Why are Progressives Criticizing Biden's Student-Loan Forgiveness Plan?

 President Biden promised college borrowers $10,000 in student-loan forgiveness when he was on the campaign trail. He has yet to deliver on that promise.

Some progressives urge Biden to forgive more student debt. The NAACP said, "$10,000 is not enough, We're calling on our elected officials to cancel federal student loan debt with no means-testing." Senators Elizabeth Warren and Chuck Schumer want Biden to forgive $50,000  per person in student debt.

Surprisingly, some progressives criticize the very idea of blanket student-loan forgiveness.  The Washington Post, perhaps America's most progressive newspaper, published an editorial saying Biden's plan "is yet another taxpayer-funded subsidy for the middle class." The Brookings Institution, a left-of-center think tank, stated bluntly, "One-off, across-the-board forgiveness is capricious and unfair."

USA Today, another progressive newspaper, expressed concern that Biden's student-loan forgiveness plan is complicated by "soaring inflation." And CNN, which is generally supportive of Biden's policy agenda, recently reported that Biden's student-debt cancelation plan "might not be such a great idea."

Why are influential progressive organizations backing away from President Biden's plan to give $10,000 in debt forgiveness to the vast majority of student borrowers?

I think there are two reasons:

First, $10,000 in student-debt forgiveness is a pittance when the average student borrower leaves college with three times that amount of debt, and several million college graduates have debt exceeding $100,000. 

As NAACP President Derrick Johnson put it, canceling $10,000 in student debt would be "like pouring a bucket of ice water on a forest fire. In other words, it won't do anything, especially for the Black community." Johnson called Biden's plan "a slap in the face."

Secondly, I think there is growing concern that the federal student loan program has run amok and that the Department of Education is concealing the true default rate. The feds have already allowed student borrowers to skip their monthly loan payments for two and a half years at great expense to taxpayers. Granting blanket student-debt forgiveness might plunge the program even further into insolvency.

It is disappointing that congressional critics of Biden's debt forgiveness proposal have offered no alternatives other than even more extravagant debt forgiveness.

In my view, our nation won't begin to get the federal student loan program under control until Congress enacts these three reforms:

• The federal government should bar the venal for-profit college industry from participating in the student-loan program.

• The Parent Plus program, which has brought so much suffering to minority and low-income families, should be abolished.

• Distressed student borrowers should have reasonable access to the bankruptcy courts.

If enacted, these reforms won't solve the student-loan crisis overnight, but they will help keep it from worsening. 

But universities must do their part by lowering the cost of going to college. Unfortunately, the universities are doing the opposite-- raising their tuition rates and forcing students to borrow more and more money to get a college education.

Parent-Plus Loans Are a National Scandal

President Biden is flirting with a massive student-loan forgiveness plan--$10,000 in debt relief for 97 percent of all college borrowers.

The Washington Post, perhaps America's most progressive newspaper, urges him not to pull the trigger. 

"Biden could ease the burden on the genuinely disadvantaged in a number of more targeted ways," the WP editorial board advised, "and avoid setting a precedent for broad forgiveness of loans that future presidents will be pressured to match."

I think Biden will honor his campaign promise and forgive $10,000 in student debt for millions of borrowers. Is that a good idea?

I don't think so. As the WP pointed out, this plan would cost almost a quarter of a trillion dollars, and 71 percent of the benefits would go to the top half of the income scale.

Instead, why doesn't the Biden administration focus on debt relief for the most overburdened student debtors and their parents? 

According to the Century Foundation, which recently published a report on the Parent Plus program, 3.7 million parents collectively owe $104 billion--money that parents borrowed to help pay their children's college expenses. 

This is what the Century Foundation found:

• The median Parent Plus debt is $29,600.

• Thousands of retired or disabled parents have had their Social Security benefits reduced because they defaulted on their Parent Plus loans.

• Black and Hispanic parents take out proportionately more Parent Plus loans than White parents.

• The use of Parent Plus use is greatest at HBCUs, where most students are African American.

• At 59 HBCUs, no more than ten percent of Parent Plus borrowers made significant progress in paying off their loans after ten years.

• And here is a shocking statistic: "At some large for-profit colleges, Parent Plus makes up the majority of all financial aid received by undergraduates."

If progressive political leaders want to do something significant to address the hardships created by the federal student loan program, they should do these three things:

1) Stop withholding Social Security benefits to elderly and disabled student borrowers and Parent Plus borrowers, something Senator Elizabeth Warren proposed several years ago.

2) Eliminate the "undue hardship" rule in the Bankruptcy Code and allow distressed student and parent borrowers to discharge their student-loan debt in bankruptcy like any other nonsecured debt.

2) Abolish the Parent Plus Program altogether.

It is unclear whether Biden's $10,000 debt-relief proposal will benefit Parent Plus borrowers. I hope so.

Nevertheless, even if parents are included in Biden's proposal, $10,000 in debt forgiveness won' be enough to alleviate their suffering. What distressed Parent Plus borrowers really need is bankruptcy relief. 

Unfortunately, bankruptcy relief is not in the political cards.

Biden Administration Flirts With Sweeping Student-Loan Forgiveness While Dept of Education Treats All Student Debtors Like Deadbeats: I Don't Get It

Earlier this week, the Department of Education wiped away all student debt owed by more than a million former students who attended one of the Corinthian Colleges campuses. The cost? About $5.8 billion.

Since his administration began, President Biden has approved $25 billion in loan forgiveness for 1.3 million student borrowers. That's a lot of student debt relief.

Nevertheless, more than 40 million Americans are still on the hook for a total of $1.7 trillion in student loans. Many of these folks want President Biden to forgive all of this debt. 

Biden has proposed debt relief of $10,000 per borrower. Progressive Democratic leaders want $50,000 of student-debt relief for all student debtors (with some sort of income cap). Various advocacy groups urge Biden to forgive all student debt, which burdens minority students and women disproportionately.

These proposals presume that every student debtor took out college loans in good faith. No one wants to offer loan relief on a case-by-case basis based on merit or attempt to identify students who may have committed fraud in handling their student loans.

