The student loan crisis and the first 100 days: Please, President Trump, provide bankruptcy relief for distressed student-loan debtors

Hillary Clinton lost the presidential election, and we can throw her promise of a tuition-free college education in the ashcan. Meanwhile, the student loan crisis grows worse with each passing month.

Eleven million people have either defaulted on their loans or are delinquent in their payments. More than 5 million student-loan debtors are in long-term income based repayment plans that will never lead to loan payoffs.Several million student borrowers have loans in deferment or forbearance while interest continues to accrue on their loan balances.

Soon we will have a new president, and an exciting opportunity to look at the federal student loan program from a fresh perspective. What can President Trump do to bring relief to distressed college-loan debtors. Here are some ideas--respectfully submitted:

FIRST, TREAT THE WOUNDED.

President Trump can do several things quickly to alleviate the suffering.

Stop garnishing Social Security checks of loan defaulters. More than 150,000 elderly student-loan defaulters are seeing their Social Security checks garnished. President Trump could stop that practice on a dime. Admittedly, this would be a very small gesture; the number of garnishees is minuscule compared to the 43 million people who have outstanding student loans. But this symbolic act would signal that our government is not heartless.

Streamline the loan-forgiveness process for people who were defrauded by the for-profit colleges. DOE already has a procedure in place for forgiving student loans taken out by people who were defrauded by a for-profit college, but the administrative process is slow and cumbersome. For example, Corinthian Colleges and ITT both filed for bankruptcy, and many of their former students have valid fraud claims. So far, few of these victims have obtained relief from the Department of Education.

Why not simply forgive the student loans of everyone who took out a federal loan to attend these two institutions and others that closed while under investigation for fraudulent practices?

Force for-profit colleges to delete mandatory arbitration clauses from student enrollment documents. The Obama administration criticized mandatory arbitration clauses, but it didn't eliminate them. President Trump could sign an Executive Order banning all for-profit colleges from putting mandatory arbitration clauses in their student-enrollment documents.

Banning mandatory arbitration clauses would allow fraud victims to sue for-profit colleges and to bring class action suits. And by taking this step, President Trump would only be implementing a policy that President Obama endorsed but didn't get around to implementing.

Abolish unfair penalties and fees. Student borrowers who default on their loans are assessed enormous penalties by the debt collectors--18 percent and even more. President Trump's Department of Education could ban that practice or at least reduce the penalties to a more reasonable amount.

PLEASE PROVIDE REASONABLE BANKRUPTCY RELIEF FOR DISTRESSED STUDENT-LOAN DEBTORS.

The reforms I outlined are minor, although they could be implemented quickly through executive orders or the regulatory process. But the most important reform--reasonable access to the bankruptcy courts--will require a change in the Bankruptcy Code.

Please, President Trump, prevail on Congress to abolish 11 U.S.C. 523(a)(8) from the Bankruptcy Code--the provision that requires student-loan debtors to show undue hardship as a condition for discharging student loans in bankruptcy.

Millions of people borrowed too much money to get a college education, and they can't pay it back. Some were defrauded by for-profit colleges, some chose the wrong academic major, some did not complete their studies, and some paid far too much to get a liberal arts degree from an elite private college. More than a few fell off the economic ladder due to divorce or illness, including mental illness.

Regardless of the reason, most people took out student loans in good faith and millions of people can't pay them back. Surely a fair and humane justice system should allow these distressed debtors  reasonable access to the bankruptcy courts.

President Trump can address this problem in two ways:

• First, the President could direct the Department of Education and the loan guaranty agencies (the debt collectors) not to oppose bankruptcy relief for honest but unfortunate debtors--and that's most of the people who took out student loans and can't repay them.

• Second, the President could encourage Congress to repeal the "undue hardship" provision from the Bankruptcy Code.

Critics will say that bankruptcy relief gives deadbeat debtors a free ride, but in fact, most people who defaulted on their loans have suffered enough.from the penalties that have rained down on their heads.

More importantly, our nation's heartless attitude about student-loan default has discouraged millions of Americans and helped drive them out of the economy. President Trump has promised middle-class and working-class Americans an opportunity for a fresh start. Let's make sure that overburdened student-loan debtors get a fresh start too.

References

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

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

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

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

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

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=

U.S. General Accounting Office. Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Borrowers. GAO-14-866T. Washington, DC: General Accounting Office. http://www.gao.gov/products/GAO-14-866T

The Department of Education strips ACICS of accrediting authority: It's time to pull the plug on the rapacious for-profit college industry

Turn out the lights

The party's over

They say that

All good things must end

Willy Nelson

Turn Out the Lights

Last month, the Department of Education stripped the Accrediting Council for Independent Colleges and Schools (ACICS) of its accrediting authority--basically signing ACICS's death certificate. ACICS will appeal of course, and there may be litigation; but for now at least ACICS is essentially out of business.

ACICS accredited 245 post-secondary institutions, mostly for-profit colleges.  These institutions are scrambling to find a new accrediting agency, which is a life-or-death issue for them. DOE requires colleges to be accredited by  a government-approved accrediting agency in order to receive federal student aid money.  Without regular infusions of federal cash, none of these colleges would last a month.

According to Inside Higher Ed, more than 100 colleges that were accredited by ACICS have applied for accreditation with another accrediting body--the Accrediting Commission of Career Schools and Colleges (ACCSC).  ACCSC also accredits for-profit colleges (more than 300), and many for-profits will probably find a new accrediting home with this agency.

