Showing posts with label student loans. Show all posts
Showing posts with label student loans. Show all posts

Wednesday, July 22, 2020

Portland protesters: Are student loans and a crummy job market driving the anger?

Like many Americans, I have been surprised by the intensity of the Black-Lives-Matter protests that take place nightly in Portland, Oregon. Why Portland?

USA Today speculated yesterday that Oregon's racist past is fueling the city's protests.  As the newspaper pointed out, Oregon's territorial constitution, adopted in 1857, barred people of color from entering Oregon Territory.  And Oregon had a very active Ku Klux Klan during the early 1920s, as USA Today noted.

But I don't think Oregon's "dark history" of racism explains the violence in Portland's streets.  Portland is, after all, one of the most progressive cities in America. US News and World Report recently listed Portland as one of the nation's top ten best cities.

And no one can accuse Portland's politicians of being racist. The city's progressive political scene is so famous that the television series Portlandia lampooned it for eight seasons.

Nor is Portland torn by racial strife. Portland is a mostly white city in a primarily white state.  Only two percent of Oregon's population is Black, and only about one in twenty Portland residents is African American.  Compare that ratio to Baton Rouge, where I live. My city is 52 percent African American, and no one is rioting.

Watching the Portland protests night after night, I have been struck by the fact that most of the protesters are young, white people. I find myself wondering whether these enraged wokesters have college degrees, whether they have good jobs, and whether they have student-loan debt.

We know that millions of Americans are burdened by student loans that hinder them from getting married, buying homes, or saving for retirement.  And we know that a majority of these debtors are not paying down their loans.  Education Secretary Betsy DeVos admitted as much almost two years ago.

I'm guessing that a lot of the people who are protesting on Portland's streets have student-loan debt that is completely unmanageable. Although the demonstrators may have college degrees, those degrees did not lead to good jobs for many of them.

I am not questioning the sincerity of people who have taken to the streets of Portland this summer. I am sure most of them are genuinely disturbed by racism and economic injustice.

But I wonder: How many people who are throwing bricks and bottles at the police would stay in their homes at night, munch on popcorn and watch a Netflix movie if they believed they were financially secure, had a good job, and were not weighed down by student loans.

Portland protesters: most are young and white

Monday, July 6, 2020

Trejo v. U.S. Department of Education: A Texas bankruptcy judge grants student-loan discharge to 47-year-old single mom

The Sad Case of Jessica Trejo

In 2017, Jessica Trejo filed an adversary action in a Texas bankruptcy court, seeking to discharge $90,000 in student-loan debt. Ms. Trejo had borrowed about $65,000 to attend three Texas colleges. She also took out a Parent Plus loan for $13,522 to help pay for her eldest daughter's college education. And she owed a little over $7,000 in accrued interest.

At the time of trial, Ms. Trejo was a 47-year-old single mother with two dependent daughters. Both daughters were "afflicted with serious Type II diabetes, high blood pressure, psoriasis, eating disorders, severe depression, suicidal tendencies, and Attention-Deficit Hyperactivity Disorder" (p. 2). Ms. Trejo testified that she had to continually monitor her daughters' activities due to their depression and suicidal tendencies.

From 2008 until 2013, Ms. Trejo took college courses on a part-time basis at Tarrant County College, Hill College, and Texas Wesleyan University. Her ultimate goal was to get a degree in bilingual education. However, "because of her family and financial situation, she no longer intend[ed] to return to college or obtain a degree" (p. 3).

At the time she filed for bankruptcy, Ms. Trejo's financial situation was precarious. As Judge Mark Mullin observed, Ms. Trejo had not had a full-time job in the last 15 years. She had worked part-time at a nail salon, but she gave up that work to care for her daughters. Due to her daughters' disabilities, she received Supplemental Security Income (SSI) checks from the Social Security Administration, totaling $1470 a month.

The U.S. Department of Education opposed Ms. Trejo's request for student-loan relief, arguing that she should sign up for a 25-year income-based repayment plan. According to DOE, Ms. Trejo's income was so low that she would not be obliged to pay anything under such a program (p. 4).

Judge Mullin applies the Brunner test and discharges Ms. Trejo's student-loan debt.

Judge Mullin applied the three-part Brunner test to determine whether it would work an undue hardship on Ms. Trejo if she were forced to repay her student loans. In Judge Mullin's view, Ms. Trejo met all three parts of that test.

First, the judge ruled that Ms. Trejo could not maintain a minimal standard of living for herself and her two dependent daughters if forced to pay her student loans.

Second, Ms. Trejo had shown that her financial situation was not likely to improve in the foreseeable future.

Third, Judge Mullin ruled that Ms. Trejo had handled her student debt in good faith. Although she had not made any payments on her student loans, she never had the financial wherewithal to do so.

Implications of the Trejo decision

Judge Mullin made the right decision when he discharged Ms. Trejo's student-loan debt. Clearly, she could not maintain a minimal standard of living for herself and her family and pay back her student loans. And, as Judge Mullins recognized, it was highly unlikely that Ms. Trejo's financial situation would improve significantly in the years to come.

The Trejo decision is a significant decision for at least three reasons. First, Judge Mullin flatly rejected DOE's tired argument that distressed student-loan debtors should be forced into long-term income-based repayment plans instead of getting their loans discharged in bankruptcy.  Over the years, DOE has snookered some bankruptcy judges with that silly argument, but those days may be over. It is absurd to deny an honest debtor bankruptcy relief in favor of a 25-year plan that requires the debtor to pay nothing.

Second, Judge Mark Mullin is one of a growing number of bankruptcy judges who are interpreting the Brunner test compassionately and with a dose of common sense. Judge Mullin took great care to write a judicial opinion that will be difficult to overturn on appeal. His decision contained 124 footnotes showing that his ruling was based on evidence in the trial record.

Finally, the Trejo decision prompts us to think about the enormous cost of higher education today, particularly when we consider how often the college experience does not lead to a good job.  Ms. Trejo borrowed about $65,000 to pay tuition at three colleges and got minimal benefit from the experience. Nevertheless, all three institutions that took Ms. Trejo's tuition money get to keep it.

We need to find a better way to provide low-income people like Jessica Trejo with the postsecondary education and training they need to become self-sufficient citizens. Clearly, the federal student loan program, as it is now operating, is not doing a good job.




Monday, June 29, 2020

Coronavirus update: The Fed bought $428 million of corporate debt while distressed student-loan debtors get diddly squat

Perhaps you have noticed, as I have, that a high percentage of the George Floyd protestors are young White people.

 Youthful White men and women helped pull the ropes that brought down statues of Confederate figures across the South. And it is Millenials--White Millenials--who joined in the vandalism and destruction that damaged many American cities.

Why is that? Are White protestors merely standing in solidarity with their Black brothers and sisters over the residue of racism in the United States? Or do they have their own grievances?

I think it is both. In this season of discontent, we should remember how many Americans have been thrown out of work--tens of millions.  And we should never forget that 45 million Americans--more young than old--owe $1.7 trillion in student debt, and only about half can pay it back.

This nation has been in lockdown for four months now due to the coronavirus epidemic.  Public employees--professors, teachers, administrators, etc.--are still getting paid.  Workers in the private sector have been laid off by the millions, especially in the service industry. And many of these unemployed workers have student loans.

What has our federal government done to assist laid-off student-loan debtors?  Diddly squat.  The Department of Education has granted a brief reprieve from making monthly loan payments and is abstaining from charging interest, but that is about it.

