Showing posts with label borrower defense. Show all posts
Showing posts with label borrower defense. Show all posts

Monday, November 28, 2022

Fair or Not, the Biden Administration Owns the Student Loan Catastrophe

 I grew up in a small Oklahoma town before the era of the big box stores. If my family wanted to buy a small appliance, a birthday present, or a wedding gift, we went to the town's family-owned gift shop.

This little shop sold items that would make good gifts for a wedding shower--glassware, casserole bowls, and kitchen stuff. It also sold toys and sports equipment.

Wandering through the gift shop as I child, I remember seeing mysterious little signs posted in the glassware section that said this: 

Lovely to look at,

Delightful to hold.

If you break it,

We mark it sold.

What did that mean? I asked myself.

One day my six-year-old brother and I were in the little store shopping for Christmas presents.  Without warning, my brother grabbed a football in the sporting goods section and kicked it into the glassware aisle.

That's when I knew what the sign meant because my mother had to pay for the damage.

President Biden is in a situation somewhat like my mother's. Someone kicked a metaphorical football into the federal student-loan program, and he has to pay for the damage.

I feel sorry for the President. He did not break the student-loan program. Other parties bear most of the blame. 

First, Congress revised the Bankruptcy Code several times to make it almost impossible for student borrowers to discharge their loans in bankruptcy. 

Next, President Obama's Department of Education introduced PAYE and REPAYE, extremely generous income-based repayment plans that allowed borrowers to stretch out their payments for as long as a quarter of a century. Borrowers in those plans were allowed to make loan payments so small that they would never pay off their loans.

Then Betsy DeVos, President Trump's Education Secretary, administered the loan program so heartlessly that borrowers who were defrauded by their schools could not get their loans forgiven. In addition, DeVos made it almost impossible for people to avail themselves of the Public Service Loan Forgiveness program.

Thus, when Biden stepped into the presidency, he was confronted with a student-loan scheme that had run amuck. More than 40 million Americans are student-loan debtors, along with several million parents who took out Parent PLUS loans.  Total indebtedness is now around $1,7 trillion, and most of it won't be paid back.

President Biden attempted to provide student borrowers with a bit of relief by forgiving $10,000 in student debt for every borrower making less than $125,000 (and $20,000 in forgiveness to people who got Pell grants while in school).

That's not working out so well. The federal courts have blocked the President from implementing his loan forgiveness scheme.  He has responded by extending the pause on student-loan payments until August 2023 (unless the Supreme Court rules on the plan's legality before the end of June).  

Experts estimate that this loan-payment moratorium could cost taxpayers more than $200 billion. 

So--like my mother, who paid for a lot of broken glass in an Oklahoma gift shop, President Biden now owns this shit show.

So far, Biden's DOE has tinkered a bit with the program. For example, the Department granted generous relief to students who claimed they were defrauded by their college, and it is trying to clean up the Public Service Loan Forgiveness program.

But, there is only one reasonable thing to do to address the student-debt crisis. Biden needs to put the heat on Congress to amend the Bankruptcy Code to allow millions of distressed debtors to discharge their debt in a bankruptcy court.

Tragically, I don't think the President will do that. Instead, he has chosen to preside over the student-debt crisis, which he now owns.




Saturday, October 19, 2019

Betsy DeVos' Education Department is a clown car, but no one is laughing

For the last three years, the national political debate has focused on international issues: Russia, Ukraine, and now Syria. But look at what's happening at home. More than 45 million people are indebted by student loans, and more than half of these debtors cannot repay what they borrowed. In effect, they are victims of financial homicide.

Betsy DeVos, President Trump's Education Secretary, is spectacularly indifferent to this crisis, and she has made the crisis worse by her callousness and craven obsequence to the for-profit college industry. Without a doubt, she is guilty of malfeasance and venality. Let's summarize her reprehensible conduct:

Public Service Loan Forgiveness. The Department of Education has flatly refused to administer the Public Service Loan Forgiveness program (PSLF) competently.  More than three-quarters of a million borrowers were qualified for the  PSLF program by Navient, DOE's contracted loan servicer. But DOE has only approved roughly 1 percent of the applications for loan forgiveness. Apparently, DOE takes the position that 99 percent of the people who believed they were qualified for PSLF loan forgiveness were mistaken.

A federal judge ruled last February that DOE had administered PSLF arbitrarily and capriciously in a lawsuit brought by the American Bar Association. Later, the American Federation of Teachers sued DOE, arguing, like the ABA, that DOE was administering DOE in violation of the Administrative Procedure Act.  Has Betsy made amends? No.

Borrower Defense Program.  The federal government has a"borrower defense" process in place for student-loan borrowers to have their student loans forgiven if they can show that their for-profit college defrauded them. A few weeks ago, DOE issued new rules for administering the program. Betsy will allow the for-profit colleges to force students to sign covenants not to sue and waive their right to join class-action lawsuits. DOE's revised rules for processing borrower-defense claims are so onerous that DOE itself estimates that only 3 percent of applicants will get relief.

Student-Loan Bankruptcies.  DOE continues to take the position that distressed student-debtors are ineligible for bankruptcy relief, no matter how desperate the debtor's circumstances.  DOE has a policy in place (perhaps unwritten) that authorizes Educational Credit Management Corporation to assume the right to fight student-bankruptcy cases, and ECMC fights them all.  ECMC, by the way, has accumulated a billion dollars in unrestricted assets--a fat reward for naked brutality.

