Homeless People Borrowing Money to Attend College: Is That a Good Idea?

According to a recent news story, 58,000 homeless people are enrolled in college, a 75 percent increase from just three years ago (Ashtari, 2015). How, you might be asking, are homeless college students paying their tuition bills?

Most, if not all of these hapless college students are eligible to receive Pell Grants based on their economic circumstances and most are probably borrowing money from the federal student-loan program.  At the University of Massachusetts-Boston, a student support center provides free meals for homeless people and guidance on financial aid.

Is this a good idea? Kathleen O'Neill, who runs something called Single Stop USA at Bunker Hill Community College, thinks it's a great idea for homeless people to attend college. "These are people who get it," said Ms. O'Neill. "The way out of poverty is education and they are committed to doing whatever it is they need to do to get there"(as quoted in a Huffington Post article).

Obviously, having homeless students in college works out great for the colleges. They get more tuition-paying students, and the federal student-aid program foots the bill.

I would love to chat but I'm late for my social studies class.

But some colleges have been criticized for recruiting homeless people. A few years ago, Drake College of Business was spotlighted for recruiting homeless people and then paying them a stipend. For a time at least,  homeless students apparently received $350 biweekly stipends so long as they showed up for 80 percent of the classes and received "Cs" for their work.

Drake's president defended the practice of recruiting homeless students. "We do not believe that recruiting at [homeless] shelters is either illegal, unethical, or immoral so long as the recruitment of students from shelters is above board, which it has been," Drake's President Ziad Fadel said of its practice (as quoted in Golden & Hechinger, 2010). Nevertheless, Drake stopped recruiting homeless students.

If homeless people borrowed money to attend college, obtained the training they needed to get good jobs, and then paid off their student loans, this would be a Cinderella story. But my guess is that an awful lot of these 58,000 people will never pay off their student loans. And when they go into default they will be barred from participating further in the federal student aid program.

In my view, a university that feeds homeless people while it helps them fill out financial aid applications sounds a lot like the way religious homeless shelters used to operate. Sure, we'll feed you, but you have to listen to this sermon first. Here's a nice hot meal, but don't spell soup on your FAFSA form.

When I reflect on the fact that 58,000 homeless people are paying tuition with federal student aid money, President Obama's proposal to offer two years of free education at the nation's community colleges sounds like a good idea.

Wouldn't it be better if economically disadvantaged people could get two years of free secondary education or training rather than forcing them to take out student loans to pay their tuition bills--loans very few of them will ever pay back?

References

Shadee Ashtari. A Look Into the 'Double Lives' Of America's Homeless. Huffington Post, December 26, 2014 (updated January 7, 2015. Accessible at: http://www.huffingtonpost.com/2014/12/26/college-student-homeless-boston_n_6145980.html

Daniel Golden & Jon Hechinger. For-Profit N.J. College Halts Recruiting of Homeless. Bloomberg, May 5, 2010. Accessible at: http://www.bloomberg.com/news/articles/2010-05-05/drake-for-profit-college-in-new-jersey-will-stop-recruitment-of-homeless

No Statute of Limitations on Student Loan Debt: How Can That Be Justified?



Abandon hope, all ye who enter here. 

                                 Dante Alighieri 

Awhile back, Governor Jerry Brown vetoed a bill passed by the California legislature  that would have expanded the statute of limitations for bringing sexual abuse lawsuits against private schools, including schools operated by the Catholic Church. The law did not apply to sexual abuse claims against public school teachers.


Cartoon Credit: Carol Simpson

In vetoing the statute, Governor Brown invoked ancient principles of fairness that put time limitations on lawsuits. "Statutes of limitation reach back to Roman law and were specifically enshrined in the English common law by the Limitations Act of 1623," Governor Brown wrote in his veto message. "Ever since, and in every state, including California, various limits have been imposed on the time when lawsuits may still be initiated. Even though valid and profoundly important claims are at stake, all jurisdictions have seen fit to bar actions after a lapse of years."

Statutes of Limitations Invoke Ancient Principles of Fairness

Governor Brown correctly stated the law regarding statutes of limitations. It is not fair, as the courts sometimes put it, for aggrieved parties to “sleep on their rights” and then file a lawsuit long after a claim has grown stale, when memories and witnesses may have faded away and critical documents may have been lost. Thus, all states give claimants a specific time limit for filing a lawsuit. If the claimant fails to file within the time limit, the claimant irrevocably loses the right to seek a remedy in court.

Unfortunately for student loan debtors, these ancient principles of fairness do not apply to student loans. In 1991, Congress passed 20 U.S.C. § 1091a, a statute that abolished all limitation periods that might otherwise apply against specified lenders and governmental entities that seek to collect on student loans. As one scholar succinctly summarized the law, “[O]nce a student contracts for a student loan, the student cannot use a statute of limitations as a defense against collection on that loan by the entities listed in the statute—ever” (Roper, 2005, p. 37, emphasis supplied).

The Fabrizio case: Student-Loan Guarantor Attempts to Collect a 25-Year-Old Judgment

In 2010, this harsh federal law was applied in a case against Anthony Fabrizio, who borrowed about $9,000 in the early 1970s to help pay for his postsecondary education (New York State Higher Education Services Corporation v. Fabrizio, 2010). Apparently, Fabrizio did not pay back the money, and the lender obtained a default judgment against him in 1983 for $9,664.63. In 2008, twenty-five years after the debt had been reduced to judgment, the New York State Higher Education Services Corporation, which (through a predecessor agency) had guaranteed Fabrizio’s loan, told Fabrizio to begin paying off the debt or the agency would start garnishing his wages.

Fabrizio tried to persuade a New York court to enter an order declaring that his debt was deemed paid under a New York law stating that a money judgment is presumed to have been paid after 20 years from when the creditor was first entitled to enforce it.

Unhappily for Mr. Fabrizio, a New York appellate court ruled against him, finding that 20 U.S.C. 1091a, abolishing all statutes of limitation that might otherwise protect a defaulted student-loan debtor, overrode the New York statute of limitation.  Fabrizio can still be made to pay back the loan. Presumably, he is also liable for collection fees and more than 30 years of accumulated interest.

Defaulting Student Loan Debtors Have No Place to Hide

Today, there are millions of people who have defaulted on their student loans, and some of those loans are now quite old. Nevertheless, student-loan defaulters are never off the hook for their debt--no matter how old that debt might be.

As the Fabrizio case illustrates, statutes of limitation do not apply to student-loan debts that are guaranteed by the federal government, and a lender can pursue collection at any time, even if the lender took no action for a quarter of a century.

Moreover, unlike most other overburdened debtors, student-loan debtors cannot discharge student loans in bankruptcy unless they can show that failure to discharge their student loans will cause them “undue hardship”  (11. U.S.C. § 523(a)(8)(B)). As several scholars have observed, it is very difficult for student-loan debtors to discharge their student loans in bankruptcy--even in heart-rending circumstances (Pardo & Lacey, 2009, Fossey, 1997). 

In fact, student-loan debtors who fail to repay their loans can have their Social Security checks garnished, a practice that the Supreme Court approved in the 2005 decision of Lockhart v. United States.  People who took out student loans in their early twenties and never paid them back can see their Social Security income diminished by their failure to discharge their student-loan obligations (Cloud, 2006).

Abandon Hope, All Ye Who Enter Here

For millions of college students, the federal student loan program has become a nightmare. Over the years, Congress has passed harsh legislation that has stripped student-loan debtors of traditional legal protections like statutes of limitation and unfettered access to the bankruptcy courts.  As a result, for individuals who default on their student loans, even those who took out their loans in good faith, the famous passage from Dante seems chillingly appropriate: “Abandon hope, all ye who enter here.”  

**********

Note: Parts of this essay were taken from an essay originally published in 2010 in Teachers College Record.  The citation for the original article is Richard Fossey & Robert C. Cloud, Abandon Hope, All Ye Who Enter Here: Defaulting Student Loan Debtors Have No Place to Hide. Teachers College Record, October 12, 2010 at http://www.tcrecord.org, ID Number: 16195.

References

Chae v. SLM Corporation, 593 F.3d 936 (9th Cir. 2010).

Cloud, R.C. (2006). Offsetting Social Security benefits to repay student loans: Pay us now or pay us later, Education Law Reporter, 208, 11-21.