Oh, yes, DOE said it would stop collection efforts against defaulted college-loan borrowers until the coronavirus crisis had passed. But last May, DOE was sued for allowing employers to continue collection efforts.

Meanwhile, the Federal Reserve Bank is buying up corporate debt--over $400 million. So far, the Fed has bought corporate debt owned by Berkshire Hathaway Energy, Coca-Cola, AT&T, Boeing, Exxon-Mobile, Ford and Walmart. And it has distributed more than $350 million in forgivable loans to businesses that promise to maintain their payrolls.

Who has benefited from the Fed's helicopter money over the last few months?  Corporate executives and corporate stockholders, that's who.  And--in case Fed Chair Jeremy Powell hasn't noticed--the people protesting on America's streets don't own stock.

I don't mean to question the motives of White protestors who join the Black Lives Matter demonstrations. I feel most are expressing real and legitimate anger about race relations in the United States.

But I also believe that White protestors feel a kinship with Black protestors on economic issues and consider themselves to be fellow victims of corporate America.  And I agree with them about that.

Many White demonstrators have racked up thousands of dollars in student debt and are not holding down jobs that will allow them to pay back what they owe. Some have come to realize that their college education was way too expensive and didn't prepare them for decent jobs. 

Now, these student-loan debtors are out of work and struggling to make their loan payments. They realize that our federal government has been spewing out billions of dollars to corporations to help them deal with the coronavirus while it has done virtually nothing for distressed college borrowers.

They are angry. I would be angry too--very, very angry. 





Saturday, June 27, 2020

Planning on going to college this fall? Why not wait a year or two?

Since time immemorial, middle-class parents have urged their children to get a college education. A college degree, parents believed, was the indispensable ticket to a good life.  College was where young people prepared for the world of work, where they often met their future spouses, and where they formed lifelong ties to classmates.

But listen carefully. Times have changed. The coronavirus, campus unrest, and a troubled economy have undermined the value of a college degree. If you are thinking about enrolling for college this fall, you might want to postpone that plan--at least for a year. And here is why:

The coronavirus pandemic. First of all, the COVID-19 epidemic forced virtually every American college to close last spring and to shift from live instruction to a distance-learning format.  Most schools have announced that they will be teaching their courses online this fall. 

Moreover, dorm life, college sports, and extracurricular activities will all be negatively impacted by the coronavirus.  In short, going to college next year may not be much fun.

Colleges and universities will learn to adapt to a post-pandemic world, but it will probably take a couple of years before they figure it out. Why not postpone college for a year or two while this transition is ongoing?

Less police protection.  Colleges have a legal duty to keep their students safe on campus and in the dorms. Most colleges meet this responsibility by maintaining a campus police force.

In the wake of George Floyd's killing, however, many colleges and universities are facing intense pressure to dismantle their police forces. As Insider Higher Ed recently reported:
 Student organizations, workers’ unions and individual activists at dozens of universities are calling on administrations to cut ties with local police or disband campus police departments, saying that policing institutions enact violence upon black people and uphold white supremacy.
So if you go to college this fall, there is a good chance that police protection on your campus will be diminished from what it was a year ago or even eliminated.  In my view, this is another reason to postpone going to college. Wait until the debate about campus law enforcement is resolved before embarking on your college career.

Growing uncertainty about the worth of a college degree. Although the higher-education industry tirelessly touts the value of college education, that mantra is becoming shopworn.

Without question, the cost of going to college is far too high.  In particular, students who take out student loans to major in "soft" disciplines (social sciences, humanities, gender studies, etc.) are finding that their degrees leave them with massive debt and no job.

Some young people go to college with a clear idea about how their degree will qualify them for vocations in such fields as engineering, business, computer sciences,  or medical technology. But others are clueless about why they are on campus.

If you have only a hazy notion about how you want to make a living, you should strongly consider working for a year after graduating from high school. You should use the time to reflect on your future and explore alternatives to chasing a college degree.

In my state, thousands of people have gotten technical training at vocational and community colleges and gone on to get good jobs with six-figure salaries.  If you ask these people whether they are sorry they didn't acquire a bachelor's degree, I think most will tell you no.

So think long and hard before going to college this fall, especially if you plan to finance your studies with student loans. Your chosen university will still be around in 2021 if you decide to pursue a college education. 



Saturday, April 4, 2020

"Seeing poor white people makes me happy": Should you take out student loans to attend SUNY Old Westbury?

Do you remember Associate Professor Nicholas Powers, who made the national news a while back for posting an online essay titled "Seeing poor white people makes me happy"?

According to the New York Post, Powers penned an essay in which he wrote that "White people begging us for food feels like justice . . . it feels like a Black Nationalist wet dream."

Professor Powers is a tenured professor at SUNY Old Westbury, a public university in the state of New York. He makes $82,122 a year, plus benefits, which undoubtedly includes excellent health insurance and a pension plan.

And yet he rails against poor white people.  Describing his reaction to seeing a homeless white man in a black neighborhood, Powers wrote, "Should I kick him in the face? Hard?" Also describing his emotions about seeing a white homeless man, he wrote: "Today I own my anger. I want to snatch his food and say, 'Go beg in a white neighborhood!' And eat it. And rub my belly. And laugh."

So what does it cost to attend SUNY Old Westbury, where Professor Powers teaches in the English Department?  For in-state students, it cost about  $24,000 for tuition, fees, room, and board. That's roughly $100,000 for a four-year degree.

America has plunged into a deep economic Depression. According to the Federal Reserve Bank of St. Louis, the unemployment rate may hit 32 percent--higher than during the 1930s.  Young people who are in college now need to keep their expenses down and study a subject that will lead to a good job.

So if you are a young New York college student, ask yourself this question. Does it make sense to take out student loans to attend SUNY Old Westbury and take classes from Professor Powers? I don't think so.

On the other hand, if you borrow money to get a degree from SUNY Old Westbury and can't get a job, you shouldn't worry. You can always sign up for a 25-year, income-based repayment plan to service your student loans.

That plan will terminate when you are in your fifties. By that time, Professor Powers will probably be retired and living on his generous New York state pension, a pension you will help pay for with your taxes.


Professor Nicholas Powers: "Seeing poor white people makes me happy."




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Thursday, August 15, 2019

"Luxury" apartments for college students: How will the kids pay the rent?

Bloomberg Businessweek carried a story recently about the emergence of luxury housing for college students. In recent years, real estate developers have been building "amenity-rich luxury apartments" near universities. These new apartment complexes are very attractive to students, especially when compared to the often run-down dormitories that the universities operate.

But these so-called luxury apartments are expensive, and they've contributed to the rising cost of student housing. As Bloomberg writer Ali Breland reported, "the estimated cost of on- and off-campus room and board at a four-year public university climbed by more than 82 percent, adjusted for inflation." During the same time period, rents across the nation as a whole only rose 19 percent.

How are students paying for their fancy digs? Many of them are paying the rent with student loans. The average college graduate now leaves school with $35,000 in student debt, and for many students, a significant chunk of that money was spent on housing.

So what's the problem?

First of all, a lot of students are taking out student loans for housing they really can't afford. When their student-loan bills come due, a lot of them will wish they had lived more modestly while they were working on their degrees in medieval literature.

Second, by borrowing money to pay for "luxury" living, students are living a lifestyle they can't sustain after they finish their studies and go looking for a job. It is hard for college students to accept the reality that their standard of living will go down once they've obtained their college degrees.

The upscale student-housing boom imposes a cost on college communities as well.  A lot of this so-called luxury student housing isn't luxurious at all.  Student-housing complexes may have swimming pools, clubhouses, and shiny appliances, but many of them are shoddily constructed, with plastic interior doors and particle-board cabinets.

