Thursday, January 12, 2023
Tuesday, May 4, 2021
In 2018, Education Secretary Betsy DeVos hired Jeff Courtney, a former JP Morgan executive, to do a forensic analysis of the federal student loan program. DeVos suspected the program was generating huge losses.
In fact, in November 2018, DeVos said publicly that only one in four student borrowers were paying down both principal and interest on their debt. She also acknowledged that 20 percent of all federal student loans were either delinquent or in default.
Mr. Courtney's analysis confirmed Secretary DeVos's suspicions. Courtney concluded that roughly one-third of the Education Department's student-loan portfolio will never be paid back. That's about a half-trillion-dollar loss.
The Department of Education rejects Mr. Courtney's conclusions. DOE says his "analysis used incomplete, inaccurate data and suffered from significant methodological shortcomings . . . ."
Maybe. But we don't need a sophisticated economic model to know that the federal student-loan program is underwater. We know that 8 million student borrowers are in income-based repayment programs and are making payments too small to pay down their loans' principal plus accruing interest.
So, that is 8 million student debtors who will never pay back their loans. That fact alone should dispel any notion that the federal student loan program is solvent.
Policymakers on the left and on the right can continue arguing about the student-loan crisis as if it were merely a political issue. But it is not--it is an economic calamity for millions of distressed student-loan debtors.
We know for sure that burdensome student-loan debt is hindering young Americans from buying homes, having children, and saving for their retirement. Granting partial student-debt relief, as some politicians propose, will do little to relieve widespread suffering.
In my view, the way to address the student-loan mess is for Congress to amend the Bankruptcy Code to allow insolvent student borrowers to discharge their loans in bankruptcy like any other consumer debt.
Congress also needs shut down the Parent PLUS program, which has a high default rate, particularly among minority and low-income families.
And Congress must put some realistic cap on the amount of money students can borrow for their college education. It is insane for private colleges to peg their tuition rates at $25,000 a semester. They can only get away with this highway robbery because students can take out federal loans to finance their studies.
Mr. Jeff Courtney believes one-third of student-loan dollars will never be paid back. If Congress doesn't address the college-loan crisis forthrightly and very soon, the losses will be much higher than that.
|Bard College: Tuition is $56,000 a year|
Wednesday, April 29, 2020
Now, with the unemployment rate hovering near 15 percent, and millions of hourly workers out of a job, college-loan debtors are struggling more than ever.
And what was the response by the Department of Education's debt collector to Ms. Bukovics's plight? ECMC opposed bankruptcy relief because it believed Bukokvics was spending too much money on food.
|Betsy DeVos's summer home|
Friday, November 30, 2018
Here is what Secretary DeVos said in her speech:
- The federal government holds $1.5 trillion in outstanding student loans, one-third of all federal assets.
- Only one in four federal student-loan borrowers are paying down the principal and interest on their debt.
- Twenty percent of all federal student loans are delinquent or in default. That's seven times the delinquency rate on credit card debt.
- The debt level of individual borrowers has ballooned since 2010. Most of this growth is due to the fact that postsecondary students are borrowing substantially more money than they did just eight years ago.
- The federal government's portfolio of outstanding student loans now constitutes 10 percent of our nation's total national debt.
As I have said repeatedly, the student-loan crisis will not be resolved until the for-profit college industry is shut down and struggling debtors have access to the bankruptcy courts to discharge their student loans.
But those reforms are not politically possible right now. In the meantime, Congress should join DeVos in adopting some "small tactical measures" to ease massive suffering. Here are some suggestions:
- Congress should adopt legislation banning the federal government from garnishing the Social Security checks of elderly student-loan defaulters. As the Government Accountability Office pointed out two years ago, most of the money collected from garnishing Social Security checks goes to paying off interest and penalties and not paying down the principal on the debt.
- Disabled veterans should have their student loans forgiven automatically by the government without the necessity of making a formal application.
- The Department of Education should streamline the loan-forgiveness process for borrowers who signed up for the Public Service Loan Forgiveness Program (PSLF). As of a few months ago, DOE had approved less than 100 of 28,000 PSLF applicants.
- Insolvent students who took out private student loans and financially distressed parents who co-signed student loans for their children or who took out Parent PLUS loans should have free access to the bankruptcy courts.
Rohit Chopra. A closer look at the trillion. Consumer Financial Protection Bureau, August 5, 2013. Accessible at: http://www.consumerfinance.gov/blog/a-closer-look-at-the-trillion/.
Betsy DeVos. Prepared Remarks by U.S. Secretary of Education Betsy DeVos to Federal Student Aid's Training Conference. November 27, 2018.