Fossey, R. (1997).  "The certainty of hopelessness:" Are courts too harsh toward bankrupt student loan debtors?  Journal of Law and Education, 26, 29-48. 

Garner, B. A. (Ed.). (9^th ed. 2009). Black’s Law Dictionary. St. Paul, Minn.: West Publishing Company.

Lockhart v. United States, 546 U.S. 142 (2005).

Joseph Mack (2006). Nullum Tempus: Governmental immunity to statutes of limitation, laches, and statutes of repose. Defense Counsel Journal, 73, 180-196.

New York Higher Education Services Corporation v. Fabrizio, 900 N.Y.S.2d (A.D. 3 Dept. 2010).

Raphael I. Pardo & Michelle R. Lacey (2009).  The real student-loan scandal: Undue hardship discharge litigation.  American Bankruptcy Law Journal, 83, 179-235.

Glen E. Roper (2005). Eternal student loan liability: Who can sue under 20 U.S.C. 1091a? Brigham Young University Journal of Public Law, 20, 35-78.

President Obama proposes a free community college education but the Brookings Institution disapproves

Even a blind hog occasionally finds an acorn, and President Obama finally came up with a good idea for addressing the student-loan crisis--or at least the kernel of a good idea. In his State of the Union address, the President proposed offering a free community-college education to every American.

But the Brookings Institution apparently doesn't like that idea.  Stuart M. Butler authored a piece for Brookings on President Obama's plan and offered these criticisms.

Stuart M. Butler
Senior Fellow, Brookings Institution

First, Mr. Butler argued, "the plan is badly targeted." Providing free community-college education "would mean middle-income and even upper-income, students would get hefty subsidies, even though many do not need the help."

Of course this is true, but public K-12 education is also free to rich and poor alike; and I don't hear anyone complaining. And to suggest that rich kids would pass up elite institutions like Harvard to get a free education at a local community college is absurd.

Second, Mr. Butler argues that community college "is usually a dead end." Here, Mr. Butler stands on firmer ground. It is true that only a small percentage of community-college students obtain two-year degrees; and very few transfer into four-year colleges  and eventually get bachelor's degrees.

Mr. Butler suggests that the federal government should "help states and school districts provide a fuller range of opportunities at the high school and college levels, such as professional credentials, apprenticeships and high-school career academies." Yes, of course; but President Obama's plan doesn't preclude other avenues for providing post-secondary education. In fact, I understood the President's free community-college proposal to incorporate more than just traditional academic programs.

Finally, Mr. Butler offers his flimsiest objection to President Obama's plan--that it might cause high-performing high-school students to "settle" for a free community-college education rather than apply to more elite institutions. Right--like a high school kid with a realistic chance of getting into the University of St. Andrews in Scotland, where Mr. Butler studied, would turn St. Andrews down to get free schooling at Alamo Community College in San Antonio.

So what does Mr. Butler suggest?  He wants bigger Pell Grants that could be used at any institution, presumably meaning the expensive elite colleges where the Brookings Institution's policy wonks went to school, as well as the for-profit colleges that are ripping off low-income young Americans.

And Mr. Butler also wants President Obama to give "more enthusiastic backing to new, low-cost competitors to traditional colleges and universities." Duh, Mr. Butler. Community colleges are low-cost competitors to traditional colleges and universities.

Mr. Butler finished his Brookings puff piece with a flourish. "President Obama would be much wiser," Mr. Butler concluded, "to use his political capital to spur competition and real cost reduction in higher education rather than subsidizing community college education."  Whatever that means.

In my view, President Obama articulated the germ of a good idea--two free years of postsecondary education at the nation's community colleges to anyone who is qualified to enroll.  Of course, the community colleges need to do a much better job of matriculating their students; and the transfer of students from two-year institutions to four-year institutions needs to be made surer and more smooth.

The president calculated that his plan to offer a free community-college education would only cost the federal government about $6 billion a year--about one fifth of what the federal student-aid program is currently pumping into the for-profit college industry. If the federal government would stop propping up the for-profits and support community colleges, the public would actually save money--a lot of money.

On the other hand, if President Obama wants to offer free community-college education as a new feature to our present rickety student-aid program, then his proposal is merely a diversion from the hard task of reform . Unfortunately, I think the president wants to add a $6 billion free community-college plan to an out-of-control federal student aid program that already costs more than $100 billion a year..

References

Stuart M. Butler. Obama's SOTU Free College Plan is Bad for Poor Americans. Brookings Institution, January 20, 2015. Accessible at: http://www.brookings.edu/research/opinions/2015/01/20-obama-free-community-college-bad-idea-sotu-butler

Susan Dynarski and Daniel Kreisman. Loans for Equal Opportunity: Making Borrowing Work for Today's Students. Hamilton Project, Brookings Institution, October 2013. Accessible at: http://www.brookings.edu/~/media/research/files/papers/2013/10/21%20student%20loans%20dynarski/thp_dynarskidiscpaper_final.pdf


  

More evidence that the New York Times is totally clueless about the Student-Loan Crisis

Today's New York Times contained a full-page advertisement  (on page A22) with this message: "What our reporters are reading can be just as insightful as what they're writing." The advertisement contains a large color photo of Times writer David Carr wearing those round, horn-rimmed spectacles that people wear in Woody Allen movies--spectacles that convey sensitivity and deep intelligence.

Of course, the Times ad is true: What Times reporters read can be insightful. The problem is that the Times reporters are not reading enough and they are reading the wrong things.

And here's a case in point.  On the front page of today's Times is an article about the economic downturn Alaska is experiencing as a result of the recent drop in oil prices.  The article's author, Kirk Johnson, reports that "historians and economists say" that Alaska's economic crisis is unprecedented "in modern times."

That is simply not accurate. I lived in Alaska in the mid-1980s when oil prices turned down. Alaska's economy went into a tail spin, with a huge number of property foreclosures and several bank failures. I recall standing on a street corner in downtown Anchorage and viewing three financial institutions with plastic sheeting spread across their names because they had collapsed and been closed by federal financial regulators.

So what is happening in Alaska right is not unprecedented in modern times; and if "historians and commentators" told Times reporter Johnson that, they are certainly incompetent.

But that Times inaccuracy is a small matter.  More important is a pollyannaish article in last Sunday's Times about the student debt crisis. Times reporter Kevin Carey wrote favorably and uncritically about federal legislation that allows students to extend their student-loan payments out over 25 years. Apparently, Carey took a positive perspective on this development  because long-term repayment programs will reduce student-loan borrowers' monthly payments to a more manageable level.

 Carey ended his article by remarking that the federal government will probably replace the states as  the "primary financier" of American higher education. "Given how much unnecessary financial hardship has been imposed on students," Carey wrote, "this is a welcome trend." And Carey ends on this wholly unwarranted optimistic note: "The sense of pervasive student loan anxiety that characterizes much of the contemporary higher education conversation could become a relic of an older time."

What baloney! Essentially Carey has portrayed the federal push to get college student-loan borrowers  to sign up for long-term repayment plans as an entirely wholesome development.  And that simply is not correct.

First of all, the prospect of former students taking 20 to 25 years to pay off their student loans should be unsettling to everyone in the American higher education community, no matter how reasonable borrowers' monthly payments are. Surely when Congress adopted the first student-loan legislation back in the 1960s, its members never dreamed that 25-year repayment plans might someday become the norm.

In essence, as I have said before, long-term income-based repayment plans are turning Americans into sharecroppers, paying a portion of their earnings to the government for the majority of their working lives for the privilege of attending college. Who could be happy about such a prospect?

Second, as currently structured, long-term repayment plans operate as a perverse incentive for colleges to keep raising their tuition. Why should colleges try to keep their costs down when students can simply borrow more money to pay for tuition hikes and then pay it back in modest monthly payments over 25 years?

Third, long-term repayment plans remove incentives on students to minimize their borrowing. What difference does it make to students whether they borrow $30,000 to attend college (the current average) or $50,000 when the amount of their monthly loan payments will be based on their income and not the amount they borrowed?

Why has the Obama administration's push for long-term repayment plans been received so favorably around the country? I will tell you why. The only voices that are heard concerning the student-loan crisis are the voices of the insiders: colleges and universities, intellectually bankrupt think tanks like the Brookings Institution,and higher education's shamelessly self-interested constituency organizations like the College Board and the American Council on Education.