Betsy DeVos, a multi-millionaire who owns a huge yacht, presides over this clown car of an Education Department, which she has stuffed with cronies from the for-profit college industry. And the taxpayers provide her with a personal security detail that costs almost $8 million a year.

This clown car is not funny. Surely DeVos' maladministration of the Public Service Loan Forgiveness program, apart from everything else she has done or failed to do, provides ample grounds for impeachment.  I feel sure that if the Democrats voted articles of impeachment against her in the House of Representatives, some Republicans would vote for it.

And, if her reckless and lawless behavior was brought to the U.S. Senate, I think there would be enough bipartisan votes to remove her from office.

 Without question, 45 million student-loan borrowers would be interested in the outcome of any impeachment proceedings, and several million of these people are probably single-issue voters. In other words, millions of college-loan debtors will vote for the presidential candidate in 2020 who promises student-loan debt relief.  That candidate is not the guy who appointed Betsy DeVos to run the Department of Education.

Betsy DeVos's Education Department is a clown car.



Friday, September 21, 2018

Department of Education's New Report on Student-Loan Casualties: A Dr. Strangelove Moment

You remember that great scene from the movie Dr. Strangelove.  U.S. President Muffley (played by Peter Sellers) worries about the consequences of nuclear war with Russia. "You're talking about mass murder," President Muffley muses.

But General Turgidson (played by George C. Scott) is not concerned. "I'm not saying we wouldn't get our hair mussed. But I do say no more than ten to twenty million killed, tops."

Betsy DeVos is our modern day General Turgidson. The student loan program is shattering the lives of about 20 million Americans.  But in DeVos' mind, that's a small price to pay for a program that enriches her buddies in the for-profit college industry.

And so without further ado, I will summarize the Department of Education's most recent report on the student-loan debacle.

Income-Driven Repayment Plans. As DOE reports, more and more distressed student borrowers are being herded into income-driven repayment plans (IDRPs). As of June, 7.1 million people are enrolled in IDRPs, a 20 percent increase from just a year ago.

Student borrowers in IDRPs are America's new serfs. They pay a percentage of their income for 20 or 25 years to repay the student loans they took on to attend some raggedy-ass college that didn't prepare them for a job.

Of course, IDRP monthly payments are generally low. In fact, IDRP participants who live below the poverty line make monthly payments of zero. But virtually everyone in these plans--7.1 million suckers--will die without ever paying back their loans. In fact, for most of them, their loan balances are going up with each passing month due to unpaid accruing interest.

Borrower Defense to Repayment. According to DOE, 166,000 student borrowers filed so-called "borrower defense" claims. These claimants are seeking loan forgiveness on the grounds they were defrauded by the colleges they attended. Thousands of these claims were filed by people who attended just two for-profit institutions that went bankrupt: Corinthian Colleges and ITT Tech.

As of June 30, two thirds of these claims are still pending, and only 80 percent of the processed claims were approved.  Meanwhile, borrowers who have pending claims are still obligated to make their monthly loan payments.

Delinquency Rates. Delinquency rates are down slightly, DOE assures us, but almost a quarter million borrowers defaulted on their student loans during the third quarter of this year.  That's 2755 people going into default every day.  A high percentage of these defaulters attended for-profit colleges. But apparently those casualties are acceptable to Betsy DeVos.

Public Service Loan Forgiveness Program.

Hundreds of thousands of student debtors have taken jobs in the public sector in belief that their student loans would be forgiven after 10 years under the Public Service Loan Forgiveness Program (PSLF). It now seems they were deluded.

PSLF was enacted by Congress in October 2007, so the first people entitled to PSLF relief became eligible in October 2017. So far, 28,000 people have applied for PSLF relief, but only 300 claims have been approved and only 96 people have actually had their loans forgiven!

If Betsy DeVos and her gang of former for-profit-college hacks continue to refuse to implement PSLF in good faith, hundreds of thousands of college borrowers who relied on PSLF will suffer incalculable hardship.  For example, thousands of people have graduated from third- and fourth-tier law schools with six-figure debt, and they can't find law jobs in the private sector that pay enough to service their student-loan obligations. As Paul Campos pointed out in his book Don't Go to Law School (Unless), PSLF is these people's only viable option for paying off their law-school loans.

Conclusion: The Student Loan Program is in Fine Shape: "10 to 20 Million Casualties, Tops!"

DOE's own data shows us that the federal student loan program is a disaster: high default rates, income-driven repayment plans that don't allow people to pay off their loans,  borrower-defense rules that DOE administers incompetently, and a PSLF program that DOE refuses to implement in good faith. Meanwhile, the for-profit gang is getting rich.

Literally, there are at least 20 million casualties. Betsy DeVos must think 20 million casualties is acceptable, but I do not. Why don't our  politicians--Republicans and Democrats-- begin to behave like grownups and impeach Betsy DeVos, who is running DOE like a character in Dr. Strangelove.

10 to 20 million casualties--tops!

Thursday, January 4, 2018

Forget the Russians: Democrats should focus their energy on removing Betsy DeVos from Trump's Cabinet

Almost 44 million Americans are student-loan debtors, and every single one of them should see Betsy DeVos as their mortal enemy. Since President Trump appointed her as Secretary of Education, DeVos has done nothing to ease the suffering of college borrowers. On the contrary, she has done everything she can to prop up the venal and corrupt for-profit college industry, which has preyed on vulnerable and naive students, many of them minority members or just plain poor.

