Opinions and emotions are running high right now regarding student loan forgiveness.
Tuesday, September 6, 2022
Saturday, June 4, 2022
Biden Administration Flirts With Sweeping Student-Loan Forgiveness While Dept of Education Treats All Student Debtors Like Deadbeats: I Don't Get It
Earlier this week, the Department of Education wiped away all student debt owed by more than a million former students who attended one of the Corinthian Colleges campuses. The cost? About $5.8 billion.
Since his administration began, President Biden has approved $25 billion in loan forgiveness for 1.3 million student borrowers. That's a lot of student debt relief.
Nevertheless, more than 40 million Americans are still on the hook for a total of $1.7 trillion in student loans. Many of these folks want President Biden to forgive all of this debt.
Biden has proposed debt relief of $10,000 per borrower. Progressive Democratic leaders want $50,000 of student-debt relief for all student debtors (with some sort of income cap). Various advocacy groups urge Biden to forgive all student debt, which burdens minority students and women disproportionately.
These proposals presume that every student debtor took out college loans in good faith. No one wants to offer loan relief on a case-by-case basis based on merit or attempt to identify students who may have committed fraud in handling their student loans.
In other words, all debt relief schemes now under discussion take it as a given that everyone--all 45 million borrowers--is honest and entitled to some debt relief.
I applaud this approach. Only a tiny percentage of student borrowers took out loans to defraud the government. Almost all of them went into debt to get an education they hoped would improve their lives. And many student borrowers weren't able to obtain a job after graduation that paid enough to justify their educational expenses.
So--I am puzzled. Since President Biden and congressional leaders advocate for massive student debt relief without examining each debtor's individual circumstances, why does the U.S. Department of Education continue harassing distressed college borrowers in the bankruptcy courts?
Let's look at a bankruptcy court decision issued less than three months ago: Everson v. U.S. Department of Education. In that case, Kimberlee Everson took out student loans to get an associate's degree in medical assisting from Bryant Stratton College, a for-profit institution.
She obtained her degree and went to work as a medical assistant for various employers at an hourly rate of between $12.50 to $23 an hour. By the time she appeared in bankruptcy court, her student debt had grown to $45,000--including accrued interest.
Judge Caryl Dilano, a Florida bankruptcy judge, reviewed Ms. Everson's financial status in painstaking detail and refused to discharge her debt. Judge Dilano pointed out that Ms. Everson went out to eat occasionally, had a gym membership, and sometimes made purchases at a liquor store.
He also heard evidence from the Department of Education that Ms. Everson was eligible for a long-term, income-based repayment plan that would only require her to pay $48 a month on her $45,000 debt.
In Judge Dilano's opinion, Ms. Everson met two prongs of the three-prong Brunner test. First, it would be an undue hardship for her to pay off her student loans. Second, her precarious financial circumstances were not likely to improve due to factors beyond her control.
Nevertheless, the judge refused to grant Ms. Everson a discharge because she failed the Brunner test's third prong--the good-faith test. He believed Everson had not handled her student loans in good faith. Notably, Judge Dilano pointed out that she had made only minimal payments on her loans over seven years.
The Department of Education has forgiven $25 billion in student debt owed by more than a million people without subjecting any of these debtors to the onerous Brunner test.
How many millions have gym memberships? How many go out to eat occasionally? How many patronize liquor stores?
I don't get it.
If a million and a half people are getting student-debt relief without regard to their payment history or their lifestyles, why is Judge Dilano devoting judicial resources to determining whether Kimberlee Everson dined out too often?
Everson v. U.S. Department of Education, Case No. 2:20-bk-03062-FMDAdv. Pro. No. 2:20-ap-267-FMD, 2022 WL909570 (M.D. Fla. March 29, 2022).
|Senators Warren & Schumer|
Saturday, May 28, 2022
College Enrollments are Down, Tuition Prices are Up & Student-Loan Forgiveness Is on the Way: The Wounded Grizzly Syndrome
Earlier this week, Inside Higher Education reported that college enrollments have declined for five straight semesters. In the spring 2020 semester--when the COVID epidemic began--the nation's colleges enrolled 17.1 million students. Today, 15.9 million Americans are in postsecondary classes--a decline of 1.2 million students.
Some states saw more significant declines than others, and some saw enrollments grow. California suffered an 8.1 percent decline, the most significant drop among the states.
New Hampshire's student population actually grew after the pandemic hit, mainly due to increased online enrollment. I imagine a lot of that growth can be attributed to the University of Southern New Hampshire, which aggressively markets its online programs.