In other words, all debt relief schemes now under discussion take it as a given that everyone--all 45 million borrowers--is honest and entitled to some debt relief. 

I applaud this approach. Only a tiny percentage of student borrowers took out loans to defraud the government. Almost all of them went into debt to get an education they hoped would improve their lives. And many student borrowers weren't able to obtain a job after graduation that paid enough to justify their educational expenses.

So--I am puzzled. Since President Biden and congressional leaders advocate for massive student debt relief without examining each debtor's individual circumstances, why does the  U.S. Department of Education continue harassing distressed college borrowers in the bankruptcy courts?

Let's look at a bankruptcy court decision issued less than three months ago: Everson v. U.S. Department of Education. In that case, Kimberlee Everson took out student loans to get an associate's degree in medical assisting from Bryant Stratton College, a for-profit institution.

She obtained her degree and went to work as a medical assistant for various employers at an hourly rate of between $12.50 to $23 an hour. By the time she appeared in bankruptcy court, her student debt had grown to $45,000--including accrued interest.

Judge Caryl Dilano, a Florida bankruptcy judge, reviewed Ms. Everson's financial status in painstaking detail and refused to discharge her debt. Judge Dilano pointed out that Ms. Everson went out to eat occasionally, had a gym membership, and sometimes made purchases at a liquor store. 

He also heard evidence from the Department of Education that Ms. Everson was eligible for a long-term, income-based repayment plan that would only require her to pay $48 a month on her $45,000 debt.

In Judge Dilano's opinion, Ms. Everson met two prongs of the three-prong Brunner test.  First, it would be an undue hardship for her to pay off her student loans. Second, her precarious financial circumstances were not likely to improve due to factors beyond her control.

Nevertheless, the judge refused to grant Ms. Everson a discharge because she failed the Brunner test's third prong--the good-faith test. He believed Everson had not handled her student loans in good faith. Notably, Judge Dilano pointed out that she had made only minimal payments on her loans over seven years.

The Department of Education has forgiven $25 billion in student debt owed by more than a million people without subjecting any of these debtors to the onerous Brunner test.

How many millions have gym memberships? How many go out to eat occasionally? How many patronize liquor stores?

I don't get it.

If a million and a half people are getting student-debt relief without regard to their payment history or their lifestyles, why is Judge Dilano devoting judicial resources to determining whether Kimberlee Everson dined out too often?

Sources

Everson v. U.S. Department of Education, Case No. 2:20-bk-03062-FMDAdv. Pro. No. 2:20-ap-267-FMD, 2022 WL909570 (M.D. Fla. March 29, 2022).

Senators Warren & Schumer 

College Enrollments are Down, Tuition Prices are Up & Student-Loan Forgiveness Is on the Way: The Wounded Grizzly Syndrome

 Earlier this week, Inside Higher Education reported that college enrollments have declined for five straight semesters. In the spring 2020 semester--when the COVID epidemic began--the nation's colleges enrolled 17.1 million students. Today, 15.9 million Americans are in postsecondary classes--a decline of 1.2 million students.

Some states saw more significant declines than others, and some saw enrollments grow. California suffered an 8.1 percent decline, the most significant drop among the states.

New Hampshire's student population actually grew after the pandemic hit, mainly due to increased online enrollment. I imagine a lot of that growth can be attributed to the University of Southern New Hampshire, which aggressively markets its online programs.

Businesses operating in a market economy often slash prices when demand falls for their products. But American colleges keep raising their tuition. Boston University--a very pricey institution, will increase undergraduate tuition by 4.25 percent next year. 

BU's tuition rate will be $61,000 for the 2022-2023 academic year. And total cost, including room and board, is almost $80,000. Ouch!

Not to worry, BU tells us on its website. Each year the university awards almost a third of a billion dollars in financial assistance to undergraduates. In other words, BU assures us, most students won't have to pay the sticker price.

Indeed, colleges all over the United States are slashing tuition to lure students through the door. The National Association of College and University Business Officers said that schools are discounting tuition for first-year students by 54 percent on average.

Four out of five undergraduates will get a tuition discount in the coming academic year, NACUBO reported. So if you pay the total price to attend BU, you got suckered.

For more than a quarter of a century, colleges have raised their tuition prices annually above the cost of inflation. But the party is about to end.  

Young people are beginning to wonder if it makes sense to borrow $100,000 or more to get a liberal arts degree from an elite school if their diploma doesn't lead to a good job. 

With inflation running at a 40-year high, most colleges can no longer raise their tuition prices to cover their increased costs. BU's tuition hike of 4.25 percent is below this year's 8 percent inflation rate.

The Biden administration is signaling that it will forgive at least some student debt.  During the election campaign, Mr. Biden promised to grant $10,000 in student debt relief to students from lower-income or middle-income families. According to a recent Washington Post story, Biden will likely keep that promise.

I hate to break the news to you, President Biden. Ten thousand dollars in debt relief ain't nearly enough.  Millions of students have seen their total debt double over the years due to accrued interest. 

Offering to forgive $10,000 in debt to someone who owes $60,000 is like shooting a grizzly bear in the gut. The shot doesn't kill the bear; it just pisses him off.

Ten thousand dollars in student-debt relief won't make anyone happy.

Kool-Aid and Baloney Sandwiches: The Days of Cheap Road Trips Are Over

In Coat of Many Colors, Dolly Parton sang that you are only poor if you choose to be. That was my parents' philosophy when I was a kid. We ain't poor; we're middle class.

Perhaps to prove that we were climbing upward on America's economic ladder, my parents took us kids to Disney Land in 1958. My dad bought a Chevy station wagon without air conditioning, and we were on our way. 

We headed west on Highway 66--America's Mother Road. We stopped for lunch at rest stops along the way, where my mom would slap a slice of baloney between two pieces of Wonder Bread. That was lunch--along with Koolaid, which Mom mixed herself.

In those days, people couldn't book hotel rooms online like we can today. On the road west, my dad would drive the family from one motel to another every evening until we found one with the right price.  I imagine that was a little stressful for my parents.