We have known for years that the for-profit college racket is a cancer. Senator Tom Harkin's 2012 report on the for-profits made that fact absolutely clear. And we know that a high percentage of people who take out student loans to attend these shyster colleges default on their loans. Nearly half of a recent cohort of borrowers who attended for-profit colleges defaulted within five years. It was recently reported that more than half of the students who took out student loans to attend 1,000 colleges and schools had not paid down one dime of their student loans seven years into repayment. Most of those 1,000 institutions are for-profits.

Minorities have been especially injured by the for-profit colleges. Three quarters of African Americans who take out loans to study at a for-profit college and then drop out eventually default.

In my view, the Obama administration did not do a great job of reining in the for-profit racketeers, but it did make an effort. The combined efforts of the Obama Department of Education and several state attorney generals brought down two bad actors: Corinthian Colleges and ITT Tech. These two organizations had a total of a half million students and former students at the time they closed and filed for bankruptcy.

And the Obama administration put regulations in place to process students' fraud claims--claims against Corinthian in particular. But Betsy DeVos derailed those regulations and appears intent on protecting the for-profits from fraud claims. She's cooked up a bogus formula for resolving fraud claims, awarding only partial compensation to victims.

As Steve Rhode noted in a recent essay, the DeVos DOE has not provided relief to a single student borrower who was defrauded by a for-profit college, although it has approved around 13,000 claims by former Corinthian students (while rejecting 8,600 pending  claims).

DeVos also nullified an Obama-era regulation that would prohibit the for-profits from forcing their students to sign covenants not to sue as a condition of enrollment.  In addition, DeVos is slow rolling the Public Service Loan Forgiveness Program (PSLF), which provides debt relief to people who devote ten years to public service. Indeed, the Trump administration proposes to do away with the PSLF program.

And if that weren't enough, the Republicans sent a bill out of the House Education Committee that would do away with student-loan forgiveness altogether. DeVos has not formally endorsed this bill, but she called it a "starting point."  The bill, if it becomes law, would give student borrowers only two options--pay off their loans in ten years or go into a perpetual income-based program that would not end until the loans are paid off or the student borrower dies. Oh yes, and the bill would eliminate the authority of state attorney generals to police the student loan industry.

And what have the Democrats done in response to DeVos' shockingly obsequious behavior toward the for-profit college racketeers? Not a friggin' thing. Senator Elizabeth Warren--self-proclaimed consumer advocate, writes stern letters to DeVos and other government bureaucrats, but she can't point to a single accomplishment in terms of student-loan relief.

I give the Democrats grudging credit for at least introducing legislation that addresses the student-loan crisis. The Delaney-Katko bill (co-sponsored by 25 Democrats and one Republican) would open the bankruptcy courts to deserving student borrowers, which is really the only comprehensive solution to the crisis. But that bill will never make through a Republican dominated Congress that is totally beholden to the financial industry.

In my mind, the litmus test for Congress in terms of student-loan relief is the Warren-McCaskill bill that would bar the federal government from garnishing the Social Security checks of elderly student-loan defaulters. Passing this bill would at least alleviate the suffering of the 114,000 older Americans who are seeing their Social Security income reduced due to unpaid student loans.

 It is not enough for Senators Warren and McCaskill to simply file this bill; they need to get it to a vote. What Republican would vote against that bill? Can't Senator Chuck Schumer and Representative Pelosi walk across the aisle and get Warren-McCaskill bill signed into law with bipartisan support?

Frankly, if there is not enough good will between Republicans and Democrats to enact the Warren-McCaskill Social Security relief bill, which only provides puny student-debt relief, then student debtors should say the hell with both parties and form a third political party.

In the meantime, Democrats should focus on getting Betsy DeVos out of Trump's cabinet. I don't know if her slavish catering to the for-profit-college gang amounts to high crimes and misdemeanors for impeachment purposes, but this I know: Betsy has got to go.

Image credit: GQ Magazine


References

Douglas Belkin, Josh Mitchell, & Melissa Korn. House GOP to Propose Sweeping Changes to Higher EducationWall Street Journal, November 29, 2017.

Jillian Berman. House Republicans seek to roll back state laws protecting student loan borrowers. Marketwatch.com, December 7, 2017.

Danielle Douglas-Gabriel. GOP higher ed plan would end student loan forgiveness in repayment program, overhaul federal financial aidWashington Post, December 1, 2017.

Danielle Douglas-Gabriel. Dems raise concern about possible links betwen DeVos and student debt collection agencyWashington Post, January 17, 2017.


Danielle Douglas-Gabriel. Elizabeth Warren wants the Education Dept.'s use of earnings data investigated. Washington Post, January 2, 2018.

Paul Fain. Half of black student loan borrowers default, new federal data showInside Higher Ed, October 17, 2017.

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

Andrew Kreighbaum. DeVos on Higher Education Act Rewrite. Inside Higher Ed, December 15, 2017.

Jack Moore. Betsy DeVos may be Gearing Up to Screw Over Public Service Workers Who Expect Student Loan Forgiveness. GQ.com, August 3, 2017.

Representative John Delaney press releaseDelaney and Katko File Legislation to Help Americans Struggling with Student Loan Debt, May 5, 2017.

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

Steve Rhode. Dept of Ed Puts Fraud First Over Students and Common Sense. Getoutofdebtguy.com, January 3, 2017.

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).

