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 Assignment. Clusterfuck Nation, September 29, 2017.

Gretchen Morgenson. Ending Tax Break for Ultrawealthy May Not Take Act of Congress. New 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).

Long-term student-loan repayment rates are shockingly low: A new report from the National Center for Education Statistics

Last month, the Department of Education released its latest report on three-year default rates for the 2014 cohort of student borrowers. DOE reported a three-year default rate of 11.5 percent, up slightly from the Department's 2016 report.

A student-loan default rate of 11.5 percent doesn't seem so bad. After all, nearly 90 percent of the 2014 cohort are not in default.

But wait a minute. Instead of looking at default rates, let's look at repayment rates. How  many people are paying off their loans?

It's not a pretty picture. A few days ago, the National Center for Education Statistics produced a report on student-loan repayment rates; and the NCES's findings are alarming. The report is packed with incomprehensible, technical jargon and far too many tables and appendices, but if you dig around in the report,  you get to the heart of the matter.

Among borrowers who were first-time students in 1995-1996 (more than 20 years ago), less than half had paid off their loans by 2015. According to NCES, only 41.3 percent of the students in this cohort had paid off their loans 20 years after first entering postsecondary education.

What is the status of the other 59 percent? About 31 percent were still making payments in 2015, 13.8 percent had their loans in deferment, and 13.7 percent were in default.

In the 2003-2004 cohort of borrowers, only 23.5 percent had paid off their loans 12 years after beginning their studies. Three quarters of borrowers in this cohort were still making payments, had loans in deferment, or were in default.

As we would expect, student borrowers who obtained bachelor's degrees or higher had the best repayment rates. Nevertheless, in the 1995-96 cohort, only half of these people had paid off their student loans twenty years after they first enrolled in college.

The bottom line is this.  By giving out deferments and encouraging student debtors to enter long-term repayment plans, the Department of Education has kept its official student-loan default rates artificially low. But the fact remains that almost 60 percent of a cohort borrowers who took out student loans in the mid-nineties had not paid off their loans 20 years later.

And remember, people in the repayment phase who aren't paying down their loans or who are making token payments are seeing their loan balances grow larger with each passing month. An individual who hasn't paid back his or her student loans after 20 years is probably never going to pay them back because the loan balance is out of control.

That should scare Betsy DeVos and her minions at DOE. But she is focused on propping up the for-profit college industry and not the appalling data that show that a majority of college borrowers cannot pay off their student loans even when given 20 years to do so.

Presiding over a looming disaster

References

Andrew Kreighbaum. Post-Recession Borrowers Struggle to Repay Loans. Inside Higher Ed, October 5, 2017.

Jennie H. Woo, Alexander H. Bentz, Stephen Lew, Erin Dunlop Velez, Nichole Smith, RTI International,  (2017, October). Repayment  of Student Loans as of 2015 Among 1995-96 and 2003-04 First-Time Beginning Students. First Look (NCES 2018-410). U.S. Department of Education. Washington DC; National Center for Education Statistics. [Sean A Simone, Project Officer]

Nihilistic old white guys who commit murder: We will see more Stephen Paddocks

Old and in the way, that's what I heard them say

They used to heed the words he said, but that was yesterday

Gold will turn to gray and youth will fade away

They'll never care about you, call you old and in the way.

Old and In the Way

lyrics by David Grisman

Sung by the Grateful Dead

Americans are accustomed to serial killers. According to the New York Times, mass shootings have occurred in the United States at the rate of more than one a day over the last 477 days.

We can sort these killers into discrete categories. Some are religious extremists--the Boston Marathon bombers, the Orlando shooter, the San Bernardino murderers. Some are disaffected young men: the killers at Columbine, Sandy Hook, and the Charleston, SC church.

And there is at least one more category: disaffected, older white men. Stephen Paddock,an affluent  64-year-old man, who killed or wounded more than 500 people in Las Vegas a few days ago, is the latest old white guy to commit (or at least attempt to commit) mass murder. Before Paddock, there was James Hodgkinson, a 66-year-old geezer from Illinois who shot a group of Republican congressmen while they were practicing for a charity baseball game. And don't forget John Russell Houser.  Houser, a 59-year-old loner, opened fire in a movie theater in Lafayette, Louisiana, killing two people and injuring nine others before shooting himself.

What did these men have in common? All were older white men, all attacked complete strangers, and all committed suicide (or allowed themselves to be killed by the police). And I think it is fair to say that these three men had lost all sense of purpose as they entered old age.

Let's face it. Growing old is no fun.  As we grow older, we realize we did not achieve all our dreams and that our time on earth is drawing to a close. We feel our strength and vigor ebb away as we hunker down for the last stage of life.  Our regrets and mistakes loom larger and larger in our minds while our meager triumphs and happy times grow dim in our memories.

And as death approaches, we find we are not afraid. At times we almost long for death. This movie lasted too long; we want to see "The End" appear on our movie screens. And we don't give a damn who shows up at our funerals.

In a healthy culture, old people derive meaning and purpose from their families--especially their grandchildren. If they are fortunate, they are respected for their wisdom and are sought out for wise counsel.  Some of us belong to civic organizations or take comfort from religious faith.

