Showing posts with label Steve Rhode. Show all posts
Showing posts with label Steve Rhode. Show all posts

Monday, January 9, 2023

Color Me Cynical. Department of Education Statement Out of Touch on Loan Forgiveness. Essay by Steve Rhode


Can we be honest for a minute?

The entire issue of forgiving student loans with a one-time approach is stupid. It does not address the systemic breakdown of the cost of higher education or the realities of the BS schools selling students into debt for the corporation’s benefit.

If the Biden student loan forgiveness plan were to be allowed, it would clear the debt of many, and the cycle would start over again.

Here is the POV from the Department of Education:

U.S. Secretary of Education Miguel Cardona issued the following statement after the Departments of Education and Justice filed a legal brief with the Supreme Court on the Biden-Harris Administration’s Student Debt Relief Program:
The Biden-Harris Administration remains committed to fighting to deliver essential student debt relief to tens of millions of Americans. As part of this commitment, today the Departments of Education and Justice filed a legal brief with the Supreme Court explaining our legal authority under the Higher Education Relief Opportunities for Students Act to carry out our program of one-time, targeted debt relief. We remain confident in our legal authority to adopt this program that will ensure the financial harms caused by the pandemic don’t drive borrowers into delinquency and default. We are unapologetically committed to helping borrowers recover from the pandemic and providing working families with the breathing room they need to prepare for student loan payments to resume. As previously announced, student loan payments and interests will remain paused until the Supreme Court resolves the case because it would be deeply unfair to ask borrowers to pay debt they wouldn’t have to pay, were it not for meritless lawsuits.”
If the Department of Education, Administration, and lawmakers were so committed to resolving this problem, it would take one action, allow all student loans to be dealt with in bankruptcy as any other debt.

Until that happens, the gyrations from what we want, and you can’t have camps, is just a waste of human energy and time.

The current student debt problem is not about federal student loans alone. This didn’t arise with the pandemic. This has been an epidemic in college financing and has been growing for decades.

I would love for student loan debtors today to have solutions and prevent future students from winding up in the same cesspit.

Someone needs to wipe the lipstick off of this pig.

*****

This essay was originally posted on January 9, 2023, on the  Get Out of Debt Guy website. 

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




Thursday, October 13, 2022

Biden's Student-Loan Forgiveness Application Lacks Adequate Fraud Protection: But Does That Really Matter?

Honoring a campaign promise, President Biden will forgive $10,000 in personal student-loan debt owed by about 40 million college borrowers. The only people ineligible for this bonanza will be single persons who make more than $125,000 a year or married people making more than $250,000.

Biden's Department of Education released its loan-forgiveness application a few days ago, which is incredibly simple. Applicants must state their annual income to determine eligibility, and most will not be required to verify their income with tax returns or other supporting documents.

Critics say Biden's distribution plan lacks adequate protections against fraud. People who make $129,000 a year may falsely claim they make less than $125,000 in order to receive $10,000 in debt relief.

Although President Biden's loan forgiveness scheme has plenty of flaws, I'm in favor of it. Millions of Americans took out modest student loans to enroll in college and then dropped out without getting any benefit from their educational experience. Wiping out $10,000 in student-loan debt (or $20,000 for Pell Grant recipients) will free many borrowers from all their student debt. I'm okay with that.

Moreover, I'm not too concerned about fraud. The only student borrowers who might scam the program are single individuals making over $125,000 or married couples making over $250,000. 

These high-income individuals are not likely to fraudulently mispresent their income to get a paltry ten grand in student-loan forgiveness. In any event, the Biden administration promises to ask about 5 million loan-forgiveness applicants to verify their income--targeting people with six-figure salaries.

Let's face it. The feds don't really care if student borrowers pay back their loans. The Department of Education paused student-loan payments for nearly three years.  The suckers who made their monthly student-loan payments anyway are eligible for a refund.

About nine million people are enrolled in income-based repayment plans (IBRPs), allowing them to make modest loan payments so low they don't even cover accruing interest.  Virtually all those people will never pay back their student loans.

And as generous as the present IBRPs are, the Biden administration is working on an even more munificent IBRP program that will require monthly loan payments so low that the Brookings Institution estimates DOE will only get back about 50 percent of the money it loans.