But, as Willy Nelson once observed, when the party's over, someone should turn out the lights. And the party is about over for the rapacious for-profit college industry.  

Corinthian Colleges and ITT have filed for bankruptcy, leaving thousands of students in the lurch. As state and federal regulatory agencies step up the pressure on the predatory for-profit college industry, more for-profit schools will close. DOE has more than 250 proprietary schools on its "Heightened Cash Monitoring" watch list,an indication that the financial viability of this industry is shaky.  Publicly traded for-profits have seen their stock prices plummet as investors bolt for the exits.

Shutting down the for-profit colleges will be messy. The for-profits have been incredibly litigious, and they will certainly sue to protect their interests. But with each passing day, more unsuspecting and unsophisticated young people takes out student loans to attend  for-profit colleges; and many of them never recoup their investments. Indeed almost half of the people who take out federal student loans to attend a for-profit college default within five years of beginning repayment.

It is going to be ugly, and its going to be complicated. But the time has come to turn out the lights on the for-profit college industry, which has harmed so many innocent and unsuspecting American young people.

References

Scott Jaschik. Slight Drop in Colleges in Heightened Cash Monitoring. Inside Higher Education, July 25, 2016. Accessible at https://www.insidehighered.com/quicktakes/2016/07/25/slight-drop-colleges-heightened-cash-monitoring?utm_source=Inside+Higher+Ed&utm_campaign=8991789a59-DNU20160725&utm_medium=email&utm_term=0_1fcbc04421-8991789a59-198564813

Paul Fain, Hundreds of colleges, many for-profits, seek a new accreditor. Inside Higher Ed, October 6, 2016. Accessible at https://www.insidehighered.com/news/2016/10/06/hundreds-colleges-many-profits-seek-new-accreditor

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

20-year Income-Based Repayment Plans for Student-Loan Debtors: A Return to Feudalism

Paul Craig Roberts wrote a chilling essay a couple of months ago in which he argued that Greece is being looted by its corporate creditors. According to Roberts, the banks don't want Greece to pay off its debts because the banks ultimately intend to strip Greece of its national assets, including its ports and nationally protected islands.

Here is the core of Roberts' argument:

The banks don't want Greece to be able to service its debt, because the banks intend to use Greece's inability to service the debt in order to loot Greece of its assets and resources and in order to roll back the social safety net put in place during the 20th century. Neoliberalism intends to reestablish feudalism . . . . The way Germany sees it, the [International Monetary Fund] is supposed to lend Greece the money with which to repay the private German banks. Then the IMF is to be repaid by forcing Greece to reduce or abolish old age pensions, reduce public services and employment, and use the revenues saved to repay the IMF. As these amounts will be insufficient, additional austerity measures are imposed that require Greece to sell its national assets, such as public water companies and ports and protected Greek islands to foreign investors, principally the banks themselves or their major clients. (emphasis supplied)

In essence, Roberts is predicting that Greece will eventually cease to be a sovereign nation; it will become a feudal serfdom controlled by private investors--principally German banks.

Something similar is occurring in American higher education. Private investors are operating for-profit colleges for the purpose of looting American taxpayers, who provide the federal student loan money that naive students use to pay the colleges' outlandish tuition prices. Almost half the students who take out student loans to attend for-profit colleges default within five years, but the for-profit colleges doesn't care. They got their money upfront.

How does this equate to feudalism? The Obama administration knows that student-loan default rates are shockingly high, but it is covering up this problem by forcing students into long-term income-based repayment plans--plans that require former students to pay a percentage of their income to the government for 20, 25, or even 30 years. In a very real sense, these long-term debtors have become feudal serfs, indebted for almost their entire working lives for the privilege of attending a shitty for-profit college. (Perhaps I should have used a different word than shitty--just can't think of one right now.)

And it's not just the for-profit college owners who benefit from this scam. The public colleges and the not-for-profit private colleges are collecting their share of the loot--jacking up tuition prices, knowing that students will simply borrow more and more money to pay their escalating tuition bills.

In fact, college presidents have become the 21st century equivalents of feudal lords--living in palatial presidential homes, flying around the world in private jets to hob nob with donors, and collecting unseemly salaries, while low-paid adjuncts teach the classes much like the serfs of the middle ages.

So, student-loan debtors, you aren't the only ones being raped by the transnational financial oligarchs. The Greek people are your companions in misery.

References

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default rates. Washington, DC: Brookings Institution (2015). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults

Paul Craig Robert. We Have Entered the Looting Stage of Capitalism. Infowars, May 27, 2016. Accessible at http://www.infowars.com/we-have-entered-the-looting-stage-of-capitalism/

Consumer Reports' article on student loan debt: A missed opportunity to give students some clear warnings

Consumer Reports' August issue ran a cover story on student loans, which led with this arresting quote: "I Kind of Ruined My Life By Going to College." An inside article profiled several students who were struggling to pay back enormous student loan debt.

• For example, Jackie Krowen borrowed $128,000 to attend three colleges. She now owes $152,000 and is making loan payments of $1200 a month.  She told Consumer Reports she didn't understand how much interest could accrue when she took out her loans.

• Jessie Suren borrowed $72,000 to attend a private Catholic school. She now owes $90,000 and makes payments of $900 a month. She works at a sales job that pays $39,000 a year. Here entire income comes from commissions.

• Saul Newton borrowed $10,000 to attend University of Wisconsin at Stevens Point. He dropped out to join the Army and now owes $23,000. He works as a veterans' activist making $28,800 a year.

