Lady Bird, the movie, sends an insidious message about elite East Coast colleges (Spoiler Alert)

Lady Bird, Greta Gerwig's  new coming-of-age movie, has been nominated for five Academy Awards, including Best Picture. But it is an insidious movie, which delivers a treacherous message that self-fulfillment can be found at an elite East Coast college.

Christine, who calls herself Lady Bird, is a discontented California girl who attends a Catholic high school in Sacramento. Her mother doesn't understand her, the guy she is sweet on is gay, and she cheats on her exams.

To make matters worse, Lady Bird's parents live in a tiny ranch-style home, with only one bathroom. She self-deprecatingly tells her boyfriend she lives on the wrong side of the tracks, an insult he guilelessly passes on to her mom and dad.

Sacramento bores Lady Bird, which she dismisses as "the Midwest of California." She longs to escape California to go to college on the East Coast.   Although several elite schools reject her, she finally get accepted to a fancy college in New York.

But the school is expensive. Her father, who comes across as a genuinely nice guy, recently lost his job; and at his age, he is unlikely to get another one. Lady Bird's mother, a nurse, works double shifts at a hospital to make ends meet.

But Lady Bird simply must go east to college, so her dad refinances the family home to cover the cost. The movie ends with Lady Bird in New York City, where she lies to one of the first guys she meets and tells him she is from San Francisco.

What a piece of crap! Any young woman who allows her out-of-work father to refinance the family's pathetic little house so she can attend a snooty East Coast college is a self-absorbed jerk. Although the movie is pitched as a young woman's heroic quest for self-fulfillment, it's really just a gratuitous insult to flyover country, which the filmmaker expanded to include parts of California.

Congress enacts teeny weeny student-loan reform legislation: Is the glass half full or half empty?

As reported by Steve Rhode, Congress passed a very modest student-loan reform bill late last year.  Titled the Stop Taxing Death and Disability Act, the new law eliminates an unfair tax on forgiven student loans.

Prior to passage of this law, the government would forgive student loans held by debtors who became permanently disabled, but the amount of the forgiven debt was considered taxable income by the IRS. You may remember the story of Will Milzarski,  a military veteran who was wounded and disabled while fighting in Afghanistan.  The Department of Education forgave about a quarter of a million dollars in student loans, but the IRS sent Mr. Milzarski a tax bill for $62,000.

The Stop Taxing Death and Disability Act, which was adopted by Congress with bipartisan support, eliminates this unfair tax provision. Under the new law, all student-loan debt (including private student loans) that is forgiven due to the death or disability of the debtor is exempt from federal income taxes.

In addition, the law gives a tax break to the parents of student-loan debtors. Parents who owe student loans on behalf of their children may obtain a student-loan discharge if their child becomes disabled.  And parents who obtain such a discharge won't be taxed on the forgiven debt.

So, is the glass half full or half empty?

On the good side, passage of this modest and noncontroversial bill is a sign that Republicans and Democrats can work together to pass student-loan reform legislation. The bill's three co-sponsors--Senators Rob Portman (R-Ohio), Chris Coons (D-Delaware), and Angus King (I-Maine) are to be commended for getting this little bill adopted.

But on the other hand, as Mr. Rhode pointed out, the bill did not address the enormous tax liability that college borrowers face who are in income-driven repayment plans (IDRs).  More than six million student debtors are enrolled in IDRs, and most of them are making monthly loan payments so small that they will never pay off their loans.  Why? Because the monthly payments aren't large enough to cover accruing interest on the underlying debt.

People locked into IDRs are obligated to make monthly loan payments for terms that stretch out for 20, 25 and even 30 years. At the end of the repayment term, any remaining unpaid debt is forgiven, but the amount of the forgiven debt is considered taxable income.

In other words, a student debtor who successfully completes a 20-year IDR sheds one unpayable debt to the Department of Education and acquires another unpayable debt to the IRS.

Nevertheless, the fact that Congress passed the Stop Taxing Death and Disability Act is a good sign. Maybe Democrats and Republicans can build on this tiny victory to enact more sweeping student-loan reform.

For example, perhaps a bipartisan coalition could rally behind the Warren-McCaskill bill to stop the IRS from garnishing the Social Security checks of elderly student-loan defaulters. Who in good conscience could vote against that bill?

And is it too much to hope that Congress might someday reform the Bankruptcy Code and allow suffering student-loan borrowers to discharge their crushing student loans in bankruptcy?

Will Milzarski, Wounded Veteran (photo credit: Chicago Tribune)

References

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

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

Representative John Delaney press release. Delaney and Katko File Legislation to Help Americans Struggling with Student Loan Debt, May 5, 2017.

Representative John Katko press release. Reps. Katko and Delaney File Legislation to Help Americans Struggling with Student Loan Debt. May 8, 2017.

Steve Rhode. 15 Seconds of Positive News About Student Loans and Congress. Get Out of Debt Guy, February 15, 2108.

Some physical or mental impairments can qualify you for a total r permanent disability discharge on your federal student loans and/or TEACH grant service obligation. U.S. Department of Education web site (undated).

For the sake of the economy, let's forgive all student-loan debt

Forty-four million people are burdened by student loans--totally about $1.5 trillion in outstanding debt. What would happen if the federal government just forgave all those loans?

Researchers at the Levy Economics Institute of Bard College asked that question, and their answer might surprise you. Forgiving all this debt, they say, would boost the Gross National Product by $86 billion to $108 billion a year over a ten-year period. Released from their student loans, millions of people would see an immediate increase in their disposable income, permitting them to buy homes, save for retirement, purchase consumer goods, and start families.

Moreover, as Eric Levitz pointed out, Congress passed a $1.5 trillion tax cut last year, with most of the benefits going to the wealthy. Wouldn't it have made more sense to have forgiven $1.5 trillion in college loans instead? Most of the benefits would have gone to low-income and middle income Americans--not the rich.

Of course, our government can't simply forgive $1.5 trillion in student loans and continue the federal student loan program. The thing to do, then, is to replace the student-loan program with free undergraduate education at a public college or university.