The people who are being injured by the federal student loan program have no voice; they are suffering in silence while working at low-income service jobs and fending of the federal government's hired loan collection agencies--which are making tons of money chasing down student-loan defaulters.

The Brookings Institution, in one of its typically vapid policy papers, argued for having people's student-loan payments taken out of their pay checks so that they would simply become another income deduction, like health insurance and Social Security.

And friends, that day will some day come. And when that happens, it will be apparent to everyone that the federal student loan program, which was intended to help worthy young Americans get a college education regardless of their income status, has become a massive fraud perpetuated on the American people by the higher education industry and the federal government.

If we continue in the direction we are going--and we are actually accelerating our headlong drive toward catastrophe--American higher education will be destroyed. But our policy makers, our legislators, and our college and university presidents don't care. By the time this time bomb explodes--and explode it will--all the people who engineered this disaster will be retired, writing their memoirs and drinking bourbon beside the golf courses of their gated entry retirement communities. The fact that these empty-headed bozos destroyed our nation's once premier system of colleges and universities will bother them not at all.

References

Kevin Carey. Helping to Lift the Burden of Student Debt. New York Times, Sunday Business Section p. 1.

Kirk Johnson. As Oil Falls, Alaska's New Chief Faces a Novel Goa: Frugality. New York Times, January 26, p. 1.

Who turned on the gas at Auschwitz? Reflections on student-loan debtors in bankruptcy

Gas Chamber Door at Auschwitz--Looking Out

My father spent most of World War II as a a prisoner of war in Japanese concentration camps.

He was captured in the Philippines when the entire American army surrendered to Japanese forces in April 1942, and he survived the Bataan Death March. He remained a prisoner until August 1945, after atomic bombs were dropped on Hiroshima and Nagasaki.

Two thirds of the men who were captured with my father did not survive the War. Some were summarily executed during the Bataan Death March or later, some died of starvation or disease, and a number committed suicide. The experiences of the American prisoners of war in the Pacific are never compared to the Holocaust, but perhaps they should be.

In any event, my father's concentration camp experiences (which he often talked about when I was a child) have caused me to ponder again and again this question: How can people lose their humanity to the extent that they can kill defenseless people without remorse and even without thinking about it seriously? Who turned on the gas at Auschwitz day after day as all those Jews were gassed to death? And did those people go home to their families when their work days ended to eat a nice meal and perhaps listen to the radio?

Recently, I returned to this question  after reading several of the published bankruptcy decisions involving student-loan debtors.  In the Myhre case, for example, how could attorneys for the U.S. Department of Education oppose the discharge of student loans owed by a paraplegic man who was working full time and whose expenses exceeded his income?

And in the Stevenson case, how could lawyers for Educational Credit Management Corporation argue that a woman in her fifties who had a history of homelessness and was living on less than $1000 per month, be placed on a 25-year income-based repayment plan to pay off her student loans?

And in the Roth case, how could attorneys for the same company--headed at the time by a man who made more than $1 million dollars a year), stand before a bankruptcy judge and maintain that a woman in her sixties, who had chronic health problems and was living entirely off Social Security income of less than $800 a month, should not have her student loans discharged in bankruptcy?

I listened recently to the audio of a bankruptcy proceeding in California involving a man with more than a quarter million dollars of student-loan debt.  The man brought an adversary proceeding seeking to discharge his loans in bankruptcy.  His suit was opposed by two parties: the U.S. Department of Education and a private loan company.

Judging by their voices, the U.S Department of Education and the private company were both represented by young women.  Both argued that the man--in his 50s and making less than $2,000 a month, should not have his student-loan debts discharged.

I imagine both women graduated from good law schools, are kind to animals, and have progressive views on the political issues of the day--global warming, for example.

So how could these smart and presumably sensitive young women be working for a governmental entity and a private company engaged in the reprehensible business of stopping distressed student-loan debtors from bankruptcy relief?

I don't mean to compare these two young lawyers to the people who operated the Nazi death camps, but the insensitivity to the unjust suffering of others is somewhat similar. Millions of Americans are burdened by student-loan debt that is totally unmanageable and will never be paid off; and yet our government employs lawyers to prevent them from obtaining bankruptcy relief.

And, let us remind ourselves that the U.S. Department of Education, the agency that sought to deny bankruptcy relief to a paraplegic student-loan debtor in the Myhre case, answers to a president who won the Noble Peace Prize.

How long can the injustice and suffering spawned by the federal student loan program go on? A long time I fear. Slavery existed in this country for well over 200 years.

But ultimately, this trillion-dollar house of cards we call the federal student loan program will come tumbling down; and when it collapses it will take American higher education with it and perhaps the American economy.

That is something for American college presidents to think about as they fly around in their private jets and drink premium liquor with wealthy alumni.  University foundation board members should think about it as well before they execute multi-million dollar contracts with celebrity football coaches.

And mom and pop should think about it too before they encourage little Suzie and little Johnny to take out loans to go to an over-priced, pretentious East-Coast college.  Because when little Suzie and little Johnny take out those loans, they will live with them until they are payed off  in full or until little Suzie and Little Johnie are dead.

And if they try to discharge their loans in bankruptcy, a bright young lawyer who graduated from an elite law school--someone very much like the person who turned on the gas at Auschwitz--will be in federal bankruptcy court to keep that from happening.

It is madness to borrow money for six years to get a four-year college degree

Complete College America, a nonprofit public advocacy group located in Indianapolis, issued a report recently entitled Four-Year Myth. The report starkly documents what everyone in higher education already knows: The vast majority of college students do not complete their four-year degrees in four years.

Here are some of the report's key findings:

• Only 5 percent of students in two-year associate degree programs graduate on time.

• Only 19 percent of students in four-year programs at non-flagship universities obtain their degrees within four years.

• At flagship institutions, where the nation's top students attend college, only 36 percent of the students complete their four-year degrees on time.

Moreover, the report points out, a lot of students accumulated significantly more credit hours than they need to graduate.  On average, students at non-flagship institutions have 133 credits on their transcripts although most need only about 120 credit hours to graduate.

The report acknowledges that there are many good reasons why many students cannot graduate on time.  Nevertheless, as the report succinctly stated, "[S]omething is clearly wrong when the overwhelming majority of public colleges graduate less than 50 percent of their full-time students in four years."

The report lists several reasons for the low on-time graduation rates at most public colleges and universities:

• Lighter course loads.  Many students don't take enough credits while in school to graduate on time.  A full course load at most colleges is 15 credit hours per semester, but only 50 percent of the students at four-year institutions take a full course load.  Only 29 percent of students in two-year programs take full course loads.

• Remediation courses.  According to the report, 1.7 million students take remediation courses each year but only 1 out of 10 remedial students graduate.

• Uninformed choices.  Too many students make poor choices when enrolling for classes, which causes them to take courses that won't move them toward on-time graduation.  Part of this problem can be attributed to an inadequate number of counselors at many universities.

/As Four-Year Myth points out, students who take six years to obtain a four-year degree often have significantly more student-loan debt than students who graduate on time.  At the University of Texas, for example, students who graduate on time accumulate on average about $19,000 in debt. Students who take six years to graduate are burdened (on average) with $32,000 in student loans.

Four-Year Myth is a very useful report, but in my mind, it did not place enough emphasis on the role that student loans play in the downward slide of on-time graduation rates.  I believe a lot of unmotivated students are taking just enough credit hours to qualify for student loans without realizing that they are accumulating a lot of unnecessary debt by taking a more leisurely path toward graduation. When a mandatory course is unavailable to them in a given semester, some of them will enroll in an unnecessary course solely to meet the minimum number of hours they need to qualify for student loans.

The report makes several good suggestions for improving on-time graduation rates, which I will not repeat here. But I would like to add an additional suggestion: The federal student loan program should only be available to a student for a maximum of four years of full time study.  Thus, students in four-year programs who take six years to graduate or students who take longer than four years to graduate because they changed colleges or changed majors should be required to pay the cost for delayed graduation out of their own pockets if those costs exceed the cost of being enrolled full time for four years.

Call it tough love if you like. But the federal government is doing America's young people no favor by allowing them to borrow money semester after semester while they wander around colleges and universities for five, six, or seven years when they are enrolled in four-year degree programs.