 The Consumer Reports article pointed out hat 45 percent of people surveyed said that their college experience was not worth the cost, and 47 percent said if they had it to do over again they would have attended a cheaper school and incurred less student-loan debt.

Anyone making college plans should read the Consumers Reports story. Nevertheless, the article missed an opportunity to give potential students several dire warnings:

1) First, do not attend a for-profit college. The research shows that for-profit colleges charge more for their programs than public institutions, that their student-loan default rates are shockingly high, and that a high percentage of their students don't complete their programs. Students should find a public-college alternative to a for-profit college education. I don't think there are any exceptions to this rule.

2) Never allow a parent or loved one to co-sign a loan. Parents who co-sign student loans for their children are on the hook to pay those loans back, and it is as difficult for a co-signer to discharge a student loan in bankruptcy as it is for the primary borrower. If your college plans depends on getting a loved one to co-sign your student loans, then you need a different plan.

3) Don't take out a student loan from a private lender. Private loans generally have higher interest rates than federal loans, and private loans don't have alternative payment plans if a borrower gets in financial trouble and can't make monthly loan payments. Again, if your college plan requires you to take out a private loan, you need to make another plan.

4) Don't borrow a lot of money to obtain a liberal arts degree from a high-priced elite college. People foolishly think a degree from a prestigious university will pay off, no matter what major they choose. That is not true. A person who borrows $100,000 to get a religious studies degree from NYU will regret it.

5) Don't borrow money to get an MBA or law degree from a mediocre school, particularly if you know you are not going to graduate in the top of your class. Anyone contemplating law school should read Paul Campos' book titled Don't Go to Law School(Unless). Campos strongly warns against borrowing money to attend a second- or third-tier law school. It just doesn't make economic sense given the dismal job market for lawyers, particularly if you don't graduate in the top of your class. In my opinion, the same advice holds for MBA programs. Borrowing a lot of money to get an MBA from a nondescript university is unlikely to pay off financially.

In his book, Paul Campos also warned against the "Special Snowflake Syndrome"--the irrational belief that you can beat the odds. For example, you may think you will study especially hard and graduate in the top 10 percent of your class. But Campos points out that 90 percent of law students don't graduate in the top 10 percent of their class.

Alternatively, you may think you are a special person with great interpersonal skills and that you will do well in a law career even if you graduate at the bottom of your class from a mediocre law school. But statistics don't lie; most  people who borrow $150,000 to attend Nowhereville School of Law aren't going to earn a salary that will make that investment pay off.

Campos' advice for prospective law students applies to everyone going to college. Do your research and make an informed decision about where to go to school and what to study. Don't assume the world will be your oyster simply because you have a bachelor's degree in multiculturalism from a hot-shot Eastern college.

In summary, you should read the recent Consumer Reports story if you are making plans to go to college. But you should also heed the warnings in this blog. Millions of people made bad decisions about financing their college educations. Five million are now in long-term income-based repayment plans that stretch their monthly loan payments out for 20 and even 25 years.

You want to improve your life by going to college; you don't want to wind up as a sharecropper--paying a percentage of your income to the government for the majority of your working life just because you made some bad financial decisions when you were a college freshman.

References

Paul Campos. (2012). Don't Go to College (Unless). Lexington, KY). 

Lives on Hold. Consumer Reports, August 2016, 29-39. Accessible at http://www.consumerreports.org/student-loan-debt-crisis/lives-on-hold/

The Department of Education has 517 colleges on its"Heightened Cash Monitoring" list due to perceived risks to students and taxpayers: Is your college on the list?

The Department of Education recently released its updated list of colleges that are targeted for "heightened cash monitoring" due DOE concerns about risks these colleges pose to students or taxpayers.  The latest list names 517 colleges, slightly down from the 528 colleges that were on the list in March of 2015. Colleges on the list get more intense federal oversight than other schools.

How does a college get on this list? There are a variety of reasons, including accrediting problems, audit concerns and "financial responsibility," an umbrella term DOE uses to  cover a range of financial issues.

Not surprisingly, a majority of the colleges on the list are proprietary schools, including such esteemed institutions as Toni & Guy Hairdressing Academy and Educators of Beauty College of Cosmetology. But there were 81 public institutions on the "heightened cash monitoring" list, including regional colleges like University of North Alabama and Southwest Minnesota State University.

And DOE flagged no fewer than 40 foreign institutions for heightened cash monitoring, including Hebrew University in Jerusalem, London International Film School, and Pentecostal Theological Seminary in London.  A couple of Polish medical schools also made the list: Medical University of Gdansk and the Medical University of Silesia.

Quite a few nonprofit liberal arts colleges are on DOE's heightened cash monitoring list, including several schools with religious affiliations. It is difficult to tell how many private colleges have religious ties because a college's name may not give it away. Kuyper College in Grand Rapids, Michigan, for example, describes itself as a "minister focused Christian leadership college," but you have to go to the college's web site to find that out.

In fact, of the 32 colleges listed on the first page of DOE's print out of schools under heightened cash monitoring, 13 had some sort of religious tie or heritage, including Kentucky Wesleyan College, St. Catharine College, Eastern Nazarene College, and MacMurray College in Illinois, which was founded, according to its web site, by "devout and erudite Methodist clergymen."

Of course not all 517 colleges marked for enhanced cash monitoring will close. Most of the regional state universities on the list will probably muddle along indefinitely, propped up by state revenues.

But I think a lot of the schools on DOE's list will close. St. Catharine College is in receivership right now.