But wouldn't that be prohibitively expensive? No it wouldn't. As Ryan Cooper argues, the total cost of tuition at public institutions was only $58 billion in 2014.  Our government invests twice that amount each year in the federal student loan program. It would actually be less expensive to American taxpayers if we simply shut down the student loan program and gave everyone a free college education at a public college.

Theoretically, it is true, the federal government is only loaning students money to attend college; it expects to get that money back at interest as students pay off their student loans. But in fact, about half of the nation's outstanding student-loan balance will never be paid back. It's just going down a rat hole for educational experiences that are overpriced and that often don't lead to well-paying jobs.

Of course, forgiving everyone's student loans and providing a free college education would have some major collateral consequences. If Americans could get a free college education at a public institution, they would stop enrolling in private colleges and for-profit schools.  If the federal government actually implemented this plan, small liberal arts institutions all over the United States would close their doors and the for-profit college industry would collapse.

But the private liberal arts colleges will be closing anyway. Harvard professor Clay Christensen predicts that half of them will close within the next 10 to 15 years as Americans figure out that it makes no sense at all to spend $200,000 to get a liberal arts degree from a nondescript college in the upper Midwest.  As for the for-profit schools, they are a cancer and should be closed down anyway.

But, critics might ask, what about the moral hazard of forgiving all that debt? Is it fair to allow people to borrow $100,000 or more to get an MBA and then not pay it back?

First of all, the student borrowers who are suffering the most have been people who borrowed a relatively small amount of money. People who have borrowed the least are most likely to default. It is true that some people whose student loans are forgiven would receive a windfall, but the vast majority of people who would benefit from wholesale student-loan forgiveness would be people who paid too much money for postsecondary education and did not get fair value.

Furthermore, whatever moral taint can be found in student-loan forgiveness is as nothing compared to fraud committed by the for-profit college industry, the exploitation by the student-loan debt collectors, and the venality of university presidents making million-dollar salaries while students are forced to borrow more and more money to pay escalating tuition rates.

And if massive student-loan forgiveness still sticks in the nation's craw, then let's just reform the bankruptcy laws and allow deserving debtors to obtain relief from their student loans in the bankruptcy courts. If the "undue hardship" provision were removed from the Bankruptcy Code, literally millions of Americans would file bankruptcy and get relief.

But the Bard College researchers have gotten to the heart of the matter. We should forgive all student loans and simply allow people to study for free to get an undergraduate education at a public university.

References

Ryan Cooper. The case for erasing every last penny of student debt. The Week, February 8, 2018.

Doug Lederman. Clay Christensen, Doubling Down. Inside Higher Ed, April 28, 2017.

Eric Levitz. We Must Cancel Everyone's Student Debt, for the Economy's Sake. New York, February 9, 2018.

Scott Fullwiler, Stephanie Kelton, Catherine Ruetschlin, and Marshall Steinbaum. The Macroeconomic Effects of Student Debt Cancellation. Levy Economics Institute of Bard College, February 2018.

Loan-Forgiveness and Income-Driven Repayment Plans Are Costing Taxpayers a Bundle of Money

The Department of Education's Office of Inspector General (OIG)issued another one of those mealy-mouth reports we've come to expect from the Department. In essence, the OIG told us something we already knew: DOE's income-driven repayment plans (IDRs) and debt forgiveness plans are costing taxpayers billions of dollars.

For several years now, the higher education community has touted income-driven repayment plans as the panacea for the rising  cost of going to college.  Back during the 2016 presidential campaign, Catharine Hill, president of Vassar College, wrote an op ed essay for the New York Times attacking Senator Bernie Sander's proposal to allow people to go to college for free.  Free college is not the answer, Hill argued. Rather we need to expand income-driven repayment programs.

Indeed, DOE has expanded income-driven repayment options. President Obama's administration rolled out the PAYE and REPAYE, programs that allow student borrowers to pay 10 percent of their adjusted income for 20 years in lieu of the standard 10-year repayment plan. Borrowers who make regular payments for 20 years will have their loan balances forgiven.

As outlined by OIG, the Department of Education offers six income-driven repayment plans and two loan forgiveness plans. Of course, all the student loans under these plans accrue interest. Even an idiot knows that borrowers who makes loan payments that aren't large enough to pay accruing interest will never pay off their loans.

So it shouldn't surprise anyone that DOE's flexible spending plans and loan forgiveness plans are costing the taxpayers billions of dollars because the government is loaning people more money than they will ever repay.

As the OIG reported, DOE's loan balance for income-driven repayment plans increased from $7.1 billion to $51.5 billion between 2011 and 2015. That's an increase of 625 percent in just four years.

Meanwhile, government subsidies for income-driven repayment plans ballooned from $1.4 billion to $11.5 billion over the same four years--an increase of more than 800 percent.

Why did our government create these insane flexible repayment plans?  I can think of one primary reason.

IDRs allow DOE to maintain the fiction that the vast majority of college borrowers are paying back their loans. For most of the people in these plans, an IDR is the only alternative to default. In fact, DOE has encouraged college-loan defaulters and people in danger of default to sign up for IDRs.

But most people in income-driven repayment plans are not paying off their loans because their payments aren't large enough to cover accrued interest. Thus, while IDR participants are not officially in default, they are only making token payments on loans they will never pay off.

What is the OIG's advice to DOE about how to handle the enormous cost of its income-driven repayment plans and its loan forgiveness programs? Here is OIG's gobbledygook recommendation:

We recommend that the Department enhance its communications regarding cost information related to the Federal student loan program's IDR plans and loan forgiveness plans to make it more informative to decision makers and the public.

That's right: All OIG can think of to recommend is more transparency!

As the Wall Street Journal reported about 20 months ago, 43 percent of college borrowers--approximately 9.6 million people--weren't making loan payments as of January 1, 2016. Some of these borrowers were in default, some had delinquent loans and some had loans in forbearance or deferment.

And thanks to DOE's income-driven repayment plans, an additional six million people are making payments too small to pay off their loans.