United States Government Accountability Office. Social Security Offsets: Improvement to Program Design Could Better Assist Older Student Borrowers with Obtaining Permitted Relief. Washington DC: Author, December 2016).
Monday, September 11, 2017
For many Americans, student loans are a necessary evil. The average incoming college freshman understands little of the long-term impact of repayment plans. With millions defaulting on their loans, there’s no doubt about it: the federal student loan program is a bubble—it’s just that no one knows when it will burst. But when it does, it could be a disaster akin to the 2008 real estate crash.
In this series of revelatory essays, author and professor Richard Fossey delves into the political muck to deliver hard truths about the federal student loan program. In-depth analysis sheds light on just how pervasive the crisis is and what average loan holders can do about their balances.
With unique insight and no-holds-barred honesty, Fossey brings readers tales from the front lines of the student loan crisis. Learn about the heartless Social Security garnishment of senior citizens who default on their loans and the link between suicide and student loans.
Whether you’re in search of cautionary tales to share with your college student or seeking solutions to your own mounting student loan debt, The Student Loan Catastrophe: Postcards from the Rubble is your guide to stability in the face of an uncertain future.
Tuesday, March 17, 2015
The Inuits Flipped a Duck at the Federal Government in 1961: A Suggestion for Mass Protests Against the Abuses of the Federal Student Loan Program
On Saturday, May 31, Alaska state legislator John Nusunginya, himself an Inupiat, met with two federal game wardens in Barrow to explain the Inuits' point of view. As it happened, Nusunginya was carrying a shotgun as he and the wardens were strolling down a street in Barrow. When a flight of eider ducks flew by, Nusunginya "pumped a couple of them down" and was promptly arrested.
|The Inuit faced down the federal government in 1961|
Pinkham admitted that he couldn't arrest them all: "I can't handle that much paperwork" (Burwell, p. 6). And of course federal agents had to preserve all the evidence, which meant flying nine sacks of ducks down to Fairbanks.
As I heard the story from an Inuit man who claimed to have participated in the "duck-in," Inuit women turned themselves in as well, forcing the federal government to arrest every adult in Barrow and take on childcare responsibilities for the entire village. But this recollection may be apocryphal.
Michael Burwell's account of the duck-in, presented to the Alaska Historical Society in 2004, is undoubtedly the most accurate rendition of these events; and apparently no one was actually jailed.
But the Inuit had made their point. As one Inuit man recalled:
We were so well organized that if they had arrested every man in Barrow, the womenfolk were going to be next. And then the children. At the time there was not a jail big enough in the state of Alaska. They would have had to have a C124 coming in and out for days to move Barrow out to jails in the States! (Burwell, 2004, p. 7)Eventually, the Inuit won a legal exemption to the Migratory Bird Treaty Act, which they enjoy to this day.
We Need Mass Protests to Demand Bankruptcy Reform for Student-Loan Debtors
Student-loan debtors should take a lesson from the Inuits' creative act of civil disobedience. Currently, there are 7 million student-loan debtors who have defaulted on their student loans; and 9 million more have obtained economic hardship deferments and are not making loan payments. Millions of these people are suffering under the burden of massive student loans. Some have had their paychecks garnished, and others have had their income-tax refund checks seized. More than 50,000 people had their Social Security checks garnished last year.
For the most part, these miserable people suffer in silence. The colleges and universities have their lobbyists and lawyers, as do the banks and the student-loan collection companies. They protect their interests in the halls of Congress and in the courts.
And when overburdened student-loan debtor attempt to discharge their loans in bankruptcy, the federal government and the loan collectors send their attorneys to court to stop them from getting relief. The U.S. Department of Education actually opposed bankruptcy relief for a quadriplegic man who was working full time but could not make enough money to sustain himself because he had to pay a full-time person to feed him, dress him, and drive him to and from work.
The federal government and its loan-collecting henchmen can easily beat down a few lonely souls who attempt to obtain relief in bankruptcy court. Three or four lawyers are generally enough to squelch the intrepid individuals who file adversary actions to discharge their debts. And the federal government and the scholarly commentators spread the word that it is almost impossible to discharge a student loan in bankruptcy, so most insolvent debtors don't even try to shed their loans in bankruptcy.
But change is in the air. Several bankruptcy courts have ruled sympathetically for student-loan debtors over the past couple of years; and a couple of research articles have reported that student-loan debtors actually stand a pretty good chance of obtaining partial or total relief from their student-loan debts if they file for bankruptcy and bring adversary actions against their creditors.