I live just a few blocks from some of these student-oriented apartment complexes, and even the newer ones are beginning to look the worse for wear.  The day is fast approaching when these faux-luxury apartment buildings will just be slums.

But the real estate developers don't care. These complexes are being packaged and sold to investors as commercial real-estate-backed securities--very similar to the mortgage-backed securities that were being peddled before the housing crisis of 2008.

In my view, the luxury student-housing boom is a bubble. Too many of them are being built. No wonder the default rate on student-oriented housing mortgages has rocketed up to 9 percent!

Luxury student housing: Living the good life while still in college

Saturday, June 1, 2019

Dude! Don't move to India to escape student loans!

Zero Hedge posted an article yesterday about people who fled the United States to escape their student loans. (Annie Nova wrote the original story for CNBC).  Chad Haag, for example, graduated from the University of Northern Colorado and emigrated to India to get away from $20,000 in college-loan debt.

Apparently, Haag is somewhat ambivalent about India. He gets to see elephants--a plus.  But Haag is not crazy about the plumbing. "Some toilets here are holes in the ground you squat over," he confided.

Zero Hedge went on to report on a woman who went to Japan to teach English and a guy who moved to China--also to teach English. Both said they were partly motivated to leave the U.S. by their student-loan debt.

Dudes! Don't move overseas to dodge your student loans. People who cannot find good jobs can enroll in one of the Department of Education's income-based repayment plans (IBRPs). If they are unemployed or living below the poverty line, their monthly loan payment will be zero. An IBRP is a terrible option, as I have often said. But for most people, it beats moving to Asia.

Frankly, I'm not buying the underlying premise of this story. Millions of people have defaulted on their student loans and hardly any of them have left the U.S.  Why would they? People can't dodge their student loans by moving overseas. The debt will be waiting for them when they return, along with accumulated interest and penalties.

My guess is that student-loan debtors who leave the United States have multiple motives. Mr. Haag, for example, married an Indian national, which must be the major reason he is living in a country that doesn't meet his hygiene standards. And thousands of people teach English overseas simply to experience another culture.

If we are looking for signs of suffering, we shouldn't focus on a handful of people who have left the country with student loans hanging over their heads. We should reflect on plummeting birth rates, declining homeownership, and inadequate savings for retirement.

The student-loan program is a catastrophe but publicizing a few outliers is a distraction. We need to relieve the suffering experienced by millions of people. In my mind that can best be accomplished in the bankruptcy courts. And then we need to find a better way to finance higher education.




Tuesday, May 7, 2019

A Kansas bankruptcy judge grants Vicky Jo Metz a partial discharge of her student loans, and she wins her appeal

Vicky Jo Metz borrowed $16,613 back in the 1990s to attend a community college, but she never got a degree. Over the years, she filed for bankruptcy three times, but she continued making payments on her student loans under court-approved repayment plans. In fact, she paid almost 90 percent of what she originally borrowed.

Nevertheless, Metz's student-loan debt kept growing due to accruing interest. By 2018, her total debt had grown to $67,277--four times what she borrowed. 

In 2017, Metz commenced an adversary proceeding in a Kansas bankruptcy court, seeking to discharge her student loans. Her creditor, Educational Credit Management Corporation (ECMC), objected to a discharge. Put Metz in an income-based repayment plan (IBRP), ECMC demanded. 

But Bankruptcy Judge Robert Nugent disagreed. Metz, who was 59 years old, would never pay off her student loans under an IBRP, Judge Nugent reasoned. On the contrary, if Metz entered a 25-year IBRP and faithfully made her income-based monthly payments, her debt would continue to grow due to accruing interest. By the time Metz completed her repayment plan, she would owe $157,277—nine times what she borrowed! Although her student-loan debt would be forgiven after 25 years of making payments, Metz would face significant tax liability because the IRS considers forgiven debt as taxable income.

 Judge Nugent granted Metz a partial discharge of her student loans. He canceled all the accrued interest on her student debt but required her to pay the original $16,613.

ECMC appealed Judge Nugent's decision to a federal district court, and Judge John Broomes upheld Judge Nugent's ruling. Like Judge Nugent, Judge Broomes applied the three-part Brunner test to determine whether it would be an undue hardship for Metz to repay her student loans.

In Judge Broomes' view, Metz could not repay her student loans and maintain a minimal standard of living. Thus, she met part one of the Brunner test. Moreover, she met part two of Brunner because her financial situation was not likely to change. Finally, in Judge Broomes’ view, Metz met part three of the Brunner test because she had handled her student loans in good faith.

In its appellant’s brief, ECMC renewed its argument that Metz should be placed in an IBRP and downplayed the tax consequences of such a plan. Metz would probably suffer no tax consequences from an IBRP, ECMC argued, because she would likely be flat broke when her IBRP concluded.  Under current law, ECMC pointed out, individuals pay no federal tax on forgiven debt if they are insolvent at the time the debt is forgiven.

In a footnote, Judge Broome pointed out the absurdity of ECMC’s position “The import of that argument,” Judge Broome wrote, “is that under ECMC’s plan, [Metz] will be kept insolvent, if not entirely impoverished, until she is eighty years old and the debt is forgiven—what a pleasant system.”

Judge Broomes’ Metz decision is the second appellate court decision out of Kansas to uphold a bankruptcy court’s partial discharge of student-loan debt. The first decision, Murray v. ECMC, granted a partial discharge to Alan and Catherine Murray, a married couple in their late forties, whose student-loan debt had quadrupled over 20 years due to accruing interest.

Together, Metz and Murray stand for the proposition that long-term, income-based repayment plans are not appropriate for insolvent student-loan debtors when it is clear that debtors in these plans will never pay off their loans. Had ECMC had its way with Vicky Jo Metz, she would have made monthly student-loan payments for a quarter of a century—until she was in her eighties.  At that point, she would face a huge tax bill for $150,000 in forgiven debt or she would be insolvent. As Judge Broome remarked: What a pleasant system.



References

Educational Credit Management Corporation v. Metz, Case No. 18-1281-JWB (D. Kan. May 2, 2019).

In re Murray, 563 B.R. 52 (Bankr. D. Kan 2016); aff’d sub nom. Educational Credit Management Corporation v. Murray, No 16-2838, 2017 WL 4222980 (D. Kan. Sept. 22, 2017).

Monday, April 1, 2019

University of Kentucky college students go on hunger strike over food insecurity. UK President Eli Capilouto makes $790,000 per year.

More than sixty students at the University of Kentucky began a hunger strike this week. Some will go cold turkey (so to speak) and take nothing but water and edibles required by medical necessity--which I presume will not include Snickers. Others will restrict themselves to one meal a day.

Why are they refusing to eat? Are they calling attention to the student loan crisis, which has destroyed the lives of millions? Are they calling for student-debt relief? Are they asking for student-loan debt forgiveness?

No, they are going on a hunger strike because they might get hungry! Well--that's not quite accurate. Actually, the strikers are protesting what they say is the university's inadequate response to students' food and housing insecurity.

These are the strikers specific demands as reported by a local newspaper:

1) They want UK to establish a Basic Needs Health Center "focused on helping students with housing and food-related challenges."

2) They want the University to establish a Basic Needs Fund, which would distribute small cash grants to students with food or housing issues.

3) Finally, the strikers want the university to hire a full-time person dedicated to helping students meet their food and housing needs.