It is time for DOE to be more than transparent. It needs to admit that about half the people who took out student loans will never pay them back. Thus, of the $1.4 trillion in outstanding student loans, more than half of it will never be collected.

References

Paul Fain. Costs Mount for Federal Loan Programs. Inside Higher Ed, February 5, 2018.

Catharine Hill. Free Tuition Is Not the Answer. New York Times, November 30, 2015, p. A23.

Josh Mitchell. More Than 40% of Student Borrowers Aren't Making Payments. Wall Street Journal, April 7, 2016.

U.S. Department of Education Office of Inspector General (2018, January 31). The Department's Communication Regarding the Costs of Income-Driven Repayment Plans and Loan Forgiveness Programs. ED-OIG/A09Q0003. Washington DC: Author

U.S. Government Accountability Office (2016 December). Federal Student Loans: Education Needs to Improve Its Income Driven Repayment Plan Budget Estimates. Washington DC: Author.

Massachusetts Attorney General organizes volunteer lawyers to represent indigent college debtors in bankruptcy: This is A VERY BIG DEAL

Maura Healey, Massachusetts Attorney General,  announced last month that her office is partnering with the Massachusetts Bar Association and the Greater Boston Chamber of Commerce to organize volunteer lawyers to represent distressed college debtors in bankruptcy.

This is a VERY BIG DEAL for a least four reasons:

Dispelling the myth that student loans can't be discharged in bankruptcy

First, as Steve Rhode pointed out, AG Healey's initiative gives the lie to the myth that student loans cannot be discharged in bankruptcy. The Department of Education and the student-loan industry want college borrowers to believe their student loans are not dischargeable, and they have been successful in  perpetuating that falsehood.

As scholar Jason Iuliano wrote in a law review article, almost a quarter of million student loan debtors filed for bankruptcy in 2007, but only a few hundred even tried to discharge their student loans. But the Massachusetts Attorney General's initiative demonstrates that competent attorneys believe these loans can be wiped out in bankruptcy, and that is welcome news.

Legal representation means that more college borrowers will win their bankruptcy cases

Second, having experienced and committed lawyers representing student-loan debtors in bankruptcy court means more college borrowers will be successful. I once thought student-loan debtors could win their cases against the Department of Education and their agents even if they went to court without lawyers.

And indeed a few debtors have gotten relief from student loans in the bankruptcy courts, even though they went to court without attorneys. Richard Precht, Jaime Clavito, and George and Melanie Johnson come to mind.  But the debt collectors--and Educational Credit Management Corporation, in particular--have appealed their losses in the appellate courts, where it is very difficult for debtors to defend their interests.

In the Hedlund case, for example, a student-loan creditor fought Michael Hedlund in the appellate courts for 10 years!  And creditors often got debtors' victories reversed by appellate courts. In a heartbreaking loss, George and Melanie Johnson got their victory snatched away after a bankruptcy judge reversed his earlier decision to discharge their loans. The judge backtracked after his original decision was vacated by an appellate judge.

With competent attorneys, however, college borrowers can fight DOE and its venal agents until hell freezes over. And eventually some of debtors' victories in the bankruptcy courts will be upheld at the federal circuit court level.  Once the federal appellate courts endorse a more humane approach to handling student-loan bankruptcies, we will see more deserving debtors get relief.

Attorneys can defend college borrowers from dastardly creditor tactics

Third, if energetic and competent lawyers begin representing college borrowers in the bankruptcy courts, debtors will have able advocates to fend off what Rafael Pardo labeled "pollutive litigation" by the debt collectors.  Indigent debtors cannot counter unscrupulous tactics by creditors' lawyers unless they themselves have lawyers. In the Bruner-Halteman case, for example, ECMC repeatedly garnishing the wages of a bankrupt student debtor in violation of federal law. Had Bruner-Halteman not had an attorney, she would have been crushed.

A State Attorney General is now in open conflict with Betsy Devos and the Dept. of Education

 Finally, Massachusetts AG Maura Healey is now in open conflict with our federal government's heinous policy of fighting bankruptcy relief for college borrowers who are truly suffering. In the Myhre case, DOE opposed bankruptcy relief for a quadriplegic student-loan borrower who was working full time and yet unable to survive financially. In the Abney case, DOE fought bankruptcy relief for Michael Abney, a man in his forties who had a record of homelessness and who had a monthly income of about $1100 a month. In Roth, ECMC fought Janet Roth all the way into an appellate court. Poor Ms. Roth was living on Social Security income amounting to less than $800 a month.

Conclusion

For the first time, we will soon see a state attorney general's office and aggressive and competent lawyers going on the attack against Betsy DeVos' Department of Education, which has become nothing more than a shill and a lackey for the corrupt student-loan business.  Hurrah for AG Maura Healey!

AG Healey has introduced a model for progressive state governments to attack a vicious federal agency and bring relief to millions of college borrowers who have their backs against the wall.  California, I call on you to rally to AG Healey's standard. New Jersey, New York, Illinois, Texas and Florida: respond to Healey's bugle call and join the fight.

It is time for state governments to fight the corrupt and sleazy student-loan industry and to bring it down.  AG Healey and the Massachusetts Bar Association have shown the nation the path toward justice.

References

Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).

Hann v. Educational Credit Management Corporation, 711 F.3d 235 (1st Cir. 2013).

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

Natalie Kitroeff. Loan Monitor is Accused of Ruthless Tactics on Student Debt. New York Times, January 1, 2014. Accessible at http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html?_r=0

Rafael Pardo. The Undue Hardship Thicket: On Access to Justice, Procedural Noncompliance, and Pollutive Litigation in Bankruptcy. 66 Florida Law Review 2101 (2014).

Steve Rhode. Mass AG and Bar Association Lead Way to Help Student Loan Debtors to Help File Bankruptcy. getoutofdebtguy.org (blog), January 29, 2018.

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013). 

Michigan State President Lou Anna Simon resigns in wake of Larry Nassar scandal: Perhaps she should go to jail

Larry Nassar, a faculty member at Michigan State University and team physician for two women's varsity teams, was convicted of sexually assaulting seven girls. His sentence: 40 to 175 years in prison.