And what is the future of Shimer College in Chicago, which was recently ranked as one of the worst colleges in America and has only about 100 undergraduates? Shimer was founded in 1853 as Mount Carroll Seminary. Over time, the school evolved to become what it is today, a college that exists on two floors of a rented building and has no clubs or student societies. In 2012 it was ranked the second smallest college in America, after Alaska Bible College.

Of course, Shimer has its defenders and probably has many sterling qualities. Nevertheless, how long do you think Shimer College will last?

DOE's most recent list of colleges under "heightened cash scrutiny" should prompt us to ask several questions:

1) First, why is the federal government lending money for Americans to attend foreign colleges, including a couple of dozen foreign medical schools and several theological institutions? After all, our own country has more than 5,000 postsecondary institutions that participate in the federal student aid program, Does the government really need to finance foreign study?

2) A lot of for-profit schools are going to close in coming years.  Millions of students who attended these institutions received substandard educational experiences that did not lead to well-paying jobs.What should our government do to provide relief to the millions of people who took out loans to enroll in dodgy for-profit schools?

3) Hundreds of small liberal arts colleges are under financial stress, as evidenced by DOE's most recent "heightened cash scrutiny" list and by the escalating closure rate among these institutions. In terms of our nation's overall educational health, should we be concerned about the declining number of private liberal arts colleges, many of which are religiously affiliated?

One thing is certain. Hundreds of American postsecondary institutions, from Toni and Guy's Hairdressing Academy to Harvard, depend heavily on federal student aid money; and a great many colleges could not survive a week without regular infusions of federal funds. This has enabled colleges to hike their tuition rates and increase their annual budgets.

But the party is coming to an end. People have figured out that postsecondary education costs too much--whether it is obtained at a bottom-tier for-profit institution or an elite private liberal arts college. To fix this mess, we must do two things: We must drive down the cost of going to college, and we must provide bankruptcy relief for the millions of worthy souls who took out student loans in good faith and got very little to show for it.

Francis Wood Shimer,: founder of Shimer College

References

Scott Jaschik. Slight Drop in Colleges in Heightened Cash Monitoring. Inside Higher Education, July 25, 2016. Accessible at https://www.insidehighered.com/quicktakes/2016/07/25/slight-drop-colleges-heightened-cash-monitoring?utm_source=Inside+Higher+Ed&utm_campaign=8991789a59-DNU20160725&utm_medium=email&utm_term=0_1fcbc04421-8991789a59-198564813

Ben Miller. America's Worst Colleges. Washington Monthly, September/October 2014. Accessible at http://washingtonmonthly.com/magazine/septoct-2014/americas-worst-colleges/

Jon Ronson. Shimer College; the worst school in America? The Guardian, December 6, 2014. Accessible at https://www.theguardian.com/education/2014/dec/06/shimer-college-illinois-worst-school-america

Michael Stratford, Education Department will release list of colleges found to be risking for students, taxpayers. Inside Higher Education, March 30, 2015. Accessible at https://www.insidehighered.com/news/2015/03/30/education-department-will-release-list-colleges-found-be-risky-students-taxpayers

A California court strikes an education provider's mandatory arbitration clause as being unconscionable: Magno v. The College Netwwork, Inc.

For years, for-profit colleges have required students to sign mandatory arbitration clauses as part of their student enrollment documents. These clauses prohibit students from suing the institutions they attended for fraud or misrepresentation. Instead, the clauses force students to arbitrate their claims in a forum that is often more favorable for the college than for the aggrieved student.

The Department of Education recently criticized this practice and is working on some regulations that will prohibit or sharply limit the ability of colleges to stick arbitration clauses in their enrollment documents. Last May, University of Phoenix  announced that it will abandon its practice of requiring students to sign arbitration agreements.

Magno v. The College Network, Inc.

Last month, a California appellate court invalidated the arbitration clause in a purchase agreement offered by The College Network, Inc., an education provider based in Indiana but operating in California.  Entitled Magno v. The College Network, Inc., the decision strikes a strong blow against a practice that has sharply limited the ability of college students to sue their for-profit colleges when they are hoodwinked by aggressive and misleading college recruiters.

Here are the facts of the case as outlined by the California Court of Appeals for the Fourth Appellate District:

Bernadette Magno, Rosanna Garcia, and Sheree Rudio were Licensed Vocational Nurses (LVNs) in California who sought to become Registered Nurses. A recruiting representative for The College Network Incorporated (TCN) encouraged the three to enroll in TCN's partnership with Indiana State University (ISU) and California State University (CSU). The recruiter told them they could complete much of the necessary coursework for a B.S. degree in Nursing through ISU's distance-learning program and complete their clinical training with CSU.

Magno and her companions signed up for the program, but they found out later that ISU had suspended its LVN to B.S. nursing program. They sued TCN in a California court for violation of California consumer-protection laws. They alleged that TCN concealed important information and falsely represented that enrolling in the TCN program would qualify them to enter ISU's nursing program.

TCN responded to the suit by asking a California trial court to compel the plaintiffs to arbitrate their claims in accordance with an arbitration clause in the purchase agreement each of them had signed. That agreement required Magno and her co-plaintiffs to arbitrate their claims in Indiana before an arbitrator chosen by TCN.

Fortunately, the trial court denied TCN's request, and the trial court's decision was upheld on appeal. The appellate court acknowledged that arbitration clauses are generally favored as a way to settle disputes.  Nevertheless, arbitration agreements will be struck down if they were both procedurally and substantively unconscionable.