But in postmodern America, a lot of old white guys don't have any of that. They lost the families they started when they were young. Their jobs, which were obsessions when they were in their twenties and thirties, now seem tedious. They've lost all interest in religion and find religious people excruciatinglyboring.

And some of these old guys become nihilists; and some of them have guns.

I wish I believed the Stephen Paddocks of this world are the rarest of aberrations, that we will not see the likes of him again in our lifetime.

But I know differently. Our culture does not honor the old; it offers no solace to the elderly. The indignity of our approaching death reveals itself, the meaninglessness of existence becomes apparent; and some old men express their disappointment through murder.

Stephen Paddock, mass murderer

References

477 Days. 521 Mass Shootings. Zero Action From Congress. New York Times, October 3, 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.

The Department of Education's Official 3-Year Student-Loan Default Rate is Baloney

During the First World War, it is said, the British military kept three sets of casualty figures: one set to deceive the public, a second set to deceive the War Ministry, and a third set to deceive itself.

Over the years, the Department of Education has released its annual 3-year student-loan default rate in the autumn, about the time the pumpkins ripen. And every year the default rate that DOE issues is nothing but bullshit. I can't think of another word that adequately conveys DOE's mendacity and fraud.

This year, DOE reported that 11.5 percent of the the 2014 cohort of debtors defaulted on their loans within three years and that only ten institutions had default rates so high that they can be kicked out of the federal student-loan program. That's right: among the thousands of schools and colleges that suck up student-aid money, only ten fell below DOE's minimum student-loan default standard.

Why do I say DOE's three-year default rate is fraudulent?

Economic hardship deferments disguise the fact that millions of people aren't making loan payments. First of all, DOE has given millions of student-loan borrowers economic-hardship deferments or forbearances that allow borrowers to skip their monthly loan payments.  These deferments can last for several years. 

But people who are given permission to skip payments get no relief from accruing interest. Almost all these people will see their loan balances grow during the time they aren't making payments. By the time their deferment status ends, their loan balances will be too large to ever pay back.

The colleges actively encourage their former students to apply for loan deferments in order to keep their institutional default rates down. And that strategy has worked brilliantly for them. Virtually all of the colleges and schools are in good standing with DOE in spite of the fact that more than half the former students at a thousand institutions have paid nothing down on their loans seven years after beginning repayment.

Second,  DOE's three-year default rate does not include people who default after three years.  Only around 11 percent of student borrowers default within three years, but 28 percent from a recent cohort defaulted within five years. In the for-profit sector, the five-year default rate for a recent cohort of borrowers was 47 percent--damn near half.

DOE's income-driven repayment plans are a shell game.  As DOE candidly admits, the Department has been able to keep its three-year default rates low partly through encouraging floundering student borrowers to sign up for income-driven repayment plans  (IDRs) that lower monthly loan payments but stretch out the repayment period to as long as a quarter of a century.

President Obama expanded the IDR options by introducing PAYE and REPAYE, repayment plans which allow borrowers to make payments equal to 10 percent of their discretionary income (income  above the poverty level) for 20 years.

But most people who sign up for IDRs are making monthly payments so low that their loan balances are growing year by year even if they faithfully make their monthly loan payments. By the time their repayment obligations cease, their loan balances may be double, triple, or even quadruple the amount the originally borrowed.

Alan and Catherine Murray, who obtained a partial discharge of their student-loan debt in bankruptcy in 2016, are a case in point. The Murrays borrowed $77,000 to obtain postsecondary education and paid back about 70 percent of that amount. But they ran into financial difficulties that forced them to obtain an economic hardship deferment on their loans.  And at some point they entered into an IDR.

Twenty years after finishing their studies, the Murrays' student-loan balance had quadrupled to $311,000!  Yet a bankruptcy court ruled that the Murrays had handled their student loans in good faith, and they had never defaulted.

DOE is engaged in accounting fraud. If the Department of Education were a private bank, its executives would go to jail for accounting fraud. (Or maybe not. Wells Fargo and Bank of America's CEOs aren't in prison yet.)  The best that can be said about DOE's annual announcement on three-year default rates is that the number DOE releases is absolutely meaningless.

This is what is really going on. More than half of the people in a recent cohort of borrowers have not paid down one penny of their student-loan debt five years into the repayment phase of their loans.  And the loan balances for these people are not stable. People who are not paying down the interest on their student loans are seeing their loan balances grow.

In short, DOE is operating a fraudulent student-loan program.  More than 44 million Americans are encumbered by student-loan  debt that totals $1.4 trillion.  At least half that amount--well over half a trillion dollars--will never be paid back.

Betsy DeVos' job is to keep the shell game going a little longer, which she is well qualified to do. After all, she is a beneficiary of Amway,  "a multi-level marketing company," which some critics have described as a pyramid scheme.

Betsy DeVos: The perfect person to oversee DOE's student-loan shell game

References

Paul Fain. Federal Loan Default Rates Rise. Insider Higher ED, September 28, 2017.

Paul Fain. Feds' data error inflated loan repayment rates on the College Scoreboard. Inside Higher Ed, January 16, 2017.

Andrea Fuller. Student Debt Payback Far Worse Than Believed. Wall Street Journal, January 18, 2017.

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default rates. Washington, DC: Brookings Institution (2015).