Businesses operating in a market economy often slash prices when demand falls for their products. But American colleges keep raising their tuition. Boston University--a very pricey institution, will increase undergraduate tuition by 4.25 percent next year.
BU's tuition rate will be $61,000 for the 2022-2023 academic year. And total cost, including room and board, is almost $80,000. Ouch!
Not to worry, BU tells us on its website. Each year the university awards almost a third of a billion dollars in financial assistance to undergraduates. In other words, BU assures us, most students won't have to pay the sticker price.
Indeed, colleges all over the United States are slashing tuition to lure students through the door. The National Association of College and University Business Officers said that schools are discounting tuition for first-year students by 54 percent on average.
Four out of five undergraduates will get a tuition discount in the coming academic year, NACUBO reported. So if you pay the total price to attend BU, you got suckered.
For more than a quarter of a century, colleges have raised their tuition prices annually above the cost of inflation. But the party is about to end.
Young people are beginning to wonder if it makes sense to borrow $100,000 or more to get a liberal arts degree from an elite school if their diploma doesn't lead to a good job.
With inflation running at a 40-year high, most colleges can no longer raise their tuition prices to cover their increased costs. BU's tuition hike of 4.25 percent is below this year's 8 percent inflation rate.
The Biden administration is signaling that it will forgive at least some student debt. During the election campaign, Mr. Biden promised to grant $10,000 in student debt relief to students from lower-income or middle-income families. According to a recent Washington Post story, Biden will likely keep that promise.
I hate to break the news to you, President Biden. Ten thousand dollars in debt relief ain't nearly enough. Millions of students have seen their total debt double over the years due to accrued interest.
Offering to forgive $10,000 in debt to someone who owes $60,000 is like shooting a grizzly bear in the gut. The shot doesn't kill the bear; it just pisses him off.
|Ten thousand dollars in student-debt relief won't make anyone happy.|
Friday, April 15, 2022
Our government spent trillions of dollars responding to COVID, and just about everybody got a little something from Uncle Sam. Sometimes I think my wife and I are the only people in the United States who didn't get a COVID relief check.
For example, 14,000 law firms got Payroll Protection money, ostensibly to help them avoid laying off lawyers during the COVID crisis. Eleven firms got $10 million each, but all 14,000 firms got at least $150,000.
Prisoners also got some COVID cash. More than a half-million incarcerated individuals got three-quarters of a billion dollars in stimulus checks.
In short, the U.S. government has been spewing out COVID cash like a drunken sailor on shore leave. So why not forgive all student-loan debt--all $1.7 trillion?
Wiping out all student-loan debt would benefit 45 million student borrowers, giving them extra cash to put into the American economy. That's got to be a good thing.
Moreover, many student debtors took out loans to get college degrees that are worthless to them. Maybe they attended one of the dodgy for-profit colleges where they paid too much for a mediocre educational experience. Perhaps they borrowed $100,000 to get a gender studies degree from an elite college--a degree that did not lead to a good job.
So--you can put me down as a supporter of total student-loan forgiveness. That's right; let's wipe out everybody's federal student-loan debt.
But we should recognize the perils of this course of action. First of all, student loans constitute the largest category of federal assets. If those loans disappear from the nation's balance sheet, the government's fiscal situation will look bleaker than it already does.
Secondly, we should recognize the moral hazard of wholesale student-loan forgiveness. People who take out student loans in the future will likely do so with the expectation that the feds will eventually forgive the debt. Thus, they may conclude they can default on their loans with no penalty.
Finally, wiping out all student debt does nothing to pressure colleges to get their costs under control. The higher education industry will continue raising tuition rates, forcing future students to take out more student loans to finance their studies.
In conclusion, I support student-loan forgiveness. Nevertheless, wholesale loan forgiveness will not solve the student-loan crisis. Until higher education cleans up its act and reduces costs, future generations of colleges students will continue getting hammered with unmanageable college-loan debt.
|Thanks for the PPP money!|
Friday, March 11, 2022
Like Prisoners on Death Row: 25 million student debtors may get another reprieve from making their student-loan payments
Around 2,500 prisoners sit on Death Row in American prisons. Nearly 700 condemned men await death in the Golden State of California. A couple hundred are housed on Death Row in Texas, the Lone Star State. And Florida--the Sunshine State-- has 330 prisoners who've been sentenced to die.
How long do condemned prisoners sit in prison before being executed? On average, 19 years. Most men on death row can postpone their execution date by filing multiple appeals in the courts.