As I said, our Chevy wasn't air-conditioned, but my dad borrowed a tube-shaped air conditioner that fitted on a passenger window.  Didn't work too well.  

Dad also borrowed a canvas waterbag that pictured a Native American in a war bonnet. He hung the bag on the car's front grille. Dad would turn the hose on the waterbag every time we stopped for gas. 

Of course, the water on the waterbag evaporated quickly under the hot Southwestern sun. Theoretically, this evaporation cooled the water inside the waterbag. Theoretically.

On the way home, our car broke down in Santa Rosa, New Mexico, and we had to spend a night there. The repair cost for fixing the transmission was astronomical--one hundred bucks!

Looking back, I now realize that it wasn't easy for my family to drive to California in 1958. Still, we saw everything a middle-class American family would want to see: the Grand Canyon, the Petrified Forest, Disney Land, Sea World, Knott's Berry Farm, and the friggin' Pacific Ocean.

Oh, those were the Good Old Days! 

Today most families would head for Disney World in Florida--not Disney Land in California. A middle-class family would drive to the resort by car and stay in a respectable chain hotel.  The family would likely eat their meals in restaurants rather than make their own sandwiches at roadside parks. 

But maybe not. Inflation has gone up so fast and so high that many people who consider themselves middle-class may be priced out of a trip to Disney World.

First, the cost of four-day theme-park tickets for a family of four is about two grand.  Five nights in one of Disney's moderate-priced hotels will cost $1600 for a standard room with two queen-size beds. Meals for six days will cost a family of four about $1600 (according to Urban Tastebuds).

So, we're talking five grand plus the cost of driving to the world's grandest theme park.  Gas is projected to hit $6.00 a gallon by summer's end.

And souvenirs--don't forget the cost of souvenirs. Mickey and Minnie don't come cheap.

Altogether, a one-week vacation to Disney World will cost a family of four about $6,000. 

You can't handle that? Don't worry. As Dolly Parton reminded us, we're only poor if we choose to be.  

So if you can't afford a summer vacation for your family this year, just tell yourself you're still in the middle class. And keep telling yourself that until you believe it. 

Who needs bottled water?

Walking on the Sunny Side of the Street: 53 percent of the nation's infants receive federal food aid

 Is everybody having fun? According to the feds, the economy is booming: millions of new jobs and rising wages.  The defense industry and its stockholders are getting rich from the Ukraine War, and college students are likely to get all their student-loan debt forgiven. Ain't that great!

In Baton Rouge, where I live, thousands of people got Payroll Protection money. Many of these folks are remodeling their houses or shopping for vacation homes. The restaurants are full of people eating fried oysters and sipping tropical drinks. The roads are full of luxury cars. There's never been a better time to be alive!

But maybe not. A lot of Americans are hurting; we just don't see them. The U.S. Department of Agriculture is feeding millions of low-income families. USDA's own website says it provides supplemental nutrition to 53 percent of all the nation's infants. 

In Houston, where housing prices are going through the roof, and people are waiting in line to buy Audis, the Houston Foodbank is feeding 800,000 people a year. That's a lot of people who need supplemental food in an economy of rising wages and a robust job market. 

And how about the millions of retired people who live on fixed incomes? Television ads show senior Americans gamboling on tropical beaches with their grandkids, playing golf with their buddies, or traveling to beautiful and exotic places,

But that is not a reality for most retired Americans who see their savings depleted. The average Social Security check is $1500 a month, but lean ground meat is pushing six bucks a pound. And by the end of the year, we all know, hamburger meat will cost even more. 

In other words, the inflation we are experiencing is not fuckin' transitory.

We now live in two Americas. Some Americans have a secure seat on the gravy train, and all of our congressional and corporate leaders are rich.

But the un-rich are worried about the future. We know that inflation is not under control, and we know it will worsen. More than half of American families don't even have $1,000 set aside for emergencies.

In my view, Americans will continue to believe that the economy is fine for another year or so. The government continues to print billions of dollars of new money every month, and no one worries about the $30 trillion national debt.

But we are all living on the brink of a financial collapse, and most of us know it--at least on a subconscious level.

And when food becomes scarce and increasingly expensive, we will have to face reality and change our ways.

People will have to stop paying dog walkers and walk their own dogs. Maybe pop will cancel his lawn service and start mowing the grass again. Many of us will stop going out to dinner and start looking for Spam recipes.

And God forbid, some of us will have to wean ourselves off craft beer and go back to drinking cheaper brews.  When I buy my first case of Old Milwaukee,  I will know the end is near.

Will Americans Starve This Year? Probably Not, But Lets Plant Gardens Anyway

 A few days ago, Chris Martenson posted a blog essay titled "Will You Starve to Death This Year?" Martenson pointed out that escalating prices for natural gas have led to a global rise in fertilizer costs.  The price of diesel, which runs the world's farm tractors, has also shot upward dramatically, contributing to a sharp increase in food prices. A ten percent decline in global food production, Martenson argued, would be catastrophic.

Other people are beginning to worry about food. On television, I'm now beginning to see ads from emergency-food-supply companies--the outfits that sell food packets that can be safely stored for up to 25 years.  Is it time to stock up on canned goods?

I don't think Americans are in danger of starving to death--in the short term, at least. We live in a great country blessed with fertile soil, a temperate climate, and the advanced technology we need to feed a nation of 330 million people. 

In addition, the U.S. has a pretty good safety net to make sure people don't go hungry. The federal government's SNAP program (food coupons) is readily available to low-income families. Thousands of churches and nonprofit agencies deliver food to people who need it--including elderly shut-ins.

The American consumer is paying more for food, and we can't always get the food we prefer due to kinks in the supply chain. But nobody will die of hunger in the U.S., at least not in the near-term future.

Nevertheless, Americans should not take our food for granted. I've been reading about famines, and history tells us that people can starve to death even in countries that export food.

Several million people starved to death during Ireland's Potato Famine of 1845-1849, even though the British government exported food out of Ireland. Almost four million Ukrainians died of hunger in 1932-1933 due to Stalin's order to seize food stocks from peasant farmers, even while the Soviets were exporting food to Europe.