Murray v. Educational Credit Management Corporation, Case No. 14-22253, ADV. No. 15-6099, 2016 Banrk. LEXIS 4229 (Bankr. D. Kansas, December 8, 2016), aff'd, Case No. 16-2838 (D. Kan. September 22, 2017).

Joe Nocera. The Pyramid Scheme Problem, New York Times, September 15, 2015.

A Scary Report From the Federal Reserve Bank: More Than Half of a Recent Cohort of Student-Loan Borrowers Did Not Reduce Their Debt by One Penny Over Five Years

Steve Rhode commented recently on a Federal Reserve Bank report published last July. As Mr. Rhode pointed out, the Feds reported that home ownership among young people declined by 8 percent over an 8-year period (2007 to 2015);  and the Feds concluded that a substantial reason for this decline is rising levels of student-loan debt.

The Fed report also observed that more young Americans are living with their parents than in previous years. In 2004, about one third of 23-25-year-olds lived with their parents. In 2015, 45 percent of people in this age bracket were living with mom and dad--a big increase.

These are alarming statistics, but the Fed's report also included information that is even scarier. More than half of student-loan borrowers in the 2009 cohort of borrowers had not paid down their student loans by even one penny five years after beginning repayment.

According to the Fed report, 59 percent of the 2009 cohort who owed $5,000 or less had not reduced their debt by even a dollar by 2014.  Well over half of people with very modest levels of student debt were delinquent on their loans, in default, or had failed to reduce their original loan balance by even a fractional amount.

Among people who owed between $50,000 and $100,000, 57 percent had not cut their student-loan debt by even a penny over five years. Among people owing $100,000 or more, 54 percent had made no progress on their loans during that time period.

The Fed report was commenting on a single cohort: people who took out student loans in 2009. But the repayment rates for more recent cohorts must be at least as bad. The Department of Education has been encouraging distressed borrowers to enter 20- and 25-year repayment plans, which lowers monthly payments. But in almost every case, the lower payments are not large enough to cover accruing interest, so most of the 6 million people in long-term, income-drive repayment plans are seeing their loan balances grow larger with each passing month.

And here's another scary tidbit of information. The Government Accountability Office reported in 2016 that half the people in income-driven repayment plans have been kicked out because they aren't abiding by the plans' eligibility rules.

In short, a perfect storm is brewing on the nation's economic horizon. Student loans are forcing more and more young people to postpone buying a house and to live with their parents.  Millions of people are making no progress at all toward paying off their student loans.

We can quantify some of the harm caused by the student-loan crisis, but other harms are difficult to measure. How many people have given up trying to get ahead because their student-debt grows larger with each passing month? How many have become cynical, despondent, or angry? How many of those masked antifa anarchists have student loans?

Steve Rhode put his finger on the only solution to the student-loan catastrophe. "Unless we tackle the growing problem of excessive student loan debt and allow those with unmanageable student loan debt to a fresh start in bankruptcy,"Mr. Rhode wrote, "the economic future of the days ahead is going to be less than it could have been."

Exactly. The only path out of this economic quagmire is through the federal bankruptcy courts.

The student-loan crisis is brewing into a perfect storm.

References


Zachary Bleemer, et al. Echoes of Rising Tuition in Students' Borrowing, Educational Attainment, and Homeownership in Post-Recession America. Federal Reserve Bank of New York Staff Report No. 820, July 2017.

Steve Rhode. Student Loan Debt Hurts Economy, Consumers, and Retirement Savings. Personal Finance Syndication Network, September 207.

US. Government Accounting Office. Federal Student Loans: Education Needs to Improve Its Income-Driven Repayment Plan Budget Estimates. Washington, DC: U.S. Government Accounting Office, November, 2016.

Student Loan Debt Hurts Economy, Consumers, and Retirement Savings, essay by Steve Rhode

When you live in a society like ours that is dependent on consumers to consumer goods and services, a reduction in the ability for growing sections of society to do their job and purchase stuff is going to lead to slower growth. That’s not good.

When growth slows there is less of a need for workers, jobs are cut, wages go flat, and life becomes tougher for many.

Historically, people accumulated wealth through homeownership and savings. When reaching the age of retirement the home could be sold and the equity created could be withdrawn. With less access to this type of wealth accumulation and the inability to save for retirement due to growing student loan debt, tragedy is on the horizon.

Student loan debt is hurting an entire generation of consumers who are setup for financial failure at this point.

The easy access to student loans has led to a growing for-profit private student loan industry that since 2009 has been drawing in many through loans and co-signing. Private student loans exploded with the advent of the for-profit schools. As an example, read Navient Knew Loans Were Garbage When They Saddled Students With Them. Yet the current Department of Education under Secretary Betsy DeVos seems resistant to crack down on protections from these schools.

Federal government student loans have been a blessing for many to obtain funds to attend higher education but they have been a curse as well. Schools who were qualified to receive federal funds looked at that easy money as a way to make an easy sale of a student into a seat regardless of the ability of the student to benefit from the loan and school.

