4.6 million student debtors are in long-term repayment plans, default rates are up, and President Obama's "best friend" is buying University of Phoenix: "Things fall apart; the centre cannot hold."

Things fall apart; the centre cannot hold

The Second Coming

William Butler Yeats

As William Butler Yeats put it, "Things fall apart; the centre cannot hold." Everywhere, we see signs that the federal student-loan program is on the verge of collapse. And when the loan program collapses, so will American higher education.

Here are some portents of the coming disaster:

Student borrowers are enrolling in long-term repayment plans in record numbers

First, the U.S. Department of Education recently announced that 4.6 million student debtors are enrolled in Income-Driven Repayment plans (IDRs) to pay off their college loans. This is a 48 percent increase since December 2014 and a 140 percent increase since December 2013. 

People in IDRs are obligated to pay on their student loans for 20 or even 25 years, and most are making payments so small that their loan balances are going up, not down, due to unpaid accumulating interest. In other words, most people in IDRs will never pay off their college loans.

Yet lenient income-based plans are President Obama's chief strategy for addressing the student-loan crisis. As the DOE blog put it," President Obama has fought hard to make college more affordable and to help borrowers keep their student loan payments manageable." And thanks to those efforts, DOE continues, students in the new IDRs never have to pay more than 10 percent of their monthly income on your federal student loans."   Indeed, borrowers who are  "temporarily unemployed" don't have to pay anything. "After all, as DOE cheerily pointed out, "10 percent of zero dollars is zero dollars."

But of course, 20-year and 25-year repayment plans are crazy, especially when we consider that most people don't sign up for these plans until their backs are against the wall. Remember Brenda Butler, who entered a 25-year repayment plan 20 years after graduating from college? She won't be finished with her student loans until 2037, 42 years after acquiring her degree!

The Feds are garnishing wages and Social Security Checks, and default rates are rising

Meanwhile, the government garnished $176 million in wages from student-loan defaulters during the last three months of 2015. And the government garnishes Social Security checks of 155,000 elderly student-loan defaulters. 

And despite governmental assurances to the contrary, student-loan default rates are rising. According to a recent analysis by Jason Deslisle, 20 percent of all borrowers with loans due are in default. A Brookings Institution report noted that almost half of  a recent cohort of student borrowers who attended for-profit colleges defaulted within 5 years

And let's not forget the nine million people in the repayment phase of their loans who aren't making payments because they've obtained economic hardship deferments or some other deferment from making loan payments.  Those folks are counted as defaulters, but in reality, most of them will never pay back their loans. 

Law schools are in trouble

And then there are the law schools, some of which are in real trouble. Over the last few years, law schools began behaving like pirates, raising tuition rates to insane levels even as the market for lawyers imploded. Now they are seeing  a 20 percent decline in enrollment applications; and many have lowered their admission standards just to get warm bodies in their classrooms. A typical law student now graduates with $140,000 in debt; and many have almost no prospect of getting jobs in the legal field.

The for-profit college sector: The barbarians are at the gates

Finally, in the private sector, the barbarians are at the gates. Corinthian College, which had 350,000 students or former students as of last year, filed for bankruptcy; and thousands of its victims have filed claims to have their student loans forgiven. The Department of Education brokered a sale of some Corinthian campuses to a company affiliated with Educational Credit Management Corporation, the rapacious college-loan debt collector, just to maintain some semblance of order in the chaos of the Corinthian collapse.

Apollo Education Group, owner of the University of Phoenix, is in real trouble. Enrollments at UP dropped from a a peak of 475,000 in 2010 to less than half that number in 2015. Apollo's stock, which once sold for more than $80 a share, is now trading below 8 bucks.

Apollo is in negotiations to sell out to a group of private equity firms, including Visteria Group. Visteria was founded by Martin Nesbitt, described as President Obama's "best friend." In fact, Nesbitt was treasurer for both of Obama presidential campaigns; and he heads the Obama Foundation that is planning the Obama Presidential Library. 

If the deal goes through, Tony Miller, former Deputy Secretary of Education in the Obama administration and Martin Nesbitt's business partner will become Apollo Education Group's new Board Chairman.  Very cozy!

"The ceremony of innocence is drowned."

To borrow a phrase from Yeats, "The ceremony of innocence is drowned" in American higher education.  Colleges and universities were once honored as the guardians of our civilization's ideals, the places where young people came to grow and learn, and to develop the civic and moral values that are indispensable to maintaining a healthy and vibrant society.

No more.  Arrogant college presidents, greedy profiteers, and mindless bureaucrats now control our once beloved universities. The best of these characters "lack all conviction, while the worst are full of passionate intensity." 

All of this craziness is paid for by federal student-loan money. And millions of college-loan borrowers are strangling in debt they can never pay off. This cannot go on forever.