Anne Applebaum, who wrote a masterful history of the Ukrainian famine, described how people react when they don't get enough to eat. First, hungry people respond with anger and violence--especially if they have access to firearms. Eventually, however, starving people fall into lethargic apathy and quietly die.

In The Great Hunger, the best treatment of the Irish potato famine, Cecil Woodham-Smith explained how mass starvation always leads to epidemics. Disease invariably follows when the living become too weak to bury the dead.

I am also convinced from my reading that mass starvation inevitably leads to cannabilism, even in advanced societies. The starving people of Leningrad began eating the dead during the Nazi's 900-day siege of the city, as did the Ukrainians during the Holodomor. During World War II, German prisoners of war descended into cannibalism when the Russians penned them up and allowed them to starve to death. 

Americans have been blessed by abundant food for so long that we've forgotten its importance. We can eat whatever we want--from Russian caviar to Chicken McNuggets, and the grocery stores are always open.

Nevertheless, I think it is time for us to think about food.  We still have plenty to eat, but the grocery-store shelves no longer have everything we desire. And food prices have gone up alarmingly over the last few months.

Martenson concluded his sobering essay by urging his readers to plant gardens. I agree. I have been gardening for about ten years, and I now grow both a spring and a fall garden.

My little vegetable garden can't sustain my family for any length of time, but I am learning how to tend my crops, how to spot and treat diseases, and when to fertilize and harvest. 

Just as importantly, raising my own food is fulfilling on a spiritual level.  Planting a seed and seeing it grow into a bean plant that twines around a trellis and produces something I can eat is a miracle. And nothing tastes better than a home-grown tomato picked from my own garden. 

As Guy Clark observed in a famous song, "What would life be without homegrown tomatoes?"  Indeed it would not be nearly so sweet.

Why Does the Federal Government Subsidize Foreign Medical Schools?

 As Reported by Steve Rhode in Get Out of Debt Guy, the Federal Trade Commission recently filed an action against St. James School of Medicine, located in the Caribbean. According to the FTC, St. James "deceptively marketed the school's medical license exam test pass rate and residency matches to lure prospective students."

The FTC seeks a $1.2 million judgment against St. James. This judgment, the FTC asserts, will go toward student refunds and cancellation of student debt for aspiring doctors who attended St. James over the past five years.

You may wonder why the FTC asserts jurisdiction over a medical school operating outside the United States. As it turns out, this Caribbean medical school receives federal student-loan money. St. James is hardly in a position to argue that its recruiting activities are none of the FTC's business.

St. James is just one of more than twenty foreign medical schools that receive federal student-loan money. Five of these schools are in the Caribbean, but medical schools in Australia, Canada, Ireland, Israel, and Poland also receive revenue from federal student loans.

Going to a foreign medical school is expensive. According to a U.S. government website, the median cost of completing a medical degree at  St. George University's medical school in Grenada is $385,000.

So why not get your medical degree from Ross University in Barbados? The median cost is only $348,000--a bargain!

Why is our federal government subsidizing foreign medical schools? Are there not enough American medical schools to meet the nation's health needs?

If not, why don't we build more medical schools in our own country instead of subsiding medical training in the Caribbean?

Moreover, it can be dangerous for an American to get a foreign medical degree. Why? Because there are more M.D. graduates in the United States than residency programs to train them. 

As the New York Times reported recently, more than half of the American residency programs are "unfriendly" toward graduates of foreign medical schools. In fact, only 60 percent of international medical-school graduates get a residency in the United States compared to 94 percent of doctors who graduated from American medical schools.

Most Caribbean medical schools are for-profit institutions, often owned by American investors. Many have very lax admission standards. The admission rate at some Caribbean medical schools is 10 times higher than at American medical programs.

What are the takeaways? First, Americans should be wary of attending a foreign medical school because they run a high risk of not being selected for a residency program that they will need to get a medical license.

Second, Congress should stop subsidizing foreign medical schools, which are horribly expensive and leave many of their graduates with no job prospects.

But the for-profit industry has powerful lobbyists, and Congress is unlikely to act. At the very least, then, Congress should reform the Bankruptcy Code so that jobless graduates of foreign medical schools can discharge their enormous student debt in bankruptcy. 

California Coast University v Aleckna: College liable for student debtor's attorneys' fees after it refused to send her a complete transcript

 Jaime Aleckna was a student at California Coast University until 2009, and she met all the academic requirements for graduating. However, she still owed CCU $6215 when she filed for bankruptcy in 2012. Under the Bankruptcy Code, her bankruptcy petition triggered an automatic stay on all collection actions.

CCU filed an adversary complaint against Ms. Aleckna, arguing that her student loans were non-dischargeable in bankruptcy. Then, while the bankruptcy proceedings were pending, Aleckna asked CCU to send her college transcript.

CCU sent Aleckna an incomplete transcript that did not note her graduation date. The university argued that she had not technically graduated because CCU had put a "financial hold' on her account.

Aleckna then filed a counterclaim against CCU in the bankruptcy court, charging the university with violating the automatic stay provision when it failed to send her a transcript that included her graduation date. She argued that CCU had unlawfully attempted to collect on a  pre-petition debt by withholding her full transcript.  Aleckna asked the bankruptcy court to award her damages and attorneys' fees. 

CCU filed a motion to dismiss Aleckna's counterclaim, which the bankruptcy court denied in 2013. The university then withdrew its adversary complaint against Aleckna. According to the Third Circuit Court of Appeals, CCU's withdrawal "was essentially a confession that Aleckna's debt was dischargeable under the Bankruptcy Code . . . ."

CCU and Aleckna ultimately went to trial on her claim that the university had willfully violated the automatic stay provision and was liable for her damages and attorney fees. CCU lost the case in 2016 and faced a potential judgment for Aleckna's fees.

CCU appealed to the Third Circuit Court of Appeals, where it argued that it had complied with any legal obligation to give Aleckna her transcript when it sent her a  transcript that did not include her graduation date.