Data published by the Federal Reserve Bank said, ” findings are consistent with American youth having accommodated tuition shocks not by forgoing schooling, but instead by amassing more debt.”
The Federal Reserve Bank of New York goes on to say, “Further analysis demonstrates that the tuition hike and student debt increase, despite leaving higher educational attainment unchanged, can explain between 11 and 35 percent of the observed approximate eight percentage-point decline in homeownership for 28-to-30-year-olds over 2007-15 for these same nine cohorts. The results suggest that states that increase college costs for current student cohorts can expect to see a response not through a decline in workforce skills, but instead through weaker spending and wealth accumulation among young consumers in the years to come.”

At the same time as homeownership has been declining, kids are living with their parents at an increasing rate.


As a society nothing good is going to come from lower amounts of wealth accumulation, and weaker spending.

Unless we tackle the growing problem of excessive student loan debt and allow those with unmanageable student loan debt to have access to a fresh start in bankruptcy, the economic future of the days ahead is going to be less than it could have been.

Steve Rhode


This article appeared on the Personal Finance Syndication Network web site and also on The Get Out of Debt Guy site. Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve here.

Student-Loan Debtors Desperately Need Bankruptcy Lawyers

Too many Americans are going to court without lawyers. As Lauren Sudeall Lucas and Darcy Meals noted in an essay in The Conversation, 80 to 90 percent of people in some states are litigating their cases without attorneys, even when their opponents have legal counsel. In Georgia, the authors assert, courts heard 800,000 cases last year involving self-represented litigants.

Lucas and Meals maintain the United States has "far too few lawyers," but I disagree. As Paul Campos and others have written, there has been a downturn in the legal-services market; and law schools are churning out thousands of new attorneys who graduate with six-figure student loans and no job prospects.

The United States has enough lawyers; in fact, we have too many. The problem is this: practicing lawyers are not representing middle-class people and the poor.

Why? Because most Americans can't afford to pay an attorney to guide them through protracted litigation.  Lawyers leave law school with an average debt load of $140,000; and they must make at least $100,000 a year just to service their student loans. Consequently, attorney fees are too high for most Americans to pay.

Student debtors desperately need lawyers

Lucas and Meals didn't mention the plight of student-loan debtors, but this is a special class of people who need good bankruptcy attorneys. In 2012, Jason Iuliano wrote an important law-review article in which he reviewed bankruptcy filings in 2007. Iuliano found that 238,446 student-loan debtors filed for bankruptcy in 2007, but only a few hundred filers even attempted to discharge their student loans. This is unfortunate because Iuliano estimated that 39 percent of the student borrowers who filed for bankruptcy that year "would have been good candidates to obtain relief."

Remarkably, a few student debtors have gotten their student loans forgiven in the bankruptcy courts  even though they were not represented by a lawyer. Richard Precht in Virginia and Jaime Clavito in California filed adversary actions against the Department of Education and obtained stipulated discharges of their student loans without going to trial. These are amazing victories.

Self-appointed experts assert again and again that student loans cannot be discharged in bankruptcy, but this is not true. In recent years, several people have wiped out their student loans in the bankruptcy courts. Moreover, without a doubt, the federal bankruptcy judges are becoming more sympathetic to distressed student borrowers; and the courts are increasingly willing to rule in favor of student-loan debtors when the Department of Education or one of its rapacious debt collectors opposes bankruptcy relief.

What needs to be done?

As I said, the United States has plenty of lawyers, but not enough of them are concerned about justice for the poor. Dozens of public advocacy groups joined lawsuits in support of transgender students who demanded the right to choose their toilet facilities, which is commendable. But 20 million Americans are being crushed by student-loan debt, and very few lawyers have come to their aid.

Where is the Southern Poverty Law Center? Where is the ACLU? Where are the legal aid clinics? Why haven't these agencies joined the fight to bring debt relief to deserving student borrowers?

Just a few able and committed lawyers could completely change the legal landscape for student-loan debtors. I estimate that 25 or 30 competent lawyers, defending a few clients in several federal circuits, could persuade the federal courts to reinterpret the "undue hardship" standard that has been applied so harshly against desperate student borrowers over the years.

In my view, the federal courts are willing to ruling in favor of student borrowers who file bankruptcy if only they are presented with good legal arguments. Many--perhaps most--bankruptcy judges are liberal minded. They know it is their job to provide a fresh start to "honest but unfortunate" debtors. Moreover, I think many are offended by the way the Trump administration has handled the student-loan catastrophe; or at least they would be offended if they were educated by student-loan debtors' attorneys.

The bankruptcy courts provide the best avenue for relief for distressed student-loan debtors

It is time to face harsh facts. Millions of Americans have committed financial suicide by taking out student loans they can't pay back. The student loan program has driven legions of people out of the national economy, preventing them from buying homes, getting married, or saving for their retirement.

Congress has not done anything to provide relief. In fact, the House of Representatives recently approved a bill that will make it almost impossible for defrauded student debtors to sue the for-profit colleges that swindled them. The Department of Education, now run by the wicked witch of the east, Betsy DeVos, is doing everything it can to advance the venal interests of the for-profit college industry.

The bankruptcy courts provide the only hope for relief from oppressive and unpayable student-loan debt. Good lawyers need to represent oppressed student debtors in the bankruptcy courts, educating the judges about the Tenth Circuit's Polleys decision, the Seventh Circuit's Krieger decision, the Eighth Circuit Bankruptcy Appellate Panel's Fern decision, and the Ninth Circuit BAP's Roth decision. The judges need to understand that federal case law now often favors the student-loan debtor.

