Thursday, January 12, 2023
Monday, November 28, 2022
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, February 6, 2021
What will happen to you if you take out student loans to get a liberal arts degree and can't find a job?
Late last year, the University of Vermont announced it will shut down two dozen academic programs with low enrollment.
Geology, religion, and Asian studies are on the chopping block, along with several language programs--Greek, Latin, and German. At least three departments will close: Religion, Classics, and Geology. Some minors are being eliminated--Theatre and Vermont Studies.
All across the country, universities are shrinking or closing their liberal arts programs because fewer students major in those disciplines. Young people sense they are in a bleak job market, and many are shifting to more vocation-directed academic majors.
Indeed, Jeffrey Selingo and Matt Sigelman, writing in the Wall Street Journal, report that entry-level college graduate jobs have fallen 45 percent in recent years. Many graduates will be forced into "lifeboat jobs," where they will be underemployed both in terms of salary and vocational development.
"[T]hose who graduate into underemployment are five times more likely to remain stuck in mismatched jobs after five years compared with those who start in a college-level job," Selingo and Sigelman warn.
Should students stop majoring in the liberal arts? Not necessarily, Selingo and Siegelman argue. Instead, they give this advice:
None of this requires abandoning the liberal arts or social sciences; it's just a matter of ensuring that students also acquire marketable skills. English departments don't need to teach computer programming, but they should show students how to develop writing and critical thinking skills in ways that resonate with employers. And they should help students to acquire more technical skills, whether on campus, through internships or through the growing array of online options.
With all due respect to Mr. Selingo and Mr. Sigelman, I am deeply skeptical of the proposition that liberal arts departments can make their academic programs more vocationally driven.
Does anyone think a medieval-history professor will adjust his teaching style to help students acquire more technical skills? I doubt it.
And how will sociology, political science, and religion departments develop internship programs that help students find jobs after graduation? I don't see it happening.
It is no good to say liberal arts departments can adjust their academic programs to make them more job-relevant. Students won't buy that line. They know that a degree in liberal arts probably won't lead to a good job. That's why more and more of them are majoring in business.
Brutally put, it is madness for young people to take out six-figure student loans to get degrees in history, religion, political science, ethnic studies, or sociology. In today's economy, an individual who takes out student loans to earn a bachelor's degree must immediately find a good job.
What will happen to you if you borrow $100,000 to get a humanities degree and can't find employment? You will be forced to apply for an economic hardship deferment to get short-term relief from making your monthly loan payments.
But while you are skipping those payments, interest is accruing on your student loans. That interest gets capitalized so that your loan balance increases.
At some point, your student loan debt will become unmanageable, and then your only option will be to sign up for an income-based repayment plan that stretches out your loan obligations for a quarter of a century.
And that will give you plenty of time to ruminate about the stupid decision you made when you were 18 years old to major in sociology with a minor in Vermont Studies.
|Will this guy teach you critical thinking skills?
Wednesday, January 13, 2021
Woman enrolls in low-ranked law school, accumulates massive debt, and is academically dismissed only three credit hours from getting her degree: Is that fair?
Jill Stevenson enrolled at Thomas M. Cooley Law School in 2002. She completed 87 credit hours toward completing her degree, but she was "academically dismissed" because her GPA dropped in her last year of study.
Stevenson took out student loans to pay for her legal education and entered an income-based repayment plan (IBRP) in 2006. This plan required her to make monthly payments on her student debt for 25 years. She made her payments faithfully for 14 years--a remarkable achievement. But her loan balance grew larger with each passing month because of accruing interest.
By the time she filed for bankruptcy and tried to get her student loans discharged, she owed the U.S. Department of Education $116,000, and the debt would continue growing until she finished her IBRP in 1931. At that time, her student loans would be forgiven, but the forgiven amount is considered taxable income. Thus, when she is in her sixties, Miss Stevenson will face a huge tax bill.
This is a sad outcome, made sadder perhaps because Thomas M. Cooley has been ranked as one of the worst law schools in the United States. Don't take my word for it.
Garrett Parker, writing for Money Inc., ranked Cooley as one of the 20 worst law schools in the United States in 2019. Parker said Cooley made the worst-law-school list "with flying colors."
Staci Zaretsky, writing for Above the Law (a terrific blog site) in 2018, listed Cooley as one of the ten worst law schools in the nation. In 2018, Zaretsky reported, Cooley admitted 86 percent of its applicants, including 135 students who scored in the bottom 12 percent on their LSAT tests. Cooley was the 2017 defending champion for worst law school, Zaretsky noted drily.