Of course, Americans living in freedom cannot compare their situation to the men on Death Row. Nevertheless, student-loan debtors are somewhat like condemned prisoners. They are seeing their lives drain away while the federal government issues multiple stays of execution on their student-loan payments without giving them real relief.
In March 2020, the Department of Education allowed 25 million student debtors to stop making payments on their loans due to the economic disruption of the COVID pandemic. DOE said it would not penalize borrowers who didn't make their loan payments and wouldn't charge interest on the underlying debt.
That moratorium has been extended four times, and the Biden administration may extend the moratorium yet again.
Are these debt-forgiveness edicts a good thing for the nation's overburdened student-loan borrowers? Yes, of course.
But there are psychological and emotional costs to being burdened by debt that can never be paid back, costs that some federal bankruptcy courts have explicitly recognized. And these costs are not alleviated by giving college borrowers a series of loan holidays.
And allowing 25 million Americans to skip their student-loan payments for two years does nothing to solve the student-loan crisis, which has grown to catastrophic proportions. Together, American college borrowers owe $1.8 trillion in student debt and another $150 billion in private student debt.
Maybe President Biden will forgive $10,000 in personal student debt as he promised during the 2020 presidential campaign. But that will do little or nothing to ease the debt burden of most borrowers.
Perhaps Congress will pass legislation to forgive all federal student-loan debt, or President Biden will do that by executive order. But I think relief of that magnitude is unlikely.
In the meantime, while our legislators and policymakers ponder global solutions, why doesn't Congres simply amend the Bankruptcy Code to allow insolvent student borrowers to discharge their student loans in bankruptcy?
But Congress probably won't do that. For all the sympathetic rhetoric, Congress is content to allow millions of Americans to sit helplessly in a vast debtor's prison without bars--financially unable to buy homes, save for retirement, or start families.
In the meantime, college borrowers live much like the men on Death Row. Like condemned prisoners, they get numerous reprieves from making payments. They get deferments, they sign up for long-term income-based repayment plans, and they get to skip loan payments during the COVID crisis.
Condemned prisoners whose sentences are postponed again and again will never be free. Some will eventually be executed, but many of them will die of old age.
Likewise, America's student loan debtors can manage their massive loan debt with various types of reprieves. They can apply for economic-hardship deferments. They can sign up for long-term, income-based repayment plans. They can skip payments during the COVID loan-payment pauses.
But millions of them will never be free of their college debt. They will die before it's repaid. That's a high price to pay for going to college.
Tuesday, February 8, 2022
Monday, December 27, 2021
Why Doesn't the Federal Government Just Cancel All Student Debt? To Find the Answer, Take a Look at Our National Balance Sheet
When Joe Biden was running for President, he said he would cancel $10,000 of every college borrower's student debt if Congress consented. But Congress hasn't acted.
Senators Elizabeth Warren and Charles Schumer have urged President Biden to cancel $50,000 of every borrower's federal student loans, saying he has the executive power to do so. But that hasn't happened either.
Why not? Given the hardship that student debtors are experiencing--especially since the COVID crisis began--why not just wipe the slate clean and cancel all $1.7 trillion in federal student debt?
In my opinion, President Biden and most members of Congress would like to cancel all student debt. After all, there are about 45 million student borrowers, and canceling their student loans would make them all very happy.
But Congress can't do that, and neither can President Biden. And here's why.
Student loans are carried on the nation's balance sheet as assets. As of September 30, 2020, the United States held almost $6 trillion in assets, and about a quarter of that amount is listed as outstanding student loans.
As of September of last year, total national liabilities amounted to roughly $32 trillion, resulting in a national debt of around $26 trillion (give or take a few trillion).
Thus, if Congress simply wiped out all those student loans or President Biden canceled them through executive action, the nation's balance sheet would look significantly worse than it already does. Instead of holding total assets of $6 trillion, our government would have only a little more than $4 billion.
Simply put, the federal government pretends that all that student-loan debt--closing in on $2 trillion--will be paid back. And that fiction cannot be maintained if Congress wipes out all student debt or allows large numbers of distressed debtors to discharge their student loans in bankruptcy
If you are a student-loan debtor, you have benefited from the moratorium on making monthly loan payments--a moratorium that won't be lifted until May 2022.
But just because you haven't made any student-loan payments over the past two years, don't get your hopes up that Congress will simply forgive all federal student debt. It won't do it because it can't do it. The Federal government's balance sheet simply can't take the hit.
Friday, December 4, 2020
Originally published at Get Out of Debt Guy
Originally published at Get Out of Debt Guy
When it comes to a rapidly accelerating financial burden on American families, there is no greater concern than student loans.