So here's where we are. About 40 million people owe a total of $1.7 trillion in student loans, and many of these borrowers will never pay off their debt. As Steve Rhode wrote in a recent essay, the sensible thing for Congress to do is to revise the Bankruptcy Code so that honest but unfortunate debtors can discharge their student loans in bankruptcy.

But apparently, that suggestion makes too much friggin' sense. 

Thus we see people like Tamara Parvizi, who owes $650,000 in student-loan debt, which she can't pay back and can't discharge in bankruptcy. When she went to bankruptcy court, DOE insisted that she be put in an IBRP. A federal bankruptcy judge agreed.  Under this IBRP, Ms. Parvizi will pay $80 monthly for twenty-five years.

The only relief Ms. Parvizi will get is $10,000 in loan forgiveness on almost two-thirds of a million dollars in student debt.

 In essence, our government behaves like an alcoholic who runs up a tab drinking Jack Daniel's at his neighborhood tavern.  Every so often, the drunk comes in and pays off his tab, but he keeps drinking. 

That's nuts, and everybody knows it.

Just put it on my tab.




 



Monday, October 10, 2022

Do you owe a half million dollars in student loan debt? Maybe you won't have to pay it all back

 Get Out of Debt Guy, an online debt counseling site operated by Steve Rhode, recently received a request for advice from Rose, a graduate of St. George University Medical School. Rose now owes more than half a million dollars in student loans.

Rose said the quality of her education was fine but that the medical school misrepresented the cost. School officials told her she could do clinical rotations in her home state of Connecticut. In fact, she was required to do them in five different states, which substantially increased the cost of her studies.

Steve gave Rose some good advice. First, he advised her to file a Borrower Defense to Repayment application with the Department of Education (DOE). If the Department concludes she was a victim of misrepresentation, Rose might get some or all of her federal student loans forgiven. 

Rose's student debt history is somewhat complicated. She has three loans through Navient, two Stafford loans, and one private loan. Steve advised her to obtain the services of a knowledgeable student-debt attorney who could create a comprehensive solution for all her debt. 

Rose's chances of getting debt relief through a borrower defense application are much better under the Biden administration than the previous presidential administration. 

Betsy DeVos, President Trump's Education Secretary, was highly hostile to borrower defense claims. In contrast, Biden's Department of Education (DOE)has forgiven $6 billion in student debt owed by 200,000 borrowers who filed fraud or misrepresentation claims against their schools.  Indeed,  as Steve pointed out, DOE sent Roses' medical school a Notice of Penalty Offenses about a year ago. 

Rose might have another option for getting her student debt under control.  DOE is preparing a new income-based repayment plan (IBRP). If enacted, student borrowers could pay as little as 5 percent of their discretionary income--without regard to how much they borrowed. Moreover, the threshold for determining discretionary income will be 225 percent of the borrower's poverty-level income--up from 150 percent under current IBRPs.

Adam Looney, writing for the Brookings Institution, explained the new IBRP and its impact on borrowers with high levels of graduate-school debt.

[I]ncreases in the generosity of [new] IDR parameters primarily benefit higher-income borrowers with high debt levels. Per CBO estimates, reducing the percentage of income borrowers pay (e.g. from 10% to 5%) and increasing the threshold that defines discretionary income (e.g. from 150% to 225% of poverty) benefits graduate borrowers three times as much as it benefits undergraduate borrowers.

If the Biden administration's munificent new IBRP is enacted, many student debtors will repay only about 50 percent of what they borrowed.

That will be a hell of a deal for people like Rose, who borrowed heavily to fund their graduate studies. 

For taxpayers, however, the deal is not so good. They will wind up subsidizing people who racked up enormous debt to get a graduate education.

St. George Medical School: Kinda pricey


Tuesday, September 6, 2022

You Do Know Debt Forgiveness Fuels a Healthy Economy. Essay by Steve Rhode

Opinions and emotions are running high right now regarding student loan forgiveness.

It is one of those topics that has become politicized rather than remain rational and logical.

A recent post from Zachary Carter, the author of The Price of Peace: Money, Democracy, and the Life of John Maynard Keynes raised some very interesting points worth remembering.

Debt forgiveness is important to a fully functioning, healthy economy. Debt elimination is part of the Bible, the U.S. Constitution, and routine government functions in various sectors. The USDA even runs a debt settlement program for farmers.