In sum, we have enough attorneys; but we do not have enough lawyers who are willing to go toe-to-toe against the U.S. Department of  Education, the debt collectors, and the sleazy for-profit college industry.

Betsy DeVos: No friend to student-loan debtors

References

Richard Fossey. Why students need better protection from loan fraud. The Conversation, August 24, 2017.


Jason Iuliano. An Empirical Assessment of Student Loan Discharge and the Undue Hardship Standard. 86 American Bankruptcy Law Journal 495-525 (2012).

Lauren Sudeall Lucas and Darcy Meals. Every year, millions try to navigate US courts without a lawyer. The Conversation, September 21, 2017

Does Citizens Bank routinely make student loans to people attending non-approved foreign colleges?

Awhile back, I posted an essay on Decena v. Citizens Bank, a bankruptcy court case that was decided last year in New York. Lorelei Decena had borrowed $161,000 to attend St. Christopher's College of Medicine in Senegal, West Africa. At the time Decena was studying at St. Christopher's, the school was not on the Department of Education's approved schools list.

After graduating, Ms. Decena returned to the United States to pursue a medical career. To her dismay, she discovered that her St. Christopher medical degree did not qualify her to take her medical boards exams in the U.S.; and she filed for bankruptcy.

As almost everyone knows, student loans cannot be discharged in bankruptcy unless the debtor can meet the "undue hardship" standard articulated in 11 U.S.C. sec. 523 of the Bankruptcy Code. The undue hardship standard applies not only to federal student loans but to private student loans as well. This is a very difficult standard to meet, and some courts have applied it harshly.

Fortunately, for Ms. Decena, the bankruptcy court ruled that her loans from Citizens Bank were not covered by the undue hardship rule because St. Christopher's College of Medicine was not on the Department of Education's approved schools list when she studied there. Thus her student loans could be discharged in bankruptcy like any other consumer loan.  A great victory!

A few days ago, I was contacted by another New Yorker who had borrowed about $160,000 in student loans from Citizens Bank to attend a medical school in Great Britain. This school, like Decena's school, was not on DOE's approved schools list when he attended. And somewhat like Decena, this New Yorker discovered that his overseas medical degree does not qualify him to practice medicine in New York.

Obviously, this fellow has a very good argument that his student loans can be discharged in bankruptcy in the same manner as Ms. Decena's loans.  He contacted Citizens Bank and was told that the bank had sold the loan to a debt collection company.  He then wrote the debt collector and enclosed a copy of the Decena case. So far, no response.

What's going on here? Is Citizens Bank routinely making student loans to people enrolled in overseas medical schools?  And is it lending money to people attending foreign schools that are not on the Department of Education's approved schools list?

Although it is not well known, the Department of Education gives out student loans for Americans to attend foreign colleges and universities; and there are universities from all over the world on DOE's approved schools list.  Some of these institutions are foreign medical schools.

In my view, the government should not be lending money for people to study at foreign universities. The United States has plenty of colleges. Moreover, post-secondary enrollments are in decline in the U.S.; and there are lots of empty seats at American institutions.

And I don't think private banks should be lending money to people so they can study at foreign medical schools, particularly when it is unclear whether a foreign medical degree qualifies graduates to practice medicine in the U.S.

But if our government and the banks are going to continue the reckless practice of handing out student loans for people to study in foreign countries, then the people who accept those loans should be able to discharge their student debt in bankruptcy if they discover that their foreign degrees are worthless to them.

References

Decena v. Citizens Bank, 549 B.R. 11 (Bankr. E.D.N.Y. 2016).

Note: Citizens Bank appealed the bankruptcy court's decision to a federal district court, arguing that it had not received proper service of the lawsuit. The district court vacated the bankruptcy court's ruling based on a technicality without disturbing the underlying rationale of the bankruptcy court's decision in favor of Ms. Decena. Citizens Bank v. Decena, 562 B.R. 202 (E.D.N.Y. 2016).

Birmingham-Southern cuts tuition in half: Making a virtue of necessity

I'm a Methodist, Methodist 'tis my belief

I'm a Methodist till die

Till old grim death comes a knockin' at the door

I'm a Methodist till I die.

Methodist Pie

sung by Red Foley and others

Birmingham-Southern College, a Methodist school in Alabama, is slashing its tuition price by half.  Current tuition: $35,840. Next year's tuition: $17,650.

Linda Flaherty-Goldsmith, BSC's president, put a positive spin on this development. "The marketplace spoke, and we listened," Flaherty-Goldsmith said in a prepared statement. "Students and families are telling colleges all across the United States--and they're telling us--that encountering a high published price is a real barrier to a high-quality education.  We want to make sure that the best and brightest students have access to the kind of personalized, challenging, hands-on educational experience that BSC provides."

Forgive me for being cynical, but that statement sounds like bullshit from the public relations department. For one thing, BSC isn't really cutting its net tuition rate. Ninety percent of BSC students were already paying less than the sticker price. In fact, college officials admitted that next year's net tuition price will be about what students are paying this year.

Basically, BSC has been doing what almost all small private colleges have been doing--jacking up the posted tuition rate and then cutting the real cost in half by granting scholarships and grants.