UK's president, Eli Capilouto, roused his public relations staffers from their slumbers, and the PR team pumped out a suitably sensitive and vapid public response. Here is a sample:

"[W]hile we may disagree in some of our specific approaches [to hunger]," Capilouto purred sympathetically, "we will never disrespect the concerns that have been raised or those who have raised them."  So--no tear gas or pepper spray. That's a relief! No one wants to get tear gassed on an empty stomach.

Capilouto went on to say that UK had cut the cost of its most popular meal plan and expanded the operating hours for the university food pantry. He also said the university was raising money for an emergency fund.

"These next steps are a beginning, not an end," Capilouto assured the strikers. "This is a journey we are on--as a campus community and as compassionate, caring citizens in a larger world."  Don't you love that journey bullshit?

And then President Capilouto concluded his feeble statement with a flourish: "After all, we share the same goal--a commitment to making progress  in ways that ensure the health and wellness of our students as we prepare them for lives of meaning and purpose."

Wow! I give President Capilouto and his PR hacks an A minus for producing a hunger-strike response that is as flavorless and boring as the ramen noodles his students are eating.  (I deducted a few points from his grade because he didn't include the words "transparent" and "inclusive.")

I don't mean to make light of food insecurity on college campuses. In spite of the fact that students borrow on average about $37,000 to get their college degrees, they sometimes fall short on grocery money. But isn't  that what the UK food pantry is for?

Let's take a closer look at what the UK hunger strikers are demanding: "A Basic Needs Center focused on helping students with housing and "food-related challenges." But UK has a student-housing staff and people in charge of the campus dining halls. That's not enough?

And the strikers want small financials grants--apparently to meet food and housing emergencies. But isn't that what the federal student loan program is designed for? And part-time jobs, for that matter.

But the strikers' last demand is truly ludicrous. The strikers, delusional perhaps due to lack of protein, want UK to hire ANOTHER ADMINISTRATOR who will be dedicated to "addressing students' food and housing needs."

I'm sure UK will be happy to comply. Heck, it might hire a half dozen new administrators to staff a Basic Needs Center.  Sure it will cost money, but UK can always raise its tuition; and students will simply take out bigger student loans to absorb the cost.

Why do you suppose the UK protesters didn't call a hunger strike to protest the student-loan crisis and the outrageous cost of going to college? You know why. UK would probably turn the fire hoses on them.

And here's a footnote. President Capilouto--Mr. Sensitive--makes $790,000 a year. That will buy a lot of ramen noodles.

President Capilouto--Mr. Sensitive--makes $790,000 per year.


Wednesday, February 13, 2019

We are all peasants now: The student-loan crisis is destroying the middle class

As the world changed, we reverted to social divisions that we'd thought were obsolete.  . . . A plain majority of the townspeople were laborers now, whatever in life they had been before. Nobody called them peasants, but in effect that's what they'd become.
World Made By Hand
James Howard Kunstler 

American higher education is the emperor who wears no clothes. College leaders boast that our nation's universities are the envy of the world while they rake in so-called federal "student-aid" and parade about in medieval regalia peddling worthless degrees.



And America's young people are the losers. They've been gulled into thinking they can gain a middle-class lifestyle by getting a college degree and maybe a graduate degree as well. But millions are finding that their college degrees gained them little more than massive debt. And those online MBAs and doctorates they purchased with borrowed money--just junk.

According to the Federal Reserve Bank, outstanding student-loan debt reached $1.56 trillion last January. Around 45 million Americans have student-loan obligations and 7.4 million are enrolled in long-term repayment plans that stretch out for as long as a quarter of a century.  As Secretary of Education Betsy DeVos admitted with shocking candor last November, only one out of four student borrowers are paying off the principal and interest on their loans.

It is now well documented that student-loan debt is contributing to the nation's declining birth rates--now near a record low. People can't afford children because they're paying off student loans.

Young people can't afford to buy homes, they can't save for retirement, they can't pay off their debts.  Their liberal arts degrees, their shoddy law degrees, their fluffy MBAs and doctoral degrees qualify them to become baristas and clerical workers.

We are now in the early stages of the 2020 presidential election season, and what do our politicians talk about? Russia, border walls, free health care, and the Green New Deal.  We should be discussing the New Raw Deal--the deal our government and our universities have imposed on guileless young people.

For too long, Americans have bought the line that our colleges and universities operate for the public good and that the people who run them are wise and kindly. We particularly revere the ivy league colleges where we get nearly all our prune-faced Supreme Court justices and most of our presidents.

But if the folks who run Harvard are so goddamned wise, how could they have fallen for Elizabeth Warren's scam that she's a Cherokee? And if our elite college leaders are sensitive and kindly, how did little boys wind up getting raped in a Penn State shower room? And how could dozens of female athletes get groped by Larry Nasser while he was on Michigan State's payroll?

No, let's face the truth. Many American colleges and universities are not run by wise and kindly people; most are run by administrators who are primarily concerned with the bottom line. And far too often, higher education is not preparing young Americans to enter the middle class. On the contrary, by forcing people to take on oppressive levels of debt to get a college degree, colleges are setting up millions of Americans for a lifetime of peasantry.








Friday, February 8, 2019

Kinney v. National Collegiate Master Student Loan Trust: Iowa bankruptcy judge discharges student loans that a man cosigned for his niece

Anthony Kinney, a 52-year-old working guy with a modest job in the plastic industry, co-signed three student loans for his niece. His niece defaulted, and National Collegiate Master Student Trust I (probably an investment fund) began efforts to collect on two of the loans from Kinney.

Kinney filed for bankruptcy to discharge the loans, and he made two arguments. First, he argued that the Bankruptcy Code's "undue hardship" rule didn't apply to him because he only cosigned the loans and received no benefit from them. Second, Kinney maintained that paying back his niece's loans would be an undue hardship.

Bankruptcy Judge Thad Collins declined to rule on Kinney's first argument, but he agreed with Kinney that repaying the loans would be an undue hardship. In ruling for Kinney, Judge Collins interpreted "undue hardship" under the "totality of circumstances" standard, which is the standard used in the Eighth Circuit.

Judge Collins noted that Kinney made about $37,000 a year and was never likely to make more than $40,000. Moreover, Kinney had no financial resources other than his job, and his 401K retirement account only contained about $3,000.

Judge Collins also examined Kinney's living expenses, which he found to be reasonable and necessary. Kinney's resources were adequate to maintain a modest living standard, the Judge determined, but not enough to maintain a minimal standard of living if forced to pay his niece's student loans, which were accruing interest at  more than 12 percent. In addition, Kinney was living with an aunt and uncle while he went through bankruptcy, but this was a short-term solution to his housing needs. Kinney's future housing costs were definitely headed upward.

Judge Collins concluded his brief opinion by observing that Kinney was "in a very precarious financial situation," with no savings and minimal retirement funds. Having found that Kinney had no capacity to make loan payments, the Judge ruled that "requiring [Kinney] to repay either of the two loans . . . would result in undue hardship."

Judge Collins ended his opinion with a brief comment about the fact that Kinney was a cosigner of his niece's student loans. Although Kinney's cosigner status was legally insignificant to the Judge's undue hardship determination, Judge Collins found it relevant that Kinney received no educational benefit from his niece's student loans. In the Judge Collins' opinion, the lack of educational benefit weighed against Kinney's creditor.

Why is the Kinney case important? Two reasons:

First, the case illustrates the terrible consequences that people can face when they cosign a relative's student loans. The original lender probably didn't care whether Kinney's niece could pay back her loans because it knew that Kinney was also on the hook.