A panel of Third Circuit judges didn't buy CCU's arguments. In a 2021 decision, the panel agreed with the bankruptcy court that "'a final transcript, with no graduation date, [is] akin to a letter of reference with no signature,' and was essentially useless."

The Third Circuit also agreed with the bankruptcy court that "providing an incomplete transcript is tantamount to providing no transcript at all."  The Third Circuit affirmed the lower court ruling that CCU's action was a willful violation of the automatic stay provision, making the university liable for Aleckna's damages and attorney's fees. 

The end result? CCU's foray into a Pennsylvania bankruptcy court was costly.  In a failed effort to recover $6,215 from Aleckna, it wound up being liable for her attorney fees--which the Third Circuit estimated to be around $100,000! And, of course, CCU's own attorney fees were undoubtedly substantial.

Perhaps a lesson can be gleaned from California Coast University v. Aleckna. A college would be wiser to write off a small debt owed by a bankrupt former student rather than litigate in the federal courts for eight years.

Why? Because, as philosopher Forrest Gump might have put it, bankruptcy court "is like a box of chocolates. You never know what you're gonna get."

References

California Coast University v. Aleckna, 494 B.R. 647 (Bankr. M.D. Pa. 2013).

California Coast University v. Aleckna, Adversary No. 5:12–ap–00247–RNO, 2014 WL 4100702 (Bankr. M.D. Pa. 2014).

California Coast University v. Aleckna, 543 B.R. 717 (Bankr. M.D. Pa. 2016).

California Coast University v. Aleckna, 3:16-cv-00158, 2019 WL 4072405 (M.D. Pa. 2019).

 California Coast University Aleckna, 13 F.4th 337 (3d Cir. 2021).

14,000 Law Firms Received Payroll Protection Money: Why Not Forgive All Student-Loan Debt?

 Our government spent trillions of dollars responding to COVID, and just about everybody got a little something from Uncle Sam.  Sometimes I think my wife and I are the only people in the United States who didn't get a COVID relief check.

For example, 14,000 law firms got Payroll Protection money, ostensibly to help them avoid laying off lawyers during the COVID crisis.  Eleven firms got $10 million each, but all 14,000 firms got at least $150,000.

Prisoners also got some COVID cash. More than a half-million incarcerated individuals got three-quarters of a billion dollars in stimulus checks.

Even drinking establishments managed to get their noses in the trough. Hooters of Louisiana, a "full-service restaurant," got $156,000.

In short, the U.S. government has been spewing out COVID cash like a drunken sailor on shore leave. So why not forgive all student-loan debt--all $1.7 trillion?

After all, student-loan forgiveness makes more sense than handing out Payroll Protection money to professional athletes and politicians.

Wiping out all student-loan debt would benefit 45 million student borrowers, giving them extra cash to put into the American economy. That's got to be a good thing.

Moreover, many student debtors took out loans to get college degrees that are worthless to them. Maybe they attended one of the dodgy for-profit colleges where they paid too much for a mediocre educational experience. Perhaps they borrowed $100,000 to get a gender studies degree from an elite college--a degree that did not lead to a good job.

So--you can put me down as a supporter of total student-loan forgiveness.  That's right; let's wipe out everybody's federal student-loan debt.

But we should recognize the perils of this course of action. First of all, student loans constitute the largest category of federal assets. If those loans disappear from the nation's balance sheet, the government's fiscal situation will look bleaker than it already does.

Secondly, we should recognize the moral hazard of wholesale student-loan forgiveness. People who take out student loans in the future will likely do so with the expectation that the feds will eventually forgive the debt. Thus, they may conclude they can default on their loans with no penalty.

Finally, wiping out all student debt does nothing to pressure colleges to get their costs under control. The higher education industry will continue raising tuition rates, forcing future students to take out more student loans to finance their studies.

In conclusion, I support student-loan forgiveness. Nevertheless, wholesale loan forgiveness will not solve the student-loan crisis. Until higher education cleans up its act and reduces costs, future generations of colleges students will continue getting hammered with unmanageable college-loan debt.

Thanks for the PPP money!

Under Water On Your Student Loans? Don't Count On Your Parents to Bail You Out

 In the 1990s, Wendi LaBorde took out student loans totaling about $75,000, but she could not repay those loans. Over time, interest accrued on the debt. 

In 2010, the Department of Education obtained a judgment against Ms. LaBorde for approximately $395,000--five times what she borrowed.

In 2014, LeBorde received the proceeds from her late mother's life insurance--$485,902, which was enough money to pay off the judgment on her student debt.

LaBorde didn't use the insurance money to pay off her student loans. Instead, she created a trust that named Connie Christine LeBorde, her daughter, the beneficiary. The trust bought a condo in California and then sold the condo and purchased a home in Riverside County, California, for $403,000. 

In 2020, the federal government sued LaBorde, accusing her of making a fraudulent transfer to avoid paying the judgment against her for her unpaid student loans. The feds pointed out that LaBorde's daughter, the trust beneficiary, lived in Arkansas and LaBorde lived in the Riverside County house. 

A federal court agreed with the federal government. Late last month, the court ruled that Laborde's transfer of life insurance money to the trust was fraudulent. It ordered that LaBorde be named the owner of the Riverside County house, making it subject to the government's lien for $437,000--the amount of her unpaid student loans plus accrued interest.

What happens next?  The federal government will enforce its lien on the California home where LaBorde was living. Ultimately, the house will probably be sold, and most of the proceeds will go to Uncle Sam.

Millions of Americans are burdened by college loans they can't repay. Many have given up even trying to pay off their student debt. Meanwhile, interest continues to accrue. It is not uncommon for people to owe three, four, or even five times the amount of their student loans due to penalties and accrued interest.

Undoubtedly, many of these debtors are counting on an inheritance from their parents or life insurance benefits to bail them out. Perhaps they intend to use inheritance money or life insurance proceeds to help prepare for retirement or purchase a modest home.

Unfortunately, as the LaBorde decision demonstrates, the feds can claim life insurance proceeds to satisfy a judgment for unpaid student loans. Moreover, the same logic that applies to life insurance may also apply to inheritances. At least one court has held that a student-loan debtor was not entitled to discharge student loans in bankruptcy because she did not use inheritance money to help pay off her student loans.

