Accessible at http://www.startribune.com/the-real-story-about-retirement-millions-of-baby-boomers-face-financial-crisis/334718191/

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP  2013). 

Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011).

John F. Wasik. Social Security At 62? Let's Run the Numbers. New York Times, May 14, 2014. http://www.nytimes.com/2014/05/15/business/retirementspecial/social-security-at-62-lets-run-the-numbers.html



Thursday, March 10, 2016

Bernie Sanders and Student Loan Debtors: If you are ovewhelmed by college-loan debt, Bernie is your only hope

Help me, Obi Wan Kenobi. You're my only hope.

Princess Leia
Star Wars

Bernie Sanders beat Hillary Clinton in Michigan--stunning everybody, including Bernie.

Bill O'Reilly scoffed, and pundits dismissed Bernie's victory as a blip; but change is in the wind. Bernie has the support of young people, and Hillary will never win them away. They are attracted to Bernie's clarity and straightforward message.

In particular, Bernie's call for a free college education at a state college is very appealing. And--as I've written before--his free college plan is not wacky. It would actually be cheaper than the cumbersome student aid program we now have in place..

Now I encourage Bernie to reach out specifically to overburdened student-loan debtors--and there are 20 million of them.  If he will make four simple promises to this weary and oppressed multitude, I think he will win over millions of voters to the Bernie Crusade.

And these are the promises:

1) If I am elected President, the federal government will stop garnishing Social Security checks of elderly student-loan defaulters.

2) If I am elected President, I will forbid the government and its debt collectors from slapping unreasonable fees and penalties on student-loan balances.

3) If I become president, student borrowers who complete long-term income-based repayment programs will not be taxed on any forgiven student-loan debt (a policy recommended by President Obama).

4) If I become your President, I will draft regulations forbidding for-profit colleges from requiring students to sign arbitration agreements that cut of their right to sue their college for fraud.

None of these promises are radical, and none are expensive. And in fact, if all four of these promises were fulfilled by the next President, the impact on student-loan debtors would be minimal.

But these promises would be a signal to oppressed student-loan borrowers that Bernie understands their suffering and will do what he can to give them some relief.

But whether or not Bernie makes these particular promises, he has my unwavering support right through the election process. Of all the candidates vying for the Presidency, Bernie is the only one who will do something substantive to address the student-loan crisis.  Indeed, as Princess Leia might have put it, Bernie is our only hope.



Image result for princess leia help me obi wan
Help me, Obi Wan Ka-Bernie. You're my only hope.

Friday, February 26, 2016

Student Loan Debtors and the Presidential Race: Hillary still has an opportunity to win over young voteers

Hillary Clinton devastated Bernie Sanders in the South Carolina Democratic Primary election. As Bernie candidly admitted, the Sanders team was "decimated." The only good news, he said, was this: Bernie beat Hillary among voters age 29 and younger.

Hillary talks herself hoarse telling voters how much she has done for them and much more she will do if she is elected President. But young people don't buy it. Essentially, they see her as an elderly political hack who sucks up to the banks.

But Hillary can still make headway with young voters if she would only promise some tangible and substantive reforms to the student-loan program. After all, there are 43 million Americans with outstanding student-loan debt; and most of them are young.

What could she promise? How about this:

1) "If elected president, I will instruct the IRS to draft regulations specifying that forgiven student-loan debt is not taxable."  

Under current law, about 4 million people are in income-based repayment plans, and most of them are seeing their total debt grow larger with each passing month due to accruing interest. When they complete their long-term repayment plans (after 20 or 25 years), their loan balances will be forgiven, but the forgiven amount will considered taxable income by the IRS. This is a real problem for people in income-based repayment plans. Why not just fix that problem with an IRS regulation?

2) "If elected president, my Department of Education will enact regulations that will cut off federal funding to any for-profit college that forces students to sign a promise not to sue the college for fraud or misrepresentation. And I will instruct the Department of Justice to cooperate with State Attorney Generals who are investigating and suing for-profit colleges that exploit students."

This promise demonstrates nothing more than common decency and would be well received by young people.

3) "When I am your president, the government will stop garnishing Social Security checks of elderly student-loan defaulters. And my administration will not oppose bankruptcy relief for elderly student-loan defaulters who are living below the poverty level."

There is nothing radical about this proposition. In fact, last month, in Precht v. U.S. Department of Education, DOE agreed to bankruptcy discharge of an elderly person's student-loan debt and stopped garnishing his Social Security check.