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













Tuesday, October 31, 2017

140 people a day die from opioid overdoses, but 3,000 people a day default on their student loans

Approximately 52,000 Americans died from opioid overdoses in 2015. That's an average rate of  around 140 deaths a day. In fact, opioid overdose is now the leading cause of death for Americans under age 50.  If we continue at this rate, a half million Americans will die from drug overdoses over the next ten years--roughly nine times as many Americans as were killed in the Vietnam War.

But let's compare the opioid crisis to the student-loan disaster.  Last year, 1.1 million Americans defaulted on student loans; that's an average rate of 3,000 people a day.  Obviously, defaulting on a student loan is not as serious as dying from a drug overdose. Nevertheless, the consequences of student-loan default are catastrophic.

First of all, a student-loan default triggers penalties and fees that are attached to the unpaid debt, making it less likely that the debtor will ever pay off his or her student loans. Secondly, student-loan defaulters cannot take out more student loans to obtain additional education or training. Third, unlike most unsecured loans, student loans are very difficult to discharge in bankruptcy.

In short, people who default on their student loans run a good chance of becoming lifetime debtors who will never improve their economic circumstances. In other words, a student-loan default is often the equivalent of an economic death sentence.

People who attend for-profit colleges have the highest student-loan default rates. A Brookings Institution report documented that almost half of the people in  a recent cohort who borrowed money to attend a for-profit school defaulted within five years.  Another analysis reported that three out of four African Americans who attended for-profit colleges eventually default on their loans.

In my opinion, a good case can be made that the student-loan catastrophe is causing more harm than the opioid epidemic.  Around 44 million Americans have student-loan debt; that's about one American in five. College-loan indebtedness is hampering people's ability to buy homes, save for retirement, and purchase health insurance. Without question, millions of Americans would have been better off if they had never pursued postsecondary education because the indebtedness they took on degraded the quality of their lives rather than enhanced it.

And Secretary of Education Betsy DeVos has has made the student-debt crisis worse. Again and again, she has made decisions that favor the corrupt for-profit industry at the expense of struggling student loan debtors, even debtors who were defrauded by for-profit colleges.

To its credit, the Obama administration crafted regulations whereby students could apply to the Department of Education to have their student loans forgiven if they were defrauded by the college they attended. Thousands of students have applied for loan forgiveness based on fraud claims, including students who borrowed money to attend two bankrupt for-profit institutions: ITT Tech and Corinthian Colleges.

The Obama regulations were to have taken effect on July 1, 2017, but Betsy DeVos stopped the implementation of these regulations, saying she feared students would get "free money." She then appointed a panel of experts to draft new regulations, which won't be approved until next year. In fact, under the DeVos scheme, defrauded students will not be able to move forward on their claims until 2019 at the earliest.

And it appears that many students will not get complete relief from their loans even if they can prove they were defrauded.  DeVos is talking about giving partial relief based on a formula that will compare the defrauded student's earnings to the average earnings among people who participated in similar educational programs.

The cynicism of this approach is shocking. First of all, by delaying the administrative process until 2019, DeVos is giving fraud victims only three options for handling their oppressive student debt. First, they can continue making loan payments on educational experiences that are worthless to them. Second, they can enter income-based repayment plans that will set monthly payments so low that the interest on their debt will continue to accrue, making their total indebtedness grow larger. Or third, they can default on their loans, which will ruin their credit and cause their debt to grow larger from fees and penalties that the debt collectors tack on to their original debt.

DeVos's tactic is nothing more than sneaky manipulation to aid the for-profit industry, which does not want fraud claims to be examined. If Congress had a moral compass and some courage, DeVos's behavior would lead to a formal resolution calling for her resignation.

Unfortunately, Congress is as beholden to the for-profit colleges as Betsy DeVos. The for-profits have used lobbyists and strategic campaign contributions to buy Congress's silence; and at least a few of our federal representatives (Senators Olympia Snowe and Dianne Feinstein, for example) have personally profited from ties to the for-profit college industry.

And thus our elected representatives are willing to allow millions of lives to be destroyed and the integrity of higher education to be degraded rather than reform the federal student-loan program.  In sum, Congress is willing to tolerate human suffering that may exceed the harm caused by opioid addiction.



References

Maria Danilova. DeVos may only partially wipe away some student loansDetroit News, October 28, 2017.

Josh Katz. Drug Deaths in America are Rising Faster Than Ever. New York Times, June 5, 2017.

Tamar Lewin. Questions Follow Leader of For-Profit CollegesNew York Times,May 26, 2011.

Ben Miller. New Federal Data Show a Student Loan Crisis for African American Borrowers. Center for American Progress, October 16, 2017.

Bob Samuels. The For-Profit College Bubble: Exploiting the Poor to Give to the RichHuffington Post, May 25, 2011.