As Flaherty-Goldsmith admitted, this strategy isn't working. Families were scared off by BSC's sticker price, a price that only about 10 percent of BSC students were actually paying.

I wish BSC well, but I don't think slashing published tuition rates will bump up enrollment. Small colleges across the United States have tried all sorts of gimmicks to attract more students, but a third of all private institutions with enrollments under 3,000 ran deficits last year.

Colleges have tried advertising campaigns, "signature" academic experiences, study abroad opportunities, and online instruction to lure students through the door, but many are losing the battle to remain solvent.

Let's face facts. How many students are willing to pay $35,000 a year or even $17,000 a year to get a liberal arts degree from an undistinguished small college in Birmingham, Alabama?Apparently not very many.

There was a time when a college's religious affiliation was a draw for some American families. Back in the 1950s, some Methodists sent their children to Methodist schools, and Catholics sent their sons and daughters to Catholic colleges.

But that time is long past.  It is getting harder and harder to articulate what it means to be a Methodist college as opposed to a Catholic college or even a publicly funded institution. 

And it is getting more and more difficult to explain the value of a liberal arts education to a fragmented culture in which all values are relative and Eurocentric values are particularly suspect.

As I say, I wish BSC well. But small liberal arts colleges are becoming increasingly irrelevant, and the high tuition that most of them charge has accelerated their decline.

In my mind, it is too late to ratchet back tuition rates. The small colleges' former clients are drifting toward community colleges, trade schools, and regional public universities. Their customers have departed, and they are not coming back.

And I don't feel sorry for the small colleges that are dying. I feel sorry for the schmucks who took out student loans to pay BSC's sticker price.

BSC president Linda Flaherty-Goldsmith

References

Associated Press. Birmingham-Southern cutting tuition, fees next fall. Seattle Times, September 13, 2017.

Rick Seltzer. Birmingham-Southern Cuts Tuition in Half. Inside Higher Ed, September 13, 2017.

Betsy Devos deserves a Congressional censure: It's nothing personal, Betsy; but you are a disaster

Betsy DeVos, President Trump's Secretary of Education, is a disaster. Month after month, she makes decisions to aid the for-profit college industry at the expense of students who have been swindled by the institutions they attended.

As David Halperin said in a recent essay, DeVos' embrace of predatory for-profit colleges is "breathtaking."  Halperin's indictment of DeVos' performance is comprehensive, and you should read it. Here are a few of the highlights of DeVos' reckless malfeasance:

She rolled back an Obama-era regulation that prohibits the for-profits from inserting mandatory arbitration clauses in their student enrollment agreements.  These clauses prevent defrauded students from suing the colleges that defrauded them and usually prohibit students from banding together to file class action lawsuits.

She set aside a procedure for processing so-called "borrower defense" claims, whereby students can get their student loans discharged on the grounds that they were defrauded by the college they attended.

Under her leadership, the Department has failed to failed (as of July 2017) to process even one of the 65,000 fraud claims that students have filed, including claims filed by students who attended Corinthian Colleges and ITT Tech--two for-profits that filed bankruptcy under a dense cloud of fraud allegations.

DeVos' Department of Education canceled an information-sharing agreement with the Consumer Financial Protection Bureau, an act so irrational that Steve Rhode was prompted to ask whether she was "nucking futs."

DeVos cannot be impeached, because the Constitution only allows impeachment of a cabinet official for "high crimes and misdemeanors;" and I don't think DeVos has done anything criminal. But she certainly deserves to be censured by Congress for conduct that is blatantly contrary to the public interest.

 Wouldn't it be grand if the U.S. Senate formally censured her in a bi-partisan expression of righteous indignation? In my mind's eye, I see Mitch McConnell, Senate Majority Leader, hand-delivering a formal Senate censure resolution.

Perhaps Mitch would borrow a line from The Godfather as he tenders DeVos a blistering condemnation of her public stewardship. "It's not personal, Betsy," McConnell would intone, 'but you're a disater."

It's not personal, Betsy.

References

Collin Binkley. Student-loan forgiveness has halted under Trump, records show. Chicago Tribune, July 27, 2017.

David Halperin. DeVos Embrace of Predatory For-Profit Colleges is Breathtaking. Huffington Post, September 10, 2017.

Andrew Kreighbaum. Few solutions for defrauded borrowers. Inside Higher Ed, June 26, 2017.

Steve Rhode. Is Betsy DeVos Nuckin Futs With Break From Student Loan Debtor Protections? The Debt Out of Debt Guy, September 

The Student-Loan Catastrophe: Postcards From the Rubble. On sale at AMAZON.COM for $13.50

For many Americans, student loans are a necessary evil. The average incoming college freshman understands little of the long-term impact of repayment plans. With millions defaulting on their loans, there’s no doubt about it: the federal student loan program is a bubble—it’s just that no one knows when it will burst. But when it does, it could be a disaster akin to the 2008 real estate crash.

In this series of revelatory essays, author and professor Richard Fossey delves into the political muck to deliver hard truths about the federal student loan program. In-depth analysis sheds light on just how pervasive the crisis is and what average loan holders can do about their balances.

With unique insight and no-holds-barred honesty, Fossey brings readers tales from the front lines of the student loan crisis. Learn about the heartless Social Security garnishment of senior citizens who default on their loans and the link between suicide and student loans.