The debt is burdensome and unfair on many levels that I’ll explore below.
However, there is a straightforward and simple solution for dealing with all of this outside of struggling to develop a fair forgiveness strategy. I’ll talk about that after we look at common opinions on the subject.
Is Student Loan Forgiveness Fair?
The talk of forgiveness is a difficult topic because how do you reach any level of fairness.
As Howard Dvorkin, Chairman of said, “Only one-third of the people in this country get a four-year college education. The two-thirds without a college education is expected to subsidize their education when it is very likely that they earn less than the people who are receiving the educational subsidy.”
Dvorkin went on to say, “The issue of forgiving debt is complicated. What about all the people that have already struggled to pay their debts, and now other people get loans forgiven. That’s not fair.”
Student Loans – Another Financial Mistake for Many
A 2019 student by New York Life of 2,200 adults found the average participant reported taking 18.5 years to pay off their student loans, starting at age 26 and ending at 45.
That is a significant portion of life to have to be tied to a student loan payment that should have been directed to saving for retirement and then mushroomed into a giant nest egg. It can take decades to recover from that financial mistake. But that’s not the only financial regret people have.
What is shocking is the number of people that have student loan debt but who never graduated. I’ve seen statics as high as 75 percent of people with any student loans never obtained the degree.
And the wave of for-profit schools that have oversold education to people that never should have purchased their product is another national disaster.
“For-profit schools are not worth the money,” said Dvorkin. “As an employer, I hire people with traditional non-profit college degrees before I would hire someone with a for-profit degree.”
The Federal Reserve Bank of New York said, “Students who attend for-profit institutions take on more educational debt and are more likely to default on their student loans than those attending similarly selective public schools.”
The study went on to say, “Overall, our results indicate that, on average, for-profit enrollment leads to worse student loan outcomes for students than enrolling in a public college or university, which is driven by higher loan takeup and worse labor market outcomes. This is an important set of findings for several reasons. First, a substantial amount of public funds go to for-profit institutions through the financial aid system. Our estimates indicate the return to such expenditures may be quite low. Second, the results suggest that students who attend local for-profit institutions when there is a negative labor demand shock may be making mistakes: they would be better off attending the local public college or university instead.”
But even non-profit schools are ramping up tuition and selling students into seats that maybe should not have been admitted.
Student loan debt is a life sentence in painful debt for many: The Impossibility of Forgiveness
Opinions on forgiveness range all over the place. Betsy DeVos, the current Secretary of Education , “Policies should never entice students into greater debt. Nor should they put taxpayer dollars at greater risk. There are too many politicians today who support policy that does both.”
She also labeled student loan forgiveness as an “insidious notion of government gift giving. We’ve heard shrill calls to “cancel,” to “forgive,” to “make it all free.” Any innocuous label out there can’t obfuscate what it really is: wrong.”
Forgiveness is never going to be fair, and it’s not going to a quick and effective way to stimulate the economy in a difficult time from a pandemic, as some claim.
Today, student loan forgiveness would result in people not making loans they are already in default on or making payments that are too low to pay the debt off. At most, it will result in people not having to make some loan payments monthly.
The economic impact will be felt over a long period of time rather than the boost and support the economy needs now.
As the federal student loan program stands now, there is $1.37 trillion of outstanding debt to students, and the Education Department has determined that borrowers will only pay back $935 billion. That leaves the program in the red and holding for $435 billion of bad loans.
To deal with that shortage, “Congress will have to raise taxes, cut services or increase the deficit to cover the losses.” That solution is also not fair to the many that repaid their loans.
So the Battles and Arguments About Student Loan Forgiveness Are Complicated
We can argue and politically position ourselves around the idea of forgiving student loans is either the best thing or the worst thing ever to happen.
It is actually a moot point since the program is in so much trouble already.
People that can’t afford their student loans will suddenly be required to begin payments again. Defaults will explode even more.
As it stands now, the Department of Education’s base position is students should feel lucky they can enroll student loan debt in an program (IDR) that will give them a loan payment based on income. But, as I wrote before, .
As it stands now, while a student loan debtor might enroll in an income-based repayment program, the minimum payment is not enough to cover the interest being charged on the loan, and the balance owed grows. While people say, “certainly Congress will change that.” The reality is they have not, over the many years the programs have been in place.
So the way the “lowest payment” solution works right now is that the government lets you pay less than is due, that grows the balance, and in two decades, when the exploded balance is forgiven, people will owe income tax on that debt unless they are insolvent. It sounds crazy, but it is true.
says, “How could the judge conclude that Hladly might someday pay off her student loans when the amount she initially borrowed had tripled since the time she graduated from law school? If Hlady could not pay off $40,000 in student loans over 14 years, how will she ever pay $140,000 over the next 25 years, especially since her loan balance grows by $20 a day in accruing interest?