The arbitration clause was procedurally unconscionable

As the court explained, an arbitration agreement is procedurally unconscionable if the weaker party lacks the ability to negotiate and has no meaningful choice but to sign the agreement or if the disadvantaged party was surprised by the arbitration clause.

In the California court's opinion, the arbitration clause was procedurally unconscionable
in both regards. "Plaintiffs were young, were rushed through the signing process, had no ability to negotiate, did not see the arbitration language 'buried on the back of the preprinted carbon paper forms,' and did not separately initial the arbitration clause."

Moreover, the plaintiffs testified that they were not sophisticated and that TCN's recruiter told them "how everything would be fine and to simply sign here and there." In addition, the recruiter told the plaintiffs they would get a discount if they signed right away. And the plaintiffs also testified that they were unaware of the arbitration clause until after they filed suit.

Based on this evidence, the appellate flatly court ruled that the arbitration clause was procedurally unconscionable. "The arbitration agreement is an adhesion contract; it lies within a standardized form drafted and imposed by a party with superior bargaining strength, leaving Plaintiffs with only the option of adhering to the contract or rejecting it."

The arbitration clause was substantively unconscionable

The court then looked at the language of the arbitration clause and found it to be substantively unconscionable as well because the clause was "unreasonably favorable to the more powerful party." First of all, the court pointed out, the clause required the plaintiffs, who were all California residents, to arbitrate their dispute with TCN in Indiana. This, in the court's view, was substantively unconscionable. After all, TCN solicited the  plaintiffs' business in California, and plaintiffs would not have reasonably expected to be forced to arbitrate their disputes with TCN in Indiana.

Nor was the clause less pernicious because it permitted the plaintiffs to participate in the arbitration by phone or video. This forced Magno and her co-plaintiffs to "choose whether to incur significant expenses to pursue their claims in an unreasonable forum or to appear remotely, foregoing the ability to testify in person, while TCN, a company that solicited business in California, participates in proceedings in its own backyard."

Also unconscionable in the court's opinion was the provision that TCN got to unilaterally choose the arbitrator. Although plaintiffs were permitted to withhold their consent to TCN's choice so long as consent was "not unreasonably withheld," that did not alter the fact that TCN had the unilateral right to select the arbitrator.

Finally, the appellate court pointed out that the arbitration clause required the plaintiffs to present their claims within one year, while California consumer protection laws gave plaintiffs much longer to present their claims. In the court's opinion, this was yet another indication that the clause was substantively unconscionable.

Conclusion: The Magno opinion is a win for the good guys

Magno v. The College Network, Inc. is a win for the good guys. All over the United States, for-profit colleges have forced students to waive their right to file lawsuits for fraud or misrepresentation by forcing them to arbitrate their claims in forums generally more favorable to the colleges.

Not all of these arbitration clauses are as unfair as the one TCN was cramming down students' throats, but most are fundamentally unfair. The Magno decision is good ammunition for students who attended for-profit colleges and wish to sue the institutions they attended for fraud or misrepresentation under state consumer-protection laws.

References

Magno v. The College Network, Inc.. (Cal. Ct. App. 2016). Accessible at http://caselaw.findlaw.com/ca-court-of-appeal/1741812.html

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=

News Release. Apollo Education Group to Eliminate Mandatory Arbitration Clauses. May 19, 2016.
Accessible at http://phx.corporate-ir.net/phoenix.zhtml?c=79624&p=irol-newsArticle&ID=2169809

A liberal arts degree is not worth much: Don't borrow a lot of money to pay for one

Christ. Seven years of college down the drain. Might as well join the f-cking Peace Corps."

Bluto (played by John Belushi)

Animal House

Americans cling to the touchingly pathetic belief that a college degree will improve their lives. And it is true that people who graduate from college make more money over their lifetimes than people who only have high school diplomas.

But in many instances, a college degree represents nothing more than an individual's dogged tenacity and willingness to sit through four years of meaningless classes--traits that make college graduates adaptable to the sterility and boredom of the American workplace.

That's not always true, of course. I feel quite sure that people who get degrees in engineering, journalism, and the health professions often learn valuable skills.  

But a degree in the liberal arts or the social sciences is highly overrated as a ticket to a good job. Reflecting back more than 40 years from my time at Oklahoma State University ("the Princeton of the Prairies"), I realize I learned more about how to make my way in the world from delivering newspapers as a 12-year-old for the Anadarko Daily News than I did from any of my college courses.

And I received much more vocational guidance from my father than from any college professor. Not that my father gave a damn about what I would do for a living when I left home. But after holding down several hundred bull calves while he castrated them with his Schrade pocket knife, I came to the firm conviction that I would never make it as a cattleman.

At one time, going to college was a relatively harmless activity. Rattling around a campus for four (or five, or six) years didn't do young people much harm other than delay their entrance into remunerative employment. And no question about it--studying for exams improves people's short-term memory.

But things have changed. Today, making the wrong choices about going to college can lead to a lifetime of economic hardship, at least for people who borrow too much money to pay for their college education.

What can go wrong about obtaining a liberal arts education, you might ask?  Here are some mistakes that many people make:

1) Getting a liberal arts degree from a for-profit college. By and large, for-profit colleges are more expensive than public schools; so if you attend a for-profit college you will probably borrow more money than if you attended a public institution. And the for-profits have high default rates. According to a Brookings Institution report, almost half of the people in  a recent cohort who borrowed to attend a for-profit school defaulted on their loans within five years. Thus, attending a for-profit college increases the risk of default.

So if you want to get a degree in sociology, history, literature, or women's studies, you should probably get it at a public university--even a mediocre one--rather than pursue a liberal arts degree at a for-profit institution.