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

Friday, October 27, 2017

Why Does the Department of Education Hate Student Loan Debtors Just So Much? Article by Steve Rhode

By  on October 25, 2017

If I was ever to get into an academic research argument on the role of government, this would be the time. Frankly I’m just getting pissed off by the apparent disregard for student loan debtors by the Trump Department of Education. And before you react that this is a Trump reaction, it’s not. This is an outrage and embarrassment of the actions taken collectively against consumers and student when it comes to student loan debt.
We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America. – Source
The last administration was trying to protect students from being misled by schools to enroll them based on false promises and employment assertions. That’s been significantly halted.
The previous administration expanded the Borrower Defense to Repayment program to allow students who had been defrauded by their schools a chance to have their loans forgiven and the loans clawed back from the schools. That’s been significantly halted.
The Consumer Financial Protection Bureau (CFPB) is suing Navient over poor student loan servicing and Navient says it has no duty to provide good advice to student loan debtors. The Department of Education is not participating in that fight by backing up the CFPB and in fact has said they will stop sharing information with the CFPB.
Now we will have to see what the Department of Education does next on this. The student loan lending industry is making the argument to the Department of Education they should not be subject to state probes into their industry. The position is the federal law and should prevent states from investigating the abusive practices of the student loan industry.
Just to show you how crazy this has all become, even Texas thinks this argument is crap and Texas has typically been the business comes first state.
“Joining a bipartisan coalition of 25 states, Attorney General Ken Paxton today called on U.S. Secretary of Education Betsy DeVos to reject a campaign by student loan servicers and debt collectors to dismantle state oversight of the student loan industry. In recent years, Texas and other states investigated and prosecuted a number of student loan industry abuses, winning settlements in the tens of millions of dollars for vulnerable student borrowers.
In a letter to Secretary DeVos, Attorney General Paxton and his counterparts point out that the student loan industry continues to lobby the U.S. Department of Education for more control and autonomy at a time when it is still in urgent need of reform.” – Source
If the Department of Education was doing anything to hold schools and lenders accountable for the massive levels of student loan debt issued with fraud and serviced with incompetence then maybe all of these events would not matter, because they would not happen or be allowed to continue.
But I’ve got an old expression for you: If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.

*******

This article appeared on the Personal Finance Syndication Network web site and also on The Get Out of Debt Guy site. 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.

Monday, June 26, 2017

Trump should fire Betsy DeVos as Secretary of Education for gross incompetence. If Trump fails to act, Congress needs to do whatever is necessary to drive her from office

Let us take our minds off Russia for just a moment and focus on a massive economic problem that affects millions of Americans: the collapsing student loan program. Forty-three million Americans now hold about $1.4 trillion in student loan debt, and a lot of that money will never be paid back. 

As the New York Times recently reported, borrowers defaulted at the rate of 3,000 a day last year; and a total of more than 8 million people are in default. Default rates are highest in the for-profit college industry; five-year default rates in this sector are almost 50 percent.

The Department of Education is trying to keep default rates down by pressuring borrowers into income-driven repayment plans, but that tactic isn't working. Nearly half the people who sign up for those plans drop out within three years; and a lot of defaulting borrowers don't even bother to sign up.

In short, the federal student loan program is a train wreck, a catastrophe, an unmitigated disaster. 

As President Trump's Secretary of Education, it is Betsy DeVos's job to address the student-loan crisis; but in a series of wrongheaded decisions, DeVos has demonstrated that she is either grossly incompetent or in bed with the sleazy for-profit college industry. President Trump must fire her immediately, and if he does not, then Congress needs to bring all its forces to bear to drive her from office.

Here is a brief list of DeVos's fumbling misbehavior:

First, she hired consultants from the for-profit industry to give her advice, which is like a hiring a burglar to be a bank guard.

Second, she canceled the Obama administration's order that restrained loan processors from slapping huge fees on student-loan defaulters who quickly brought their loans back into repayment status.

Third, she is overhauling the Department of Education's new regulations for processing borrowers' applications to have their student loans forgiven based on claims of institutional fraud. This bureaucratic delay tactic will leave thousands of defrauded college borrowers in limbo for months and even years.

And finally, DeVos blocked implementation of a Department of Education directive banning for-profit colleges from forcing students to sign mandatory arbitration clauses as a condition of enrollment.

In my view, allowing the for-profit colleges to continue including mandatory arbitration clauses in their student enrollment documents is DeVos's most outrageous decision. Mandatory arbitration clauses bar students from suing their institution for fraud and prevent students from banding together to file class actions suits against colleges that engage in massive fraudulent behavior.

About a year ago, the Century Foundation urged the Department of Education to require the for-profits to stop including mandatory arbitration clauses in their enrollment documents, and two for-profits--University of Phoenix and DeVry University, publicly agreed to abandoned them voluntarily.

Numerous commentators have criticized the use of mandatory arbitration agreements when they are used by corporations to insulate them from lawsuits. Just within the last year, two courts have struck down mandatory arbitration clauses that for-profit education providers tried to enforce. In one case, a university's arbitration agreement required California students to arbitrate their claims in Indiana!

Since taking office, DeVos has shown herself to be a stooge for the for-profit college industry. If she knowingly does the bidding of this shady racket, then she behaving reprehensibly. If she is acting on the industry's behalf out of ignorance, then she's grossly incompetent.

But her motivations don't matter. Betsy DeVos has got to go. If Trump doesn't fire her soon, then federal legislators should join in a bipartisan call for her removal. Americans deserve a competent Secretary of Education who will act in the public interest, not the interests of the venal for-profit college industry. 

References

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

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

Seth Frothman & Rich Williams. New data documents a disturbing cycle of defaults for struggling student-loan borrowers. Consumer Financial Protection Bureau, May 15, 2017. 

Tariq Habash & Robert Shireman. How College Enrollment Contracts Limit Students' Rights. Century Foundation, April 28, 2016.

Magno v. The College Network, Inc.. (Cal. Ct. App. 2016).

Morgan v. Sanford Brown Institute, 137 A.3d 1168 (N.J. 2016).

News Release. Apollo Education Group to Eliminate Mandatory Arbitration Clauses. May 19, 2016.