How many women and girls did Nassar abuse? We will never know, but 150 women spoke at his sentencing hearing.

Responding to mounting pressure, Lou Anna Simon, MSU's president, resigned her post a few days ago. She refused, however, to take any responsibility for Nassar's rampant sexual abuse. In her resignation letter, Simon denied a university cover-up and blamed her resignation on politics. “As tragedies are politicized, blame is inevitable," she said in her letter. "As president, it is only natural that I am the focus of this anger.”

Simon adamantly denied knowing anything about Nassar's predatory behavior. But how can that be true?

The U.S. Department of Education  conducted a Title IX investigation in 2014, and that investigation centered on Nassar. The Detroit News reported that at least 14 MSU employees knew about allegations against Nassar, which first began surfacing two decades ago.

Is Simon saying she didn't know any of the details about a Title IX investigation that could have led to a massive federal fine and loss of federal funds? Is she saying she knew nothing about accusations against Nassar over a 20-year period while other less senior officials knew Nassar was trouble?

No, it is simply inconceivable that Simon and other top MSU officials were totally in the dark about what Nassar was accused of doing.

In any event, Simon did not resign in disgrace. She was paid $750,000 a year as MSU president, and she will keep that salary for two years. Then she will rejoin the MSU faculty as a tenured professor, when she will begin drawing an annual salary of $563,000--more than three times the average salary of other MSU tenured professors.

Simon's termination agreement also has some great perks. She will get tickets to MSU athletic events, a VIP parking pass, secretarial services, and tech support. Not bad for a a college president who was asleep at the wheel as the Nassar scandal unfolded.

Mark Hollis, MSU's athletic director, also retired from his job. Why? Because, as he said publicly, "I care." But he will keep all his generous retirement benefits, which will probably include some football tickets.

How is MSU as an institution responding to this disgraceful series of events?  The university has been sued by 130 victims, but moved to dismiss the lawsuits on the grounds that it is immune from liability.

Simon said she regretted that the university's get-out-of-jail free-card argument might seem disrespectful to Nassar's victims, for whom she expressed "the utmost respect and sympathy."

On the other hand, Joel Ferguson, a MSU  board member, referred to the victims as ambulance chasers seeking a payday.  He later apologized for that remark, which I am sure was sincere.

According to Associated Press, MSU has set aside $10 million to deal with claims brought by Nassar's victims. This paltry sum shows MSU's leadership still doesn't get it. Penn State and Baylor University each spent a quarter billion dollars dealing with their separate sexual assault scandals. More than a dozen Catholic dioceses have declared bankruptcy to settle hundreds of claims of child rape.

As the Nassar scandal demonstrates, American universities have responded to sexual abuse exactly like the Catholic Church. Cardinal Bernard Law, who covered up sexual abuse by dozens of Catholic priests in the Boston Archdiocese, was buried with papal honors in the Basilica of Saint Maria Maggiori. Lou Anna Simon floats away on a golden parachute in the wake of a shocking scandal involving more than 100 victims. Meanwhile, MSU tells the courts it doesn't owe student sexual abuse victims a goddamn dime.

Sexual abuse scandals at American universities will not stop until senior administrators go to prison. Graham Spanier, Penn State's former president, recently received a two-month jail sentence for child endangerment in the wake of the Jerry Sandusky scandal. Two senior Penn State administrators pleaded guilty to similar charges to avoid a trial, and then got longer jail sentences than Spanier.  He should have gotten at least 5 years.

Lets' find out what Lou Anna Simon knew about Larry Nassar's criminal behavior before the scandal made the news. If she knew as much about Nassar as Spanier knew about Jerry Sandusky, Simon should go to jail.

MSU President Lou Anna Simon: Should she go to jail?

References

David Eggert and Larry Page. Amid scandal, Mich. St. athletic director retires. The (Baton Rouge) Advocate, January 27, 2018.

Matthew Haag and Marc Tracy. Michigan State President Lou Anna Simon Resigns Amid Nassar Fallout. New York Times, January 24, 2018.

Will Hobson.Former Penn State president Graham Spanier sentenced to jail for child endangerment. Washington post, June 2, 2017.

Rick Seltzer. Outgoing Michigan State president's employment contract draws scrutiny. Inside Higher Ed, January 26, 2018.

Student loans--the other debt crisis. Credit Slips essay by Alan White

Student loans - the other debt crisis

posted by Alan White at creditslips.org

In a low unemployment economy, an entire generation is struggling, and millions are failing, to repay student loan debt. As many as 40% of ALL borrowers recently graduating are likely to default over the life of their student loans, according to a recent Brookings Institute analysis. Total outstanding student loan debt is approaching 1.5 trillion dollars, exceeding credit card debt, exceeding auto loan debt. Two other key points from the Brookings analysis: 1) for-profit schools remain the primary driver of high student loan defaults, and 2) black college graduates default at five times the rate of white college graduates, due to persistent unemployment, higher use of for-profit colleges and lower parental income and assets.

The rising delinquency (11% currently) and lifetime default rates are all the more disturbing given that federal student loan rules, in theory, permit all borrowers to repay based on a percentage of their income. Most student loans are funded by the U.S. Treasury, but administered by private contractors: student loan servicers. Study after study has found that student loan borrowers are systematically assigned to inappropriate payment plans,  yet the U.S. Education Department continues renewing contracts with these failing servicers. The weird public-private partnership Congress has created and tinkered with since the 1965 Higher Education Act is broken.

Unmanageable student loan debt will saddle a generation of students with burdens that will slow or halt them on the path to prosperity. Student loan collectors have supercreditor powers, to garnish wages and seize tax refunds without going to court, to charge collection fees up to 40%, to deny graduates access to transcripts and job licenses, and to keep pursuing debts, zombie-like, even after borrowers go through bankruptcy and discharge other debts. Recent graduates cannot get mortgages to buy homes, even if they are not in default, because their student loan payments are taking such a bite out of their monthly incomes. State legislatures have piled on educational requirements for a variety of entry-level jobs (nurse's aides, child care workers, teachers, etc.) while cutting state funding for public colleges and increasing tuition: unfunded job mandates. Finally, the combination of high debt and the harsh consequences of default are widening the racial wealth and income gaps.