In retrospect, Ms. LaBorde's mother would have been wise to have made her granddaughter, Connie Christine LeBorde, the beneficiary of her life insurance policy. Connie could then have used the insurance proceeds to purchase a house and rent it to her mother at a modest price.  Structuring the transaction in that way would have avoided an allegation of fraud.

In my view, the LaBorde decision is unfortunate. I do not believe student-loan defaulters should be deprived of their inheritances or life insurance proceeds for the sole reason that they were unable to repay their student loans.

I want your house!

White House Extends Pause on Student-Loan Payments Until the End of August: Will Biden Go the Full Monty?

The White House is extending the pause on student-loan payments until August 31st--an extraordinary development. By the time this pause ends in September, millions of student borrowers will have been relieved from making payments on their student loans for almost two-and-a-half years.

Indeed, as Ron Kline, President Biden's chief of staff, pointed out:

Joe Biden, right now, is the only president in history where no one's paid on their student loans for the entirety of his presidency.  

 What's next? I predict President Biden will announce significant student-debt relief this fall--in time to impact the 2022 midterm elections. 

After all, it would be political madness for the Biden administration to force student borrowers to begin making payments again only weeks before the nation goes to the polls to elect the next Congress.

Sometime in August or September, I think the President will do one of three things:

• He may reduce each student debtor's loan balance by $10,000, which he promised to do on the campaign trail.

• He might wipe out $50,000 of debt for each college borrower, something Senator Elizabeth Warren, Senator Chuck Schumer, and other progressive Democrats have urged him to do.

• President Biden might go the full monty and cancel all student debt, totaling $1.7 trillion.

In my opinion, the President will take the middle course and give college borrowers $50,000 in debt relief. A $10,000 write-off is not big enough to satisfy his base, and wiping out all $1.7 trillion in student debt is too audacious.

But regardless of what President Biden decides to do regarding student-debt relief, here are things the federal government will probably not do:

Congress will not rein in the for-profit colleges. The for-profits' lobbyists and campaign contributions will continue protecting this sleazy racket.  

Congress will not reform or eliminate the Parent PLUS program. Parent PLUS has brought financial ruin to hundreds of thousands of low-income families, but too many colleges depend on Parent PLUS money for Congress to shut down the program.

Congress will not reform the Bankruptcy Code to allow distressed student borrowers to shed their college loans in bankruptcy. 

As I have said for twenty years, the simplest and most equitable way to address the student-loan crisis would be to allow honest but unfortunate college borrowers to discharge their student loans in the bankruptcy courts. But that reform makes too goddamned much sense for Congress to do it.

In short, what we are likely to see in the coming months is massive student-loan debt relief with no reforms whatsoever for the federal student-loan program--the biggest boondoggle in American history.

Will President Biden wipe out all student loan debt?

The Pandemic Forbearance on Student Loan Payments Will End Soon: Federal Reserve Bank Expects Default Rates to Rise

In March 2020, the U.S. Department of Education allowed 37 million student-loan borrowers to pause their monthly loan payments due to the COVID pandemic.  DOE extended the payment moratorium several times, allowing all these college borrowers to skip making payments for two years without accruing interest or penalties.

This moratorium gave student debtors much-needed relief during the corona crisis. According to the Wall Street Journal,  borrowers saved almost $200 billion due to DOE's debt holiday. 

But that debt-payment moratorium ends in May unless President Biden extends it. Will all borrowers be financially able to begin making payments again?

Probably not.  The Federal Reserve Bank of New York recently analyzed repayment data from three student-loan programs, including two programs that did not allow student borrowers to skip payments during the pandemic.  It concluded that the default rate for FFEL loans (the program that allowed borrowers to miss payments) will go up when all those 37 million borrowers are required to start making monthly loan payments again in May. 

According to some insiders, President Biden is likely to extend the student-loan payment moratorium yet again, perhaps until after the 2022 midterm elections. Would that be a good thing?

In some ways, yes. The two-year break from making monthly loan payments gave millions of Americans much-needed financial relief. Some probably took advantage of the payment holiday to continue paying down their loans while interest wasn't accruing.  

But I think there may be a downside to DOE's pause on collecting student loans. People have gotten used to having extra money in their pockets, and it will be hard for them to begin writing those monthly checks again.

In some ways, the debt moratorium is like that loan from your brother-in-law. If he doesn't set a firm deadline for getting his money back, you are less inclined to repay the debt. Maybe your brother-in-law will forget all about it.

It would be lovely if the federal government forgave all federal student loans, a scenario millions of student debtors devoutly wish for.

But it will be difficult for our government to write off $1.8 trillion in student debt when that debt makes up about a quarter of all federal assets.

It is easier for everyone to treat the federal student loan program like a brother-in-law loan.  Hey, no hurry about paying it back.

Hey, brother-in-law: About that money you loaned me . . . .

Congress & DOE Can't Fix the Student Loan Program: They're Just Making It Up As They Go Along

 Paolo Bacigalupi's apocalyptic novel The Water Knife is a tale about the struggle for water in the desert Southwest. Lucy, one of the novel's lead characters, is an investigative reporter trying to understand the major power players who use the law, violence, and vigilantes to control water for their various constituencies.

At some point, Lucy realizes that none of the big players has a long-range strategy, and she has a revelation: 

They have no idea what they're doing. These are the people who are supposed to be pulling the strings, and they're making it up as they go along.

Suppose you are a college-loan borrower who hopes Congress will reform the federal student-loan program and maybe even forgive all $1.8 trillion in outstanding student debt. In that case, you need to have the same revelation that enlightened Lucy.

All the major players who participate in the massive grift called the federal student loan program are just making it up as they go along. There is no long-range plan. In fact, I don't think Congress or the Department of Education even know for sure how much money has been borrowed.

Reporters Warren Rojas and Camila DeChalus, writing for Business Insider, recently reported that 360 high-ranking congressional staffers owe money on student loans. Almost fifty of those staffers owe more than a quarter-million dollars. More than 250 of them owe up to $100,000. One congressional aide has been paying on student loans for 32 years.