2) Paying the sticker price to attend a prestigious private college.  Private colleges are more expensive than public colleges, but they are now discounting their tuition drastically. In fact, the average institutional discount rate at private colleges was 48.6 percent for first-time freshmen in 2015-2016. And the discount rate for all students attending private schools was 42.5 percent.

So don't pay the sticker price to attend a fancy private college. Keep in mind that many private schools are scrambling to keep their enrollments up, and they need you more than you need them.

3) Doubling down by going to graduate school without a clear idea how a graduate degree will improve your earning potential. About 40 percent of all outstanding student-loan debt was acquired by people who went to graduate school. Graduate education in some fields has become outrageously expensive--especially for law degrees and MBAs. But graduate degrees in the liberal arts are also pricey.

There was a time when graduate school was a reasonable default option for people with no clear vocational goal. Graduate school was a respectful place for people to park themselves while they decided what they wanted to do with their lives. And opportunity costs were relatively low because tuition was often low--particularly at public colleges.

But the game has changed. Individuals who borrow money to get a liberal arts education and then borrow more money to go to graduate school are playing Russian Roulette with their financial futures; and they're playing with three bullets in their revolvers. Don't go to graduate school unless you have a clear idea about how a graduate degree will lead to a job that pays well enough to make the investment worthwhile.

Beware: A liberal arts degree is no sure path to a middle-class lifestyle

In sum, a liberal arts degree provides no sure path to making a living, and borrowing a lot of money to get a liberal arts education can lead to financial disaster. It is a fine thing to know a little Shakespeare and to be able to identify the causes of Thirty Years' War; and it's nice to talk literature with the swells. But if you leave college with a hundred grand in student loans, you will find that the liberal arts degree you acquired didn't enhance your life; in fact, it might have destroyed it.

"Seven years of college down the drain . . . ."

References

Rick Seltzer. Discount rates rise yet again at private colleges and universities. Inside Higher Ed, May 16, 2016. Accessible at https://www.insidehighered.com/news/2016/05/16/discount-rates-rise-yet-again-private-colleges-and-universities

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

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

Princess Leia

Star Wars

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

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

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

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

And these are the promises:

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

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

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

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

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

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

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

Help me, Obi Wan Ka-Bernie. You're my only hope.

Rising Student-Loan Default Rates and Ridiculously High Tuition Costs: The Big Short

We live in an era of fraud in America. Not just in banking, but in government, education, religion, food, even baseball... What bothers me isn't that fraud is not nice. Or that fraud is mean. For fifteen thousand years, fraud and short sighted thinking have never, ever worked. Not once. Eventually you get caught, things go south. When the hell did we forget all that? I thought we were better than this, I really did

Mark Baum (played by Steve Carell)

The Big Short 

The Big Short, the Academy-Award winning movie on the home-mortgage crisis of 2008, shows movie goers how greedy banking institutions created a housing bubble that burst in a shower of home foreclosures and trillions of dollars in financial losses.

A similar bubble has emerged in the federal student-loan program. And although the housing bubble is more complicated than the student-loan bubble, there are some eerie similarities between the collapse of the housing market a few years ago and the student-loan crisis. For example:

Hiding risk. The Big Short includes a scene in which  Mark Baum, a skeptical investment banker played by Steve Carell, quizzes a representative of one the bond rating agencies--Moody's or Standard & Poor. The rating-agency representative admits that  the agency gives mortgage-backed securities  the highest rating--AAA--even  though the agency knows that many of the instruments are packed with risky home mortgages that are headed for foreclosure.

Something similar is happening in the federal student-loan program. Although the Department of Education recently announced that student-loan default rates went down last year--especially in the for-profit sector, that's not really true.  The for-profits have been aggressively signing up their former students in economic-hardship deferment programs that excuse borrowers from making loan payments without being counted as defaulters.

When we look at the five-year default rates in the for-profit sector, the numbers are scary. Almost half the people who took out student loans to attend a for-profit institution default within 5 years of beginning the repayment phase on their loans. And two years after beginning the repayment phase, 3 out of 4 of these students are seeing their loan balances go up--not down--due to accruing interest that is not being paid down.

In short, about half the people who take out student loans to attend for-profit colleges don't pay back their loans. Clearly, this sector of the student-loan program is a train wreck.

Unsustainable rising costs.  As many people still remember, the cost of housing went up rapidly during the early 2000s, with people buying homes and flipping them for huge profits over a matter of months or even weeks. Everybody was making money in real estate--until the housing market collapsed.

Similarly, America has seen college tuition costs rise faster than the inflation rate for many years. The cost of attending law school, obtaining an MBA, or studying at an elite private college has gone through the roof.  I graduated from University of Texas Law School in 1980 and only paid $1,000 a year in tuition. If I enrolled at UT Law School today, it would cost me 36 times as much--$36,000 a year for Texas residents!

Of course, these tuition hikes can't be justified any more than the dizzying cost of a split-level home in Coral Gables, Florida in 2005.  And of course, those costs must eventually come down.  Already, law school enrollments have plummeted and the schools have lowered admissions standards to attract students.  And the elite private colleges are now giving huge discounts on their posted tuition rates; the average freshman now pays about half the college's sticker price.

Hidden costs and fees. Finally, the home mortgage bubble was fueled by greed and fraud. The bankers who packaged mortgage-backed securities were not taking any risks--they took their fees from the transaction costs.  The banking industry was selling toxic financial instruments to gullible investors, including pension funds and people invested in mutual funds.

