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

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 has 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.



Monday, December 11, 2017

Graduate students' tuition waivers will become taxable income if the House's "tax reform' bill becomes law: Do the universities care?

The House of Representatives approved a "tax reform" bill last month. If the bill becomes law, graduate students' tuition waivers will become taxable income.

This is a big deal. Numerous research universities grant tuition waivers to their graduate students in return for useful work--instructing undergraduates, for example, or serving as laboratory assistants for professors' ongoing research projects.

Under current law, graduate students' tuition waivers are not considered taxable income, and the House's tax bill will hit these students hard. Tuition for many graduate programs can easily top $40,000 a year. If tuition waivers are taxed, most graduate students who receive them will be forced to take out larger student loans simply to pay their federal taxes and stay in graduate school.

This provision is not in the Senate version of the tax bill, so differences between the Senate's bill and the House's bill will be resolved by a joint committee.

This pernicious provision is solely the work of House Republicans, because no House Democrat voted for the bill. Apparently, the Republican legislators are clueless regarding the impact of taxing tuition waivers or they simply don't give a damn.

Will the research universities fight to keep the tuition waiver language out of the tax bill? I doubt it.

The big research universities are more concerned about their endowments than they are about graduate students' tax worries.  The Senate and House versions of the tax bill both call for a 1.4 percent excise tax on university endowments with funds in excess of a quarter million dollars per student.

Douglas Warner, a Yale trustee and retired investment banker, thundered against the proposed excise tax a few days ago. Such a tax would threaten Yale's ability to "build the human and intellectual capital the country requires to thrive as a global leader," Warner declared; but he didn't say a word about the tax bill's effect on graduate students.

 Let's face it. Universities aren't overly concerned about a tax on graduate students' tuition waivers because the harm falls on students, not the universities. The universities know graduate students will absorb this new tax simply by taking out more student loans.


Yale Trustee Douglas Warner: Don't tax Yale's Endowment!


References

Jared Walczak. Important Differences Between the House and Senate Tax Reform Bills Heading Into Conference. Taxfoundation.org, December 2, 2017/.

Douglas A. Warner. The GOP Tax Bill Will Hurt U.S. Universities. Politico.com, December 1, 2017.  

Saturday, November 25, 2017

UC Berkeley students on food stamps: Are college students really suffering from "food insecurity"?

According to the media, more and more college students are going hungry.  Many universities are organizing food pantries to feed students suffering from "food insecurity."

The San Francisco Chronicle reported recently that more than 500 UC Berkeley students have applied for food stamps so far this year--up from only 111 during all of 2016. Thousands of UC Berkeley students rely on the university's food pantry; 1,549 students obtained donated food there during the month of September alone.

What's going on? Today, the typical college graduate is burdened with $37,000 in student loans. How can students borrow so much money to finance their studies and yet go hungry?

Here are my reflections on food insecurity at American colleges.

First, college students have struggled to feed themselves for more than a hundred years. Dorothy Day, for example, the founder of the Catholic social justice movement, wrote of going hungry during her college days at the University of Illinois back in 1914-1916. "At night," she wrote, "I could study in the university library. When I went back to my room I had to go to bed immediately, and when I was cold and hungry it was hard to get up in the morning."

I don't think Dorothy Day's college experience was atypical for her time. Even when I was in college more than 40 years ago, students heated Campbell's soup in their dorm-room popcorn poppers or made grilled cheese sandwiches by wrapping them in tinfoil and heating them with an electric iron.  And ramen noodles were a staple of many college students' diets.

As a college freshman, I recall eating at Griff's Drive-In with my dormmates on Sunday evenings, when Griff's sold hamburgers for ten cents each. We would pool our resources to buy 30 puny burgers (each garnished with exactly one pickle chip), and we would all eat about four.

Today, however, we have a new term--food insecurity--to describe students who live on limited budgets. Being food insecure doesn't mean students are starving; it just means they have too little to eat from time to time and are often forced to purchase substandard food (like Griff's hamburgers).

For example, the Chronicle featured one food insecure student who eats a typical lunch of "oatmeal, raspberries, chia seeds, flaxseeds, chocolate chips and coconut shavings, plus a spinach salad."  As Joseph Conrad might have put it, "The horror! The horror!"

And of course, college leaders would like the media to focus on their students' so-called "food insecurity" rather than the long-term suffering their graduates will experience when they try to pay off their student loans.  Maybe that's why Janet Napolitano, president of UC, pledged $302,000 to expand food pantries at UC campuses and help students sign up for food stamps.

Janet herself is not missing any meals. Her UC compensation was $3.7 million in 2014-2015, which makes UC's $302,000 contribution for food assistance seem puny in comparison.

 And the UC chancellors are doing OK as well. According to a 2016 newspaper report, nine UC chancellors received a total of $1.5 million in outside income for serving on various corporate boards during 2012-2014--that's in addition to their munificent salaries.