Indeed, debt relief has always been the handmaiden of debt itself. In the United States, we have a formal legal process for eliminating nearly all forms of debt: bankruptcy. When debts become unbearable, people file for bankruptcy to have them discharged in court. In the 15 years preceding the pandemic, more than 14.3 million people filed for bankruptcy. In the decade before the pandemic, more than 20,000 businesses filed for bankruptcy yearly, with a high watermark of 60,837 in 2009. Debts are discharged daily in the United States and have been for decades.

As Carter says, “Capitalism would collapse without debt relief systems. Businesses get in trouble all the time—both good businesses that would work fine without a few onerous debt deals, and bad businesses that need to be liquidated or restructured. Sometimes bad things just happen. People get divorced. They get injured and are overwhelmed by medical bills. They get laid off. They have to pay for a parent’s funeral or care for children with special needs. And yeah, some people just don’t know how to manage their money and buy things they can’t afford. But we do not consign such people to never-ending financial servitude as a result of unforeseen circumstances, or even totally reckless spending habits. We have a formal process to eliminate debts and start over, with a reasonable chance of living a healthy financial life.”

The issues building today regarding student loan debt don’t hinge on the finer points of forgiveness. No, the problem today was manufactured by special interests and politicians that meddled in changing the bankruptcy code.

“In 2005, Congress passed a law that made it next to impossible to discharge almost any form of student debt. Even the most creative consumer lawyers estimate that only about $50 billion—less than 3 percent of the $1.75 trillion in outstanding student debt—had the potential to be wiped away, but only if students could persuade a court that they had been egregiously wronged, by say, non-accredited programs or institutions that didn’t actually offer degrees,” says Carter.

He’s right. Bankruptcy is an orderly process that allows for the individual examination of debtors to determine if they are eligible for a legal Fresh Start.

The elimination of impossible debts helps people start over and consume again. That is how capitalism works. Without the discharge of impossible debts, the economy would bog do, and all would suffer.

Consumers must consume. Their job is in the name.

Carter says, “There’s no real reason why student debts should be so much more onerous than others. Let’s be clear about the supposedly reckless gambit that student debtors embarked on. They didn’t go to a casino, or buy a Maserati or make bad bets on meme stocks. They tried to get an education—exactly what parents, teachers and financial advice columnists have been telling kids to do for decades if they want to live better and more profitable lives.”

That’s an interesting point to ponder.

You do have to give Carter some props for his observation that the Biden student loan forgiveness program is not perfect, but it might be the best we can do now. Excellent point.

“There are perfectly reasonable critiques that can be lodged against Biden’s program. The plan isn’t comprehensive—only $20,000 can be discharged, and this is only for borrowers whose incomes were low enough to qualify for Pell Grants. The program looks the way it does because it is the only solution to this problem that our current politics will bear.

It would be far better to reform the higher education financing system than to simply wipe out a big chunk of higher ed debt. In a better America, students wouldn’t have to pay any more for a college education than they do for a high school education.

But we don’t live in that America right now. In time we may be able to reform the broader higher ed system, but for now, providing reasonable debt relief is the best our government can do.

Biden’s student debt relief initiative is no wild, unprecedented idea. Governments pay for education and eliminate unsustainable debts. That is how the world has worked for centuries.”

If I had a magic wand to wave, it would be to not go forward with the Biden student loan forgiveness program and just return all student loan debt to elimination through bankruptcy.

*****

This essay was originally posted on September 2 on Get Out of Debt Guy.

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


Wednesday, April 27, 2022

Why Does the Federal Government Subsidize Foreign Medical Schools?

 As Reported by Steve Rhode in Get Out of Debt Guy, the Federal Trade Commission recently filed an action against St. James School of Medicine, located in the Caribbean. According to the FTC, St. James "deceptively marketed the school's medical license exam test pass rate and residency matches to lure prospective students."

The FTC seeks a $1.2 million judgment against St. James. This judgment, the FTC asserts, will go toward student refunds and cancellation of student debt for aspiring doctors who attended St. James over the past five years.

You may wonder why the FTC asserts jurisdiction over a medical school operating outside the United States. As it turns out, this Caribbean medical school receives federal student-loan money. St. James is hardly in a position to argue that its recruiting activities are none of the FTC's business.

St. James is just one of more than twenty foreign medical schools that receive federal student-loan money. Five of these schools are in the Caribbean, but medical schools in Australia, Canada, Ireland, Israel, and Poland also receive revenue from federal student loans.