Thursday, June 15, 2017

Federal court orders the Department of Education to rule on Everest College student's request for debt cancellation: Sarah Dieffenbacher v. Betsy DeVos

Dieffenbacher v. U.S. Department of Education: A Student Borrower seeks debt relief on grounds of fraud

From 2007 to 2012, Sarah Dieffenbacher attended Everest College-Ontario Metro, a for-profit college located in Ontario, California. She took out $50,000 in federal student loans to fund her studies.

In March 2015, Dieffenbacher filed a "borrower defense" application with the U.S. Department of Education, petitioning to have her loans cancelled on the grounds that Everest had engaged in fraudulent conduct in violation of California law.

In August 2015, Dieffenbacher defaulted on her loans. Educational Credit Management Corporation, her loan servicer, sent her a notice stating that it intended to begin garnishing her wages.

Dieffenbacher filed a timely objection and a request for a hearing. This objection consisted of a 29-page letter accompanied by 254 pages of exhibits. These exhibits included Diefenbacher's sworn statement and records from the California Attorney General's Office showing documented misconduct by Everest and its parent company, Corinthian Colleges.

On January 20, 2017, Dieffenbacher's attorney received a letter from the Department of Education stating that DOE was denying Dieffenbacher's objection to having her wages garnished. DOE said its decision was conclusive and that Dieffenbacher's only recourse was to file a lawsuit in federal court.

This Dieffenbacher did. In her lawsuit, Dieffenbacher claimed that DOE's decision was arbitrary and capricious and violated the Administrative Procedure Act.

Without admitting fault, DOE filed a motion to remand Dieffenbacher's case back to the Department so that its decision could be "reconsidered and re-issued in a way that would not be arbitrary, capricious, or contrary to law."

Judge Virginia Phillips' decision

Last week, Judge Virginia Phillips, a California federal judge, denied DOE's request for a voluntary remand. In Judge Phillips' view, the Department "[had] not established a substantial or legitimate concern guiding its request for a remand."

The judge pointed out that Dieffenbacher's application for loan forgiveness had been pending for more than two years and that the Department had made contradictory arguments about what it intended to do.

Indeed, Judge Phillips' suggested that the Department of Education was attempting to get Dieffenbacher out of court so that it could garnish her wages. "The Department's request for remand appears to be an attempt to evade judicial review so that it can retain the ability to garnish [Dieffenbacher's] wages without a conclusive ruling as to the enforceability of her loans," the judge observed. "Under such circumstances, the remand request appears both frivolous and in bad faith" [emphasis supplied].

Judge Phillips concluded her opinion by ordering DOE to rule on Dieffenbacher's loan cancellation application within 90 days. If the Department fails to comply, the judge added, she would proceed to hear Dieffenbacher's claims on the merits.

The Dieffenbacher case: More Evidence of the Department of Education's Stall Tactics

The Dieffenbacher case is the latest example of the Department of Education's efforts to avoid dealing with student borrowers' legitimate applications for loan forgiveness.

In the Price case, which I wrote about recently, DOE took six years to rule on a University of Phoenix graduate's application for loan forgiveness based on her claim that Phoenix falsely certified that she had a high school diploma when she began her studies. Ultimately, DOE disallowed the claim. A federal court in Texas countermanded DOE's ruling and discharged the debt.

Last January, DOE sent a letter to 23,000 former students at Corinthian Colleges, assuring them that their loans had been approved for cancellation and that the loans would be forgiven within the next 60 to 120 days. Almost six months later, DOE has not kept its promise, which prompted a protest letter from 19 states' attorneys general.
So what's going on?

I think Betsy DeVos's DOE pencil pushers have added up the costs associated with discharging students loans under DOE's own rules and regulations and have found those costs to be enormous. DOE is trying to put the brakes on its administrative loan forgiveness process. The Department announced this week that it is rewriting the "borrow defense" regulations that Dieffenbacher relied on.

BUT IT IS TOO LATE. DeVos's efforts to slow down the loan forgiveness process will not withstand scrutiny in the federal courts, as the Price case and the Dieffenbacher case demonstrate.

The Consumer Financial Protection Bureau said in a recent report that eight million student borrowers are in default, with nearly 1.1 million defaulting in 2016 alone. As CFPB pointed out, people are defaulting at the rate of 2 borrowers every minute!

Two things must be done to bring the federal student loan program under control. First, the federal government must stop sending student aid dollars to for-profit colleges, which have shockingly high student-loan default rates.

Second, Congress must amend the Bankruptcy Code to allow distressed student borrowers to discharge their student loans in bankruptcy like any other unsecured consumer debt.

But Betsy DeVos's Department of Education refuses to face reality while it stalls for time. In the end, this approach is going to enrage millions of student borrowers. These borrowers are also voters, and they will vote for any politician who promises real debt relief to the legions of student borrowers who will never pay back their loans.

References


Dieffenbacher v. U.S. Dep't of Educ., ED CV 17-342-VAP (KK) (C.D. Cal. June 9, 2017).

Seth Frotman & Rich Williams. New data documents a disturbing cycle of defaults for struggling student loan borrowers. Consumer Financial Protection Bureau, May 15, 2017.

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

Andrew Kreighbaum. Court Orders Education Department to End Delay in Ruling on Loan Discharge. Inside Higher ED, June 9, 2017.

Andrew Kreighbaum. Education Department to hit pause on two primary Obama regulations aimed at for-profitsInside Higher ED, June 15, 2017.