UC professors aren't worried about their next meal either. They draw handsome salaries, have top-notch health insurance, and expect to retire with generous pensions.

The reality is this. College students are not suffering unduly from food insecurity, even though some may be forced to eat spinach salads for lunch. Their suffering is in the future, when they graduate with massive student loan debt they can't pay back and can't discharge in bankruptcy. In fact, many college graduates will be eating ramen noodles for a long, long time.

References

Nanette Asimov. Many college students going hungry, need donated food groceries and food stamps. San Francisco Chronicle, November 23, 217.

Diana Lambert and Alexei Koseff. UC Davis chancellor apologizes, will donate textbook stock to student scholarships. Sacramento Bee, March 4, 2016. Accessible at http://www.sacbee.com/news/investigations/the-public-eye/article64041327.htm

Patrick McGreevy. University of California administration is paying excessive salaries and mishandling funds, state audit saysLos Angeles Times, April 25, 2017.

Thursday, November 16, 2017

College dropouts who don't pay off their student loans: The village of the damned

About 70 percent of high school graduates go on to college, but a lot of them drop out before getting their college degrees. And a good number of dropouts took out student loans to finance their studies.

What happens to these people?

A recent survey polled college dropouts who had outstanding student loans; and this is what the pollsters found.
  • Respondents reported that they had, on average, almost $14,000 in student-loan debt.
  • More than half of college dropouts said they were not making any payments on their student loans.
  • More than a third of the survey respondents (35 percent) said they had not made a single payment on their student-loan debt
What are we to make of this?

First of all, indebted college dropouts are probably underestimating how much they owe on student loans. Other studies have shown that a lot of student borrowers are hazy about how much they borrowed, and some don't know the interest rate on their loans. Quite a few don't know the difference between federal loans and private loans, and aren't sure which type of loans they have.

So it seems fair to conclude that if indebted college dropouts report that they owe an average of $14,000, they probably owe more--maybe a lot more. For one thing, dropouts who aren't making loan payments may not understand how much accrued interest has been added to their loan balances. And dropouts who defaulted on their student loans may not realize that the debt collectors undoubtedly added default penalties to their accumulated debt.

It is true that some dropouts who aren't making student-loan payments may have obtained economic hardship deferments that temporarily excuse them from making monthly loan payments. But interest accrues on a student loan while it is in economic hardship status, which means that the loan balance is growing month by month.

This is what we can say for sure: Last year, 1.1 million student-loan borrowers defaulted on their loans at an average rate of 3,000 people each day.  And some percentage of that number are people who took out student loans to attend college and then dropped out.

Indebted college dropouts don't know it, but they have entered the village of the damned. If they defaulted on their student loans, the loan balances ballooned due to default penalties. Even if their loans are in forbearance, interest continues to accrue. At some point, these unfortunate dropouts will realize they are carrying debt loads they can't pay off.

At that point, they will only have two options. They can enter an income-driven repayment plan, which will stretch their payments out for 20 or 25 years. Can you imagine making monthly payments on student loans for a quarter of a century even though you dropped out of college without a degree?

The other option is bankruptcy, and that option is going to be more and more viable as the bankruptcy courts wake up to the fact that the student-loan program is a catastrophe that has wreaked misery and suffering on millions.

In my view, now is the time for people who are overwhelmed by student debt to file for bankruptcy.  It is true that student-loan debtors must prove undue hardship in order to get bankruptcy relief. But, as Matt Taibbi's article in Rolling Stone documented, a lot of people are suffering at the undue hardship level.


College droputs with student-loan debt: The village of the damned


References

Tyler Durden. (2017,November 7). About 33% of Students Drop Out of College; Here's How Many Go On to Default On Their Student Debt. zerohedge.com (blog).

LendEDU (2017, November 2). College Dropouts and Student Debt. LendEDU.com (blog).

Matt Taibbi. (2017, October). The Great College Loan SwindleRolling Stone.

The Wrong Move on Student LoansNew York Times, April 6, 2017.




Thursday, October 26, 2017

Like a Galapagos tortoise, Education Department ponders debt relief for students victimized by the for-profit colleges

Corinthian Colleges filed for bankruptcy in 2015, and ITT Tech went bankrupt a year later. Together, the two for-profit college companies left more than half a million students and former students in the lurch. Thousands of these victims filed so-called borrower-defense claims with the Department of Education, asking DOE to forgive their student loans on the grounds that they were defrauded.

The Obama administration approved regulations for processing these claims, but Betsy DeVos put them on hold. She was concerned, she said, that the Obama rules might give undeserving students "free money."

Now DOE has approved a panel of 17 experts to overhaul the Obama regulations. According to a story in Inside Higher Ed, the DeVos Department anticipates the new rules won't go into effect until 2019. Under that timetable, defrauded borrowers won't even have an avenue of relief until four years after Corinthian filed for bankruptcy.