Similarly, the college industry is charging a gullible public more than a liberal arts degree is worth, and the suckers enroll because, hey, going to Barnard or Brown or Amherst must be a good investment. And the colleges aren't assuming any risks. Their pliant students are borrowing from the federal student loan program, and the government guarantees the loan. Ivy League U doesn't care if its graduates default on their loans any more than Goldman Sachs cared what happened to the investors who bought their mortgage-backed securities.

And the fees! People who default on their loans get assessed huge collection fees and penalties. People are routinely going into the bankruptcy courts trying to discharge student-loan debt that is two or even three times the amount they borrowed due to accrued interest, penalties, and fees.

So if you haven't seen the Big Short, go see it. And as you watch this riveting drama, think about the student-loan program. A bubble is about to burst at a college near you.

"I thought we were better than this."

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

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

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

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

What could she promise? How about this:

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

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

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

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

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

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

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

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

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

References

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

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

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

Loan forgiveness for college students defrauded by for-profit colleges: Why not simply allow defrauded students to take bankruptcy?

The Department of Education is revising the regulations for handling student-debtor requests for debt relief. Under present regulations, student-loan borrowers  are eligible for debt relief if they can show they were victims of misrepresentation by the institution they attended.

But the old regulations are cumbersome, and DOE has been swamped by debt relief requests after Corinthian Colleges closed last year. Corinthian had 350,000 students or former students.

Apparently, the Department of Education is proposing some sort of hearing process where students who claims to be fraud victim can confront the colleges that lured them into enrolling and taking out student loans.

But how will that work? All the for-profit colleges have teams of lawyers, and the defrauded students who confront them at hearings will likely  have no lawyer at all.  That's a crumby idea.

Second, DOE is contemplating some kind of statute of limitation that would bar a student's fraud claim if not filed by some yet-to-be-defined time limit. Another crumby idea. Student-loan creditors can pursue student-loan defaulters any time they want--30 years after a loan was incurred if they choose. That's because there is no statute of limitation on debt collection of a student loan. So why should students be restricted by a time limit to file misrepresentation claims?

Third, the proposed regulations are cumbersome legalese that many students won't understand. Here is a sample of proposal's text:

For loans first disbursed prior to July 1, 2007, the borrower may assert as a defense to repayment, any act or omission of the school attended by the student that relates to the making of the loan or the provision of educational services that would give rise to a cause of action against the school under applicable State law.

Got that?

If the Department of Education were willing to face facts, it would admit that millions of students who enrolled at for-profit colleges have valid misrepresentation claims.  The for-profit industry as a whole has a 5-year default rate of 47 percent--strong evidence that many of the programs the colleges offered did not lead to well-paying jobs.

Rather than construct an elaborate, expensive, and unworkable administrative process for sorting out student fraud claims, the Department of Education should simply allow all students who attended a for-profit college and who are now broke to discharge their student-loan debts in bankruptcy without having to meet the "undue hardship" standard that currently applies to student-loan debtors in the bankruptcy courts. In other words, an insolvent student-loan debtor who attended a for-profit college should be able to discharge student-loan debt in bankruptcy like any other nonsecured debt.

After all, the bankruptcy courts have the expertise and the resources to sort out valid bankruptcy claims from invalid ones.  But DOE won't expedite the loan forgiveness process because it knows that millions of people took out student loans for worthless college experiences. If every student who was huckstered by a for-profit college obtained student-loan debt relief, the cost of loan forgiveness would amount to hundreds of billions of dollars.

References

Michael Stratford. Obama Crackdown on College Fraud. Inside Higher Ed, February 9, 2016. https://www.insidehighered.com/news/2016/02/09/education-department-creates-new-office-crack-down-fraud-colleges?utm_source=Inside+Higher+Ed&utm_campaign=8bca58981a-DNU20160209&utm_medium=email&utm_term=0_1fcbc04421-8bca58981a-198565653

Michael Stratford. New Criteria For Debt Relief. Inside Higher Ed, February 17, 2016. Available at: https://www.insidehighered.com/news/2016/02/17/us-plan-would-cancel-federal-loans-borrowers-misled-their-colleges?utm_source=Inside+Higher+Ed&utm_campaign=60a80c3a41-DNU20160217&utm_medium=email&utm_term=0_1fcbc04421-60a80c3a41-198565653

Kelly Field, "U.S. Has Forgiven Loans of More Than 3,000 Ex-Corinthian Students, Chronicle of Higher Education, September 3, 2015. Accessible at: http://chronicle.com/article/US-Has-Forgiven-Loans-of/232855/?cid=pm&utm_source=pm&utm_medium=en

Tamar Lewin, "Government to Forgive Student Loans at Corinthian Colleges," New York Times, June 8, 2015. Accessible at: http://www.nytimes.com/2015/06/09/education/us-to-forgive-federal-loans-of-corinthian-college-students.html?_r=0

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default rates. Washington, DC: Brookings Institution (2015). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults

Arbitration and For-Profit Colleges: Public Citizen, a consumer group, asks the Department of Education to bar for-profits from forcing students to arbitrate their fraud claims. What a good idea!

Public Citizen, a consumer rights group, formally petitioned the U.S. Department of Education to cut off federal student-aid money to for-profit colleges that force their students to sign arbitration agreements that bar students from suing the colleges for fraud or misrepresentation or from filing class-action lawsuits. Julie Murray, spokesperson for the group, explained Public Citizen's position. "Taxpayers should not have to subsidize predatory schools that deny their students a day in court," Murray said in a press release.