Whether you’re in search of cautionary tales to share with your college student or seeking solutions to your own mounting student loan debt, The Student Loan Catastrophe: Postcards from the Rubble is your guide to stability in the face of an uncertain future.

Terrific essay by Steve Rhode: Is Betsy DeVos Nuckin Futs With Break From Student Loan Debtor Protections?

This terrific essay by Steve Rhode first appeared on Consumer Debt Guy blog site on September 6, 2017.

***

By Steve Rhode on September 6, 2017

   

The Consumerist is reporting the Department of Education has terminated its cooperation with the Consumer Financial Protection Bureau in dealing with student loan servicer problems.

“DeVos accuses the Bureau of not living up to its end of agreements established in 2011 and 2013, by doing too much to hold loan servicers accountable.”

“DeVos suggests that actions taken by the CFPB to rein in shoddy student loan servicers and collectors only confuses borrowers.

“The Department takes exception to the CFPB unilaterally expanding its oversight role to include the Department’s contracted federal student loan servicers,” DeVos wrote. “The Department has full oversight responsibility for federal student loans.”

However, the Department’s ability to root out fraud was thrown into question last week, when the agency appointed former for-profit college executive Julian Schmoke to run the Department’s enforcement division.

While Schmoke currently works as a high-ranking director at a community college in Georgia, he spent several years working for DeVry University, a college that has been repeatedly accused of fraud by both federal and state authorities.”

“The claim that the CFPB ‘unilaterally’ expanded its oversight role over servicers and collectors of federal student loans is unfounded,” Persus Yu, director of the National Consumer Law Center’s Student Loan Borrower Project, said in a statement.

“Education is now trying to stop the CFPB from handling loan-related complaints, but Education’s failures are what led Congress to give the CFPB authority to help students,” Yu said. “DeVos is prioritizing the interests of predatory for-profit schools, debt collectors, and troubled student loan services over the interests of student loan borrowers.”

This recent action and the fact the Department of Education has not approved Borrower Defense claims leads me to wonder where is any proof the Department of Education gives a damn about student loan debtors.

Many small liberal arts colleges are closing: Don't borrow money to attend an institution that is struggling to survive

Many small liberal arts colleges are on the brink of closing, making them a poor risk for people struggling to decide where to get their liberal arts degrees. Last year, one-third of colleges with enrollments below 3,000 students ran operating deficits, which is a very bad sign.

Even these schools' chief financial officers, who have every incentive to paint a rosy picture, are worried. According to the Wall Street Journal, only about half the CFOs at private, nonprofit colleges rated their institutions as being financially stable.

Small liberal arts schools are trying all sorts of strategies to survive. Some, like Holy Cross College in Indiana, have sold real estate to get cash infusions. Others, like Wheelock College in Boston and Shimer College in Chicago, have merged with larger institutions. And some, like Sweet Briar, are sending out distress calls to alumni, hoping cash infusions from wealthy patrons will keep them afloat awhile longer.

But the handwriting has been written on those ivy-covered walls; small liberal arts colleges have no long-term future. Some may limp along by selling real estate or drawing down their endowments, and some may continue to exist in an altered form by merging with stronger institutions. But the small, free-standing, liberal arts college is dead.

What are the implications of this shake up in the higher education industry? First, if you are shopping for a college, do not take out student loans to obtain a liberal arts degree from an obscure, private college that may be extinct before your student loans are repaid. How will you feel if you are still writing monthly student-loan payments ten years after your beloved alma mater closes its doors?

And college administrators and trustees should think about the ethical implications of continuing to recruit students when all the insiders know that their college is on its last legs. Is it morally right for a college with a string of annual budget shortfalls to hire an advertising firm to lure new students?

Of course, small colleges have the right to fight for survival and to try various strategies to meet their operating budgets. But the time must come when terminally ill institutions, like terminally ill hospital patients, must face reality.

A small college can keep itself alive from month to month with regular infusions of student-loan funds and Pell Grant money, just like a comatose patient can live from day to day by being fed intravenously.

But the day finally arrives when it is apparent that a dying institution is only postponing the inevitable by rolling out new schemes to raise cash or lure more students. And that day has come for dozens and dozens of small, private, liberal arts colleges.

Melissa Korn. Some Cash-Strapped Private Colleges Cut Programs, Sell Assets. Wall Street Journal, August 31, 2017.

Rick Seltzer. Shimer Will Become Part of North Central College. Inside Higher Ed, May 27, 2016.

Rick Seltzer. The Future of the Tiny Liberal Arts College. Inside Higher Ed, November 11, 2016.

Charlotte School of Law closed, But Secretary of Education Betsy DeVos has been stingy in granting student-loan relief

Charlotte School of Law closed its doors on August 15, 2017. Thank God!

Before it shut down, CSL was one of the worst law schools in the United States by almost any measure. Based on metrics developed by Law School Transparency, a public interest law-school monitoring organization, 50 percent of CSL's 2014 entering class ran an "extreme" risk of failing the bar exam, and additional 25 percent ran a "very high" risk of failing the exam.

And it fact, less than half of CSL's 2015 graduating class passed the bar. Moreover, less than 25 percent of its 2016 graduates obtained full-time law jobs; and the law school's underemployment rate for that class was 58.8 percent.