Meanwhile, hundreds of thousands of student borrowers who attended one of the Corinthian schools, ITT Tech, and dozens of other dodgy for-profit colleges will be making monthly loan payments for worthless education experiences. Hundreds of thousands of others will put their loans into deferment, which will relieve them from making loan payments but will cause their loan balances to go up due to accruing interest. And thousands more will simply default, which will allow the federal government's sleazy loan collectors to slap on penalties and fees to their loan balances.

But DeVos doesn't give a damn about the carnage wreaked by the corrupt for-profit college industry. In fact, she is doing everything she can to prop it up.

And so, Betsy DeVos, Amway heiress and for-profit co-conspirator, lumbers along like a Galapagos tortoise, oblivious to the misery experienced by millions of student debtors--who are now defaulting at the rate of 3,000 a day.

The DeVos Education Department ponders student-loan debt relief.
References

Danielle Douglas-Gabriel. Former ITT Tech students fight for some money in the company's bankruptcy case. Los Angeles Times, January 3, 2016.

Andrew Kreighbaum. Education Dept. Borrower-Defense Negotiators. Inside Higher Ed, October 26, 2017.

Shahien Nasiripour. Corinthian Colleges files for bankruptcy. Huffington Post, May 5, 2015.

The Wrong Move on Student LoansNew York Times, April 6, 2017.

Sunday, October 22, 2017

Department of Education forgives student-loan debt owed by a wounded veteran, but the IRS sends him a tax bill for $62,000

At age 40, Will Milzarski, an attorney, took leave from his state government job to return to the U.S. Army. After completing officer training, he served two tours of duty in Afghanistan. where he led more than 200 combat missions.

On his last day in combat, Milzarski was wounded in the face, which left him with a traumatic brain injury, hearing loss, and post-traumatic stress disorder.  He was later determined to be totally disabled.

Milzarski returned to civilian life with $223,000 in student-loan debt, most of it acquired to obtain a law degree from Thomas M. Cooley School of Law. In accordance with its policy, the Department of Education forgave all of that debt due to Milzarski's disability status.

But then this wounded veteran received a surprise. The IRS considers forgiven debt to be taxable income, and thus it sent Milzarski a tax bill for $62,000.

Milzarski summarized his experience well. "One part of our government says, 'We recognized your service, we recognize your inability to work," Milzarski said. "The other branch says 'Give us your blood.' Well, the U.S. Army already took a lot of my blood."

Nearly 400,000 disabled Americans have student-loan debt, and this obscure tax provision impacts nearly all of them. Although they are entitled to have their student loans forgiven due to their disability status, this forgiveness comes with a tax bill.

And disabled student-loan debtors are not the only people affected by the IRS forgiven-loans rule. More than 5 million student-loan debtors are in long-term, income-driven repayment plans (IDRs), and most of them are making monthly payments so low that they are not repaying the accumulated interest.

Under the terms of all IDRs (there are several varieties), college borrowers who successfully complete their 20- or 25-year repayment plans are entitled to have any remaining debt forgiven. But IDR participants, like retired Lieutenant Milzarski, will get a tax bill for the forgiven debt.

Obviously, this state of affairs is insane. President Obama recommended a repeal of the IRS rule when he was in office, but nothing  came of his suggestion.

Surely a bill to repeal the IRS forgiven-debt rule would receive bipartisan support in Congress. Who could decently oppose a repeal? In fact, President Trump can probably reverse the rule that is persecuting Mr. Milzarski simply by signing an executive order.

I predict, however, that  that nothing will be done about this problem--either legislatively or by executive action. Washington DC is in so much partisan turmoil that almost nothing positive is getting done. Under current tax law, millions of student borrowers in income-driven repayment plans will have huge tax bills waiting for them when they complete their repayment obligations and have their remaining student-loan debt forgiven.

And unlike retired Lieutenant Milzarski, who is in his forties, most IDR participants will be in their sixties or seventies when their tax bills arrive in the mail. And if they can't pay their taxes, that will not be the government's problem. The IRS will simply garnish their Social Security checks.


Retired Lieutenant Will Milzarski (photo credit Matthew Dae Smith/Lansing State Journal via AP
References

Associated Press. Wounded Michigan vet gets student loan debt forgiven, but now IRS wants $62,000. Chicago Tribune, October 20, 2017.

Jillian Berman. Why Obama is forgiving the student loans of almost 400,000 peopleMarketwatch.com, April 13, 2016.

Judith Putnam. Student debt forgiven, but wounded vet gets $62,000 tax bill. USA Today, October 20, 2017.

Michael Stratford. Feds May Forgive Loans of Up to 387,000 BorrowersInside Higher Ed, April 13, 2016.