And we should pay special attention to one of the report's most shocking findings: Only 5 percent of students enrolled in two-year associate degree programs graduate on time.  Our community colleges, which purport to serve disadvantaged students, have fallen down on the job if they cant' get their on-time graduation rates above five percent.

References

Four-Year Myth. Complete College America, 2014. Accessible at: file:///C:/Users/wrf7707/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.IE5/9UM6POWU/4-Year-Myth.pdf

Tamar Lewin. Most Don't Earn Degree in Four Years, Study Finds.New York Times, December 2, 2014, p. A14. 

Friends don't let friends go to college in Boston

The New York Times ran a front-page story recently about what it called Edgar Allan Poe's "love-hate relationship with the city of Boston."  Actually, based on what the Times article reported, it doesn't appear that Poe had any love for Boston at all.

Edgar Allan Poe
Bostonians have no soul

According to the Times, "Poe sneered at the city's luminaries," whom he referred to as "Frogpondians"because to Poe's ears, the "moralistic works" of Boston's literary elites sounded "like the croaking of so many frogs."  Poe concluded, rightly I believe, that Bostonians "have no soul," although he conceded that they were "well bred--as very dull persons very generally are."

I gather that Poe's main beef with Boston was that many of its literary figures were "didactic."  In other words, Boston's literati tended to be preachy and self righteous.

Poe is not the only literary figure to disparage Boston. In Mr. Blue, Myles Connolly's deeply Catholic novella about a modern-day St. Francis, the book' narrator makes this observation: "The site of the gold dome of the statehouse above the white trees of [Boston] Common almost made me forget what an incoherent, clique-ridden, unproductive settlement Boston is."

Of course, Poe and Connolly's criticisms are dated. Maybe the city has changed from the way it was when Poe and Connolly were alive.  I don't think so. Just a  year ago, Joe Keohane  summarized the popular view of the city in just a few sentences:

For as long as there’s been a Boston, people have hated Boston. The reasons have been impressively consistent across the past two centuries. Bostonians are smug, puritanical, inhospitable, racist and/or pinko, and hopelessly blinkered and insular, and they go about all this in a manner that makes it next to impossible to tell if they’re suffering from the world’s worst inferiority complex or the world’s most gigantic superiority complex (in reality, probably both at once).

And Keohane quotes Drew Magary, who sums up the city of Boston even more succinctly: “People from Boston labor under the mistaken belief that being a relentlessly cynical asshole makes you tough. Endearing, even. They believe their deliberate misery makes them harder and deeper than you.  It’s all BULLSHIT…. "

I agree with all these criticisms of  Boston; and having lived for a few years in the Boston area, I can tell you that they're all true.  And every flaw in Boston's culture is magnified ten times in the city's colleges and universities, which are more common than liquor stores. Indeed, the academic class that infests Boston's higher education institutions makes up the most insufferable segment of Boston's provincial, condescending and arrogant culture.

All across the United States, people foolishly believe that institutions like Harvard, Yale, Brown, Dartmouth, and a  dozen or so other elite New England universities provide the best quality post-secondary education that money can buy; and hundreds of thousands of young people apply to these institutions every year. They are even willing to borrow large sums of money to finance their studies.

But the elite colleges are empty, hollow, and vain institutions, lacking in all values except the postmodern notion that life is to be lived in the pursuit of fame, wealth, and self-gratification. People should be running as fast as they can from these places instead of clamoring to be admitted.

And Boston, crammed to the gunwales with snooty colleges and universities, is the epicenter of all this. Elitist, self-righteous and preachy, the Boston academic scene represent all that is wrong with American higher education.

And in case you think I am nothing more than an anti-intellectual curmudgeon, I invite you to do a Google search for the words "hate Boston"  (in quotes). You will get more than 31,000 hits.

References

Connolly, Myles (1928). Mr.Blue. Chicago: Loyola Press, 1928.

Seelye, Katharine Q. Edgar Allan Poes' Feud With Boston? Nevermore. New York Times, October 5, 2014, p. 1.

Keohane, Joe. The Burn is Back. Boston Magazine, October 31, 2013.  Accessibel at http://www.bostonmagazine.com/news/blog/2013/10/31/red-sox-win-boston-back-being-loathed/

If you have the right credentials, it's not hard to get into an elite college. But why would you want to do that?

All across America, middle class high-school students are sweating over college applications. If only I can get into an elite college, young people tell themselves, I will make the right connections, get in the right graduate school, marry the right person, and become wealthy.  In short, a lot of high-school students are telling themselves that their lives will be better if they attend a fancy school back east than if they go to the nearby state university.

They shouldn't worry so much. If they have the right credentials--beginning with a very high SAT or ACT score, they are most certainly going to get into a prestigious college. That is the message that Kevin Carey delivered in a recent New York Times essay.  According to Carey, 80 percent of applicants with combined SAT scores of at least 1300 or above and who applied at several institutions will get into at least one elite college.

As Carey explained:

Since there has never been a time when 100 percent of well-qualified students were successful in the college admissions market, the truism that elite colleges are far more difficult to crack than in years gone by can't be correct: 80 percent is too close, mathematically, to nearly everyone.

It's true of course that admission rates at elite colleges have been heading downward, but that is largely because more people are applying to the top-tier schools.  Many applicants will be winnowed out after only a quick glance by pitiless admissions officials. But the applicants with high SAT scores and at least one other attractive attribute (musical talent, outstanding athlete, minority status, etc.) will likely get in somewhere.

What does the perfect Ivy League applicant look like? Meet Kwasi Enin, who received acceptance letters from all eight Ivy League colleges.  That's right: Kwasi was admitted to Harvard, Yale, Brown, Dartmouth, Columbia, Penn, Cornell, and Princeton. He scored in the 96th percentile on his SAT, plays three musical instruments, threw the shot put on his high school track team, and volunteered at a hospital. Kwasi's achievements are remarkable, especially when one considers that he is a first-generation American whose parents immigrated from Ghana.

You may not have all the attractive attributes that Kwasi Enin has; but if you have some of them--starting with a very high SAT score--you are likely to be accepted by at least one top-tier college.

Nevertheless, before you decide to go to an elite American college, you should ask yourself two questions:

How will I pay for my elite college education?

 First, you should ask yourself how you plan to pay for the privilege of attending an elite college.  Ivy League schools now charge around $50,000 a year for tuition, room and board.  It is true that the actual price is often a lot less than the sticker price. You might be offered a financial aid package that will reduce your costs substantially. But unless you have credentials like Kwasi Enin, you are probably going to take out some loans to attend Ivy League U.

So before you say yes to an admissions offer at a fancy East Coast school, ask yourself how much debt you are willing to assume for the right to wear a Dartmouth sweatshirt.  How will you manage a debt load of say $100,000 if you don't get a good job after you graduate or if you go on to graduate school and take on even more debt?

Do I want to become the kind of person that elite schools are producing?

Second, ask yourself an even more important question. Do you want to become the kind of person that our nation's elitist institutions are turning out? Without question, most of the people who teach in  our nation's most prestigious colleges are postmodernists. In other words, they are relativists and secularists. Most professors and administrators who populate our top-tier universities believe there are no ultimate human values and that all values are shaped by self interest or by race, class, and gender. And most of the people who work in our elite colleges are atheists.

Of course it is possible to be an atheist and still care deeply about other people. In fact, most atheistic academics will make that claim. Many prefer to call themselves humanists rather than atheists because the word humanist conjures up a picture of a warm and caring person.  But in my experience, most of the people who don't believe in God are materialists. After all, one has to believe in something in order to avoid nihilism; and a great many atheists have made material things their god.

In addition, I have observed that most postmodernist academicians have another characteristic--they are disdainful of people with traditional American values. Having embraced materialism, atheism and relativism, many postmodernists are contemptuous of  ordinary Americans.

MIT professor Jonathan Gruber is a prime example of elite-college arrogance. He bragged publicly that the Affordable Care Act that he helped design only passed Congress because the American people were too stupid to realize what the law would cost them.

As for the secularist leanings of the nation's most prestigious colleges, it is no accident that some of our most elite institutions have driven Christian student groups off campus even as they appoint atheist chaplains.  That's right--some of our most exclusive and expensive colleges--Harvard, Stanford, and Tufts, for example--have atheist chaplains.  They aren't called atheists, of course; that would be too transparent. Most of these folks call themselves "humanist chaplains." You should check it out. The Harvard humanist chaplain, Greg Epstein, and his Stanford counterpart, John Figdor, have both written books that promote atheism.