So what would happen if every student-loan debtor who is truly insolvent and who took out student loans in good faith filed for bankruptcy and brought an adversary action for debt relief? And what would happen if these insolvent debtors filed for bankruptcy without a lawyer, relying on the facts of their cases and the sympathy of a bankruptcy judge in the hope of obtaining justice?
I tell you what would happen. If 1 million worthy individuals filed for bankruptcy during a single year, the whole rotten, stinking, bloated and predatory student loan program would collapse because the federal government and the higher education community would have to publicly admit that the present system is unsustainable.
Something like an Eskimo flipping a duck at a federal game warden.
Michael Burwell. (2004). “Hunger Knows No Law”: Seminal Native Protest and The
Barrow Duck-In of 1961. Alaska Historical Society Meeting, Anchorage, AK. Accessible at: http://www.uaa.alaska.edu/cafe/upload/Hunger-Knows-No-Law-AAAMarch2005Last.pdf
Note: My account of the Inuit Duck-in of 1961 is taken entirely from Mr. Burwell's excellent paper, which is posted on the web.
Wednesday, January 21, 2015
|Gas Chamber Door at Auschwitz--Looking Out|
He was captured in the Philippines when the entire American army surrendered to Japanese forces in April 1942, and he survived the Bataan Death March. He remained a prisoner until August 1945, after atomic bombs were dropped on Hiroshima and Nagasaki.
Two thirds of the men who were captured with my father did not survive the War. Some were summarily executed during the Bataan Death March or later, some died of starvation or disease, and a number committed suicide. The experiences of the American prisoners of war in the Pacific are never compared to the Holocaust, but perhaps they should be.
In any event, my father's concentration camp experiences (which he often talked about when I was a child) have caused me to ponder again and again this question: How can people lose their humanity to the extent that they can kill defenseless people without remorse and even without thinking about it seriously? Who turned on the gas at Auschwitz day after day as all those Jews were gassed to death? And did those people go home to their families when their work days ended to eat a nice meal and perhaps listen to the radio?
Recently, I returned to this question after reading several of the published bankruptcy decisions involving student-loan debtors. In the Myhre case, for example, how could attorneys for the U.S. Department of Education oppose the discharge of student loans owed by a paraplegic man who was working full time and whose expenses exceeded his income?
And in the Stevenson case, how could lawyers for Educational Credit Management Corporation argue that a woman in her fifties who had a history of homelessness and was living on less than $1000 per month, be placed on a 25-year income-based repayment plan to pay off her student loans?
And in the Roth case, how could attorneys for the same company--headed at the time by a man who made more than $1 million dollars a year), stand before a bankruptcy judge and maintain that a woman in her sixties, who had chronic health problems and was living entirely off Social Security income of less than $800 a month, should not have her student loans discharged in bankruptcy?
I listened recently to the audio of a bankruptcy proceeding in California involving a man with more than a quarter million dollars of student-loan debt. The man brought an adversary proceeding seeking to discharge his loans in bankruptcy. His suit was opposed by two parties: the U.S. Department of Education and a private loan company.
Judging by their voices, the U.S Department of Education and the private company were both represented by young women. Both argued that the man--in his 50s and making less than $2,000 a month, should not have his student-loan debts discharged.
I imagine both women graduated from good law schools, are kind to animals, and have progressive views on the political issues of the day--global warming, for example.
So how could these smart and presumably sensitive young women be working for a governmental entity and a private company engaged in the reprehensible business of stopping distressed student-loan debtors from bankruptcy relief?
I don't mean to compare these two young lawyers to the people who operated the Nazi death camps, but the insensitivity to the unjust suffering of others is somewhat similar. Millions of Americans are burdened by student-loan debt that is totally unmanageable and will never be paid off; and yet our government employs lawyers to prevent them from obtaining bankruptcy relief.
And, let us remind ourselves that the U.S. Department of Education, the agency that sought to deny bankruptcy relief to a paraplegic student-loan debtor in the Myhre case, answers to a president who won the Noble Peace Prize.
How long can the injustice and suffering spawned by the federal student loan program go on? A long time I fear. Slavery existed in this country for well over 200 years.
But ultimately, this trillion-dollar house of cards we call the federal student loan program will come tumbling down; and when it collapses it will take American higher education with it and perhaps the American economy.
That is something for American college presidents to think about as they fly around in their private jets and drink premium liquor with wealthy alumni. University foundation board members should think about it as well before they execute multi-million dollar contracts with celebrity football coaches.
And mom and pop should think about it too before they encourage little Suzie and little Johnny to take out loans to go to an over-priced, pretentious East-Coast college. Because when little Suzie and little Johnny take out those loans, they will live with them until they are payed off in full or until little Suzie and Little Johnie are dead.