Many of these staffers hope President Biden will cancel all this debt before the November elections, fearing the prospect of a Republican-controlled Congress. They may think the Biden administration has a plan.

But I don't think so. I don't think any of the leading players have a plan.

Four thousand colleges and universities depend on getting regular infusions of federal student-aid money.  They're like drug addicts who live from moment to moment, waiting on their next fix.

The people who run the for-profit colleges are getting rich, and so are their shareholders. The status quo works just fine for them.

The Department of Education bureaucrats are paper shufflers.  Their only goal is to keep shuffling all that paper until they're eligible to retire.

Rojas and DeChalus reported that four dozen student-debt-related bills have been introduced in this session of Congress. But so what? Reform bills have been filed every year for more than a decade, but none of those bills has made it out of committee.

The student-debt strikers hope to put enough pressure on Congress to get significant relief on their massive student loans. I hope they're successful. But I'm not sure the strikers have even gotten Congress's attention.

Let's face it. Congress, DOE, and the universities don't have a long-term plan for solving the student-loan crisis. They're just making it up as they go along. 

Making it up as they go along

Another Day Older and Deeper in Debt: The Student-Loan Crisis is Getting Worser and Worser

"It's a thankless job," Kurt Vonnegut observed in Titans of Siren, "telling people it's a hard, hard Universe they're in."

I know how Kurt feels. I've been writing about the student loan crisis for 25 years. About ten years ago, I started blogging about it.  I've written over 900 essays, and I've gotten a million hits. 

Has anything changed?

The short answer is no. Forty-five million Americans have outstanding federal loans, a total of $1.8 trillion. Americans hold another $150 billion in private student loans, and students' parents owe another $100 billion.

Research confirms that student debt prevents people from getting married, buying homes, and saving for retirement. Indeed, some college graduates would be better off financially had they never gone to college.

Over the years, Congress and the Department of Education have launched various programs to ease the burden of college debt, but everything they do just makes matters worse.

Income-based repayment plans, which set repayment rates based on a borrower's income, have turned nine million student debtors into indentured servants who make monthly payments based on their income, not how much they owe.

The result? Virtually none of those nine million people will ever pay off their student loans because their monthly payments aren't big enough to cover accruing interest. As a practical matter, these college borrowers have defaulted on their loans even though DOE pretends the loans are in good standing.

The Public Service Loan Forgiveness program benefits people who take low-paying service jobs (firefighters, teachers, EMS personnel, etc.). But until recently, only about two percent of the people who thought they were entitled to PSLF debt relief actually got it.

Parent PLUS loans have driven thousands of families into poverty, but Congress refuses to reform the Parent PLUS program. The Wall Street Journal published an essay listing five reasons Congress refuses to act--including the colleges' desire to get Parent PLUS revenue.

When I started writing about the federal student loan program, I viewed it solely as a problem for individual student borrowers--not a boondoggle that could weaken the entire nation.

But it's now clear to me that the program has become so large, corrupt, and mismanaged that it is destroying the integrity of American higher education and undermining the national economy.  Millions of student debtors cannot buy homes, save for retirement, or start families because they are burdened with college debt they can never repay.

Our higher education leaders tell themselves that they are the most sensitive people in America. They constantly prattle about equity, inclusion, and the need to expand opportunities for low-income Americans.

But not a single university president has called for student-loan reform. No college CEO has demanded an overhaul of the Parent PLUS program or legislation to stop the Department of Education from garnishing Social Security checks of elderly student-loan defaulters. 

 Harvard President Lawrence Bacow bent over backward to get a student visa for a single Palestinian, but has this Ivy League prig said anything about a federal program that has injured millions of people, including students at his own university? No, he has not.

University leaders have nothing to say about the federal student loan program because their institutions are addicted to federal money. The status quo suits them just fine.

 After all, if college students graduate with worthless degrees and a mountain of debt, it's not the universities' problem. The colleges get their money upfront.

Harvard University: Ain't we got fun!

Baton Rouge Man Convicted of Massive Student Loan Fraud: Baton Rouge Community College Becomes Crime Scene

 A few days ago, Elliott Sterling of Baton Rouge was convicted of massive student-loan fraud. As reported in the Baton Rouge Advocate, Sterling stole $1.4 million in student loan money by pretending to be a Baton Rouge Community College student 180 times.

Prosecutors also presented evidence that the Sterling falsified student-loan applications for 168 people. In furtherance of his scheme, he bought 42 fake high school transcripts, paid people to represent themselves as students, and filed false information on student-aid applications.

Sterling's criminal scheme went on for two years. FBI agents seized $422,000 in fraud proceeds, but Sterling blew a great deal of money at gambling casinos.

Apparently, numerous people helped Sterling bilk the federal government. He collected hundreds of thousands of dollars in student-loan money intended for other people and kept two-thirds of the proceeds. He even enlisted the help of a couple of people in prison.

Sterling's convictions raise several questions. First, did any of the bogus students at BRCC attend classes?  Did they receive grades? How long did it take BRCC to realize that someone was using the college to scam the federal student-loan program?

Of course, all the people who took out student loans as part of Sterling's scheme are indebted to the Department of Education and required to pay back the money they were awarded. How many of these "students" will pay back their loans?  My guess is that none of them will.

College leaders and the U.S. Department of Education would like Americans to believe that the federal student loan program is competently administered and that federal loan money helps students get a valuable college education.

In fact, the student loan program is riddled with fraud and mismanagement. Several for-profit colleges have been accused of misrepresenting their programs; some individuals take out loans just to capture the income with no intention of studying for a college degree. Hundreds of colleges have rolled out dodgy graduate programs to enhance their revenues, leaving students with worthless MBAs and professional diplomas.

Today, 45 million Americans collectively owe $1.8 trillion in student debt. Parents have impoverished themselves by taking out Parent PLUS loans to help their offspring pay their college bills. Private lenders have loaned another $150 billion to students at high-interest rates.