Going to a foreign medical school is expensive. According to a U.S. government website, the median cost of completing a medical degree at  St. George University's medical school in Grenada is $385,000.

So why not get your medical degree from Ross University in Barbados? The median cost is only $348,000--a bargain!

Why is our federal government subsidizing foreign medical schools? Are there not enough American medical schools to meet the nation's health needs?

If not, why don't we build more medical schools in our own country instead of subsiding medical training in the Caribbean?

Moreover, it can be dangerous for an American to get a foreign medical degree. Why? Because there are more M.D. graduates in the United States than residency programs to train them. 

As the New York Times reported recently, more than half of the American residency programs are "unfriendly" toward graduates of foreign medical schools. In fact, only 60 percent of international medical-school graduates get a residency in the United States compared to 94 percent of doctors who graduated from American medical schools.

Most Caribbean medical schools are for-profit institutions, often owned by American investors. Many have very lax admission standards. The admission rate at some Caribbean medical schools is 10 times higher than at American medical programs.

What are the takeaways? First, Americans should be wary of attending a foreign medical school because they run a high risk of not being selected for a residency program that they will need to get a medical license.

Second, Congress should stop subsidizing foreign medical schools, which are horribly expensive and leave many of their graduates with no job prospects.

But the for-profit industry has powerful lobbyists, and Congress is unlikely to act. At the very least, then, Congress should reform the Bankruptcy Code so that jobless graduates of foreign medical schools can discharge their enormous student debt in bankruptcy. 





Friday, August 27, 2021

Never co-sign a student loan. I repeat: Never co-sign a student loan.

 Joss recently wrote Stever Rhode (the Get Out of Debt Guy) and asked for advice about a student loan her father took out to help finance her college education. Joss co-signed the loan but understood that her father would pay the loan back. He didn't.

Josh didn't know her father was not paying down the loan until it showed up on her credit report. Unfortunately, although Josh's dad bailed on his commitment, Joss is responsible for paying back the loan.

Remember that venerable old saying: Never lend money to a friend because you will lose them both.  

This same advice applies to co-signing student loans. Just don't do it, because it is an excellent way to break up a family.

Banks that issue private student loans almost always require the student to find a co-signer--and that co-signer is usually Mom, Dad, Gramps, or Grandma.

It may seem like a good idea at the time--one for all and all for one. But if the student doesn't pay back the loan, the bank is coming after Mama, Pop, Granny, or Old Granddad.

Conversely, as in Joss's case, if Pop takes out a student loan to help pay Junior's way through college and Junor co-signs the loan, Junior will be personally on the hook if Pop skips town.

How do people find themselves in the situation of being asked to co-sign a student loan? I think, in most cases, the student maxes out on federal student loans and needs more money to continue going to college.  

The student takes out a private student loan and gets Mom or Dad to cosign. Or Mom and Dad take out a private loan, and junior cosigns. 

This is never a good idea. In fact, if Junior needs to take out private loans to attend college, Junior should go to Plan B.   Junior should either drop out of school, go to work, and save enough money to return, or Junior should transfer to a cheaper college.

If there is an exception to this advice, it does not now occur to me.

Hell, no! I'm not co-signing your student loans.




Tuesday, January 5, 2021

Every Person in Debt Deserves to Be Treated With Dignity, essay by Steve Rhode

 Written by Steve Rhode

 Originally published at Get Out of Debt Guy


We assume that it is wrong not to treat others with kindness in all corners of life. For example, in the U.S., we no longer have separate entrances based on your skin color. Buildings make allowances for physical limitations, and a recent news story said that more people had developed a tolerance for others’ religion.

But we could make some advances in learning to treat people in debt with dignity. I’d have to say that currently, society treats debtors as losers and if debtors were on a ledge getting ready to leap, a crowd below would be yelling “Jump!”

The majority of people without financial problems love a little debtor voyeurism and witness others’ financial misery. It’s like watching the train wreck through cracks in your fingers as you hold your hand over your eyes. You don’t want to watch, but you do.

Imagine if suicide was like debt, and when you were contemplating killing yourself, your creditors kept calling you and say things like “you are a loser” or “just do it and good riddance”? That’s some pretty cruel mojo. Maybe we should call the overweight kid that is depressed and yell, “fatty, fatty” into the phone. Now that is some intense and insensitive cruelty.