So here's the bottom line. Before enrolling in a prestigious and expensive private college, come to terms with two realities: First, you will probably have to borrow a lot of money to get an elite-college degree. Second, you will spend at least four years immersed in an arrogant and materialistic postmodern culture that has rejected religion and is disdainful of traditional American values.

If you accept these two realities and still want to to attend an elitist private college, I say go for it.  

Greg Epstein: Good Without God at Harvard

References

Lex Bayer & John Figdor.  Atheist Mind, Humanist Heart: Rewriting the Ten Commandments for the 21st Century. Lanham, Maryland: Rowman & Littlefield, 2014.

Kevin Carey. The Truth Behind College Admission. New York Times, Sunday Review Section, p. 2.

Frank Eltman. Suburban NY Student Picks Yale Among All 8 Ivies. Huffington Post, April 30, 2014. Accessible at: http://www.huffingtonpost.com/2014/04/30/kwasi-enin-yale_n_5242602.html

Greg Epstein. Good Without God: What A Billion Nonreligious People Do Believe.   New York: Harper Collins, 2009.

Martha Ross. Making case for atheism's friendlier, humanist face. Baton Rouge Advocate, November 29, 2014.

When It Comes to Student-Loan Crisis, The Department of Education Is a Wizard of Oz Outfit: No Brains, No Courage, and No Heart

As the The Chronicle of Higher Education reported recently, the U.S. Department of Education has relaxed it standards for regulating student loans in ways that benefit certain segments of the higher education industry at the expense of students.

Specifically, DOE spared two or three dozen colleges from the consequences of having high student-loan default rates, it loosened standards for awarding Parent Plus Loans, and it dropped the "cohort-default-rate metric" from DOE's new "gainful employment" rule--a rule that is intended to rein in for-profit colleges that are not producing good student outcomes.

Relaxing standards for PLUS Loans

First, DOE relaxed standards for receiving Parent PLUS loans, loans parents take out to pay for their children's college educations. This may be good for historically black colleges and universities (HBCUs), which  have lobbied DOE to undo changes in DOE eligibility rules for Parent Plus loans because the stricter eligibility rules had hurt enrollment rates at some HBCUs.

But by relaxing its eligibility standards for PLUS loans, DOE may have hurt parents who are struggling to put their children through college. PLUS loans are a dangerous way to finance a college education because parents who sign them are personally liable along with their children for paying back those loans. And parents who take out PLUS loans will find it almost impossible to discharge those loans in bankruptcy even if health problems or a job loss makes it difficult to pay those loans back.

Dropping the "cohort-default rate" 

Likewise, dropping the "cohort-default rate" metric from DOE's new gainful employment rule will be good for HBCUs and the for-profits, both of which tend to have relatively high student-loan default rates. This change will make it easier for them to continue being elibible for participation in the federal student loan program--their life's blood.

Nevertheless, as critics noted, "the revised rule, which only looks at graduates' debt-to-income ratios, will allow 'dropout factories,' to pass simply by limiting the debt of the few students who finish" (Field, 2014). Allowing dropout factories to continue participating in the student loan program cannot be good for the students who are lured into attending them.

Sparing colleges from consequences of high student-loan default rates

Finally, sparing some colleges from the consequences of their high default rates, as DOE did last fall, is good news for the institutions that were spared (somewhere between 20 and 30).  But to allow a handful of high-default-rate colleges to continue receiving federal student-aid money may not be good news for the students who will continue borrowing money to enroll in colleges where a high percentage of students are unable to pay back their student loans.

DOE's approach to student loan crisis: No brains, no courage and no heart

The US. Department of Education: No brains, no courage, and no heart

The Chronicle quoted Maxwell John Love, president of the United States Student Association, as saying that DOE's actions "reinforces concerns the system is rigged in favor of the industry and special interests" (Field, 2014). And of course Love is right.

President Obama, Secretary of Education Arne Duncan, and the Department of Education's senior officials know that the student loan program is out of control.  Their feeble attempts to rein in the for-profits are evidence of that.

But the for-profits will never be brought under control.  They have consistently fought DOE's efforts to regulate them either by lobbying or through litigation. In fact, the Association of Private Sector Colleges and Universities sued DOE again this month, trying to block DOE's latest reiteration of its gainful employment rule (Field, 2014). This is the industry's third lawsuit against DOE that I know about.

In short, the Obama administration is a Wizard of Oz operation when it comes to confronting the student-loan crisis.  Its approach to fixing this massive problem lacks political courage; its regulatory efforts are cumbersome and unimaginative; and--at bottom--Obama and his minions are without genuine sympathy for the millions of people who have been hurt by the federal student loan program, by the for-profit colleges, and by the banking industry that has made millions in profits by offering private student loans

No brains, no courage, and no heart: this is the epitaph of the Obama administration's pathetic efforts to address the student loan catastrophe.

References

Kelly Field. ON College Accountability, Will Education Dept. Blink Again? The Chronicle of Higher Education, November 20, 2014. Accessible at:

You can't win if you don't play! Elite colleges engage in "promiscuous" recruiting to get their acceptance rates down

Frank Bruni wrote a provocative op ed essay in the Times awhile back about aggressive recruiting practices by elite colleges and universities.  The spokespeople for these joints say they want to make sure they don't overlook "candidates of great merit" who might miss the golden opportunity to matriculate at tony institutions like Swarthmore.

But, as Bruni pointed out, private colleges maintain their elite status by keeping their acceptance rates low; and the only way elite institutions can lower their acceptance rates is to increase the number of applicants.  So--in essence--colleges are trying to lure as many applicants as possible just to set them up for rejection.

Bruni quoted one person who said Tulane University sends everyone a "VIP application," and Rensselaer invites some applicants to apply with "Candidate Choice status!" (bold type and explanation mark supplied by Rennselaer).

The headline for Bruni's essay is entitled "Promiscuous College Come-Ons," and "promiscuous" is probably the right word. Our elite colleges are engaging in recruiting practices that are basically identical to the gambling industry: "You can't win if you don't play!"

All across America, high school students are sweating over college-application essays that will make them stand out when their applications are scanned by beady-eyed admissions committees at places like Williams, Wesleyan, Hamilton, Colby, Swarthmore, and Smith. Meanwhile, parents are trying to figure out the difference between the sticker price and the real cost of educating little Suzie or Johnny at an elite school after scholarships, grants, and loans are factored in.  Very much like trying to get a good deal on a new Chevy.

And what is the value of the prize that little Suzie and Johnny win if they get into an exclusive college? For many of the people who matriculate at America's elitists institutions, all they will have received when they graduate is an expensive introduction to postmodern cynicism and a lot of student-loan debt.

I think it is time for bright young Americans to make the bold and courageous decision to  just skip the whole elite-college experience. I think it is time for American young people to explore less exalted options for their post-secondary educations and training like attending a foreign university, getting a technical education in the energy field, or just staying near home and attending a nearby state college.

In my view, our brightest and most idealistic young people should be asking themselves if they want to become the kind of people who run our elite universities or who teach at them. I don't think they do.

Our best young Americans want a post-secondary education that will allow them enter occupations that are fulfilling and will pay enough for them to care for their families. They want educational experiences that will help them develop a reasoned basis for making ethical decisions. And I think they want educational experiences that will help them determine the ultimate meaning of their lives--something liberal arts institutions once purported to do.

 It is true, as the higher education community constantly reminds us, that people who graduate from college make more money than people who don't.  But I wonder if people who borrow thousands of dollars to attend our nation's most expensive elite universities make more money or have more fulfilling lives than people who graduate from West Texas University with no debt.


References

Frank Bruni. Promiscuous College Come-Ons. New York Times, November 22, 2014. Accessible at: http://www.nytimes.com/2014/11/23/opinion/sunday/frank-bruni-promiscuous-college-come-ons.html?_r=0

America's Journey into the "Heart of Darkness": MIT Professor Jonathan Gruber, Elite Universities and Obamacare

 Heart of Darkness, Joseph Conrad's tale of one man's journey up a mysterious river into the heart of Africa, is one of those books that has embedded itself in America's postmodern psyche. How many high school students have written theme papers on Conrad's book? How many professors have crammed  Heart of Darkness down the yawning throats of indifferent sophomores imprisoned in mandatory English courses?  How many scholars have quoted the book's most famous line--"The Horror! The Horror!"--and opined on the book's rich commentary on colonialism, racism, and existential doubt?