And if they try to discharge their loans in bankruptcy, a bright young lawyer who graduated from an elite law school--someone very much like the person who turned on the gas at Auschwitz--will be in federal bankruptcy court to keep that from happening.
Sunday, June 8, 2014
Workin' for the Man: President Obama's Disasterous Plan to Expand Income-Based Repayment Programs for Student Loan Debtors
|Passing the student-loan mess on to the next president|
But a lot of student debtors don't qualify for Pay As You Earn under present regulations. According to the New York Times, Obama plans to extend eligibility to an additional 5 million student-loan borrowers, including those who took out loans before October 2007.
Is Pay As You Earn a good thing for the nation's distressed student-loan debtors. Yes it is--at least in the short term. For people struggling to pay mountains of debt under the standard 10-year repayment plan, Pas As You Earn will lower monthly payments substantially. People who are currently paying 15 percent of their income under a 25-year IBRP will be delighted to switch to Obama's more generous Pay As-You Earn program. People who are unemployed or underemployed will be particularly grateful, because if their income falls below the official poverty level, they won't have to make any monthly payments at all.
Is there a down side to Pay As You Earn? You bet.
First of all, all the income-base repayment plans remove all incentives for student borrowers to limit the amount of money they borrow. If their loan payments are based on their income and not the amount they borrow, then there is no reason not to borrow as much money as you can.
Second, Pay As You Earn and other IBRPs do nothing to slow the burgeoning cost of going to college. Colleges have no incentive to keep their costs down, because they know students will simply borrow more money to cover tuition hikes. What do colleges care if their graduates are making student-loan payments for 20 years?
Third--and most significantly, these long-term repayment plans are going to fundamentally change the way Americans view postsecondary education and the world of work. There was a time when low-income individuals worked their way through college, graduated with no debt, and entered the workforce determined to buy homes, start families, and begin the confident climb up the economic ladder.
Now, 18- and 19-year olds are going to begin college knowing that they will pay for their postsecondary education by donating some percentage of their income to the federal government over the majority of their working lives. In essence, they will become indentured servants for the government--sharecroppers if you will.
I think this arrangement will foster cynicism among the young, because they will realize on some level that they have been forced into unreasonable levels of indebtedness because colleges refuse to control their costs. They will see university presidents like NYU's John Sexton make outrageous amounts of money while they sign up for long-term college-loan repayment plans that they will not pay off until they are in their 40s and 50s.
And, since they won't have to pay anything under Pay As You Earn if they are unemployed or live below the poverty level, I think many of them will postpone going to work. Many will figure that it makes sense to travel or take low-wage jobs in exotic locales rather than seek more remunerative employment. And the incentive to work "off the books" will increase, because people in IBRPS who enter the cash economy will not only avoid paying taxes and making Social Security contributions, they will avoid making student-loan payments as well.
Moreover, once these college-going young people figure out that their payments will be based on their incomes and not the amount they borrow, they will borrow as much as they can.
I appreciate the President's efforts to provide overburdened college-loan debtors some immediate relief by offering plans to lower monthly loan payments while extending the loan repayment period. Unfortunately, in the long run, the results will be catastrophic.
In reality, President Obama is simply passing the student-loan mess on to the next president to deal with. Millions of people may see their student-loan payments go down in the short-term, but they will be significantly extending the length of their loan repayment period. Most Pay-As-You-Earn participants --I predict--won't be making loan payments large enough to cover accruing interest or pay down the principal on their notes--which means they won't really be paying their loans back at all.
And meantime--total student-loan indebtedness--now more than $1 trillion dollars--will continue to grow and grow.
Jackie Calmes. Obama Plans Steps to Ease Student Debt. New York Times, June 8, 2014, p. 17.
Wednesday, May 23, 2012
Tuesday, April 10, 2012
The Pepper Spray Incidents at UC Davis and Santa Monica College: Universities Need to Listen to Students' Concerns about the Rising Cost of a College Education
- First, colleges and universities should stop raising tuition while they continue paying extravagant salaries to college presidents and senior executives. They should freeze or reduce the salaries of their highest paid employees—at least until the national economy recovers-- instead of tacking the cost of these excessive compensation packages onto students’ tuition bills.
- Second, college and university trustees should cap tuition and fees until the economy improves, and they should work harder at making their institutions more efficient.
- In addition, higher education should demonstrate their empathy for overburdened student-loan debtors by urging Congress to amend the Bankruptcy Code to give overburdened student-loan debtors reasonable access to the bankruptcy courts. They should also support legislation that would stop the federal government from garnishing the Social Security checks of elderly people who defaulted on their student loans.