Second, Judge Collin's succinct decision went to the heart of the matter concerning student-loan debt. It was quite clear that Kinney would never be able to pay back his niece's student loans, which were accruing interest at 12 percent and which had nearly doubled in size since she originally borrowed the money.

Isn't ability to repay a student loan the only reasonable consideration when an overwhelmed student-loan debtor files for bankruptcy? And when it is clear that a college-loan borrower cannot repay his or her student loans, why not give that borrower the fresh start the bankruptcy courts were established to provide?

Thank God for bankruptcy judges like Judge Thad Collins. We need more judges like him.

Don't cosign a student loan!


References

Kinney v. National Collegiate Master Student Loan Trust I, 593 B.R. 618 (Bankr. N.D. Iowa 20180.

Monday, January 21, 2019

Steven Brint says American higher education Is doing great!: Pardon me Professor Brint, but what planet do you live on?

 Steven Brint, a professor at UC Riverside, wrote an essay for Chronicle of Higher Education titled "Is This Higher Education's Golden Age?" Brint didn't answer this question directly, but his article argues that American higher education is doing great.

Here's his evidence:

Lotsa money! Brint boasts that the demand for postsecondary education has remained steady in spite of rising tuition, which is true. Families are still willing to pay college tuition at nosebleed levels, at least at the elite colleges.  The most prestigious colleges continue packing in the suckers. A quarter million dollars for an Ivy League degree? Hey, no problem!

And, as Brint points out, the federal government is still higher education's sugar daddy. Brint notes that the feds shovel  $65 billion a year in Pell grants, work study, and tax benefits; and a lot of that money eventually winds up in college coffers.  Federal research money amounts to about $30 billion a year, Brint says; and the Department of Education pumps out  another $100 billion a year in student loans. And there's no sign the government will ever shut off the money spigot. So that's good news from Professor Brint's perspective.

More degrees! Brint also celebrates the rising number of college degrees. In 1970, American colleges produced 840,000 college graduates. In 2015, 1.9 million people received bachelor's degrees. Over that same time period, American higher education tripled its annual production of master's degrees and more than doubled the number of doctorates. In fact, in 2015, American universities dispensed more than three quarters of a million doctoral degrees.

That's certainly good news for the universities, their deans, and their professors. But graduate degrees have become insanely expensive, and it is now clear that a lot of people who got law degrees or MBA degrees from second-and third-tier universities were throwing their money away--not to mention the people who got master's degrees in the fine arts.

More professors! The United States is employing more college teachers than ever before, and Professor Brint thinks that's good news. In 2005, the nation employed 1.3 million postsecondary teachers. By 2015, the number had grown to 1.9 million--an increase of 300,000 professors and instructors in just ten years.

More research! And all those professors are doing more and more research. As Brint reports: "[T]he Web of Science indexed 12,000 journals, 160,000 conference proceedings in more than 250 disciplines, and reached a total count of 90 million records and more than a billion citations."

Professor Brint is the director of the Colleges & Universities 2000 Project at his home university and the author of a book about higher education. So we should presume, I suppose, that he knows what he's talking about.

But in fact, Brint's article is nonsense. Sure, higher education is doing great from the perspectives of the insiders: tenured professors and over-paid administrators. As Brint points out, the professors managed to eke out annual raises even during the recession of 2008 when millions of Americans lost their homes in foreclosure and millions more saw their retirement accounts deflate. Unlike most Americans, college professors enjoy lifetime employment, defined-benefit pensions, and gold-plated health insurance. Yes, for the professors, life is indeed beautiful.

But are we supposed to cheer because the Web of Science lists 12,000 journals and contains 90 million research documents? Have you read the titles of some of those articles and conference presentations?

I'm sorry, Professor Brint, but your insouciant boast about the value of research reminds me of that scene in the movie Out of Africa where Meryl Streep's character tries to convince a Kikuyu chief to allow the children in his village to be taught how to read.  The chief is skeptical. "The British know how to read," he pointed out, "and what good has it done them?"

The education research community has produced thousands of books, articles and scholarly presentations over the past 30 years on education topics. Are American kids better educated?

And the law schools turn out literally thousands of law-review articles every year. Do we have more justice?

I would like Professor Brint to think a moment about higher education's students--a constituency he said precious little about in his essay. Almost 45 million Americans owe on student loans. According to the Federal Reserve Bank, as of this month, total outstanding student-loan indebtedness has reached $1.56 trillion.

Secretary of Education Betsy DeVos gave a speech last November in which she reported that only 1 out of four student debtors (24 percent) are making payments on both principal and interest on their loans.  In fact, she acknowledged, 43 percent of all outstanding student loans are "distressed."

Although academia is a pleasant place for Professor Brint,the federal student-loan program is a train wreck. Millions of people have their loans in deferment, which means they aren't making loan payments while interest accrues on their loan balances. Another 7.4 million are in income-based repayment programs and are making monthly payments so small that their loans are negatively amortizing.

And the disastrous student-loan program is pulling down the small, nonprofit liberal arts colleges, especially in New England the Mid-Atlantic states and the upper Midwest. Legal education has been corrupted by the flow of student-loan money, with bottom-tier law schools turning out lawyers who can't find jobs.

And then there is the for-profit college industry, rife with corruption, fraud, and cronyism. Professor Brint said nothing about that problem.

So is higher education in a Golden Age, Professor Brint? I don't think so.

I close by noting that Professor Brint is a sociology professor. I was once told that sociology is nothing more than the painful enumeration of the obvious. But after reading Brint's essay, I would modify that observation. In fact, sociology is the painful enumeration of the oblivious.

Professor Steven Brint
Universities are stronger than ever?

Thursday, November 29, 2018

Fewer new international students are enrolling in U.S. colleges: Have foreign families figured out that American higher education is a scam?

Earlier this week, Chronicle of Higher Education reported a drop in new enrollments by foreign students in U.S. colleges. Over a two-year period, new foreign enrollments dropped nearly 10 percent. According to the Chronicle, foreign students contributed $42 billion to the U.S. economy in 2017, so a drop of this magnitude is a significant revenue loss for American higher education.

Why are foreign students staying away from American colleges and universities? Some people blame the "Trump effect." As the Chronicle explained, "The combination of policies and rhetoric from [President Trump], the thinking goes, are making international students reconsider coming to the United States amid a political climate hostile to globalism."

To my knowledge, no one has produced any empirical evidence to support that theory; and Chronicle of Higher Education went on to give some alternate explanations. For example, higher tuition prices and the strong U.S. dollar may have priced some foreign families out of the American higher education market. In addition, some countries are scaling back their financial support for foreign study. Finally, as one expert explained, American colleges are facing stiffer competition for foreign students. "The biggest new development is there are real competitor countries out there that we've never had before," said Allan E. Goodman, president of the Institute of International Education.

But I offer yet another possible explanation for the decline in new college enrollments from foreign students. Maybe foreign families have figured out that American universities are wildly overpriced and aren't worth the tuition they are charging.

As Peter Morici pointed out in an article for MarketWatch, U.S. colleges have lowered admission standards to keep their enrollments up and have watered down their curriculum to teach students who aren't qualified for postsecondary study.

This phenomenon has led to a poorer overall college experience for many students. Moroci notes that "s]tandardized tests indicate four years of college often adds little to students' analytical abilities and four in 10 graduates lack the critical thinking skills necessary for entry-level professional work."

And Morici also points out that 40 percent of young college graduates are stuck in jobs that don't require a college degree and 3.6 million American college graduates live below the poverty line.