Andrew Kreighbaum. State AGs Want Action on Student Loan DischargeInside Higher Ed, June 6, 2017.

Lisa Madigan, Illinois Attorney General. Letter to Betsy DeVos, US. Secretary of Education, June 5, 2017.

Price v. U.S. Dep't of Educ., 209 Fed. Supp. 3d 925 (S.D. Tex. 2016). [Link is to U.S. Magistrate's opinion, which was affirmed by a U.S. District Judge.]
 


Tuesday, June 6, 2017

Department of Education is slow to forgive loans of student borrowers defrauded by Corinthian Colleges: State Attorneys General urge DOE to move more quickly

Yesterday, nineteen state attorneys general and the Director of the Hawaii Office of Consumer Protection delivered a letter to Betsy DeVos, U.S. Education Secretary, urging the Department of Education to quickly process fraud claims brought by former students of Corinthian Colleges.

The state AGs asked DeVos to approve "swift automatic group discharge" to students in Corinthian cohorts where fraud has been found. Alternatively, the AGs asked DeVos to process individual fraud claims faster.

Corinthian Colleges closed and filed for bankruptcy in 2015, leaving behind more than 350,000 former students who took out loans to pay Corinthian's tuition. Many of these student borrowers were induced to attend Corinthian through fraud, and the nineteen AGs claim there are defrauded Corinthian students in all 50 states.

So far, DOE has discharged 27,000 borrowers from their federal loan debt, but that number is a small fraction of the former students who are entitled to debt relief. Thousands have filed "borrower defense" claims, asking DOE for loan forgiveness, but DOE is not processing these claims quickly. Meanwhile, many Corinthians students are still paying on their loans or defaulted and are subject to having their wages garnished and their credit ruined.

According to the state AGs, DOE notified 23,000 Corinthian student borrowers in January that their loan forgiveness applications had been approved and that "forgiveness should be completed within the next 60-120 days." It's been nearly 180 days since that announcement, and these loans have still not been discharged.

What's going on?

I think the Department of Education is simply overwhelmed by the meltdown of the student loan program. Almost half the people in a recent cohort of students who attended for-profit colleges defaulted within five years. According to a recent article in the Wall Street Journal, half the students who attended more than 1,000 colleges and schools have not paid down one dime of their student loans seven years after their repayment obligations began.

In addition, the first beneficiaries of the Public Service Loan Forgiveness Program will be eligible for debt relief before the end of this year, and DOE has no idea how many people are eligible to have their loans discharged under that program.

Personally, I think Secretary DeVos should adopt the AGs' suggestion and grant swift automatic group discharges to all Corinthian students who were in DOE's "Designated Fraud Cohorts." Or better yet, I think DOE should forgive the loans of all 350,000 former students.

Admittedly, there are probably some people who completed a Corinthian program and actually got a good job, but I'll bet there aren't many. Undoubtedly, the default rate for Corinthian students is extraordinarily high largely due to the fact that Corinthian's students did not get well-paying jobs at the conclusion of their studies.

I recognize there are risks associated with a mass loan forgiveness program. If all 300,000 of Corinthian's former students are granted a discharge, then ITT Tech's former students will ask for blanket loan forgiveness. ITT Tech also closed and filed for bankruptcy, and it has 200,000 former students.

It is shocking to contemplate, but millions of Americans will never pay back their student loans. In addition to the for-profit college students, there are the law graduates who accumulated mountains of debt and can't find law jobs. And then there are the poor saps who got liberal arts degrees from expensive liberal arts colleges; many of them will never pay back their loans.

The 19 state AGs are right to urge Secretary DeVos to grant automatic group discharges for thousands of former Corinthian students. But Corinthian Colleges is the tip of the iceberg. Millions of student borrowers will never pay back their loans, and the ultimate loss to taxpayers will be in the billions.



References

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

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

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 ratesWashington, DC: Brookings Institution (2015).


Andrew Kreighbaum. State AGs Want Action on Student Loan Discharge. Inside Higher Ed, June 6, 2017.

Lisa Madigan, Illinois Attorney General. Letter to Betsy DeVos, US. Secretary of Education, June 5, 2017.

Monday, January 23, 2017

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=

Tuesday, January 17, 2017

Obama's Department of Education grants automatic loan relief for all students who attended the American Career Institute: A puny effort--too little, too late

Last Friday, the U.S. Department of Education granted automatic debt relief to all students who attended American Career Institute. As Inside Higher Ed pointed out, this is "the first time the department has granted automatic loan relief to all students of a college without requiring individual applications." About 650 former ACI students received closed school discharges; but the rest--about 3,900 students--are getting their loans discharged en masse. In addition, DOE also announced it will grant Borrower Defense discharges to 28,000 student who had attended Corinthian Colleges.

This is a good thing, of course; but why now? And why so small a gesture?

After all, Corinthian Colleges, which closed and filed bankruptcy under allegations of fraud, had more than 300,000 students; and ITT, which also filed bankruptcy, had 191,000 enrollees.  Yet so far, DOE has only grant Borrower Defense discharges to 28,000 former Corinthian students.

As for the small size of the gesture, I think Luke Herrine, legal director of the Debt Collective, got it right. "There's just no coherent logic whatsoever," he said. "The only thing I can think of is it would be deeply embarrassing for them to stop collecting on so much debt." It is one thing to forgive the loans of 4,000 ACI students and a small percentage of Corinthian students; it is quite another to discharge the debt of a half million people.