At its core, however, Heart of Darkness is about greed. The people who ravished Africa in the late 19th  century and who people Conrad's book had nothing more in mind than making money.  Conrad described a group of European adventurers encamped on the bank of an African river as "sordid buccaneers" whose talk was "reckless without hardihood, greedy without audacity, and cruel without courage . . ." When the character Marlow asks an accountant why he took a job that landed him in an African jungle, he scornfully replies, "To make money, of course. What do you think?"

I  thought about Heart of Darkness recently as I read the news about Jonathan Gruber, the MIT professor who was one of Obamacare's chief designers.  Videos came to light in which Gruber basically admitted that Obama's healthcare law was based on deception and the contemptuous belief that Americans are too stupid to understand what the law would cost them.

Prior to passage of the healthcare law, Obama's people bragged about how smart Gruber is.  He was going to craft the most perfect and lovely healthcare system that had ever been designed, we were assured. And now we find out that Gruber was just a cynical academic who made millions of dollars packaging a swindle.

Indeed, Gruber is very much like Kurtz in Conrad's Heart of Darkness, the mysterious man in the heart of a dark continent who accumulated vasts stores of ivory and who acquired a firm hold on the imagination of the novel's central character, a riverboat captain named Marlow.

Marlow's description of Kurtz sounds very much like the Obamacrats' obsequious praise for Professor Gruber:

Hadn't I been told in all the tones of jealousy and admiration that he had collected, bartered, swindled or stolen more ivory than all the other agents together. That was not the point. The point was in his being a gifted creature, and that of all his gifts the one that stood out pre-eminently, that carried with it a sense of real presence, was his ability to talk . . . .

And of course Professor Gruber is just one of the many elitists who surround Barack Obama--all graduates of America's most prestigious colleges and universities. Almost all of them have an air of arrogance and condescension, and an unseemly sense of their own intelligence. Like the characters who grub for wealth in Heart of Darkness, most seem propelled solely by greed or the desire for power and recognition.

For some reason, Americans  have been willing to put the nation's destiny into the hands of these hollow and soulless people, most of whom have done nothing with their lives except attend elitist universities where they learned to do little more than talk. We even want our children to get degrees from the fancy colleges where Obama's bureaucrats have been spawned. We are willing to borrow vast sums of money to pay tuition costs so our children can take classes from professors like Jonathan Gruber.

And so we journey upriver into America's own Heart of Darkness: the elite colleges and universities that suck up our money and produce nothing but emptiness.  "The horror! The horror!" we will say to ourselves when we get our first student-loan bill and find we don't have the money to pay it.

MIT Professor Jonathan Gruber
"The horror! The horror!

According to the Federal Reserve Bank of New York, one third of student-loan borrowers in repayment during 2012 were delinquent!

According to the Department of Education's most recent report, 13.7 percent of student-loan debtors in the most recent cohort of borrowers defaulted on their loans within three years of beginning the repayment period.  That's not a good number, but DOE tells us that the student-loan default rate actually went down a bit from the previous year, when the three-year default rate was 14.7 percent.

The DOE's report on student-loan default rates is mildly intersting, but the Federal Reserve Bank of New York drilled down a little deeper into the data; and its findings are alarming.  In a report issued last  April,  FRBNY concluded that about 17 percent of the nation's 39 million student-loan borrowers were in default in 2012. Interestingly, people in the 30 to 49 year-old age bracket had the highest delinquency rates--higher than either younger borrowers or older borrowers.

 Moreover, as the Federal Reserve Bank pointed out, this percentage figure is based on a denominator that includes borrowers who are not in the repayment phase of their loans. Some are still in school, some have deferments, and some are participating in income-based repayment plans.

Among borrowers in the repayment phase (which constitute a smaller denominator), almost one third are in delinquency. This figure should alarm everyone in the higher education community.

Furthermore, the percentage of borrowers transitioning into delinquency on a quarterly basis is going up. The FRBNY report found that 6 percent of non-delinquent borrowers transitioned into delinquency in 2005. "By 2012, that rate had increased to 9 percent." Thus, there has been "an increasing trend of borrowers becoming newly delinquent over time"(Brown, et al., 2014, p. 12).

So what's the bottom line? In 2012, almost a third of student-loan borrowers who are in the repayment phase on their loans are delinquent on their monthly payments.  And that doesn't include millions of people who have economic-hardship deferments that excuse them from making payments. And when we add in all those people in income-based repayment plans who are making monthly payments that are so low that their loan balances are not going down, we can see that the percentage of people who are not paying off their student loans is quite high.

In short , the evidence is all around us. The federal student loan program is in real trouble.

References

Meta Brown, Andrew Haughwout, Donghoon Lee, Joelle Scally, and Wilbert van der Klaauw. Measuring Student Debt and Its Performance. Federal Reserve Bank of New York, April 2014. Accessible at: http://www.newyorkfed.org/research/staff_reports/sr668.pdf

Now We're Getting Somewhere: Jason Delisle and Clare McCann Published A Very Useful Essay on Student-Loan Defaults in Forbes.Com

As almost everyone knows, the Department of Education's annual report on student-loan defaults is not very useful.  Every autumn, DOE reports on the percentage of student-loan debtors from the most recent cohort of borrowers who default on their loans within three years of beginning repayment.  Last September, DOE reported a composite default rate of 13.7 percent, down a full percentage point from the previous year.

But of course, DOE's report does not tell us how many borrowers default on their student loans after the three-year period that DOE measures.   Nor does DOE's report gives us any information about the number of people who are not counted as defaulters because they received economic hardship deferments, even though those people aren't paying on their loans.

In short, DOE's annual reports don't tell us what we really want to know, which is this: How many people are not paying back their student loans?

Fortunately, Jason Delisle and Clare McCann published an article recently for Forbes.com that gives us some very useful information about what the student-loan default rates really are. Here are some of the things they found:

First, Delisle and McCann report that cumulative cohort default rates for recent cohorts of borrowers are disturbingly high.  Among students who attended two-year public and nonprofit colleges who began repayment in 2007, about one out of four is in default. Among students who attended two-year for-profit institutions and began repayment in 2007, more than one out of three (36 percent) is in default.

Delisle and McCann also looked at the federal government's budget lifetime default rate, which estimates default rates for cohorts of borrowers over a period of 20 years. "Across all school types," Delisle and McCann wrote, "the Department of Education reported that a little over one in five loans for undergraduate educations will default within two decades."

DOE is encouraging student-loan borrowers to enroll in one of several income-based repayment plans that DOE offers. These plans can lower borrowers' monthly loan payments because these payments are determined based on a percentage of borrowers' income and not the amount they borrowed.  Delisle and McCann wrote that the percentage of borrowers who participate in these plans has grown from 5 percent to 10 percent of people who are making payments on their loans.

But of course, many people in these income-based repayment plans are making payments that are so low that their payments are not covering the interest that is accruing. Thus, many borrowers who are making loan payments based on their income will see their loan balances go up and not down due to negative amortization.

Borrowers in income-based repayment plans may not care if their loan balances are growing because whatever they owe at the end of their repayment period (20 or 25 years) is forgiven. But taxpayers should care.

Delisle and McCann wrote "that the U.S. Department estimates that of about a quarter of borrowers in the most generous of these [income-based repayment] plans will walk away from $41,000 in unpaid loans under a loan forgiveness benefit, based on initial balances of $39,500."

In other words, a significant percentage of people who are enrolled in long-term income-based repayment plans will never pay off the principal of their loans, even if they faithfully make loan payments for 20 years.

The picture that Delisle and McCann have sketched for us regarding student-loan default rates is pretty sobering, and it is based on the federal government's own data. When we consider that the Feds' estimates of lifetime default rates and negative amortization rates are probably overly optimistic, we have real reason to worry.