Current reform proposals would make a bad situation worse. For example, it is difficult to see how increasing the percentage of income required for income-based repayment plans will help student borrowers, nor how extending the repayment period before loan retirement would reduce defaults. What is needed instead is to 1) deal with the for-profit school problem, 2) restore the state-level commitment to funding public colleges, 3) fix the broken federal student loan servicer contracting, 4) rethink the collection and bankruptcy regime for student loans and 5) repeal the student loan tax, i.e. the above-cost interest rates college graduates pay to the Treasury. Among other things. More on these themes in later posts.

UC's Janet Napolitano and Harvard's Drew Faust are silly, little people: Doing nothing to ease the suffering of college-loan debtors

In the scene at the water well in Lawrence of Arabia, Sherif Ali (played by Omar Sharif) gallops across the shimmering desert on a camel and shoots an Arab from a rival tribe for the petty offense of drinking from Sherif Ali's well.

T.E. Lawrence, a British officer played by Peter O'Toole, is outraged and rails against Sherif Ali's senseless violence against a fellow Arab. "So long as the Arabs fight tribe against tribe," Lawrence tells Sherif Ali, "so long will they be a little people, a silly people--greedy, barbarous, and cruel, as you are."

Today it seems that Americans are dividing into warring tribes--left against right, red against blue, progressives against conservatives. And this tribal warfare is causing us to descend to being little and silly people.

Nowhere is this more apparent than at our elite universities, where academic leaders engage in political posturing over petty issues while saying nothing about the suffering experienced by millions of student-loan debtors.

Here is an example. Janet Napolitano, President of the University of California, recently pledged $302,000 to expand food pantries at 10 UC campuses to help in the fight against "food insecurity" among college students.

I fully support food pantries for anyone who needs food. But Napolitano's gift, stretched over two years, is a pittance.  In fact, it amounts to only 5 percent of Napolitano's personal compensation over a two-year period.

Has Napolitano said anything about the suffering experienced by student-loan debtors in California? Has she tried to lower tuition costs at UC? Has she spoken out in favor of bankruptcy relief for student debtors who have been dragged down by massive debt they can never repay? Has she publicly criticized the for-profit colleges that have exploited so many low SES and minority students in the Sunshine State?

I don't think so. In fact, Napolitano once referred to student complaints about UC tuition hikes as "this crap."

How about Drew Faust, who pulled down nearly $1.5 million in total compensation while president of Harvard and who pocketed another $200,000 in cash and stock for serving on the Board of Directors of Staples? She sanctioned single-sex social clubs at Harvard--clubs that Harvard does not even recognize. But who gives a damn about privileged college boys and their private clubs?

Has Faust said or done anything to help solve the student-loan crisis?  No, she has not.

In fact, I don't think any president of an elite American university has uttered a peep about the for-profit colleges, insane tuition prices, or the total disregard for college students who have borrowed themselves out of the middle-class in order to obtain wildly overvalued college degrees.

I don't think any of these pompous academics have directed their institutions' lobbyists to put pressure on Congress to reform the bankruptcy laws so that insolvent college borrowers can shed their student loans in bankruptcy court and get a fresh start in life.

I could be wrong about Napolitano and Faust. Maybe they've done a hell of a lot to ease the suffering of student-loan debtors. If I judged them unfairly, I will apologize; and I will send them both a $20 gift card for a meal at the Waffle House. Who knows? They might meet one of their former graduates working as a Waffle House fry cook.

References

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

Isabelle Geczy. Napolitano--"This Crap" Pays Your $570,000 base salary. The Bottom Line, April 1, 2015.

John S. Rosenberg. Harvard Discloses Leaders' Compensation, Harvard Magazine, May 12, 1027.

John S. Rosenberg. Harvard Imposes Single-Gender Social Club Sanctions. Harvard Magazine, December 5, 2017.

 

 

 

 

 

America's harsh treatment of student-loan debtors: Greed, corruption and heartlessness reach Dickensian proportions

That old wheel is gonna roll around once more

When it does it will even up the score

Don't be weak, as they sew, they will reap

Turn the other cheek and don't give in

That old wheel will roll around again

This Old Wheel

Jennifer Ember Pierce, songwriter

Sung best by Johnny Cash

If you haven't read Charles Dickens by now, just skip it. 

Dickens is well worth reading for his descriptions of injustice in Victorian England: the workhouses, the brutal schools, debtors prisons, and the mercilessness of English law. But  contemporary America is descending to the depths of social injustice every bit as sordid as conditions in Dickens' England. If you don't believe me, read Matthew Desmond's Evicted, published less than two years ago.  

In particular, millions of student-loan debtors are suffering just as much as the characters in Oliver Twist, David Copperfield or Pickwick Papers.  College debtors are defaulting at the rate of 3,000 a day. The U.S. Department reports a three-year default rate of 11 percent, but that figure is meaningless. The five-year default rate for a recent cohort of student debtors is 28 percent, for students attending for-profit schools it's 47 percent.

And the default rate only tells part of the story. Millions of people are in the economic-hardship deferment program--excused from making monthly loan payments while interest piles up. Now we see people stumble into the bankruptcy courts owing three and even four times what they borrowed.

Our government treats all student-loan defaulters like criminals. We aren't hanging and deporting debtors like the English did back in the nineteenth century, but they are treated pretty rough.

For starters, there is no statute of limitations on an unpaid federal student loan. Even if you borrowed the money so long ago you can't remember the school you attended, the government's debt collectors can come after you. 

In Lockhart v. United States, our lovely Supreme Court upheld the law permitting the government to garnish the social checks of elderly student-loan defaulters. The vote was  9 to 0. There were no liberals on the Court the day the Lockhart decision came down. 