Thursday, October 12, 2017

Louisiana State University: $30 water bottles, an official personal-injury law firm, and a student's death from alcohol poisoning

I live a couple of blocks from Louisiana State University, and I occasionally visit the campus book store. Or I should say I visit the Barnes & Noble book store that operates on the LSU campus.

As I walked in a few days ago, I noticed a large stack of plastic water bottles, all bearing the LSU logo. How much does such a water bottle cost, I asked myself? I discovered there are two versions. The basic plastic water bottle is priced at $25 and the premium bottle costs 27 bucks.  Actually, the premium bottle costs almost $30 because the buyer also pays a 10 percent sales tax.

Thirty dollars for a plastic water bottle!

The campus bookstore also has a coffee bar that sells Starbucks coffee for about four bucks a pop. Incidentally, the coffee bar is not owned by Starbucks so you can't use your Starbucks gift card there to buy your Starbucks coffee.

But that's OK because most students have debit cards, which they whip out to pay for everything. And how are students paying for $30 water bottles and four-buck exotic coffee? With student loans, of course.

But the expensive items at the Barnes & Noble bookstore are small beer. LSU recently completed a $85 million leisure project that includes a a 645-foot "lazy river" water feature shaped in the letters LSU.

Mercilessly ridiculed for constructing this monstrosity, LSU officials solemnly defended the project. "I will put it up against any other collegiate recreational facility in the country when we are done because we will be the benchmark for the next level,"Laurie Braden,  LSU's recreation director, said in 2015. I have no idea what that means.

LSU's world-class spa is conveniently located near LSU's fraternity houses, but the frat boys apparently are not visiting it enough. Nine members of Phi Delta Theta were indicted this week on charges of hazing after Maxwell Gruver, a freshman from Georgia, died of "acute alcohol intoxication" while at a drinking party.

Hazing is a crime in Louisiana, but the frat boys' lawyers insist that the drinking incident was not hazing. As a matter of fact, a fraternity member lured Gruver to the drinking site by directing him to report for "Bible study." And perhaps that is the proper description of an incident that left Gruver's system pickled with five times the legal amount of alcohol in his system.

In any event, what's the big deal? According to experts, Gruver "probably slipped out of consciousness and died without pain . . ., as if under anesthesia." And no one was charged with murder because, hey, college boys will be college boys.

Mr. Gruver's death will soon be forgotten.  All that matters at LSU is football. LSU's stadium was expanded to seat 103,000 fans, including the high rollers who sit in air-conditioned executive suites and drink premium liquor while the plebeians sweat it out in the cheap seats.

Everyone wants to be associated with the LSU Tigers. In fact, the Tigers have an official personal-injury law firm by the name of Dudley DeBosier. What does it mean to be the LSU Tigers' official injury law firm? Dudley DeBosier explains it to us on its web site:

"Being the Official Injury lawyers of LSU Athletics means more to us than just a simple sponsorship," the firm assures us:
It means hot boudin, jambalaya, fried catfish, and more gumbo than you can eat. It’s thousands of smiling faces walking in between stately oaks and broad magnolias on a Saturday morning. It’s the sound of Tiger Stadium as you cheer on your team with 100,000 of your closest friends. It’s the traditions, tailgates, and everything else we love about Louisiana.
 Got it. So if I get maimed on Interstate 10 by an 18-wheeler, I'm going to hire Dudley DeBosier to sue the trucking company because--well, Dudley DeBosier is LSU's official injury law firm.

Meanwhile, LSU is tearing down an old dorm and constructing new, more luxurious student housing. Some LSU officials feel that the students should live in at least as much splendor as Mike the Tiger--LSU's mascot, who resides in a "habitat" that looks like Club Med.

LSU officials say they are only providing all these amenities because this is what today's students demand. And indeed, the student body voted to pay for the lazy river with student fees.  From the students' perspective, I suppose, the cost of going to college is immaterial. After all, everything is paid for with student loans; and if the costs go up, Uncle Sam and Wells Fargo are always there to loan students more money.




Maxwell Gruver probably "died without pain" from alcohol poisoning


Meanwhile, Mike the Tiger has his own private swimming pool.

References


Rebekah Allen, Grace Toohey, and Emma Discher. 10 booked in LSU fraternity hazing death case. The (Baton Rouge) Advocate, October 12, 2017, p. 1.

Alla Shaheed. LSU's 'lazy river' leisure project rolls on, despite school's budge woesFox News, May 17, 2015.

Lela Skene. LSU fraternity pledge Maxwell Gruver's 'off the charts' blood-alcohol level shocks experts. The (Baton Rouge) Advocate, October 11, 2017.

Saturday, October 7, 2017

Alan and Catherine Murray discharged more than $200,000 in student loans in a Kansas bankruptcy court and their victory was affirmed on appeal: Good news for middle-income college borrowers

In a previous essay, I wrote about Alan and Catherine Murray, a married couple in their late forties who defeated Educational Credit Management Corporation in a Kansas bankruptcy court.  ECMC appealed, and the Murrays prevailed again--a victory that has important implications for middle-income student-loan debtors.