Of course, we can kick this can down the road, so to speak, as the Obama administration is presently doing. By encouraging borrowers to sign up for long-term income-based repayment plans, the Department of Education is reducing borrowers' monthly payments, which may help keep default rates down. But if people in these plans are not paying off their loan balances, which many of them are not, taxpayers will ultimately wind up paying the bill for a student loan program that is out of control.

Even now, there are things we can do to avert disaster, but we won't begin thinking about these things so long as we are lulled into believing that the student-loan default rate is under control. But it is not under control, and we can thank Jason Delisle and Clare McCann for helping making the true state of affairs a little clearer.

References

Jason Delisle and Clare McCann. Who's Not Repaying Student Loans? More People Than You Think. Forbes.com, September 26, 2014. Accessible at: http://www.forbes.com/sites/jasondelisle/2014/09/26/whos-not-repaying-student-loans-more-people-than-you-think/?utm_content=buffer1e0e0&utm_medium=social&utm_source=facebook.com&utm_campaign=buffer

Occasionally, The New York Times Says Something Sensible About the Student Loan Crisis: Bankruptcy Relief for Private Student Loan Borrowers

Last month, the Student Loan Ombudsman for the Consumer Financial Protection Bureau (CFPB)issued a report highlighting the hardships experienced by students who took out private loans to attend college. Unlike the federal student loan program, which offers income-based repayment plans and economic hardship deferments to student-loan borrowers who run into financial trouble, private lenders generally do not offer any type of relief for distressed student-loan borrowers.

What the CFPB did not say in its report is that private student-loan borrowers, like borrowers in the federal student loan program, cannot discharge their student loans in bankruptcy unless they can show "undue hardship," a very difficult standard to meet.
All the CFPB report offered as a remedy to this problem was a form letter that student-loan borrowers could modify and send to their private lenders to beg for relief.  That is really not much of a solution.

Yesterday, however, the New York Times commented on the CFPB report and made a sensible suggestion. The Times proposed that Congress repeal the 2005 "undue hardship" provision that makes it almost impossible for private student-loan borrowers to discharge their loans in bankruptcy. In the alternative, the Times added, legislation should be passed that requires private lenders to modify loan terms for distressed student-loan borrowers. "Now it's time for Congress to fix [the error it made when it passed the 2005 law]," the Times editorialized, "by rescinding the bankruptcy provision or requiring lenders to create clearly advertised flexible payment plans in exchange for retaining it."

Respected commentators have recommended rescinding the 2005 Bankruptcy Code provision for years. In 2009, Rafael Pardo, a law professor and noted researcher on the student-loan crisis, testified before a Congressional committee on the special hardships suffered by individuals who took out private student loans to finance their college studies.  Here is what Professor Pardo said:

Because the costs of private student loans can quickly spiral out of control, and because there exist limited nonbankruptcy options for mitigating the financial distress imposed by such costs, borrowers of private student loans are particularly vulnerable to the negative effects of undue-hardship discharge litigation.  If they end up seeking relief through the bankruptcy system and subsequently fail to prevail in their claim of undue hardship, they will find themselves struggling interminably under an oppressive amount of educational debt with little to no other options for relief.

In short, Professor Pardo told the Congressional committee:

By stripping away the one social safety net that existed for borrowers of private student loans--that is, the automatic discharge of such loans in bankruptcy--Congress has likely condemned certain student-loan debtors to the Sisyphean task of repaying obligations that will never be extinguished. [Emphasis supplied.]

In his testimony, Professor Pardo stated unequivocally that Congress should repeal the 2005 "undue hardship" provision that has made it almost impossible for individuals to discharge their private student-loan debts in bankruptcy.  Pardo testified as follows:

I respectfully urge Congress to restrike the balance between student-loan debtors and lenders of private student loans by restoring the automatically dischargeable status of private student loans in bankruptcy.

Without a doubt, repeal of the 2005 Bankruptcy Code provision is essential to providing relief to distressed college borrowers who took out private student loans.  It is refreshing to see that the New York Times essentially agrees with Professor Pardo on this issue, although the Times equivocated a bit by saying that Congress might pass a law requiring private student-loan lenders to offer flexible payment terms as an alternative to repealing the 2005 Bankruptcy Code provision.

Everyone in higher education should be clamoring for repeal of the Bankruptcy Code's "undue hardship provision for all student-loan borrowers, whether they borrowed from the federal student loan program or borrowed from private lenders.  Literally millions of distressed student-loan borrowers are suffering  because they cannot repay their loans and have no real means of relief in the bankruptcy courts.

But if across-the-board reform cannot be achieved politically, at least Congress should repeal the "undue hardship" provision as it applies to people who took out student loans from the private banks. Even the New York Times, which at times seems almost clueless about the student-loan crisis, has figured that out.

References

Editorial. Driving Student Borrowers Into Default. New York Times, November 3, 2014.

Rafael Pardo. ABI Members Testify on Discharging Student Loan Debt in Bankruptcy. ABI Journal, November 2009, p. 10. Accessible at: http://www.abiworld.org/AM/Template.cfm?Section=Home&CONTENTID=59097&TEMPLATE=/CM/ContentDisplay.cfm

Rohit Chopra and Rich Cordray Should Be Ashamed of Themselves: The Consumer Financial Protection Bureau's Timid Report on Distressed Private Student-Loan Borrowers

Rohit Chopra should be ashamed of himself.

Rohit Chopra, the Student Loan Ombudsman for the Consumer Financial Protection Bureau (CFPB), issued a report earlier this month on the status of distressed private student-loan borrowers.  The report is so timid, so tepid, so lacking in real recommendations for reform that Chopra and Chopra's boss, CFPB Director Richard Cordray, should be ashamed of themselves.

Basically, Ombudsman Chopra's  report analyzed more than 5,000 student loan complaints directed at private lenders.  The report documents that many students who borrowed money from banks to attend college have been driven into default.  Chopra's reported identified these problems:

• Borrowers who have trouble paying back their private loans receive little information from the banks about their options for modifying their loan terms.

• People who borrow from the banks often find that there are no loan-modification options available.  

• Private lenders are sometimes willing to offer borrowers a temporary forbearance from making their loan payments, but these forbearances often only delay default. Moreover, borrowers sometimes have to pay enrollment fees or experience processing delays in order to get nothing more than temporary relief. 

Chopra's report ends on a pathetic note. Although it professes to offer "new tools to help borrowers take action when they run into trouble [with private student loans]," the report offers nothing more than a sample letter "that consumers can edit and send to their student loan servicer to request lower monthly payments and information on available repayment plans."  That's all the CFPB has to offer--a crummy form letter!

Chopra and the CFPB Understate the Harm Caused by the Private Student Loan Industry

Chopra and the CFPB vastly understate the harm done to student borrowers who take out loans from private lenders to finance their college educations.

First of all, many students are ignorant of the difference between private loans and loans obtained through the federal student-loan program. Federal loans give distressed borrowers access to economic hardship deferments, income-based repayment plans, and loan consolidation options.  For the most part, these options are not available to people who borrow money from private lenders to finance their college studies. Moreover, federal student loans generally offer lower interest rates than private student loans.

Many students are so unsophisticated that they do not realize that they are taking out loans from private lenders rather than participating in the federal student loan program. Thus, students often pass up the opportunity to participate in the federal student loan program and fall into the clutches of private banks.

Second, unlike most federal student loan programs, private lenders generally require students to obtain co-signers for their student loans.  In most cases, the co-signer is a student's parent or other relative. Parents who co-sign their children's private student loans become personally liable for the debt--all of it.

Third, students and their parents may not realize that private student loans,like federal student loans, cannot be discharged in bankruptcy absent a showing of undue hardship, which is very hard to establish in a bankruptcy court. Students who take out private loans and are unable to pay them back may see their parents dragged down into financial ruin if their parents are not able pay back the debt. In most cases, the parents will have no recourse to the bankruptcy courts. 

The Federal Government Should Shut Down the Private Student-Loan Industry

The CFPB report is pathetic in terms of its advice to students and their families who find themselves unable to pay back their private student loans.  All Cordray and Chopra could think to do about the rapacious private student-loan industry was draft a form letter that students can use to beg for mercy when they find themselves unable to make their loan payments.

Students don't need sample letters to deal with the private student-loan industry; they need effective relief from private student-loans that many students did not fully understand when they signed the loan documents.

What needs to be done?