4) "My administration will renegotiate all contracts with student-loan debt collectors like Educational Credit Management Corporation. All these entities will be required to disclose the salaries of their executives and employees. They will also be required to disclose their profits. And I will eliminate the penalties and fees that the collection agencies have been charging distressed student-loan borrowers."

The beauty of these promises is this. All the reforms I listed could be implemented by President Hillary Clinton on the day she takes office. None of them require congressional approval.  And even if they did require statutory changes, what federal legislator would say no to these modest reforms if President Hillary asked for them?

If Hillary made these promises, she would demonstrate that she understands the magnitude of the student-loan crisis and that she  plans to take energetic action to grant some relief.  But my prediction is this: Hillary won't promise any substantive reforms of the student loan program because Goldman Sachs and the banks would disapprove. And that--in a nutshell--is why young people are not voting for Hillary.

References

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

Stephen Burd. Signing Away Rights. Inside Higher Ed, December 17, 2013. Available at https://www.insidehighered.com/views/2013/12/17/essay-questions-mandatory-arbitration-clauses-students-profit-higher-education

Ashley A. Smith. U.S. Urged to Deny Aid to For-Profits That Force Arbitration. Inside Higher Ed, February 24, 2016. Available at: https://www.insidehighered.com/quicktakes/2016/02/24/us-urged-deny-aid-profits-force-arbitration?utm_source=Inside+Higher+Ed&utm_campaign=183bc9e3a3-DNU20160224&utm_medium=email&utm_term=0_1fcbc04421-183bc9e3a3-198565653

Thursday, September 11, 2014

But who really cares? Rosemary Anderson, age 57, borrowed $65,000 in college loans and now owes $152,000

Let's take a minute to examine what happened to Rosemary Anderson, a student-loan debtor who was featured in two CNN stories recently. More than twenty years ago, Rosemary began borrowing money to attend college; and she eventually got a bachelor's degree and a master's degree in human resources. She has a job and she makes pretty good money.

Nevertheless, Rosemary is now 57 years old, and the $65,000 she originally borrowed has grown to $152,000! How did that happen?

As for so many Americans trying to survive in today's dog-eat-dog economy, life got in the way. Rosemary experienced a divorce, a job loss, and a family illness. Loans got out of hand, and she stopped making payments for a period of time. Later, she consolidated her loans at an interest rate of 8.25 percent--far higher than the prevailing rate.  Interest accrued, penalties were tacked on to what she borrowed; and now Rosemary owes $$152,000.

Although the CNN article didn't make her current situation entirely clear, apparently Rosemary is now in a 25-year Income-Based Repayment Plan, because CNN reported she will be paying nearly $700 a month until she is 81 years old!

That's right--she will finally finish paying off her student loans more than 40 years after she got her undergraduate degree. "I will be working for as long as I'm employable. I will never be able to retire," Rosemary said in the CNN story.

Is that how the American dream is supposed to work? Is this how higher education is supposed to pay off?

Some people might tell Rosemary that she has no one but herself to blame. You borrowed too much money, they might tell her, or you should never have stopped paying on your loans.

Well, sure, Rosemary probably made some mistakes in financing her higher education, but a lot of people make mistakes. That's what bankruptcy is for. But people like Rosemary will find it very difficult to discharge their student loans in bankruptcy court.

But who really cares? The media is obsessed with what happened in Ferguson, Missouri and the details of Ray Rice's elevator assault on his girl friend. Rosemary Anderson got featured in a couple of CNN stories, but millions of people in similar situations suffer in silence.

Meanwhile, college and universities, both public and private, gorge on federal student loan money and the money students borrow from private banks to pay for their college education. University presidents may pretend to care  about distressed student debtors, but they are focused on raising money to construct more buildings. President Obama pretends to care, but he's not doing anything much to help people like Rosemary Anderson. Maybe Rosemary could get a golf date with the President so she could explain her situation to him personally.

No sensible person can read Rosemary Anderson's story without coming to the conclusion that people like Rosemary need easier access to bankruptcy. But that's not going to happen any time soon. Why? Because the people who have the power to come to Rosemary's aid don't really care about people like Rosemary.

And that's pretty scary to think about because there are literally millions of distressed student-loan debtors, and the number grows larger every day.

References

Blake Ellis. Student Loan Debt Surges for Senior Citizens. CNN, September 11, 2014. http://finance.yahoo.com/news/student-loan-debt-surges-senior-211900000.html

Patrick M. Sheridan. I'm 57 and owe $152,000 in student loans. CNN, August 14, 2014. http://money.cnn.com/2014/08/13/news/economy/older-student-debt?source=yahoo_hosted



Monday, November 19, 2012

10,000 law review articles are pubished each year--most of them useless. Meanwhile law school tuition has gone through the roof.