In short, for millions of Americans, their college experiences have been a scam. After four years of largely meaningless study, college graduates are stumbling into a tight job market with little to show for their educational investment other than massive amounts of student-loan debt.

Foreign families may not understand all the dynamics of the big scam called American higher education, but many of them have figured out that it is not worth what U.S. universities are charging.  Little wonder that new foreign student enrollment has dropped nearly 10 percent in two years.

Photo credit: North Idaho College


References

Peter Morici. Opinion: A sensible way to fix the student-loan problem. Marketwatch.com, November 26, 2018.

Vimal Patel. Is the 'Trump Effect' Scaring Away Prospective International Students? Chronicle of Higher Education, November 13, 2018.


Friday, October 26, 2018

Augustin v. U.S. Department of Education: Adventures in Fantasy Land

In  April 2016, Pierre Augustin filed an adversary complaint in a Maryland bankruptcy court, seeking to discharge $210,000 in student loan debt. He told the court he had been burdened by this debt for 24 years, and that his financial circumstances did not permit him to pay it back. Augustin's wife also had student-loan debt: $120,000. Together the couple had accumulated a third of a million dollars in student debt.

Augustin had three postsecondary degrees: a bachelor's degree in political science from Salem State University in Massachusetts, a master's degree in public administration from Suffolk University in Boston, and an MBA from University of Massachusetts Lowell. Seventeen years after receiving his MBA degree, he was working  as a security guard.

Augustin claimed he was unable to find a job in the field of his degrees, but together he and his wife earned a net income of more than $6,000 a month. The Department of Education (DOE) offered Augustin a 25-year income-based repayment plan that would allow him to pay $331 a month toward his student loans or a 15-year plan with payments of $1,138 a month.

Augustin did not accept DOE's offers. Under the 25-year plan, he argued, he would face a lifetime of indebtedness. Moreover, when the payment term ended, he would face massive tax liability for the amount of forgiven debt. The 15-year plan was also unacceptable, he maintained, because it would not allow him to save money for his retirement.

Bankruptcy Judge Thomas Catliota was not sympathetic. The judge applied the three-pronged Brunner test to determine whether Augustin's student debt constituted an undue hardship.  Under Judge Catliota's analysis, Augustin failed all three prongs.

First, Judge Catliota noted, Augustin could make monthly loan payments of $331 under the 25-year repayment plan while maintaining a minimal standard of living. Second, Augustin could not show additional circumstances that would make it impossible to make monthly payments in that amount.

Finally, Judge Catliota ruled, Augustin had not demonstrated good faith. Augustin had not made a single payment on his student loans for more than a quarter of a century. "By his own  admission,"the judge pointed out, "Mr. Agustin deferred his loans for approximately 26 years."

Moreover, Mr. Augustin was not willing to accept DOE's offer of a  manageable repayment plan. In Judge Catliota's view, "This shows lack of good faith on [Augustin's] part."

Not surprisingly then, Judge Catliota refused to discharge Mr. Augustin's student debt. Applying the three-part Brunner test, Augustine was not entitled to relief.

Perhaps Judge Catliota reached a just outcome in the Augustin case. But let's look at the case in a larger context. Why does the Department of Education loan people money for multiple college degrees and then permit borrowers to make no payments on those loans for 25 years?

Why does the government push people into 25-year repayment plans that allow debtors to make monthly payments so low that they don't cover accruing interest? Even if Mr. Augustin agrees to make income-based payments of $331 a month for 25 years, he will never pay back the $210,000 he owes.

Finally, why apply the Brunner test to people like Mr. Augustin? Why not simply ask whether Mr. Augustin and his wife will ever pay back $330,000 in student-loan debt? The answer is clearly no.

In short, Augustin v. Department of Education is another adventure in Fantasy Land, which is what the federal student-loan program has become. Our government has rigged an insane student-loan program that is trapping millions of people to a lifetime of indebtedness from which there is no relief.

References

Augustin v. U.S. Department of Education, 588 B.R. 141 (Bankr. D. Md. 2018).

Wednesday, August 29, 2018

Wildfires ravage California and student debtors groan under mountains of debt. Meanwhile scholars debate transphobia

More than 5,000 wildfires burned in California this summer, incinerating more than 1 million acres of forests and several thousand homes.  For Californians, 2018 is truly the year of the holocaust fire.

Approximately 45 million Americans groan under the burden of $1.5 trillion in outstanding student loans. As one dentist has demonstrated, it is now possible for a person to accumulate $1 million in student-loan debt. For millions of people, student loans have incinerated their financial future--a holocaust of another kind.

Meanwhile American scholars debate this important issue: Is the acronym 'TERF' a transphobic slur?

If you don't know what TERF means, you're probably a misogynistic bastard, and  you're definitely uncool.  So I will tell you. TERF is the acronym for "trans-exclusionary radical feminist." As Colleen Flaherty explained in Inside Higher Ed, the term describes "a subgroup of feminists who believe that the interests of cisgender women (those who are born with vaginas) don't necessarily intersect with those of transgender women (primarily those born with penises)."

Here's the nut of the debate. Some feminists believe that the experience of having lived as a male for some time is important to feminist discourse, "but some trans scholars and allies say that notion is of itself transphobic, since it means that trans women are somehow different from women, or that they're not women at all."

As Inside Higher Ed informs me, Rachel McKinnon, an assistant professor of philosophy at the College of Charleston, argues that TERF is "a modern form of propaganda where so-called trans-exclusionary radical feminists (TERFs) are engaged in a political project to deny that trans women are women--and thereby to exclude trans women from women-only spaces, services, and protections."

This is all inside baseball to me. Nevertheless, as I read the Inside Higher Ed article about this debate, I became curious about the College of Charleston, where Professor McKinnon teaches. I learned that C of C is a public institution of about 11,000 students located in Charleston, South Carolina. The college accepts almost 4 out of 5 applicants for admission and it costs a South Carolina student about $29,000 a year to study there (tuition, room and board).

An out-of-state student, however, will pay considerably more to study at C of C: about $49,000 a year. So a Californian who enrolls at the College of  Charleston to study TERF bigotry with Professor McKinnon would have to borrow a considerable amount of money--at least $200,000--to get a 4-year degree.

Would that be a good investment? You can answer the question for yourself. As for me, I question whether scholarly debates about trans-exclusionary radical feminism is a good use of public money in these unquiet times when 5,000 wildfires blaze in California, 72,000 people died from opioid overdoses last year, and millions of  Americans struggle to pay their student loans.

Professor Rachel McKinnon speaks out against TERFs







Tuesday, July 10, 2018

Alexandra Acosta-Coniff v. ECMC: A single mother wins bankruptcy relief from student loans but sees victory snatched away on appeal

In 2013, Alexandra Acosta-Conniff, an Alabama school teacher and single mother of two children, filed an adversary proceeding in an Alabama bankruptcy court, hoping to discharge student loans that had grown to $112,000.  She did not have an attorney, so she represented herself in court.

At her trial,  Judge William Sawyer applied the three-part Brunner test to determine whether Acosta-Conniff met the "undue hardship" standard for having her student loans discharged in bankruptcy.

First, Judge Sawyer ruled, Conniff could not pay back her student loans and maintain a minimal standard of living for herself and her two children. Thus she met the first part of the Brunner test.

Second, Conniff's economic circumstances were not likely to change in the foreseeable future. Conniff was a rural school teacher, Judge Sawyer pointed out, who could not expect a significant rise in income. Although she had obtained a doctorate in education, that doctorate had not paid off financially.