The Murrays took out student loans in the 1990s to obtain undergraduate degrees and master's degrees. Their total indebtedness was $77,000, which they consolidated in 1996 at an interest rate of 9 percent.

Over the years, the Murrays paid $54,000 toward paying off these loans--70 percent of the amount they borrowed. But they obtained economic hardship deferments during periods of financial stress, which allowed them to skip some loan payments.  And they entered into an income-based repayment plan to lower their monthly payments to a manageable level.

Although the Murrays handled their student loans in good faith, interest on their debt continued to accrue; and they made no progress toward paying off their debt. In fact, when they filed for bankruptcy in 2014, their loan balance had ballooned to $311,000--four times what they borrowed!

Judge Dale L. Somers, a Kansas bankruptcy judge, gave the Murrays a partial bankruptcy charge. It was clear, Judge Somers ruled, that the Murrays could not pay off their total student-loan indebtedness and maintain a minimal standard of living. And it was also clear that their financial situation was not likely to change. Finally, Judge Somers concluded, the Murrays had handled their student loans in good faith--an essential requirement for discharging student loans in bankruptcy.

On the other hand, Judge Somers determined, the Murrays could pay off the original amount they borrowed ($77,000) and still maintain a minimal standard of living. Thus, Judge Somers discharged the accumulated interest on the Murrays' debt, but required them to pay back the original amount they borrowed.

ECMC, the Murrays' ruthless creditor, appealed Judge Somers' decision. ECMC argued, as it always does, that the Murrays should be put in a long-term income-based repayment plan (IBR) that would last from 20 or 25 years.

But U.S. District Court Judge Carlos Murguia, sitting as an appellate court for the appeal, affirmed Judge Somers' decision. "The court agrees with Judge Somers' findings and conclusions that [the Murrays] made a good faith effort to repay their loans," Judge Murguia wrote.

Significantly, Judge Murguia, ruling in the capacity of an appellate judge, explicitly rejected ECMC's argument that the Murrays should be placed in an IBR and that none of the Murrays' $311,000 debt should be forgiven.

"The court disagrees," Judge Murguia wrote. "Under the circumstances of this case, debtors' payments under an IBR plan are insufficient even to stop the accrual of additional interest, and such payments directly contravene the purpose of bankruptcy."  Judge Murguia noted that Judge Somers had not discharged all of the Murrays' indebtedness--only the accumulated interest. "He discharged that portion--the interest--that had become an undue hardship on debtors, denying them a fresh start."

ECMC v. Murray is an important case for two reasons: First, this is one of the few student-loan bankruptcy court decisions that have granted relief to middle-income student borrowers. The Murrays' combined income was about $95,000.

Second, the key ruling by both Judge Somers and Judge Murguia was their finding that the interest on the original debt would constitute an undue hardship for the Murrays if they were forced to pay it back. Furthermore, this would be true even if the Murrays were placed in an IBR because the monthly payments under such a repayment plan were insufficient to stop the accrual of interest.

There are hundreds of thousands of people in circumstances very similar to the Murrays. Their loan balances have doubled, tripled or even quadrupled due to accumulating interest. People in this situation will never pay off their total indebtedness. But most of these people, like the Murrays, can pay off the amount they originally borrowed if only the accumulated interest were wiped out.

Let us hope student loan debtors situated like the Murrays will learn about ECMC v. Murray and find the courage to file bankruptcy and seek a discharge of their student loans--or at least the accumulated interest.  After all, it is the accumulated interest, penalties and fees that have put millions of student borrowers in a hopeless situation. The Murray decision offers a fair and reasonable solution for these people and gives them a fresh start. A fresh start, after all, is the core reason that  bankruptcy courts exist.


References

Murray v. Educational Credit Management Corporation (Bankr. D. Kan. 2016), aff'd, No. 16-2838 (D. Kan. Sept. 22, 2017).


Friday, October 6, 2017

Why won't Congress do a few things to ease the student debt crisis like stop the government from garnishing Social Security checks of elderly student-loan defaulters?

James Howard Kunstler posted a blog last week in which he challenged Congressional Democrats to introduce legislation to counteract the effect of Citizens United v. Federal Election Commission, 558 U.S. 310 (2010). In that case, you may recall, the Supreme Court ruled that corporations can give as much money as they like to political campaigns. 

All sensible people agree that Citizens United triggered a new level of corruption in national politics as corporations pump millions of dollars into Congressional campaign coffers in order to protect their venal interests.

President Obama complained publicly about Citizens United while he was in office.  But he didn't do anything about it, even though he could have ameliorated its effect through legislation when the Democrats controlled the Senate and the House of Representatives.