Let's write more law review articles!
John G. Browning published an essay in today's Inside Higher Education (www.insidehighered.com) criticizing law reviews. Browning points out that 600 law journals publish 10,000 law review articles each year, and 43 percent don't get cited by anyone.  And these articles are not cheap. Browning estimates that the cost of a law review article written by a tenured professor at a top-tiered law school is around $100,000!

I have written a few law review articles myself, and I have been cited more than 100 times in the law reviews, including Harvard Law Review. I admit, however, that most citations to my work are in law students' articles, not articles written by law professors. I suspect the law students cite me to demonstrate that they did a superhumanly exhaustive review of the literature: "See, I even cited an obscure article by some nobody College of Education professor from Texas!"

Professor Browning cites one article as an example of how esoteric most legal research is: "Historic injustice and the Non-identity Problem: The Limitations of the Subsequent-Wrong Solution and Towards a New Solution." But there are many law articles with similarly obscure titles. How about this 2004 essay: "Sarbanes-Oxley, Jurisprudence, Game Theory, Insurance, and Kant: Toward a Moral Theory of Good Governance."

It is shocking that law professors churn out articles at the rate of 200 a week, most of which have little or no value, while law-school tuition is going through the roof; and the market for law graduates has shrunk.  As a bankruptcy judge pointed out in a recent opinion, the law schools will turn out around 45,000 graduates a year in the coming years for a job market that only needs 25,000 jobs.

Meanwhile, so far this year, the federal government has garnished the Social Security checks  of 120,000 elderly student-loan debtors who defaulted on their loans. One might hope that at least one of the 10,000 law review articles that will published in 2012 will recommend that this practice be stopped. But don't count on it.

References

John G. Browning (2012, November 19). Essay criticizing law reviews and offering some reform ideas. Inside Higher Education, www.insidehighered.com






Monday, November 12, 2012

Crocodile Tears for Overburdened Student-Loan Debtors: Congress or the Obama Administration Should Do Something Tangible to Help These People


A recent article in the New York Times (Lewin, 2012) reported on the plight of older Americans who took out loans to pay for their children’s college education.   About 2.2 million people who are 60 years old or older owe on student loans, and the total amount of their debt is $43 billion. According to experts cited in the Times, almost all of these loans were taken out by parents to pay for their children’s education.  Parent Plus loans, loans taken out by parents for their children’s college education, now represent about 10 percent of all the federal student loan money that is borrowed.
Crocodile tears for the overburdened
student-loan debtor
Senior debtors who are in arrears on student loans can see their Social Security checks garnished.  So far this year, the federal government has garnished the Social Security checks of 119,000 people (as reported in the Times).  
President Obama and Governor Romney talked some about the federal student-loan crisis during the presidential campaign. President Obama made much of the fact that he pushed through the direct lending program for college students.  But neither President Obama nor Governor Romney offered any significant relief for the millions of people who are drowning in student-loan debt.  In my opinion, both men cried crocodile tears—expressing empathy and sympathy while proposing nothing that would give these sufferers some relief.
What can be done to help these poor people?
Proposal Number One. Congress should pass a law protecting people’s Social Security checks from garnishment for delinquent student loans. If Congress won’t do this, President Obama should stop the garnishment of Social Security checks by Executive Order, much the same way that he implemented the Dream Act, which Congress refused to pass.
Proposal Number Two. Overburdened student-loan debtors—including parents who went into debt to finance their children’s education—should have the same access to bankruptcy relief that is available to any other debtor who has unsecured loans.   Scholars have argued for this change in the Bankruptcy Code for many years.
Proposal Number Three. We’ve got to kick the for-profit colleges out of the federal student loan program.  The for-profit sector has the highest student-loan default rates, and many of them have engaged in unfair recruiting practices to attract students. Not all for-profit colleges are bad eggs, but there are enough problems in this sector to justify removing them from the federal student-loan program.
Our politicians can cry crocodile tears about the suffering being experienced by student-loan debtors who are unable to pay back their loans, but those tears won’t be genuine until the federal government in both the Executive and Legislative branches take tangible action to provide relief for student-loan debtors and their parents—and the action they need to take is painfully obvious.
References

Lewin, Tamar.(2012, November 11).  Child's Education, but Parents' Crushing Loans. New York Times.