As for the timing, I think the Obama administration has known for quite a while that the only responsible thing to do about millions of people who took out loans to attend flaky for-profit colleges is to grant massive debt relief to nearly everyone without the necessity of reviewing each case individually. But that is a difficult thing to do politically.

I think DOE waited until a week before Obama leaves officer to offer token relief to ACI students in order to highlight the student-loan crisis when there is no time left for the Obama administration to do something substantive.

Like a retreating army that spikes its cannons before being overwhelmed by the enemy, the Obama administration may have wanted to publicize the student loan crisis to create difficulties for Trump.

Here are my thoughts on DOE's surprising but welcome action:

1) Granting debt relief to ACI students is the first small step toward doing what the federal government will inevitably be forced to do: forgive student debt to nearly all of the millions of people who attended for-profit colleges and received no economic benefit.  Billions of dollars in student loans will eventually be written off.

2) I think Obama's DOE took the action that it did for ACI students because the Obama team thinks Trump, who takes office in a few days, will try to prop up the for profits at the expense of exploited students.

But the Obamacrats may be wrong. After all, President-elect Trump knows how to read a  balance sheet, and he may quickly grasp the fact that the student loan program is a catastrophe. 

And if Mr. Trump realizes the enormity of the student loan crisis, he might actually take decisive action.  Everyone agrees that Mr. Trump understands bankruptcy and its value for distressed debtors.  President Trump might surprise everyone and ease the path to bankruptcy relief for millions of student loan debtors who will never be able to pay back their college loans.



References

Andrew Kreighbaum. Education Department announces thousands of new loan discharges. Inside Higher Ed, January 16, 2017.



Wednesday, December 21, 2016

Department of Education's fumbling efforts to aid students defrauded by Corinthian Colleges: No relief for the Walking Dead

David Goldman wrote a  highly informative article for Bloomberg yesterday about the Department of Education's fumbling efforts to process Borrower Defense claims filed by people who claim they were defrauded by Corinthian Colleges. I am grateful to Steve Rhode for calling my attention to Goldman's article.

Essentially, here's the story. Corinthian Colleges filed for bankruptcy last year under a cloud of fraud allegations. In fact, the the State of California got a $1.1 billion judgment against Corinthian for its wrongdoing in that state. At the time it filed bankruptcy, Corinthian had 335,000 former students.

DOE has an administrative process whereby it will forgive the student loans taken out by students who were defrauded by for-profit institutions. So far, 82,000 former Corinthian students have filed those claims.  But DOE's process for reviewing those claims is slow. Goldman reported that so far only about 15,000 students have gotten debt relief through the Borrower Defense process.

DOE won't grant blanket forgiveness to all of Corinthian's former students, arguing that not all of them were defrauded.  But in fact, a high percentage were defrauded. As Goldman reported, "Department officials concluded that Corinthian engaged in 'widesperead placement rate fraud' for almost 800 programs at nearly every one of its more than 100 U.S. campuses."

 David Vladek, a former director of the Federal Trade Commission's consumer protection division, said this about Corinthian's former students: "These kids by and large have been scammed, and the Department of Education in some sense is continuing the harm by making them jump through hoops to get the relief to which they are entitled."

But it gets worse. Not only is DOE not processing loan-forgiveness claims quickly, it is actually employing debt collectors to hound Corinthian's former students, even though most of these students are entitled to have their loans forgiven.  Although DOE states on its web site that it will stop all loan collection efforts on Corinthian borrowers, that statement is not true.

Indeed, DOE's debt collection activities are a hell of a lot more efficient than their loan forgiveness process. As Maggie Robb, a consumer-rights attorney, observed, " When the Department of Education wants to collect money, it doesn't stop."

Goldman's story focused solely on Corinthian Colleges' former students, but there are hundreds of thousands of people who took out loans to attend for-profit colleges who have been scammed. I know one woman with a documented claim for fraud against DeVry University who filed a Borrower Defense claim with DOE last August and still hasn't gotten a response from DOE.

In short, people who have been defrauded by the for-profit college industry are the real life representations of the Walking Dead. Fraud victims have debt hanging over their heads, which DOE has not discharged; and if they default on their loans they are subject to abusive debt collection tactics, wage garnishment, income-tax offsets, and ruined credit. Many are continuing to make loan payments on debt they don't really owe; and most did not get fair value for their for-profit college experiences.

In DOE's defense, the Department is simply overwhelmed by the implosion of the for-profit college industry. It does not have the resources to process claims by Corinthian students or to even notify those students that they may be entitled to debt relief. ITT's closure and bankruptcy will bring a deluge of new claims, and other for-profits are sure to follow over the next few months. (Globe University and Charlotte School of Law, for example, have been accused of misrepresentation and many of their students will be filing Borrower Defense claims.)

There is really only one sensible solution: DOE should allow all people who borrowed money to attend for-profit colleges and who are insolvent to file for bankruptcy relief in the federal bankruptcy courts. Whether or not a a particular student debtor can prove fraud should be irrelevant. If they took out loans to attend a for-profit college, the odds are better than even that they were scammed or did not get fair value for their money.

Image result for walking dead'
Students who were scammed by for-profit colleges are the Walking Dead.

Note: All quotations come from Mr. Goldman's article.

References

David Goldman. The U.S. Government Is Collecting Student Loans It Promised to Forgive, Bloomberg News, December 19, 2016.