President Obama and Martin Nesbitt

Tony Miller, former Deputy Secretary of Education
and soon-to-be Board Chairman of Apollo Education Group

References

Jillian Berman. Americans just had $17 million in wages garnished by the government due to unpaid student loans. Marketwatch.com, March 22, 2016. Accessible at http://www.marketwatch.com/story/the-government-just-garnished-176-million-in-wages-because-of-unpaid-student-loans-2016-03-21

Ronald J. Hansen. Apollo Education, parent company of University of Phoenix, to go prvate at $1.1 billion deal. Arizona Republic, February 9, 2016. Accessible at http://www.azcentral.com/story/money/business/2016/02/08/apollo-education-to-go-private-in-11b-deal/79998782/

Jason Delisle. @usedgov latest data out today shows student loan defaults just hit another record high, 20% of those w/ loans due. Mhttps://twitter.com/delislealleges/status/710539989256429568

Matt Sessa. Student Aid Posts Updated Reports to FSA Data Center. Department of Education, March 17, 2016. Accessible at https://www.nasfaa.org/news-item/7943/3-17_Federal_Student_Aid_Posts_Updated_Reports_to_FSA_Data_Center

Dan Primack. Obama's 'best friend' raises millions for private equity fund. Fortune Magazine, August 11, 2014. Accessible at http://fortune.com/2014/08/11/obamas-best-friend-raises-millions-for-private-equity-fund/

Patricia Cohen and Chad Bray. University of Phoenix Owner, Apollo Education Group, To Be Taken Private. New York Times, February 9, 2016. Accessible at http://www.nytimes.com/2016/02/09/business/dealbook/apollo-education-group-university-of-phoenix-owner-to-be-taken-private.html?

No, You Won't Be Arrested for Falling Behind On Your Student Loans. US. Department of Eduation Official Bog, April, 2016. Accessible at http://blog.ed.gov/2016/04/no-you-wont-be-arrested-for-falling-behind-on-your-student-loans/

The Department of Defense Suspends University of Phoenix from Military Tuition Benefits Program: Senators John McCain, Jeff Flake and Lamar Alexander Ask DOD to Reconsider

The Department of Defense recently sanctioned the University of Phoenix by suspending it from participation in the U.S.  Military's tuition benefits program. Why? Allegedly, Phoenix sponsored improper recruiting events and inappropriately used the DOD's seal.

Senators John McCain, Jeff Flake and Lamar Alexander got involved in this matter on behalf of whom? Soldiers? No--they came to the aid of the University of Phoenix. The senators argued that the university had only committed "vague, technical violations" that UP had already fixed or promised to fix.

According to the senators, "The University of Phoenix has a long history of serving working adults and others for whom traditional university schooling is unavailable" and noted that the university had more than 200,000 students in 17 states. But the senators neglected to note that almost 1.2 million University of Phoenix students have accumulated $35 billion in student-loan debt and that UP's five-year default rate is 45 percent!

Why do you suppose these old croakers came to the aid of the University of Phoenix? It is headquartered in Arizona, which might explain Senators McCain and Flake's intervention. But even so, don't these guys have an obligation to protect the University of Phoenix's students--not the university itself? And doesn't the Department of Education deserve support when it tries to rein in abuses to the federal student aid program?

The reason the for-profit college industry is out of control is because this rapacious sector of higher education makes strategic campaign contributions and hires lobbyists to protect its interests in Washington. I couldn't find any evidence that the University of Phoenix has made campaign contributions to Senator John McCain, but I did find evidence that McCain's biggest contributors include Goldman Sachs, which owns a stake in a for-profit college, and Bank of America, one of the biggest players in the private student-loan market.

If you want to better understand how the for-profit colleges have ripped off American taxpayers, you should read David Halperin's article in The Nation.  "Many of America's for-profit colleges have proven themselves a bad deal for the students lured by their enticing promises--as well as for US taxpayers, who subsidize these institutions with tens of billions annually in federal student aid," Halperin wrote.

As Halperin explained, more than half of the students who enroll in for-profit colleges drop out within about four months.  Many of these colleges have been caught using deceptive advertising and misleading information about job placement rates.  And although the for-profits only enroll about 13 percent of postsecondary students, they account for nearly half of student-loan defaults.

How do they get away with this? By hiring lobbyists and making  campaign contributions to powerful federal legislators. According to Halperin, the industry's lobbyists include past Senate majority leader Trent Lott and Penny Lee, a former aid to Senate majority leader (now minority leader) Harry Reid.  In fact, as Senator Dick Durbin put it, the for-profits "own every lobbyist in town" (as quoted in Halperin's article).

And why, you might ask, haven't supposedly independent voices in the higher-education policy world spoken out more forthrightly about the abuses in the for-profit college industry? Why hasn't Chronicle of Higher Education taken a stand? Why hasn't the National Urban League been more aggressive in its policy recommendations for higher education? Perhaps it is because the for-profits advertise in the Chronicle and  Corinthian Colleges (now bankrupt) gave $1 million to the National Urban League.

As Halperin summarized at the end of his lengthy article, "There's a word for this state of affairs: corruption." And knowingly or unknowingly, Senators McCain, Flake and Alexander came to the aid of one of the for-profit industry's worst actors: University of Phoenix.  Senator McCain deserves this nation's respect for his heroism in the Vietnam War. How sad and how shameful to observe him in his dotage serving as a shill for the for-profit college industry.