Congress needs to repeal the 2005 amendment to the Bankruptcy Code that has made it almost impossible for student borrowers and their co-signers (usually parents) to discharge their private loans in bankruptcy.  

If Congress would take this simple step, the private student-loan industry would almost immediately shut down, which would be a good thing.  The banks are happy to loan students money so long as students' parents co-sign the loans and bankruptcy relief is unavailable.  But if private student loans could be discharged in bankruptcy like any other unsecured debt, the banks would get out of the student-loan business in a hurry.

In the meantime, Rohit Chopra, Rich Cordray and the CFPB need to issue dire warnings to college students and their families not to take out private loans to attend college.  Such loans may make sense for people who are enrolling in expensive but high-quality professional programs in law or medicine. But low-income students have no business taking out student loans from banks and other private lenders.  Too often, taking out a private student loan leads to financial disaster not only for the student but for the student's parents as well.

Mr. Chopra and Mr. Cordray are fully aware of the harm being caused by private student-loan financiers.  “Struggling private student loan borrowers are finding themselves out of luck and out of options," Mr. Cordray acknowledged.  Unfortunately, Mr. Chopra, Mr. Cordray, and the CFPB do not have the courage to propose effective reforms.

Mr. Cordray should be ashamed of himself too.

References

CFPB Report Finds Distressed Private Student Loan Borrowers Driven Into Default. Consumer Financial Protection Bureau, October 16, 2014.

The New York Times publishes another witless editorial about the student loan crisis

If you don't think the federal student loan program is in crisis, you haven't been paying attention. And speaking of people who aren't paying attention, the New York Times recently published an editorial entitled "What to Do About Student Loan Defaults," which demonstrates that the Times editorial board is totally clueless about the student loan crisis.

The Times began by saying that the student-loan default rate dropped a bit from last year. The Department of Education's most recent three-year cohort default rate (the percentage of people in a cohort  who default within three years of beginning repayment) was 13.7 percent, which is down a percentage point from last year's rate.

The Times neglected to report that the Department of Education calculated a special rate for several schools that were in danger of being kicked out of the federal student aid program because of high default rates in order to bring their default rates down. Which schools received this special favor? The Department of Education won't say.

The Times also neglected to note that the student loan rates are probably going down because colleges with the highest default rates have hired default-management companies to help bring their default rates down. These firms contact former students who are in danger of default and urge them to apply for economic hardship deferments.

Former students who have economic hardship deferments are not obligated to make loan payments but they are not counted as loan defaulters. This keeps colleges' default rates down during DOE's three-year measurement period.

Of course the bad news for student-loan debtors who have economic hardship deferments is that interest continues to accrue on their loan balances. People who defer payments for several years because they are on economic hardship deferments will wind up owing a lot more than they borrowed.

In fact, we really don't know that the true student-loan default rate is. Millions of people have received economic hardship deferments and millions more have signed up for income-based repayment plans that obligate them to make monthly student-loan payments over 25 years.  Almost all of these people are seeing their loan balances negatively amortize--in other words, the amount they owe is getting larger.

The Times knows that millions of student-loan borrowers are in trouble, but what is its solution? More education!

Yes, the Times said that "[t]he government needs to continue pressing both schools and loan servicing companies to educate students on affordable partial payment plans that can keep them out of default." And at the end of the editorial, the Times urges the government to "get out the news about affordable repayment plans that set payments according to borrowers' income, allowing them to eat and pay the rent without falling into default."

So basically what the Times is saying is this: People need to sign up for income-based repayment plans that will negatively amortize for most borrowers and obligate student-loan debtors to make monthly payments for 20 or 25 years!

Of course this is lunacy. And it is deeply discouraging that the New York Times, which bleats continually about income-inequality and the plight of the poor, offers such unimaginative and ineffective solutions to the student-loan crisis, which is destroying the economic future of millions of Americans, not to mention the integrity of America's colleges and universities.

References

What to do about student loan defaults. New York Times, October 2, 2014. Accessible at: http://www.nytimes.com/2014/10/03/opinion/what-to-do-about-student-loan-defaults.html?_r=0

Senator Tom Harkin is Like a Shade-Tree Mechanic--He Can Tell You What's Wrong With the Student Loan Program, But He Can't Fix It: Veterans, The New GI Bill and the For-Profit Colleges

Photo credit: autoguide.com

Senator Tom Harkin reminds me of the shade-tree mechanics I patronized when I was young and poor and drove old cars,  I would drive my junker up to some Mom-and-Pop mechanic shop, the mechanic would accurately diagnose what was wrong with my car, and then he would say he couldn't fix it.

Senator Harkin did the public a major service when he chaired the committee that reported on the for-profit colleges a couple of years. In a massive report--over a thousand pages when the appendices are included, the Harkin committee spelled out the many abuses in the for-profit college industry.

Since that report was issued, almost nothing has been done to rein in the rapacious for-profit colleges, which suck up about a quarter of all federal student aid money and only enroll about 11 percent of the students.

Last July, Senator Harkinn's Senate Committee has issued a second important report. This one focuses on the way the for--profits have made out like bandits with programs targeted at veterans who have gone to college under the Post-9/11 GI Bill.

Here is a summary of the Harkin Report's findings:

• Eight of the 10 top recipients of Post-9/11 GI Bill benefits are large, publicly traded companies that operate for-profit colleges. These eight companies received 23 percent of all the Post-9/11 GI bill money for 2012-2013.

• Seven of those 8 companies are currently under investigation by state attorney generals offices or the federal government for deceptive or misleading recruiting or possible violations of federal law. 

• The number of veterans attending public colleges has declined between 2009 and 2013 while the number of veterans who attend for-profit colleges has increased.

• Although overall enrollment at the eight top for-profit beneficiaries of the Post-9/11 GI Bill has declined in recent years , the number of veterans who enrolled at these schools has increased.

Why are veterans so attractive to the for-profit colleges? As the Harkin Report explains, the Higher Education Act requires that the for-profits operate under the 90/10 rule. In other words, they can only receive 90 percent of their revenue from federal student aid money.  However, money received under the Post-9/11 GI Bill is not counted as part of the 90 percent.

Thus, for-profits who are getting 90 percent or close to 90 percent of their revenue from the general federal student-aid program can get that last ten percent of their by enrolling veterans under the Post-9/11 GI Bill.

This would be fine, I suppose, if the for-profits were doing a bang-up job of educating veterans and preparing them for good post-military jobs. But apparently, they are not. 

The Harkin Report found that "[a]t the for-profit colleges currently receiving the most benefits, up to 66 percent of students withdrew without a degree or diploma" (p. ii).  The Report also found:

Between 39 and 57 percent of the programs offered by four of the companies receiving he most Post-9/11 GI bill benefits would fail to meet the proposed gainful employment rule, suggesting that the students who attend these institutions do not earn enough to pay back the debt they take on.  (p. ii)

As the Harkin Report put it, some for-profit colleges "appear to be taking advantage of a loophole to use Post-9/11 GI Bill funds to comply with the federal requirement that no more than 90 percent of revenue come from federal student aid" (p. ii).

And of course, this cozy arrangement for the for-profits is costing taxpayers, "who are paying twice as much on average to send a veteran to a for-profit college for a year compared to the cost at a public college or university ($7,972 versus $3,914)" (p. ii).

The Harkin Committee Report makes interesting reading, but the Committee made no significant recommendations.  It is the latest in a series of reports showing that students are being ill-served by and large by the for-profit college industry.  These schools charge far more for their programs than comparable programs offered by public universities and community colleges. They have very high student-loan default rates and high student dropout rates, and very often they are enrolling students through deceptive recruiting practices and are putting students into programs that are not likely to lead to well-paying jobs.

Why don't we do something about this?  Because the for-profits have very good lobbyists and lawyers sand they make strategic campaign contributions to key federal legislators.

Thus, in the end, the latest report by Senator Harkin's Committee is very much like my fruitless conversations with the shade-tree mechanics of my youth.  "Buddy, your car is in dire need of repair, but we can't fix it."

References

Health, Education, Labor, and Pensions Committee (Senator Tom Harkin, Chairman). Is the New GI Bill Working?: For-Profit Colleges Increasing Veteran Enrollment and Federal Funds, July 30, 2014.   Washington, DC: United States Senate. Accessible at http://www.harkin.senate.gov/documents/pdf/53d8f7f69102e.pdf