Why is it when people are in financial trouble that we can’t wrap our arms around them and treat them with care, compassion, and respect? We should. We all should.

If you’ve never been deep in debt and afraid, unable to sleep, on the verge of an anxiety attack, and depressed, it might be hard for you to imagine what life is like during those dark days of debt. While some might put on a mask, most people are ashamed, unhappy, and afraid inside.

Being in debt is modern-day leprosy.

When you can’t spend money as you used to, and people don’t seem to be around as much, your life changes in a way that you perceive to be for the worse and when you’ve got to move because you can’t afford the rent, it’s like being hustled off to the leper colony. You’re now isolated for all the wrong reasons.

I can’t think of any time that I’ve ever seen someone post a sign in their front yard that says, “Hi Y’all, we’re so broke we can’t afford to live here anymore, and we are getting kicked out.” Actually, what I’ve seen more of are foreclosed homes with everything left behind, including wedding pictures and the belongings of evicted people left by the side of the road for passerby’s to pick through. Ashamed people flee.

Debtors deserve dignity. I’m not saying that we need to give anyone a free ride in life. I’m just saying that people in debt are wounded and deserve to be treated as you would anyone in a difficult time or a fragile moment.

Being in debt is a mathematical position with emotional manifestations. Being unable to pay your bills is not a casual reality for most debtors. People in debt want to pay their bills, they do, but they can’t see a way, or they are not emotionally ready to make those hard lifestyle changes to meet their new obligations.

Being unready or unprepared to make changes to get the numbers to line up does not make you a bad person. It just makes you someone that, for some reason, is unwilling to make some difficult choices right then.

Being in debt is about managing depression, despair, and loneliness. I’m not saying that all debtors feel that way, but most do. Being in debt is about a loss of self-esteem and self-confidence. It’s about being unable to make a plan, stick to it, and make it happen.

The emotional pain of being in debt robs us of our own dignity. The rest of society does almost nothing to help cradle the debtor with love and compassion to soften the blow and ease the journey.

Debtors are losers. Debtors are rejects. Debtors are liars. Debtors are a failure. And all of those statements are uttered every day by people, and none of them are true. Instead, they are like the insensitive bully’s schoolyard shouts that leave scars for life on fragile minds.

Debtors do have a duty to find a solution to make the pain and misery through change. But that can be like asking someone with a bad back to run a marathon.

Being in debt is a thing, but being a debtor is personal, and debtors deserve to be treated with dignity and compassion while helping towards a solution.

Doing something nice today, give a debtor a hug.


Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.  You can read this essay on Mr. Rhode's web site at https://getoutofdebt.org/21762/debt-with-dignity.

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.







Friday, December 4, 2020

Steve Rhode: Here is Why Forgiving Student Loans is an Impossible Issue with an Easy Solution

Written by Steve Rhode

 Originally published at Get Out of Debt Guy

When it comes to a rapidly accelerating financial burden on American families, there is no greater concern than student loans.

The debt is burdensome and unfair on many levels that I’ll explore below.

However, there is a straightforward and simple solution for dealing with all of this outside of struggling to develop a fair forgiveness strategy. I’ll talk about that after we look at common opinions on the subject.

Is Student Loan Forgiveness Fair?

The talk of forgiveness is a difficult topic because how do you reach any level of fairness.

And let me be clear when people talk about forgiving student loans, it only applies to federal student loans. Not private student loans.

As Howard Dvorkin, Chairman of Debt.com said, “Only one-third of the people in this country get a four-year college education. The two-thirds without a college education is expected to subsidize their education when it is very likely that they earn less than the people who are receiving the educational subsidy.”

Dvorkin went on to say, “The issue of forgiving debt is complicated. What about all the people that have already struggled to pay their debts, and now other people get loans forgiven. That’s not fair.”

Student Loans – Another Financial Mistake for Many

A 2019 student by New York Life of 2,200 adults found the average participant reported taking 18.5 years to pay off their student loans, starting at age 26 and ending at 45.

That is a significant portion of life to have to be tied to a student loan payment that should have been directed to saving for retirement and then mushroomed into a giant nest egg. It can take decades to recover from that financial mistake. But that’s not the only financial regret people have.

What is shocking is the number of people that have student loan debt but who never graduated. I’ve seen statics as high as 75 percent of people with any student loans never obtained the degree.