And Congress and the courts have conspired to deprive distressed student-loan debtors access to the bankruptcy courts. Under the "undue hardship" standard nestled in 11 U.S.C. sec. 523(a)(8),  debtors cannot discharge their student loans unless they can show undue hardship, which the courts have interpreted harshly.

In recent years, there have been some compassionate and sensible decisions by the bankruptcy courts: the Abney case, the Lamento decision, and the Acosta-Conniff decision out of Alabama (which was reversed on appeal).

But the Department of Education, Educational Credit Management Corporation, and other debt collection agencies have appealed many of these decisions; and few student debtors have the financial or emotional resources for court fights that stretch on for years.  In the Hedlund case, for example, a graduate of Whittier Law School fought in the federal courts for ten years before he finally won a partial bankruptcy relief from his student loans.

Several federal appellate courts have softened the "undue hardship" standard somewhat: the Roth decision by the Ninth Circuit Bankruptcy Appellate Panel, the Seventh Circuit's Krieger decision, and the Eighth Circuit BAP Court's Fern opinion.

By and large, however, the bankruptcy courts have abdicated their role of providing honest but unfortunate debtors a fresh start. No wonder the myth prevails that it is impossible to discharge student loans in bankruptcy. And the Department of Education perpetuates this myth by opposing bankruptcy for people who are in severe distress, like the quadriplegic in the Myhre case.

Now we are enduring the Trump presidency. Betsy DeVos, Trump's Secretary of Education, has a nasty disposition toward student-loan debtors. She is busily dismantling the Obama administration's modest initiatives to rein in the corrupt for-profit college industry. The Republican dominated House Education Committee recently released a bill that would do away with all student--loan forgiveness programs. And a bill has just been introduced to protect attorneys from being sued for engaging in unfair debt collection.

America's financial industry, cheered on by the business news channels, chirp the Panglossian notion that Americans are living in the best of all possible worlds. The stock market soars ever skyward, and the economist says we have virtually reached full employment. The economy is growing at a healthy rate, and everyone is becoming wealthier.

But that's bullshit. The reality is this: millions of Americans are living day to day, burdened by consumer debt they can't repay. Student-loan indebtedness now exceeds accumulated credit card debt and car loans. Our Congress, our President, our Secretary of Education, and our courts are indifferent to the stark reality that we are constructing a society very much like Dickensian England.

Justice, Johnny Cash assures us, will eventually be restored. "That old wheel is gonna roll around once more. When it does it will even up the score." I hope Johnny is right. It will be a good sign if DeVos is forced from the Education Secretary's job and publicly disgraced. 

Don't give in; that old wheel is gonna roll around again.

References

Abney v. U.S. Department of Education, 540 B.R. 681 (Bankr. W.D. Mo. 2015).

Matthew Desmond. Evicted: Poverty and Profit in the American City. New York: Broadway Books, 2016.

Fern v. Fedloan Servicing, 563 B.R. 1 (8th Cir. BAP 2017).

Lamento v. U.S. Department of Education, 520 B.R. 667 (N.D. Ohio 2014).

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

Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (9th Cir. B.A.P 2013).

Myhre v. U.S. Department of Education, 503 B.R. 698 (W.D. Wis. 2013).

Steve Rhode. Proposed Law Will Make it More Likely Debtors Will be Sued Faster if in n Collections. Get Out of Debt Guy (blog), January 18, 2018.

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (B.A.P. 9th Cir. 2013).

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

Dept of Ed Puts Fraud First Over Students and Common Sense. Essay by Steve Rhode

By SteveRhode, January 3, 2018

Secretary of Education Betsy DeVos seems to be waging a terrible war against student loan debtors who have been defrauded by their schools in order to extract federal student loan money. Since the Trump administration took over the Department of Education has not actually delivered relief to a single Borrower Defense to Repayment claim. Yet they brag as of December 20, 2017 they have just approved “12,900 pending claims submitted by former Corinthian Colleges, Inc. students, and 8,600 pending claims have been denied.”

Under that Department of Education program the student previously would be forgiven from the student loans obtained by deception and the government would claw back the money the school got.

Most of these claims have been submitted by students of for-profit schools who played fast and loose with their marketing.

But it seems the government is turning its back on students who have been misled by schools to get their student loan money. Not only is the Department of Education changing the rules but they are also proposing rules that students who land better jobs after graduation should not be forgiven from the loans they were defrauded by. Either you are or are not a victim of fraud but the proposed policy create a middle ground where victims get to be only partial victims.

Under the deadline of “Improved Borrower Defense Discharge Process Will Aid Defrauded Borrowers, Protect Taxpayers” the government proposes what they say is more fair. Department of Education Secretary DeVos says “No fraud is acceptable, and students deserve relief if the school they attended acted dishonestly.” But then goes on to say relief is conditional based on gainful employment. – Source

While the Department of Education brags about their recent wave of Corinthian College Borrower Defense to Repayment claims they also disclose “rather than taking an “all or nothing” approach to discharge, the improved process will provide tiers of relief to compensate former Corinthian students based on damages incurred.”

Relief from fraud will be dependent on the current earnings of the victims. Victims earning 70% and above of the income of their peers will only receive a 30 percent forgiveness of the fraudulent student loans. So to be clear, that income test is against the other students who were the victims of the same fraud and not the general population.

As a bonus the Department of Education gives fraud victims this carot “to mitigate the inconvenience for how long it has taken to adjudicate claims, the Department will apply a credit to interest that accrues on loans starting one year after the borrower defense application is filed.”

So the Department of Education will take forever to deal with the forgiveness application and then only tack on a year worth of interest while they drag their feet.

Now to add insult to injury the Department of Education is proposing making it much harder for students to prove they were subject to misrepresentation to induce enrollment in an effort to extract money from students loan debtors.

The proposed forgiveness plan is to eliminate any successful judgment against a school by an Attorney General as proof of deception. Instead the individual student would have to obtain an individual judgment against the school. This would require a legal action that nearly all students would never be able to afford to file. Additionally the defrauded student would have to show clear and convincing evidence they were intentionally misled and that misrepresentation let to monetary harm.