Democrats can still put a Citizens United override on their legislative agenda as Kunstler challenged them to do:
That’s your assignment Chuck Schumer, Nancy Pelosi, and the rest of the Democratic Party leadership. Get serious. Show a little initiative. Do something useful. Draw up some legislation. Get behind something real that might make a difference in this decrepitating country. Or get out of the way and let a new party do the job.
And of course there are plenty of other things the Democrats can do to promote fairness and justice in our society. As Gretchen Morgenson pointed out in a New York Times article last year, hedge fund managers get a special tax break allowing them to pay lower taxes on their income than most Americans.  That's right: a hedge fund manager is taxed at a lower rate than a New York school teacher.  President Obama could have closed that loophole in the tax law by executive action, but he didn't.

And then there's corporal punishment in the schools. Researchers are unanimous that beating children with boards is not good for them, and the United Nations has identified corporal punishment as a human rights abuse.

In the waning days of the Obama administration, Secretary of Education John King, Jr. condemned corporal punishment in an open letter to the nation's school leaders. But why didn't King speak up sooner? Corporal punishment in schools is a wrong that Obama's Department of Education could have stopped with an administrative regulation. Why didn't it? 

And then there's the student-loan program, which has brought suffering to millions.  According to the Government Accountability Office, the Department of Education garnished the Social Security checks of 173,000  student-loan defaulters in 2015, a practice that Senator Elizabeth Warren bitterly condemned. The amount the government collects each year is a pittance--about one eighth the amount Hillary Clinton spent during the 2016 election season. And most of the money the Feds collect goes to paying interest and penalties without reducing the debtors' loan balances at all.

Senator Warren and Claire McCaskill filed a bill to stop the garnishment of student debtors' Social Security checks, but the measure never made it out of committee. Why won't Senator Schumer and Representative Pelosi get behind that bill? Who could decently oppose it?

In fact, there are numerous noncontroversial things our Congressional representatives could do to ease widespread suffering among the nation's poorest Americans. But  our Congressional representatives are not doing these things. 

Why? Two reasons.

 First, they don't want to do noncontroversial good things because that would mean sharing the credit with their political enemies.

And second, Nancy Pelosi, Chuck Schumer, John McCain, Mitch McConnell and all our other bozo representatives don't work for us. They work for the lobbyists, their campaign contributors, and the global financial institutions; and that keeps them pretty busy.




References

Secretary of Education John B. King, Jr. Letter to Governors and State School Officers, November 22, 2016.

James Howard Kunstler. Homework AssignmentClusterfuck Nation, September 29, 2017.

Gretchen Morgenson. Ending Tax Break for Ultrawealthy May Not Take Act of CongressNew York Times, May 6, 2016.


Senator Elizabeth Warren Press Release, December 20, 2016. McCaskill-Warren GAO Report Shows Shocking Increase in Student Loan Debt Among Seniors

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).

Wednesday, October 4, 2017

Betsy DeVos sabotages Obama's borrower-defense rule for processing student borrowers' fraud claims: She fears students will get "free money"

The collapse of Corinthian Colleges and ITT Tech shined a light on the seedy for-profit college industry.  Both for-profit college companies filed for bankruptcy under a cloud of accusations of fraud and misrepresentation.

Together, Corinthian and ITT Tech had more than half a million former students. Thousands of them filed so-called "borrower defense" claims, petitioning the Department of Education to forgive their student loans because they were defrauded by the institutions they attended. About 65,000 borrower-defense claims are now pending.

What to do? The Obama Administration prepared borrower-defense regulations that were scheduled to take effect on July 1, 2017; but Secretary of Education Betsy DeVos blocked their implementation, saying the rules would be rewritten through the "negotiated rule making" process. DeVos' decision will allow the for-profit industry a voice in reshaping the rules to their liking.

Why did DeVos block the Obama-era regulations? She said the regulations drafted by the Obama administration would allow students to get "free money" by having their loans forgiven.  In other words, DeVos apparently assumes students who file fraud victims are themselves engaging in fraud by seeking debt relief.

This latest caper from DeVos' Department of Education tells us all we need to know about President Trump's least qualified cabinet appointee . Time and time again, DeVos has made decisions to benefit the for-profit colleges at the expense of students; and she has hired consultants who have worked in that sleazy industry.

Millions of people have borrowed money to attend overly expensive for-profit colleges only to receive educational experiences that are virtually worthless. Some were defrauded, some obtained degrees that did not lead to good jobs, and some just paid too much for substandard postsecondary programs. Unless these people obtain relief from their student-loan debt, they will never get on their feet financially.

The Obama administration's borrower-defense regulations were drafted to determine which for-profit students are fraud victims entitled to student-loan debt relief. In my mind, however, it is impossible to efficiently decide on a case-by-case basis which student borrowers are entitled to debt relief due to fraud. That would require hundreds of thousands of individual due-process hearings.