It is time for Americans to admit that higher education in this country is a racket. Congress doesn't have the courage to legislate reforms. But surely, our federal legislators can summon the political will to amend the Bankruptcy Code to allow the victims of this massive fraud scheme to discharge their student loans through bankruptcy.

Baton Rouge Community College: A crime scene

How Screwed Up is the Federal Student Loan Program? We Can Tell You, But Then We'd Have to Kill You!

 Betsy DeVos, the Wicked Witch of the Midwest, was perhaps the most despised member of President Trump's cabinet. As Trump's Education Secretary, she coddled the for-profit college industry and (in my opinion) bungled the Public Service Loan Forgiveness (PSLF) program.

Nevertheless, in a speech delivered in November 2018, DeVos revealed to the nation just how totally screwed up the federal student loan program really is. She deserves some credit for that.

Here's what DeVos said:

• The federal government holds $1.5 trillion in outstanding student loans, one-third of all national assets.

• Only one in four federal student-loan borrowers were paying down the principal and interest on their debt.

• Twenty percent of all federal student loans were delinquent or in default, which was seven times the delinquency rate on credit card debt.

• The debt level of individual borrowers had ballooned between 2010 and 2018 because students were borrowing substantially more money.

• The federal government's portfolio of outstanding student loans constituted 10 percent of our nation's total national debt.

Soon after giving this speech, DeVos engaged a private firm to determine just how bad the student loan crisis was. Jeff Courtney, a former JP Morgan executive, headed up this investigation, and here is what he found:

Although DOE calculated that it would eventually receive 96 cents of every student-loan dollar in default, in fact, it would only recover between 51 and 63 percent.

Courtney also found that DOE allows student-loan defaulters to sign up for new loans, which are used to pay off the defaulted loans. When that happens, the defaulted loans are categorized as paid in full when, in fact, they aren't paid off at all.

DeVos acknowledged that private businesses could not legally operate in this way. In fact, she said, if a private actor engaged in DOE's accounting practices, that person would "probably be behind bars." 

Of course, we know that Courtney's findings aren't the only evidence of DOE's financial skulduggery.  DOE has been putting distressed debtors into income-based repayment plans (IBRP) and counting the loans in these plans as performing loans.

But that is not correct. Approximately 9 million student borrowers are in IBRPs, and their monthly payments are not large enough to pay accruing interest. Thus, IBRP participants see their loan balances grow with each passing month, even when they make regular monthly loan payments. 

In fact, all 9 million IBRP participants are in default--if default means never paying off the debt.

In recent months,  Congressional members have been asking DOE to disclose the actual cost of the federal student loan portfolio, but Education Secretary Miguel Cardona hasn't been forthcoming.

Here is the essence of the matter. DOE knows the federal student loan portfolio is a trainwreck, but it hopes to keep the catastrophe a secret for as long as possible.  

It's like that old joke about the  CIA and classified information: We can tell you the truth about the student-loan program, but then we'd have to kill you.

Sources

Betsy DeVos. Prepared Remarks by U.S. Secretary of Education Betsy DeVos to Federal Student Aid's Training Conference. November 27, 2018. [The DOE link to this speech  was either taken down or obscured.]

Betsy revealed just how screwed up the federal student loan program really is.

Like Prisoners on Death Row: 25 million student debtors may get another reprieve from making their student-loan payments

Around 2,500 prisoners sit on Death Row in American prisons. Nearly 700 condemned men await death in the Golden State of California. A couple hundred are housed on Death Row in Texas, the Lone Star State. And Florida--the Sunshine State-- has 330 prisoners who've been sentenced to die.

How long do condemned prisoners sit in prison before being executed? On average, 19 years. Most men on death row can postpone their execution date by filing multiple appeals in the courts.

Of course, Americans living in freedom cannot compare their situation to the men on Death Row. Nevertheless, student-loan debtors are somewhat like condemned prisoners. They are seeing their lives drain away while the federal government issues multiple stays of execution on their student-loan payments without giving them real relief.

In March 2020, the Department of Education allowed 25 million student debtors to stop making payments on their loans due to the economic disruption of the COVID pandemic.  DOE said it would not penalize borrowers who didn't make their loan payments and wouldn't charge interest on the underlying debt.

That moratorium has been extended four times, and the Biden administration may extend the moratorium yet again.

Are these debt-forgiveness edicts a good thing for the nation's overburdened student-loan borrowers? Yes, of course.

But there are psychological and emotional costs to being burdened by debt that can never be paid back, costs that some federal bankruptcy courts have explicitly recognized. And these costs are not alleviated by giving college borrowers a series of loan holidays.

And allowing 25 million Americans to skip their student-loan payments for two years does nothing to solve the student-loan crisis, which has grown to catastrophic proportions. Together, American college borrowers owe $1.8 trillion in student debt and another $150 billion in private student debt.

Maybe President Biden will forgive $10,000 in personal student debt as he promised during the 2020 presidential campaign. But that will do little or nothing to ease the debt burden of most borrowers.

Perhaps Congress will pass legislation to forgive all federal student-loan debt, or President Biden will do that by executive order. But I think relief of that magnitude is unlikely.

In the meantime, while our legislators and policymakers ponder global solutions,  why doesn't Congres simply amend the Bankruptcy Code to allow insolvent student borrowers to discharge their student loans in bankruptcy?

But Congress probably won't do that. For all the sympathetic rhetoric, Congress is content to allow millions of Americans to sit helplessly in a vast debtor's prison without bars--financially unable to buy homes, save for retirement, or start families.

In the meantime, college borrowers live much like the men on Death Row. Like condemned prisoners, they get numerous reprieves from making payments. They get deferments, they sign up for long-term income-based repayment plans, and they get to skip loan payments during the COVID crisis. 

Condemned prisoners whose sentences are postponed again and again will never be free. Some will eventually be executed, but many of them will die of old age.

Likewise, America's student loan debtors can manage their massive loan debt with various types of reprieves. They can apply for economic-hardship deferments. They can sign up for long-term, income-based repayment plans. They can skip payments during the COVID loan-payment pauses.

But millions of them will never be free of their college debt. They will die before it's repaid. That's a high price to pay for going to college.

 

California's death row