“They’ve made it almost impossible for borrowers to meet the misrepresentation standard by requiring them to demonstrate the intent of the school especially when students don’t have the power of discovery” to examine the inner workings of a school, said Clare McCann, deputy director of higher education policy at New America, who worked on the Obama-era policy. “They took every dial and dialed to the far extreme. It really tries to make [the regulation] as useless as possible.”

Pretty soon we are going to need a Department of Education Victim Helpline to assist people soon to be screwed over by a government department that clearly appears to be putting for-profit colleges first.

*****

Steve's essay was originally posted on The Get Out of Debt Guy web site.

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here. 

Student Loan Default Crisis grows worser and worser: Brooking Institution says minorities and for-profit students are hardest hit

First of all, I realize that the word "worser" is not standard English. Nevertheless, "worser" appears in Hamlet (act 3,scene 4). If it is good enough for Shakespeare, it is good enough for me.

Now to the topic at hand. Judith Scott-Clayton recently published a report for the Brookings Institution on the student-loan default crisis. Twelve-year default rates are going up--with minority students and for-profit-college attenders experiencing the highest default rates.

For the 2004 cohort of borrowers who attended a for-profit college, the 12-year default rate was 46.5 percent (darn near half). For African American borrowers from the same cohort, 37.5 percent defaulted within 12 years. The black default rate was three times higher than the white default rate (12.4 percent) and six times higher than the rate for Asians (only 6.2 percent).

Scott-Clayton's report makes clear that the crisis in student-loan defaults among African Americans is acute. Based on the current trajectory, she projects 70 percent of black borrowers will default on their student loans by the end of 20 years.

Scott-Clayton points out that African American default rates are high even for black students who graduate from college. The default rate for African American graduates is five times higher than the default rate among white graduates.  In fact, she points out, the default rate for black college graduates is higher than the default rate for white college dropouts.

African Americans also borrow more money than white students. For the 2004 entry cohort, black students borrowed twice as much as white students for their undergraduate education.

The Scott-Clayton report is alarming, but a 2015 Brookings report (which Scott-Clayton referenced) is even more alarming. Looney and Yannelis, authors of the 2015 report, found that 47 percent of the people in the 2009 cohort of borrowers who took out loans to attend for-profit colleges defaulted within 5 years. For the cohort as a whole, the default rate was 28 percent.

Basically, however, the Scott-Clayton report and the Looney-Yannelis report told us what we already knew.  Student borrowers who attend for-profit colleges have shocking student-loan default rates; and African American students have much higher default rates than white students.

Scott-Clayton concluded her report with some tepid suggestions, which I will quote:

[T]he results suggest that diffuse concern with rising levels of average debt is misplaced. Rather, the results provide support for robust efforts to regulate the for-profit sector, to improve degree attainment and promote income-contingent loan repayment options for all students, and to more fully address the particular challenges faced by college students of color.

Frankly, I disagree with Scott-Clayton's bland recommendations. First, of all, we should be very concerned about the rising level of student debt across all sectors of higher education--not just the for-profit sector.  Millions of student borrowers are suffering, and some of those sufferers are white graduates of Ivy League colleges.

Secondly, although it is easy to call for more "robust" regulation of the for-profits, Betsy DeVos is headed in the opposite direction. DeVos is doing all she can to prop up the corrupt for-profit college industry and to lift all regulatory constraints against the for-profit institutions.  In my view, the best way to deal with the for-profit colleges is to cut off their federal funding and shut them down.

And I stridently disagree with Scott-Clayton's blithe call to promote income-contingent repayment plans. Most of the people in those plans are not making monthly payments large enough to service accruing interest.  At the end of their 20- or 25-year repayment plans, many will owe more than they borrowed.

Moreover, although people who complete long-term repayment plans will have any remaining debt forgiven, the amount of the forgiven debt will be taxable to them.

I suspect the Brookings Institution is advancing a hidden agenda with its reports on the student-loan crisis. Brookings wants the public to focus on minority students and the for-profit colleges while ignoring the fact that debt levels are rising across all sectors of higher education and injuring millions of student borrowers--not just students of color.

Let's face facts. The for-profit colleges are not the only institutions ripping off their students. The Ivy League schools are exploiting students as well. And with each passing day, the crisis gets worser and worser.

References

Adam Looney and Constantine Yannelis. A crisis in student loans? How changes in the characteristics of borrowers and the institutions they attended contribute to rising loan defaults. Brookings Papers on Economic Activity, 2015.

Judith Scott-Clayton. The looming student loan default crisis is worse than we thought. Brooking Institution, January 11, 2018.

Attention, Student-Loan Debtors: You Are Being Evicted from the Middle Class

Evicted: Poverty and Profit in the American City tells the story of how greed and the nation's legal system have driven poor Americans to the brink of homelessness.  Author Matthew Desmond follows the lives of eight Milwaukee residents who scramble from day to day to avoid being evicted from their homes and thrown into the street. It is a good read, and I highly recommend it.

As I read Desmond's book, I was struck by the similarity between the low-income housing crisis and the student-loan crisis.  As Martin Luther King observed, "Every condition exists simply because someone profits by its existence." Slumlords profit from renting substandard housing to the poor; stockholders and hedge fund owners profit from for-profit colleges.

And slumlords and for-profit colleges both rely on the government to help them exploit the poor. Slumlords can call on the local sheriff to evict tenants for nonpayment; and for-profit colleges rely on Betsy DeVos's Department of Education to protect their venal interests. Landlord-tenant laws favor the landlords, and the Bankruptcy Code protects the banks, which loan money to students at exorbitant interest rates, knowing that student debtors will find it almost impossible to discharge their onerous debts in the bankruptcy courts.

As Desmond wrote in Evicted, "The United States was founded on the noble idea that people have 'certain inalienable Rights, that among these are Life, Liberty and the pursuit of Happiness."  Indeed, the nation's founders considered these rights to be God-given and "essential to the American character."