You want another take? David Frakt, "who serve[d] as chair of the National Advisory Council for Law School Transparency, [wrote] that 2017 defending champion Western Michigan University Thomas Cooley Law School repeats for 2018, claiming the number 1 spot on the list of bottom 10 schools."
My point is not to knock Cooley Law School--other people are doing an excellent job of that without my help. But let's think about Jill Stevenson.
Even if she graduated from Cooley, her prospects in the legal field would not have been bright. She made a smart decision to take a job as a paralegal.
Nevertheless, Cooley dismissed her when she was three credit hours short of graduation. And all that student-loan money Stevenson paid the law school--Cooley kept that money.
And then the U.S. Department of Education shows up to fight her plea for bankruptcy relief, claiming she shouldn't have her student loans forgiven because she smokes cigarettes and cares for a disabled grandson.
Note: According to Inside Higher Ed, Thomas M. Cooley Law School affiliated with Western Michigan University in 2013 and changed its name to "Western Michigan University Cooley Law School. In November 2020, Western Michigan University's board of trustees voted to end its affiliation with the Cooley Law School. The disassociation will take three years to finalize.
Monday, November 30, 2020
Hlady v. Educational Credit Management Corporation: Another Heartless Bankruptcy Judge Denies Relief to a Distressed Student-Loan Debtor
Cherie Ann Hlady graduated from Hofstra Law School in 2006. She passed the New York bar exam and began practicing law. Unfortunately, Hlady could not make ends meet as a practicing lawyer. Ten years after getting her law degree, she filed for bankruptcy.
Hlady took out student loans totaling $40,000 to finance her legal education, a reasonable amount considering that she attended an expensive private law school.
Sadly, Helady's solo law practice did not generate enough income to pay off her student debt. Judge Louis Scarcella, who heard her case, noted that Hladly's net profit in 2016 was only $321. In the five years leading up to her bankruptcy, she had never made a profit of more than $17,691.
Meanwhile, interest on her student loans was accruing at an annual rate of 6.88 percent. By 2017, Hlady's debt had grown to $140,000--more than three times what she borrowed.
Educational Credit Management Corporation (ECMC) held an interest in part of Hladly's student debt, and it opposed bankruptcy relief. ECMC told Judge Scarcella that Hlady was eligible for a 25-year, income-based repayment plan that would allow her to make monthly payments of zero due to her low income.
In Judge Scarcella's opinion, this fact--and this fact alone--was enough to make Hdlady ineligible to discharge her student loans in bankruptcy. "[I]t cannot be said that an obligation to pay $0 on the ECMC Loan under the income-based repayment option would cause [Hlady] to fall below a minimum standard of living."
But wait a minute. Judge Scarcella admitted himself that Hladly's net income in 2016 was only $321. Doesn't that put her below a minimum standard of living?
Not in Judge Scarcella's view. Apparently, he was skeptical of some of the expenses that Hlady had listed on her federal income tax return. "Here," the judge wrote, "[Hlady] has not presented the Court with concrete evidence from which her current financial condition can, with any degree of certainty, be known."
Moreover, in the judge's opinion, Hlady had not shown that she could not increase her income in the future. Nor had she demonstrated that she handled her student loans in good faith. "[Hladys] unwillingness to be inconvenienced by having to report her annual income for the next 25 years does not provide sufficient justification to discharge her student loan obligation."
With all due respect, Judge Scarcella's reasoning is nutty. How can he say Hlady hadn't established that she cannot pay off her student loans while maintaining a minimum standard of living when ECMC itself concluded she was so broke that she didn't have to pay anything on her loans due to her low income?
How could the judge conclude that Hladly might someday pay off her student loans when the amount she initially borrowed had tripled since the time she graduated from law school? If Hlady could not pay off $40,000 in student loans over 14 years, how will she ever pay $140,000 over the next 25 years, especially since her loan balance grows by $20 a day in accruing interest?
As Judge Scarcella observed, Ms. Hlady is 48 years old. Her 25-year repayment plan will terminate when she is 73. By that time, her loan balance will be more than a quarter of a million dollars. This amount will be forgiven, but the forgiven debt will be taxed as income unless Hlady is insolvent at the time.
So what's the friggin' point?
The point, obviously, is this. ECMC, as an agent of the federal government, does not want anyone to discharge student loan debt in bankruptcy. And, apparently, Judge Louis Scarcella feels precisely the same way.
Hlady v. Educational Credit Management Corporation, 616 B.R. 257 (Bkrtcry E.D.N.Y. 2020).