What a good idea! Everyone knows that thousands of low-income and minority students have been lured into enrolling at expensive for-profit colleges by misrepresentations and high-pressure recruiting tactics.  The for-profits have very high student-loan default rates, high dropout rates, and high percentages of students who are seeing their loan debt growing larger because they are forced into economic-hardship deferment programs due to the fact that their post-studies income is not high enough to pay off their student loans.

In fact, as Stephen Burd pointed out in an Inside Higher Ed essay, a for-profit institution's shareholders can sue a for-profit college for misrepresenting job-placement figures while the students themselves cannot.

Arbitration clauses always favor the for-profit industry because the for-profits pick the arbitration company, which gives the arbitrators an incentive to rule in favor of the colleges or at least to go easy on them in order to get "repeat business."  Discovery is often limited in arbitration proceedings, and arbitration can be expensive, since the student must bear part of the arbitrator's cost.

I agree with Mr. Burd, who wrote:

Congress should eliminate this injustice by barring colleges that participate in the federal student aid program from including binding arbitration clauses in enrollment agreements, just as Senators Tom Harkin of Iowa and Al Franken of Minnesota proposed . . . . As [the senators] wrote, "Colleges and universities should not be able to insulate themselves from liability by forcing students to preemptively give up their right to be protected by our nation's laws.

Student-loan debtors--and there are 42 million of you--should ask presidential candidates if they are willing to cut off federal student-aid funding to for-profit colleges that force their students to sign arbitration agreements.   What would Hillary's answer be? Donald Trump's? Bernie Sanders?

References

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

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

The percentage of low-income students going to college went down while Pell Grant spending went up: What's going on?

According to the American Council on Education, the percentage of low-income students enrolling in college has gone down. What's going on?

ACE reports that the percentage of recently-graduated low-income students who enrolled in college dropped from 55.9% in 2008 to 45.5% in 2013.  College enrollments also dropped for other income groups, but not by nearly as much.

Can the drop be attributed to insufficient federal student aid? Probably not. The Department of Education reported that federal student aid increased by 29% from 2009 to 2012--rising from $129 billion in FY 2009 to $166.9 billion in FY 2012.

And Pell Grant funding (grants to low-income college students) actually tripled from 2007 to 2011, going from $13.6 billion in FY 2007 to  $41.6 billion.

Perceived cost of higher education. ACE speculated that the perceived cost of higher education may have discourage low-income students from going to college, and this makes sense. Low-income young people may not be aware that many private colleges actually discount their tuition by more than 40 percent for incoming freshmen. In other words, potential students from poor families may not know that the sticker price is only the sucker price and that most first-year students get the benefit of deep discounts.

Going to work rather than going to college. ACE suggested another explanation for the percentage drop in low-income college students: many low-income students are simply skipping the college experience and going to work. This explanation also makes senses.

In my own family, I have a nephew who dropped out of college and got a job as a pipe fitter working in the shipbuilding industry. He's making good money and he found a girl friend who is also making good money as a pipe fitter. In fact, my nephew is making more money in his present job than he would make if he got a college degree and got a job as a school teacher. Is he likely to go back to college? I don't think so.

Low-income families have gotten wise to the for-profit college industry. I think there is a third possible explanation for the drop in low-income students going to college: low-income families may have gotten wise to the for-profit college industry.

All over the country, state attorney generals are investigating the for-profit colleges based on allegations that these colleges have engaged in misrepresentations and fraud.  Some for-profits have been fined. Corinthian Colleges filed for bankruptcy and several for-profits have closed.

It could be that low-income and minority students--who have been the target of the for-profit colleges--have figured out that many of these joints charge too much and don't deliver on their promises.

Conclusion

Low-income individuals are going to college in smaller numbers, and this may not be bad. If they can get good jobs without going to college then they can avoid the huge opportunity costs of being a college student--forgone wages and student loans.

And if young people from low-income families are becoming more appreciative of the risk of borrowing money to attend a for-profit college, that is certainly good news. Although the Obama administration hasn't been as aggressive as I think it should be toward the for-profit college industry, it has taken some steps to rein in abuses.  And state officials have taken action against abusive for-profits colleges as well. This is good news.

References

American Council on Education. ACE Fact Sheet on Higher Education. Pell Grant Funding History (1976 to 2010). Accessible at: http://www.acenet.edu/news-room/Documents/FactSheet-Pell-Grant-Funding-History-1976-2010.pdf

Misty Baily. Attorney Generals Expand Probe into For Profit Colleges. Education News, January 14, 2014. Accessible at:  /www.educationnews.org/higher-education/attorney-generals-expand-probe-into-for-profit-colleges/#sthash.pKZVeW5V.dpuf

Kelly Field. Attorneys General Take Aim at For-Profit Colleges Institutional Loan Programs, Chronicle of Higher Education, March 20, 2012. Accessible at: http://chronicle.com/article/Attorneys-General-Take-Aim-at/131254/

Scott Jaschik. The Missing Low Income Students: Study finds drop in percentage of low-income students enrolling in college. Inside Higher Education, November 25, 2015. Accessible at: https://www.insidehighered.com/news/2015/11/25/study-finds-drop-percentage-low-income-students-enrolling-college

U.S. Department of Education. Fiscal Year 2012 Budget Summary--February 14, 2011.  Accessible at: https://www2.ed.gov/about/overview/budget/budget12/summary/edlite-section2d.html

U.S. Department of Education. Pell Grant Funding Status. Accessible at:
http://www2.ed.gov/programs/fpg/funding.html