No, the only way to give worthy student-loan debtors a fresh start is through bankruptcy. Congress must amend the Bankruptcy Code to treat student loans like any other consumer debt.

If insolvent student-loan debtors were given reasonable access to bankruptcy, millions of cases would be filed and at least half a trillion dollars in debt would be wiped out.

A half trillion dollars in student-loan debt relief would be a big hit to the U.S. treasury, but let's face it. Millions of student loans will never be paid back. It would be far better for the overall national economy if student borrowers were given a fresh start rather than be forced into 20- and 25-year repayment plans in which borrowers make token monthly payments that don't even cover accruing interest.

DeVos either doesn't understand the magnitude of the student-loan debt crisis or she doesn't  care. Either way, she is a disaster who needs to be cashiered.

Betsy DeVos: Having a good laugh at college students' expense

References

James Briggs. Former ITT Tech students got promise of help, then silence. USA Today, May 22, 2017.

Corinthian Colleges Students Eligible For Loan Discharge. National Bankruptcy Forum, June 22, 2017.

Andrew Kreighbaum. Devos: Borrower-Defense Rule Offered 'Free Money'. Inside Higher ED, September 26, 2017.

Chad Miller.  Understanding 'Borrower Defense to Repayment": A New Yellow Brick Road to Federal Student Loan Forgiveness. American Action Forum, November 1, 2016.

Michael Stratford. More Debt Relief for Corinthian Students. Inside Higher Ed, March 28, 2016.

Wednesday, August 30, 2017

Why don't Antifa thugs turn their rage against over-priced colleges? Because they're idiots!

American college campuses are now infected with a new virus: Antifa--short for anti-fascist. What is Antifa? Basically, it is a loosely organized movement of young people who call themselves anti-fascists but engage in fascist tactics to disrupt any  expression that is not politically correct.

Not all Antifa thugs are college students, but who can tell? Antifa adherents have a penchant for wearing black masks and black clothing that make them difficult to identify. Without a doubt, however, Antifa has a presence at a lot of American universities where they have rioted to keep conservatives from speaking on campus. And Antifa showed up in Charlottesville, Virginia, home of the University of Virginia, to clash with white supremacists over a Civil War statue.

Clearly, Antifa followers are idiots. Instead of harassing Ann Coulter or defacing Confederate statues, why don't they attack real repression, by which I mean the overpriced colleges and universities that harbor these lunatic anarchists?

After all, it's American colleges, not dead Confederate generals, that are oppressing American young people. Collectively, more than 40 million people now owe $1.4 trillion in student loans, and about 20 million of them will never pay back what they owe.

James Howard Kunstler had it right when he wrote recently that "if the campus Left had any tactical brains, they’d stop marching around in black uniforms and instead organize a mass renunciation of college loan debt."

And of course, college administrators love the Antifa movement. They like it when the little kiddies obsess on Robert E. Lee and Ann Coulter and not their student loans.
How many of these idiots have student loans?

References

Lisa Baumann and Sarah Rankin, What is 'antifa?' Virginia clashes bring attention to anti-fascist movement. Chicago Tribune, August 16, 2017.

Debra Heine, Ann Coulter cancels Berkeley speech amid antifa threats, PJ Media, April 26, 2017.

James Howard Kunstler, When the Butterfly Flaps Its Wings. Clusterfuck Nation, August 28, 2017.

Thursday, June 8, 2017

Snapshot of the student loan crisis from a recent New York Federal Reserve Bank report: Surprise, surprise! Debt levels Are rising

Researchers at the New York Federal Reserve Bank issued a press release on April 3 that reported on household borrowing and student debt.  Here are some excerpts from that press release. I have highlighted particularly interesting passages:
Student Loan Update 
Aggregate student loan balances have continued to increase and stood at about $1.3 trillion at the end of 2016, an increase of about 170 percent from 2006. Aggregate student debt is increasing because more students are taking out loans, the loans are for larger amounts, and the speed with which borrowers repay their debts has slowed down. New debt originations continue to increase: 2015 graduates with student loans left school with about $34,000, up from only $20,000 just ten years before. 
While about 36 percent of student debt holders owed less than $10,000, and 65 percent owed less than $25,000, only about 5 percent of student debt holders owed more than $100,000 in debt in 2016. Yet these big-balance borrowers account for nearly 30 percent of the total balances outstanding, so their outcomes and repayment success have a disproportionate influence on the overall picture.

Student loan default and delinquency rates appear to have leveled off, albeit at a relatively high level. Defaults peaked in 2012, and have stabilized since 2013; the 2009-11 cohorts saw the highest default rates, with some improvement among more recent cohorts.

We have noted in the past that delinquency and default rates are lower among higher-balance borrowers; however, the default rates among higher-balance borrowers have worsened notably in recent years. Further, payment progress is slower among those who borrowed more. Ten years later, over 70 percent of the original balance has been repaid among those who had borrowed less than $5,000 when they left college in 2006, compared to a reduction of only 25 percent among students who borrowed more than $100,000.