And the wave of for-profit schools that have oversold education to people that never should have purchased their product is another national disaster.

“For-profit schools are not worth the money,” said Dvorkin. “As an employer, I hire people with traditional non-profit college degrees before I would hire someone with a for-profit degree.”

The Federal Reserve Bank of New York said, “Students who attend for-profit institutions take on more educational debt and are more likely to default on their student loans than those attending similarly selective public schools.”

The study went on to say, “Overall, our results indicate that, on average, for-profit enrollment leads to worse student loan outcomes for students than enrolling in a public college or university, which is driven by higher loan takeup and worse labor market outcomes. This is an important set of findings for several reasons. First, a substantial amount of public funds go to for-profit institutions through the financial aid system. Our estimates indicate the return to such expenditures may be quite low. Second, the results suggest that students who attend local for-profit institutions when there is a negative labor demand shock may be making mistakes: they would be better off attending the local public college or university instead.”

But even non-profit schools are ramping up tuition and selling students into seats that maybe should not have been admitted.

Student loan debt is a life sentence in painful debt for many: The Impossibility of Forgiveness

Opinions on forgiveness range all over the place. Betsy DeVos, the current Secretary of Education said recently, “Policies should never entice students into greater debt. Nor should they put taxpayer dollars at greater risk. There are too many politicians today who support policy that does both.”

 

She also labeled student loan forgiveness as an “insidious notion of government gift giving. We’ve heard shrill calls to “cancel,” to “forgive,” to “make it all free.” Any innocuous label out there can’t obfuscate what it really is: wrong.”

Forgiveness is never going to be fair, and it’s not going to a quick and effective way to stimulate the economy in a difficult time from a pandemic, as some claim.

Today, student loan forgiveness would result in people not making loans they are already in default on or making payments that are too low to pay the debt off. At most, it will result in people not having to make some loan payments monthly.

The economic impact will be felt over a long period of time rather than the boost and support the economy needs now.

While DeVos talks about avoiding policies that entice students into greater debt, her own Department of Education is a big part of the problem, with help from Congress.

As the federal student loan program stands now, there is $1.37 trillion of outstanding debt to students, and the Education Department has determined that borrowers will only pay back $935 billion. That leaves the program in the red and holding for $435 billion of bad loans.

The Wall Street Journal said, “The analysis was based on government accounting standards and didn’t include roughly $150 billion in loans originated by private lenders and backed by the government.”

 

To deal with that shortage, “Congress will have to raise taxes, cut services or increase the deficit to cover the losses.” That solution is also not fair to the many that repaid their loans.

So the Battles and Arguments About Student Loan Forgiveness Are Complicated

We can argue and politically position ourselves around the idea of forgiving student loans is either the best thing or the worst thing ever to happen.

It is actually a moot point since the program is in so much trouble already.

Let’s not forget the 42 million student loan borrowers will become due again in January 2020, as a result of the CARES Act forbearance ending.

People that can’t afford their student loans will suddenly be required to begin payments again. Defaults will explode even more.

As it stands now, the Department of Education’s base position is students should feel lucky they can enroll student loan debt in an Income-Driven Repayment program (IDR) that will give them a loan payment based on income. But, as I wrote before, it’s a trap.

As it stands now, while a student loan debtor might enroll in an income-based repayment program, the minimum payment is not enough to cover the interest being charged on the loan, and the balance owed grows. While people say, “certainly Congress will change that.” The reality is they have not, over the many years the programs have been in place.

So the way the “lowest payment” solution works right now is that the government lets you pay less than is due, that grows the balance, and in two decades, when the exploded balance is forgiven, people will owe income tax on that debt unless they are insolvent. It sounds crazy, but it is true.

Here is a case that is a great example of the madness. The student loan debtor could not afford to pay off her $40,000 of student loans over 14 years but is now required to enroll and remain in an IDR that will drive her balance up.

The article by Richard Fossey J.D. says, “How could the judge conclude that Hladly might someday pay off her student loans when the amount she initially borrowed had tripled since the time she graduated from law school? If Hlady could not pay off $40,000 in student loans over 14 years, how will she ever pay $140,000 over the next 25 years, especially since her loan balance grows by $20 a day in accruing interest?

As Judge Scarcella observed, Ms. Hlady is 48 years old. Her 25-year repayment plan will terminate when she is 73. By that time, her loan balance will be more than a quarter of a million dollars. This amount will be forgiven, but the forgiven debt will be taxed as income unless Hlady is insolvent at the time.”