Desmond argues that "the ideal of liberty has always incorporated not only religious and civil freedoms but also the right to flourish." In twenty-first century America, people need decent housing to flourish and they also need freely accessible education.

But our federal student-loan program is designed to extinguish the American right to pursue happiness and to flourish. The federal government allows corrupt for-profit colleges to lure vulnerable people into enrolling in education programs that are far too expensive and often worthless. The victims are forced to take out student loans. And the federal government stands by to be every student's sugar daddy--distributing about $150 billion a year in various forms of student aid.

The for-profit colleges get more than their fair share of federal money. In fact, many of them receive from 80 to 90 percent of their entire operating budgets from federal student loans and federal Pell grants.

Then when student-loan victims are unable to find well-paying jobs to service their debt, our once generous government becomes a tyrant. The Department of Education opposes bankruptcy relief for nearly everyone--even a quadriplegic (Myhre v. U.S. Department of Education, 2013) and people on the edge of homelessness (Abney v. U.S. Department of Education, 2015).

America will not begin solving the student-loan crisis until our nation's leaders acknowledge that the federal student-loan program is a massive human rights violation that is evicting millions of people from the middle class. Students who took out loans to attend for-profit colleges have been especially hard hit; almost half the students who took out loans to attend a for-profit college default on their loans within five years.

Student debtors are defaulting at the rate of 3,000 people a day, which ruins their credit and leaves them vulnerable to having their wages garnished. The government can even seize part of an elderly defaulter's Social Security check.

How can higher education return to decency and sanity? First, we must remove Betsy DeVos from her post as Secretary of Education. DeVos is about as qualified to run the Department of Education as the late Charlie Manson. And then we must revise the Bankruptcy Code to allow honest but unfortunate student debtors to discharge their loans in bankruptcy court. And finally, we must shut down the for-profit college industry, which DeVos so assiduously protects.

Student-loan debtors: Evicted from the middle class

References

Abney v. U.S. Department of Education, 540 B.R. 681 (Bankr. W.D. Mo. 2015).

Matthew Desmond. Evicted: Poverty and Profit in the American City. New York: Broadway Books, 2016.

Myhre v. U.S. Department of Education, 503 B.R. 698 (W.D. Wis. 2013).

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

Betsy DeVos is trying to nullify a federal law intended to give defrauded students relief from student loans: Our government is shielding crooks

Betsy DeVos is in bed with the corrupt for-profit college industry. Her slavish pandering to the for-profit-college racketeers is truly shocking. Now she is trying to nullify a law that gives relief to students who were defrauded by for-profit colleges.

In 1994, Congress passed a law giving students an avenue for getting their student loans discharged if they were defrauded by the college they attended.  The law was not used much until Corinthian Colleges--a for-profit college group--collapsed and filed for bankruptcy. At the time of its demise, Corinthian had over 300,000 students or former students; and several thousand filed so-called borrower defense applications seeking to get their student loans discharged on the grounds they were defrauded by Corinthian.

The Obama administration adopted regulations for implementing the borrower-defense rule, which provided a regulatory avenue for reviewing fraud claims. But Betsy DeVos nullified those regulations. DeVos said the Obama regulations would allow students to wrongly obtain "free money" at the expense of for-profit colleges.

DeVos launched a new round of administrative review, and DOE said the new regulations would probably not be implemented until 2019. The DeVos DOE's new borrower-defense rules are very different from what the Obama administration had fashioned. In fact, the DeVos regulations, if implemented, will basically invalidate the federal borrower-defense statute altogether.

David Halperin, writing in Huffington Post, observed that "the DeVos-Trump draft borrower defense rules . . . essentially nullify the 1994 law that gives former students who are ripped off by their colleges . . . the right to seek cancellation of their student loans."

As Halperin explained, the DeVos rules erect "numerous and redundant barriers to students getting the benefit of that law." The DeVos draft rules are so draconian that a representative of the for-profit college industry admitted that the new rules "feels a little stacked against the student."

For example, under the rules DeVos proposes, students will have to prove their fraud claims by "clear and convincing evidence." This is a very high legal barrier, especially when you consider that the colleges--not the complaining students--have access to the evidence of fraud.

Of course, state attorneys general have been suing the for-profits for fraud.  Surely a former student could present a judgment for fraud against a for-profit college as evidence that the student herself is a fraud victim. No, DeVos' new regulations will not permit a fraud victim to present a judgment against a for-profit college as part of the student's own fraud claim. As Steve Rhode wrote recently:

The proposed forgiveness plan is to eliminate any successful judgment against a school by an Attorney General as proof of deception. Instead, the individual student would have to obtain an individual judgment against the school. This would require a legal action that nearly all students would never be able to afford to file.

If the DeVos rules go into effect, fraud victims will rarely if ever obtain relief from their student loans. Abbey Shafroth, an attorney with the National Consumer Law Center, said this: "I really think [the DeVos rules] would effectively do away with borrowers' ability to get relief in almost all circumstances."

The DeVos Department of Education's proposed borrower-defense rules demonstrate that it has abandoned all pretense of fairness and decency toward student-loan debtors. DeVos herself is nothing more than obsequious book licker for the for-profit college industry, and Congress seems unable or unwilling to rein her in.

Last July, Eighteen Democratic state Attorneys General sued DeVos and the Department of Education, seeking to force the Department to implement the Obama-era borrower defense rules. I hope they are successful because what DeVos is essentially trying to do is eviscerate a 1994 statute passed by Congress for the express purpose of  providing student fraud victims with well deserved relief from their student loans.

References

David Halperin. Backing DeVos Repeal of Obama Rules, For-Profit Colleges Vilify Students. Huffington Post, January 9, 2018.

Andrew Kreighbaum. Few Details on Tougher Borrower-Relief Standards. Inside Higher Ed, January 9, 2018.

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

Steve Rhode. Dept of Ed Puts Fraud First Over Students and Common Sense. Getoutofdebtguy.org (blog), January 3, 2018.

Editorial: Scamming for-profit schools roar back under Betsy DeVos. Chicago Sun-Times, December 25, 2017.