Do you want other measures of mediocrity? Not a single CSL graduate in the 2016 graduating class obtained a federal clerkship, which is the most prestigious job a newly graduated attorney can get. The best paying jobs are in large corporate firms; and only 1.5 percent of 2016 graduates landed jobs in large law firms.

And in spite of its monumental mediocrity, Charlotte School of Law--before it shut down--was incredibly expensive. Tuition for the 2017 entering class (had there been one) is $44,284 per year. Law School Transparency estimated the total cost of obtaining a law degree from CSL to be a quarter million dollars!

The ABA put CSL on probation in 2016, and the Obama administration shut off student-loan money in December of last year. Still, the law school lumbered along until its state operating license expired and North Carolina regulators refused to extend it.

Most CSL students took out federal loans to finance their studies and few will be able to pay back their loans. Nevertheless, Betsy DeVos's Department of Education has been stingy in granting loan forgiveness. Only students enrolled on April 12, 2017 or later are eligible to have their student loans forgiven under the closed-school rule.

The Department also has a "borrower defense" process, whereby students can seek student-loan forgiveness if they can show they were defrauded by the institution they attended. More than 500 former CSL students have filed those claims, but DeVos put the borrower-defense regulations on hold. As of July 2016, DeVos's DOE had not approve any borrower-defense claims.

What a mess!

In my mind, there is only one fair remedy for all the people who took out student loans to attend CSL and failed to get jobs that paid well enough to pay back their loans.  Secretary DeVos should forgive student-loan debt for everyone who took out student loans to attend Charlotte School of Law.

But that would not be fair, DeVos might respond. After all, at least a few people graduated from CSL and got good law jobs.  Yes, but not many.  The administrative cost of sorting out who benefited and who failed to benefit doesn't justify the effort.

Everyone who attended this crummy law school should get 100 percent debt relief.  Unfortunately, that's not going to happen.  And there are several more bottom-tier law schools that are still operating and still raking in federal student-loan money.

Photo credit: abovethelaw.com

References

Andrew Kreighbaum, As Charlotte Law makes closure official, Education Department sets loan discharge rules. Inside Higher ED, August 25, 2017.

Andrew Kreighbaum, The Slow Death of a For-Profit Law School. Inside Higher Ed, August 16, 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.

The proliferation of expensive Executive MBA programs: All sizzle and no steak?

Private liberal arts colleges are under severe financial stress, and many are struggling to lure undergraduates through their doors. Mom and Dad are increasingly unwilling to pay $50,000 a year for their children to attend obscure run-of-the-mill liberal arts colleges.  After weighing the cost and benefits of a private college education, enrolling at a nearby public university often looks like the best option.

To attract new revenues, a lot of private liberal arts colleges are investing heavily in graduate education. They are finding that many young professionals are willing to pay big bucks for graduate degrees, particularly the MBA. Moreover, in the past at least, employers have been willing to pay tuition costs for promising mid-level managerial employees to get MBA degrees.

To tap this market, colleges began rolling out executive MBA programs (EMBA). Most of these programs have two attractive features: 1) Classes are offered in intense weekend sessions, allowing students to continue working full time. 2) Many EMBA programs include international experiences, such as a two-week excursion to China, that expose students to the world of international business. Generally, the EMBAs include some razzle dazzle like catered lunches for weekend classes and upscale classroom settings.

And the colleges price their EMBA programs as high as the market would bear. Even MBA programs at public universities have become shockingly expensive. And, to wring out every last dime from the MBA market, universities all over the country began ramping up off-campus EMBA programs to tap urban markets, and they also rolled out online programs, which can be delivered inexpensively to large numbers of students.

But in their greed, the colleges may have killed the goose that laid those golden eggs. Some employers have concluded that the extravagant cost of EMBA programs is not justified and are pulling back from funding EMBA programs for their employees. And students are becoming more sensitive to price. LSU's EMBA program, for example, may be more prestigious than ones offered by Louisiana's regional institutions, but the regional degrees are much cheaper.

In short, I think American businesses and business employees have figured out that EMBA programs are all sizzle and no steak.  One of my young relatives just finished an EMBA program that included a China excursion, and he told me that his professors often did not know as much about the subject they were teaching as he did. He was grateful that his employer paid for his degree because, in his opinion, the degree was not worth the cost.

And I know an attorney who thought he could enhance his marketability by adding an MBA to his JD. He borrowed money to get his MBA credential, and now he regrets that decision.

It is hard to know how to advise a young person who wants to obtain a post-graduate degree in order to land a better paying job. When I was young, getting a law degree was a no brainer; a JD degree from a reputable law school was a ticket to a good career. Now there are thousands of law school graduates who have six-figure student-loan debt and no job.

I think MBA graduates are beginning to experience the same disappointment with their graduate degrees that JD graduates have been experiencing for the last 10 years. Unfortunately, graduate education is not opening the door to opportunity for many bright young Americans; it is only leading to mountains of student-loan debt.

Where's the beef?

References

Rick Seltzer. Deans see challenges for off-campus E.M.B.A. programs in the United States. Inside Higher ED, August 24, 2017.

Rick Seltzer. Marygrove College to end undergraduate programs after fall semester. Inside Higher ED, August 10, 2017.