As Judge Scarcella observed, Ms. Hlady is 48 years old. Her 25-year repayment plan will terminate when she is 73. By that time, her loan balance will be more than a quarter of a million dollars. This amount will be forgiven, but the forgiven debt will be taxed as income unless Hlady is insolvent at the time.”
With IDR Plans, the Government Has Already Accepted the Loan Forgiveness Proposition
In my opinion, with federal student loan forgiveness programs already on the books, policymakers have already accepted some form of loan forgiveness. Yet, the current talk of student loan forgiveness ranges from its “socialism” to its “a right.”
As it stands today, the federal government already runs a student loan program that is rapidly increasing in delinquencies, defaults, and repayment plans that will only grow the balance.
The only current winners in the student loan cycle are the schools that can sell students on attending and get easy money from the federal government.
Students enroll, schools get paid and accept almost no responsibility for the outcome. When a student loan debtor was sold education, they could never logically or mathematically afford and later defaults; the school does not have to pay back the loan.
Student Loan Forgiveness is Much-Ado-About-Nothing and Misdirected
I hate to state the obvious here, but rather than worry about the inequities of forgiveness and who wins and loses, the most rational and logical option is to roll back the 2005 Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA).
BAPCPA made private student loans harder to discharge in bankruptcy. And private student loans are growing as well.
The issue is students are drowning in debt. It can be argued that because of student loan debt, they are also having to take out other debt and reduce retirement savings.
When those people are old enough and can no longer work, the lack of retirement savings will create a public safety net drain. No matter how you look at this, the systemic problem of easy money for education has driven up the debt, and we will all pay for it in one way or another.
The Solution Seems So Apparent
Up until 1976, all student loans were dischargeable in bankruptcy. Bankruptcy is a legal right for consumers to get a fresh financial start, and it is even a part of the U.S. Constitution. Those that file for bankruptcy generate an immediate stimulus for the economy and have a second chance to do better, having learned hard lessons from mistakes.
Returning to allowing both federal and private student loans to be discharged in bankruptcy has many features:
1. It is a current and accepted legal process with clear rules and guidelines.
2. The debt is forgiven tax-free.
3. It allows people a chance to get a fresh start from an impossible situation. Oftentimes these issues are the result of accidents, injuries, medical issues, pandemics, etc.
4. A bankruptcy Trustee and Judge must review and approve the discharge plan. If a consumer has too much income for a full immediate discharge, they will be required to enter a five-year repayment plan in a Chapter 13 bankruptcy.
5. Forgiveness will be restricted to only those that qualify.
6. The fact the loans may now be dischargeable should force lenders to make better loan decisions before just handing the money to anybody.
7. If loans are less abundant or actually just based on repayment ability, then schools would have to ratchet back tuition fees. Less easy money would be available.
8. This process would be restricted to those who need and meet the accepted legal standards for bankruptcy.
9. People that can afford to repay their loans will have to do so through their Chapter 13 repayment plan.
10. We can eliminate this ridiculous game and administration of student loans that will never be repaid and have to be dealt with.
If We Restore Bankruptcy Student Loan Debt Elimination to All Then We Can Focus on Doing Better
There is no argument that education leads to opportunity. I don’t care if that is education at a trade school, some other hands-on education, or a degree in some college subject at the best school in a 200-mile radius.
I heard recently about a “toilet paper” degree program. That’s where plumbers make much more than people to go to college. I do know some very rich electricians and plumbers. I guess that’s a raw subject for me since I’ve spent $3,000 in plumbing bills in the last 30 days.
We have a wonderful system in place to allow people to have affordable access to start their education. The local community college is a fantastic place to start.
It is affordable, and as Dvorkin said, “When thinking of how to get started on the journey of education, community college is a great investment. Think about this: why pay much higher tuition to take classes that use the same books as the community college class uses. Start affordably and then transfer to a more expensive school if you want to continue to finish your college degree.”
The power of community colleges is not new. It is proven. My very own father started his education from a farm in Michigan at the local community college. He then went on to become the very first Ph.D. graduate in Political Science at Michigan State.
So let’s all stop trying to reinvent the wheel here. Just restore the bankruptcy provision for all student loans and require some commonsense and responsibility on future lending.
There will never be any universally accepted plan for past forgiveness of student loans that were flawed from the start.
We are a great country and instead of looking back, let’s do better moving forward.