Third, Judge Sawyer ruled, Conniff had handled her student loans in good faith. She had made monthly payments over several years and she had obtained deferments from making payments--deferments she was eligible to receive. In Judge Sawyer's view, Conniff met the good-faith requirement of the Brunner test.

In short, Judge Sawyer determined, Conniff qualified for bankruptcy relief under the Bankruptcy Code's "undue hardship" standard as interpreted by Brunner.  Accordingly, the judge discharged all of Conniff's student-loan debt.

ECMC appealed, and Judge Keith Watkins reversed. Fortunately, retired bankruptcy judge Eugene Wedoff volunteered to represent Conniff without charge, and Wedoff and his associates took her case to the Eleventh Circuit Court of Appeals.

In 2017, four years after Conniff filed her adversary proceeding, the Eleventh Circuit reversed the trial court,  directing Judge Watkins to review Judge Sawyer's ruling under the "clear error" standard. In other words, unless Judge Sawyer had committed clear error in deciding for Conniff, Judge Watkins was bound to uphold Sawyer's decision. The Eleventh Circuit remanded the case back to Judge Watkins to straighten things out.

In January 2018, Judge Watkins issued his second opinion in Conniff's case, and he concluded that Judge Sawyer had indeed committed clear error when he ruled in Conniff's favor. Judge Watkins' opinion is a bit convoluted, but basically he said Judge Sawyer made a mistake in failing to determine whether Conniff was eligible for an income-contingent repayment plan (ICRP).

In Judge Watkins' opinion, if Conniff can make even small loan payments under an ICRP and still maintain a minimal standard of living, she is not eligible for bankruptcy relief.

So what does this mean?

It means Alexandra Acosta-Conniff must return to bankruptcy court a second time--more than three years after her first trial. Apparently, Judge Sawyer will not schedule a second trial; instead, he has asked Conniff and ECMC to submit proposed findings of facts. At some point, Judge Sawyer will issue his second opinion on Conniff's case.

Conniff owed $112,000 in 2015, when she was 44 years old. Her debt has grown over the last three years due to accrued interest, and Conniff is older. She is now 47 years old.

What does the future hold for Alexandra Acosta-Conniff? More litigation.

If Conniff wins her second trial, ECMC, ruthless and well financed, will undoubtedly appeal again; and the case will ultimately go back to the Eleventh Circuit a second time. Conniff now has an able lawyer, so if she loses before Judge Sawyer, she will likely appeal. So--win or lose--Conniff is in for at least two more years of stressful litigation. When this is all over, Conniff will likely be 50 years old.

Here's my take on Conniff's sad odyssey through the federal courts. First, Judge Watkins' most recent decision is deeply flawed. In Watkins' view, a student-loan debtor who can make even small loan payments under an ICRP while maintaining a minimal standard of living cannot discharge her student loans in bankruptcy: period.

But if that were true, then no student-loan debtor is eligible for bankruptcy relief. In several cases, ECMC or the U.S. Department of Education has argued that a student-loan debtor  living at or below the poverty line should be denied bankruptcy relief  and required to enter into an ICRP even though the debtor would be required to pay zero. In fact, ECMC and DOE have been arguing for years that basically every destitute student-loan debtor should be put in an ICRP and denied bankruptcy relief.

Do want some examples? Roth v. ECMC (9th Cir. BAP 2013), Myhre v. U.S. Department of Education (Bankr. W.D. Wis. 2013), Abney v. U.S. Department of Education (Bankr. W.D. Mo. 2015), Smith v. U.S. Department of Education (Bankr. D. Mass. 2018).

The Roth case illustrates the insanity of this point of view. In that case, ECMC fought bankruptcy relief for Janet Roth, an elderly retiree with chronic health problems who was living on less than $800 a month in Social Security benefits. Put her in an ICRP, ECMC insisted, even though she would be required to pay nothing due to her impoverished circumstances.

The Ninth Circuit's Bankruptcy Appellate Panel pointed out the absurdity of ECMC's position. It would be pointless to put Roth in an ICRP, the court ruled. "[T]he law does not require a party to engage in futile acts."

Forcing Alexandra Acosta-Conniff into an ICRP, which Judge Watkins obviously desires, is a futile act. She will never pay off her student loans, even if she makes small monthly income-based payments for the next 25 years.

Acosta-Conniff is a big, big case. If Judge Watkins' hardhearted view prevails, then bankruptcy relief for student-loan debtors is foreclosed in the Eleventh Circuit. If the compassionate and common-sense spirit of Judge Sawyer's original 2013 opinion is ultimately upheld, then distressed student-loan debtors like Alexandra Costa-Conniff will get the fresh start that the bankruptcy courts were intended to provide.

The Eleventh Circuit Court of Appeals will ultimately have to look at Alexandra Acosta-Conniff's case a second time.  But her next trip to the Eleventh Circuit is likely at least two years away.

The Honorable Judge Keith Watkins


References

Acosta-Conniff v. ECMC, 536 B.R. 326 (Bankr. M.D. Ala. 2015).

ECMC v. Acosta-Conniff, 550 B.R. 557 (M.D. Ala. 2016).

ECMC v. Acosta-Conniff, 686 Fed. Appx. 647 (11th Cir. 2017).

ECMC v. Acosta-Conniff, 583 B.R. 275 (M.D. Ala. 2018).


Monday, May 28, 2018

Mike Meru racked up $1 million in student loans to go to dental school. Will he ever pay it back?

Perhaps you read Josh Mitchell's story in the Wall Street Journal about Mike Meru, who took out $600,000 in student loans to go to dental school at University of Southern California. Due to fees and accrued interest, Meru now owes $1 million.

How did that work out for Dr. Meru? Not too bad actually. He's now working as a dentist making $225,000 a year. He entered an income-based repayment plan (IBR), which set his monthly payments at only $1,590 a month. If he makes regular payments for 25 years, the unpaid balance on his loans will be forgiven.

But as WSJ's  Josh Mitchell pointed out, Dr. Meru's payments don't cover accruing interest, which means his student-loan debt continues to grow at the rate of almost $4,000 a month. By the time, Dr. Meru completes his 25-year payment obligations, he will owe $2 million. Although this huge sum will be forgiven, the IRS considers forgiven debt as taxable income. Dr. Meru can expect a tax bill for about $700,000.

The student-loan program's many apologists will say Dr. Meru's case is an anomaly because most people borrow far less to get their postsecondary education. In fact, only about 100 people owe $1 million dollars or more. But 2.5 million college borrowers owe at least $100,000; and even people who borrow far less are in deep trouble if they drop out of school before graduating or don't land a good job that allows them to service their loans.

Here are the lessons I draw from Dr. Meru's case:

First, income-based repayment programs are insane because student debtors make payments based on their income, not the amount they owe. Dr. Meru's payments are set at $1,590 a month regardless of whether he borrowed $100,000, $200,000 or $600,000.  Thus, IBRs operate as a perverse incentive for students to borrow as much as they can, because borrowing more money doesn't raise the amount of their monthly payments.

Second, IBRs allow professional schools to raise tuition year after year without restraint because students simply borrow more money to cover the increased cost. USC told Mr. Meru that dental school would cost him about $400,000, but USC increased its tuition at least twice while Meru was in school; and Meru wound up borrowing $600,000 to finish his degree--far more than he had planned for.

Does USC feel bad about putting its graduates into so much debt? Apparently not. Avishai Sadan, USC's dental school dean, said this: "These are choices. We're not coercing. . . You know exactly what you're getting into." By the way, Dr. Sadan got his dentistry degree in Israel: and I'll bet it cost him a lot less than $600,000.