References

Adam Looney & Constantine Yanellis.  A Crisis in student loans? Brookings Institution, September 10, 2015. Accessible at: http://www.brookings.edu/~/media/projects/bpea/fall-2015_embargoed/conferencedraft_looneyyannelis_studentloandefaults.pdf

David Halperin. The Perfect Lobby: How One Industry Captured Washington, DC. The Nation, April 3, 2014. Accessible at:  https://www.thenation.com/article/perfect-lobby-how-one-industry-captured-washington-dc/

Senator John McCain Press Release. Senators McCain, Flake & Alexander Question DOD's Probation Decision Regarding the University of Phoenix's Participation in the Military Tuition Assistance Program. October 22, 2015. Accessible at: http://www.mccain.senate.gov/public/index.cfm/press-releases?ID=d7d2b065-3df2-42ce-9763-82ed0310a6e6

Senator John McCain's Top Contributors. Center for Responsive Politics. Opensecrets.org. Acessible at: http://www.opensecrets.org/politicians/contrib.php?cycle=Career&cid=n00006424

The For-Profits "Are Making Out Like a Bandit": Will Sheriff Obama Round Up those Bad Boys?

In a question-and-answer session with college students at SUNY at Binghamton, President Obama made clear that he understands what's wrong with the for-profit colleges.

 [T]here have been some schools that are notorious for getting students in, getting a bunch of grant money, having those students take out a lot of loans, making big profits, but having really low graduation rates. Students aren’t getting what they need to be prepared for a particular field. They get out of these for-profit schools loaded down with enormous debt. They can’t find a job. They default. The taxpayer ends up holding the bag. Their credit is ruined, and the for-profit institution is making out like a bandit. That’s a problem.

President Obama also said he understands that some for-profits are exploiting our military veterans:

[T]hey’ve been preyed upon very badly by some of these for-profit institutions.... Because what happened was these for-profit schools saw this Post-9/11 GI Bill, that there was a whole bunch of money that the federal government was committed to making sure that our veterans got a good education, and they started advertising to these young people, signing them up, getting them to take a bunch of loans, but they weren’t delivering a good product.

 Indeed, Senator Tom Harkin's Senate Committee report on the for-profits found that the for-profits soaked up a huge share of the money made available to military veterans under the Post-9/11 GI Bill, a law designed to extend educational benefits to veterans of the Afghanistan and Iraq wars.

Some for-profits are "making out like a bandit"

According to the report, the for-profits trained 25 percent of the participating veterans but received 37 percent of the Post-9/11 GI Bill money during the first two years the program was in place.  Eight of the top 10 education providers during that two-year period were for-profits, including the owners of the University of Phoenix, DeVry University, and Kaplan University (pages 27-28 of Harkin report).

Among the top ten participating institutions in this veterans program, the eight for-profits had the highest student withdrawal rates.  Apollo's student withdrawal rates for bachelor's degree programs was more than 50 percent. Kaplan Higher Education Corporation (owner of Kaplan University) had a 68 percent withdrawal rate for its four-year programs (page 29 of the Harkin report).

Will the Obama administration and Arne Duncan's Department of Education rein in these bad boys? I'm not sure. President Obama made it abundantly clear that he is willing for the federal government to continue funding for-profit colleges--the largest of which are publicly traded corporations or institutions owned by private equity groups.

 "For-profit institutions in a lot of sectors of our lives obviously [are] the cornerstone of our economy," President Obama said at the Binghamton gathering. "And we want to encourage entrepreneurship and new ideas and new approaches and new ways of doing things. So I’m not against for-profit institutions, generally."

President Obama's approach to for-profit colleges is basically in harmony with the Harkin Committee's viewpoint.  Like President Obama, the Harkin Committee acknowledged a place for the for-profit sector in higher education.  The Committee expressed the view that the public sector and nonprofit private colleges do not have the capacity to educate all the postsecondary students who want to be educated.

Personally, I disagree.  Why should the federal government pump $30 billion a year into the for-profit colleges in the form of federal student aid, when it is absolutely clear that the for-profit colleges have an overall poor record of performance and catastrophically high student-loan default rates? Shouldn't that money be going to the public institutions--particularly our community colleges?

So far, President Obama has been unwilling to take aggressive action to clean up or close the for-profit college industry.   For the time being at least, the for-profits will continue to "make out like a bandit," and President Obama will continue to critize them but do little or nothing to bring them under control.

References

Paul Fain & Scott Jaschik. Obama on Non-Profits. Inside Higher Education, August 26, 2013. Accessible at: http://www.insidehighered.com/news/2013/08/26/obama-speaks-directly-profit-higher-education-noting-concerns-sector

United States Health, Education, Labor and Pension Committee. For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. July 2012. Accessible at: http://www.help.senate.gov/imo/media/for_profit_report/PartI.pdf

Note: All quotes come from the Inside Higher Education article cited above.