Higher balances, increasing participation in student loan programs, and slower repayment are pushing up aggregate student loan balances. Although defaults are improving, the pay down progress of recent cohorts continues to decline.
The Fed researchers also commented on the relationship between student-loan indebtedness and homeownership:
Homeownership 
The final portion of the press briefing was on educational attainment, student loans, and homeownership, using education records from the National Student Clearinghouse that were newly matched with credit records from the Consumer Credit Panel. These findings are presented in greater detail in a separate post. New analysis shows that college education is associated with markedly higher homeownership rates regardless of debt status, which increases at each additional level of college attainment. However, having student loans dampens homeownership rates at every level of education, and higher debt balances are associated with even lower homeownership rates.
Takeaways from the Fed researchers' findings

In essence, the Federal Reserve Bank researchers are telling us this:

Loan balances are going up, more people are taking out student loans, and repayment rates are slowing, particularly for borrowers with high loan balances. I imagine a lot of these slow paying borrowers are in the Public Service Loan Forgiveness (PSLF) program or an income-driven (IDR) plan.  

The vast majority of people making payments under  PSLF and IDR are not making payments large enough to pay down their loan balances. And, as the Fed researchers noted, among people who borrowed $100,000 or more, only 25 percent were able to pay off their student loans within 10 years.

Regarding student loans and home buying, the Fed researchers had this to say: Homeownership increases with people's education level, but student loans hamper the ability of people to buy a house, regardless of income level.

References



Sunday, May 28, 2017

Department of Education executives pay themselves cash bonuses while federal student loan program goes to hell

At last the secret is out. The federal student loan program is out of control and millions of borrowers cannot pay back their loans. As the New York Times pointed out recently, student debtors are defaulting at an average rate of 3,000 a day--more than a million people went into default last year alone.

But the Department of Education hacks who oversee the student loan program have been paying themselves performance bonuses. James Runcie, Chief Operating Officer for DOE's student loan program, received $433,000 in bonuses; and then he resigned rather than testify before the House Oversight Committee about what the heck was going on in the student loan program.

And Runcie was not the only DOE executive to get bonuses. The National Association of Student Financial Aid Administrators (NASFAA) released a report earlier this month that provides some useful information about how DOE's bonus program works.

As the NASFAA report explains, the Federal Student Aid Office (FSA) set performance goals for the organization  and then basically assessed itself with regard to whether the office met those goals. According to NASFAA, "self-assessments are a common way to begin performance evaluations, but they are usually signed off on by a person or board with oversight responsibility."  The Federal Student Aid office, however, let its own evaluations stand "without pushback, oversight, or accountability, which often easily allows the organization to excuse away failure to meet goals and targets."

FSA's self-assessment program permitted senior executives to get bonuses if they excelled at their work. The program identified three categories of performance: "exceptional," "high results," or "results achieved." Note that there was not even a category for poor performance.

Senior people who scored "exceptional" or "high results" were eligible for bonuses; and not surprisingly, performance scores got higher and higher as the years went by. In FY 11,  "66 percent of  senior FSA leaders received an "exceptional" or "high results" performance rating that qualified them for bonuses. In FY 2015, 90 percent of senior administrators got those ratings.

Correspondingly, the percentage of eligible employees who only scored "results achieved," making them ineligible for bonuses, decreased from 34 percent to only 10 percent between FY 2011 and FY 2015.

Bottom line is this: In FY 2015, 89.8 percent of FSA senior administrators ranked high enough to get a cash bonus, and 89.8 percent of those administrators got cash bonuses. How big were the bonuses? I haven't seen a list showing bonus amounts and who got them. Huffington Post reported that that at least one bonus was $75,000.

No wonder Mr. Runcie resigned rather than answer questions before the House Oversight Committee. "I cannot in good conscience continue to be accountable as Chief Operating officer given the risk associated with the current environment at the Education Department," he is quoted as saying.


What the hell does that mean?  I have no idea. It must be one of those phrases Mr. Runcie learned when he was getting his MBA at Harvard.


James Runcie testifying about the student loan program


References  


Danielle Douglas-Gabriel. It's time to reform the financial arm of the Education Department, report says. Washington Post, May 16, 2017.


Adam Harris. Top Federal Student-Aid Official Resigns Over Congressional Testimony. Chronicle of Higher Education, May 24, 2017.

Shahien Nasiripour. Education Department Secretly Reappoints Top Official Accused of Harming StudentsHuffington Post, May 7, 2016.

National Association of Student Financial Aid Administrators. Improving Oversight and Transparency at the U.S. Department of Education's Financial Aid: NASFAA's Recommendations. (May 2017).

The Wrong Move on Student Loans. New York Times, April 6, 2017.