And here's the third lesson I draw from Dr. Meru's story. The student loan program is destroying the integrity of professional education.  As I've explained in recent essays, the federal student loan program has allowed second- and third-tier law schools to jack up tuition rates, causing graduates to leave school with enormous debt and little prospect of landing good jobs.

A medical-school education now costs so much that graduates are forced to choose the most lucrative sectors of the medical field in order to pay off their student loans. That is why more and more general practitioners are foreign born and received their medical training overseas, where people don't have to borrow a bunch of money to get an education.

Dr. Avishai Sadan, Dean of USC's School of Dentistry
"You know exactly what you're getting into."
References

Josh Mitchell. Mike Meru Has $1 Million in Student Loans. How did That Happen? Wall Street Journal, May 25, 2018.

Saturday, December 30, 2017

Student-loan debtors beware: Congressman Tom Garrett wants your Social Security check

Congress must think Americans are fools, and perhaps we are.

Earlier this month, the Republicans rammed through their so-called "tax reform" bill that will give middle-class families about ten bucks a week in tax relief. Meanwhile, Congress left the notorious carried interest rule in place--the rule that allows hedge fund managers to pay federal taxes at a lower rate than their secretaries.

If Americans are stupid enough to swallow the tax-reform caper, maybe they can be swindled out of their Social Security earnings. Representative Tom Garrett, a Republican congressman from Virginia, thinks its worth a try. Garrett introduced a bill he calls the Student Security Act, whereby college borrowers can surrender some of their Social Security earnings in return for student-loan forgiveness.

Here's how it works, in Congressman Garrett's own words:
For every $550 in student loan forgiveness . . . a Student Security participant would agree to raise his or her full-retirement age for Social Security benefits by one month. A student could get a maximum of $40,150 in debt relief. To get that, the person would delay the starting age for collecting Social Security benefits by 6 years and one month.
Most people need their Social Security income in order to retire, so essentially Representative Garrett is asking people to postpone their retirement by six years in return for some student-loan debt relief.

Of course the whole premise of the federal student loan program is the notion that a college degree is the ticket to a middle-class lifestyle and that borrowing money to get a college education is a good investment. Obviously, that premise is false for millions of people, including people who would postpone their retirement by six years just to get clear of their student loans.

Congressman Tom Garrett wants your Social Security check.

References

Tom Garrett. Let's allow our kids to use some of their future Social Security earnings to pay off their student loans. foxnews.com, December 29, 2017. 

Thursday, December 14, 2017

No Exit: Graduates of bottom-tier law schools have mountains of student-loan debt and little prospect of ever paying it off

You say you went to law school to pursue a better life. Your LSAT scores weren't so hot, so you were turned down by the top law schools. Harvard and Yale tossed out your application with its other junk mail and sent you an elegant rejection letter, complete with a genuine-looking robo-signature from someone in the admissions office.

But a lower-tier law school welcomed you with open arms. Let's say it's a for-profit school like Arizona Summit or Florida Coastal. Or maybe a nonprofit, private law school like Thomas M. Cooley in Michigan, Thomas Jefferson in San Diego, or McGeorge in Sacramento. Or maybe you received an acceptance letter from a bottom-rung public law school like Southern Illinois or Texas Southern.

And so you went to law school. You were vaguely aware that job prospects for people who graduate from bottom-tier schools aren't good and a high percentage of graduates fail the bar exam. But you're special. You'll study hard, you'll prepare for the bar exam, you'll  pound on doors until a law firm offers you a good job. 

And when you get that J.D. degree, your life will suddenly change for the better. You'll drive a nice car, get married, and buy a craftsman-style house like the happy people who inhabit television commercials.

And of course you took out student loans. To your surprise, back-of-the-pack law schools are just as expensive as Princeton and Stanford. Total costs, including living expenses turned out to be $40,000 a year, $50,000 a year, or even $60,000 a year.

But in for a penny, in for a pound. You realized you can't work your way through law school like in the old days because no one can make enough money from a part-time job to pay a $40,000 tuition bill. So you took out loans every semester and when you walked across the stage to receive your law school diploma, you owed $200,000.

You studied hard for the bar examination and paid for a bar review course. But you didn't pass the exam.

And then you realized--fully realized for the first time--you owe $200,000 in student loans and you will never get a good job as a lawyer.

What's your exit strategy?

There is no exit strategy. You must pay back those student loans whether or not you get a good job or pass the bar exam.  You can stall for time by getting an economic hardship deferment that excuses you from making monthly loan payments. But the deferment doesn't stop interest from accruing. In a few years, the $200,000 you borrowed will grow to $300,000.  

Maybe you were enticed to enroll in a crummy law school based on misrepresentations about the law school's employment rate. Can you sue for fraud? Yes you can, but so far at least, fraud suits against law schools have been unsuccessful. Thomas Jefferson and Thomas M. Cooley both beat that wrap.

Can you discharge your student loans in bankruptcy? Maybe. Michael Hedlund, a graduate of Willamette School of Law, won a partial discharge of his student loans after 10 years of litigation. But several law-school graduates have struck out in the bankruptcy courts. Mark Lilly, a McGeorge law-school graduate, and Mark Tetzlaff, a Florida Coastal graduate, lost their adversary actions in spite of the fact that their law degrees did not enable them to get good attorney jobs. Heather Coplin, a McGeorge law-school graduate working as a waitress, only obtained a partial discharge of her student loans, which totaled almost half a million dollars.

*****

Law schools once operated as professional schools with high ethical standards. Today, however, a great many law schools are nothing more than elegant con games designed to rake in federal student-aid money.

So before you enroll in a third-rate law school, do some research. Read Paul Campos' article in Atlantic. This article was the inspiration for John Grisham's recent novel The Rooster Bar, which tells the story of a young man who attended a dodgy for-profit law school.  And read some of the bankruptcy cases that have been decided against law-school graduates who were unable to find good jobs as attorneys. In particular, read the Tetzlaff case and the Lilly case.

And if you still want to enroll at Florida Coastal or Arizona Summit or Southern Illinois or Thomas Jefferson or Thomas M. Cooley, check yourself into a psychiatric facility--because you probably need to have your head examined.




References

Paul Campos. Don't Go to Law School (Unless). Createspace.com, 2012.

Paul Campos. The Law School Scam. Atlantic Magazine, September 2014. 

Coplin v. U.S. Department of Education,  Case No. 13-46108, Adversary No. 16-04122, 2017 WL 6061580 (Bankr. W.D. Wash. December 6, 2017) (unpublished decision).

Steven J. Harper. Too Many Law Students, Too Few Legal Jobs, New York Times, August 25, 2015. Accessible at: http://www.nytimes.com/2015/08/25/opinion/too-many-law-students-too-few-legal-jobs.html

Hedlund v.Educational Resources Institute, 718 F.3d 848, 851 (9th Cir. 2013). 

Lilly v. IllinoisStudent Assistance Commission, 538 B.R. 45 (Bankr. S.D. Cal. 2013).

MacDonald v. Thomas M. Cooley Law School, 724 F.3d 654 (6th Cir. 2013).

David Segal, Is Law School A Losing Game? New York Times, January 8, 2011. Accessible at: http://www.nytimes.com/2011/01/09/business/09law.html?_r=0


Joshua Wright. The Oversaturated Job Market for Lawyers Continues and On-the-Side Legal Work GrowsEMSI blog, January 10, 2014.

Staci Zaretsky. Verdict Reached in the Alaburda v. Thomas Jefferson Landmark Case Over Fraudulent Employment Statistics. Abovethelaw.com, March 24, 2016.