With IDR Plans, the Government Has Already Accepted the Loan Forgiveness Proposition

In my opinion, with federal student loan forgiveness programs already on the books, policymakers have already accepted some form of loan forgiveness. Yet, the current talk of student loan forgiveness ranges from its “socialism” to its “a right.”

As it stands today, the federal government already runs a student loan program that is rapidly increasing in delinquencies, defaults, and repayment plans that will only grow the balance.

The only current winners in the student loan cycle are the schools that can sell students on attending and get easy money from the federal government.

Students enroll, schools get paid and accept almost no responsibility for the outcome. When a student loan debtor was sold education, they could never logically or mathematically afford and later defaults; the school does not have to pay back the loan.

Howard Dvorkin said, “Colleges must start operating as a business and deliver service within income. The days of college expansion paid for from easy government student loan money needs to stop.”

He’s right.

Student Loan Forgiveness is Much-Ado-About-Nothing and Misdirected

I hate to state the obvious here, but rather than worry about the inequities of forgiveness and who wins and loses, the most rational and logical option is to roll back the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).

BAPCPA made private student loans harder to discharge in bankruptcy. And private student loans are growing as well.

The issue is students are drowning in debt. It can be argued that because of student loan debt, they are also having to take out other debt and reduce retirement savings.

When those people are old enough and can no longer work, the lack of retirement savings will create a public safety net drain. No matter how you look at this, the systemic problem of easy money for education has driven up the debt, and we will all pay for it in one way or another.

The Solution Seems So Apparent

Up until 1976, all student loans were dischargeable in bankruptcy. Bankruptcy is a legal right for consumers to get a fresh financial start, and it is even a part of the U.S. Constitution. Those that file for bankruptcy generate an immediate stimulus for the economy and have a second chance to do better, having learned hard lessons from mistakes.

Returning to allowing both federal and private student loans to be discharged in bankruptcy has many features:

1.      It is a current and accepted legal process with clear rules and guidelines.

2.      The debt is forgiven tax-free.

3.      It allows people a chance to get a fresh start from an impossible situation. Oftentimes these issues are the result of accidents, injuries, medical issues, pandemics, etc.

4.      A bankruptcy Trustee and Judge must review and approve the discharge plan. If a consumer has too much income for a full immediate discharge, they will be required to enter a five-year repayment plan in a Chapter 13 bankruptcy.

5.      Forgiveness will be restricted to only those that qualify.

6.      The fact the loans may now be dischargeable should force lenders to make better loan decisions before just handing the money to anybody.

7.      If loans are less abundant or actually just based on repayment ability, then schools would have to ratchet back tuition fees. Less easy money would be available.

8.      This process would be restricted to those who need and meet the accepted legal standards for bankruptcy.

9.      People that can afford to repay their loans will have to do so through their Chapter 13 repayment plan.

10.  We can eliminate this ridiculous game and administration of student loans that will never be repaid and have to be dealt with.

If We Restore Bankruptcy Student Loan Debt Elimination to All Then We Can Focus on Doing Better

There is no argument that education leads to opportunity. I don’t care if that is education at a trade school, some other hands-on education, or a degree in some college subject at the best school in a 200-mile radius.

I heard recently about a “toilet paper” degree program. That’s where plumbers make much more than people to go to college. I do know some very rich electricians and plumbers. I guess that’s a raw subject for me since I’ve spent $3,000 in plumbing bills in the last 30 days.

We have a wonderful system in place to allow people to have affordable access to start their education. The local community college is a fantastic place to start.

It is affordable, and as Dvorkin said, “When thinking of how to get started on the journey of education, community college is a great investment. Think about this: why pay much higher tuition to take classes that use the same books as the community college class uses. Start affordably and then transfer to a more expensive school if you want to continue to finish your college degree.”

The power of community colleges is not new. It is proven. My very own father started his education from a farm in Michigan at the local community college. He then went on to become the very first Ph.D. graduate in Political Science at Michigan State.

So let’s all stop trying to reinvent the wheel here. Just restore the bankruptcy provision for all student loans and require some commonsense and responsibility on future lending.

There will never be any universally accepted plan for past forgiveness of student loans that were flawed from the start.

We are a great country and instead of looking back, let’s do better moving forward.