Wednesday, September 9, 2015

You can't win if you don't play: More people should attempt to discharge their student loans in bankruptcy

It's a mess, folks. Seven million people are currently in default on their student loans. Millions more have stopped making payments but aren't counted as defaulters because they obtained economic-hardship deferments, which are given out like candy.  Almost 4 million people are making payments under income-based repayment plans that can last as long as 25 years. Twenty-five years!

Why don't some of these overburdened student-loan debtors file for bankruptcy?  I'll tell you why. Most people believe it is impossible to obtain relief from their student loans in the bankruptcy courts.

But that's not true. Three years ago, Jason Iuliano published an empirical study of student-loan discharges under the Bankruptcy Code's "undue hardship" provision. This is what he found:

  • Nearly forty percent of people who attempted to discharge their student loans in the bankruptcy process obtained relief.
  • People who attempted to discharge their student loans without an attorney were as successful in obtaining bankruptcy relief as people who hired bankruptcy lawyers.
The problem, according to Iuliano, is not that it is impossible to obtain a discharge of student loans in bankruptcy. THE PROBLEM IS THAT MOST PEOPLE DON'T TRY.

In 2007, Iuliano reported, almost a quarter of a million people with student loans filed for bankruptcy (238,446 to be exact). Of that number, less than 300 even attempted to discharge their student loans in bankruptcy. Apparently they assumed that it would be useless to try.

Iuliano constructed a model for predicting which factors were most important in obtaining a student-loan discharge. He estimated that 69,000  student-loan debtors  who filed for bankruptcy in 2007 were good candidates for discharge if they had only applied for relief.

In other words, based on Iuliano's research, more insolvent student-loan debtors should be seeking to discharge their student loans in bankruptcy because a fair percentage are likely to be successful. But you can't win if you don't play. 

Iuliano's article was published in 2012 based on 2007 bankruptcy data. I think the percentage of successful student-loan discharges would be higher today than it was during the period Iuliano studied. Several recent bankruptcy court decisions show that at least some courts are beginning to view student-loan debtors with more compassion than courts once did.

In the Roth case, for example, the Ninth Circuit's Bankruptcy Appellate Panel rejected a loan creditor's argument that Ms. Roth should be put in a 25-year repayment plan. "The law does not require a party to engage in futile acts," the court said.   Roth was a 68-year old woman with chronic health problems living on a Social Security check of less than $800 a month. It would be futile, not to mention callous, to put her on a 25-year income-based repayment plan.

Of course, the Department of Education and its student-loan debt collectors aggressively oppose student-loan discharge efforts in the vast majority of cases, often filing technical motions that make the  discharge process more expensive than necessary. I think  the creditors file these motions to discourage student-loan debtors who file adversary actions without the help of a lawyer. 

Of course, hiring a bankruptcy lawyer to fight the Department of Education can be expensive, and people in bankruptcy generally don't have the money to hire lawyers. Nevertheless, a lot more insolvent debtors should be trying to discharge their student loans in bankruptcy, even if they must do so without a lawyer.

And here are my suggestions for giving overburdened but honest student-loan debtors some bankruptcy relief:

1) Legal Aid clinics should get in the business of representing student-loan debtors. Legal aid clinics, including those that are attached to law schools, should have their attorneys become experts in bankruptcy law--especially the evolving law that relates to student loans; and the clinics should start representing student-loan debtors who seek to discharge their student loans in the bankruptcy courts.

2) Public interest organizations should develop free web sites that would provide useful information to people who are seeking to discharge their student-loans in bankruptcy without lawyers. The site should include sample pleadings and sample discovery motions, recent research on student-loan bankruptcies, recent court decisions, and sample briefs that could be used as models for debtors who are fighting the technical motions that DOE and the debt collectors file. 

Can you imagine the impact if 5,000 people tried to discharge their student loans in the bankruptcy courts rather than the mere 300 who tried in 2007? I think these people would find the bankruptcy courts are much more sympathetic than the debtors might have expected. More and more frequently, the bankruptcy judges are reviewing the details of these pathetic cases and seeing people who borrowed money in good faith to attend college and simply never made enough money to pay it back. Divorce, illness, unemployment, poor choices in deciding on a major, unscrupulous for-profit colleges--all kinds of unexpected things happened to people who simply wanted to get the training they needed to obtain better jobs so they could support their families and have better lives.

As I have said, the bankruptcy courts are becoming more and more sympathetic to these people.  But distressed student-loan debtors have got to ask for bankruptcy relief in order to get it.

References

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

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










Friday, September 4, 2015

The End of the Beginning: The Corinthian Bankruptcy Case Marks a New Phase in the Meltdown of the Federal Student Loan Program



Winston Churchill, in a speech delivered after the Battle of Egypt, Britain's first major victory in the Second World War, uttered these immortal words: "Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."

Something similar might be said about the recent bankruptcy filing of Corinthian Colleges, one of the largest chains of for-profit colleges, which once had enrollments totally more than 100,000 students.  Corinthian's collapse does not signal the end of federal funding for the for-profit college industry. The Department of Education will continue pouring money down the rat hole of for-profit higher education at an enormous rate--more than $30 billion per year. And the for-profits will continue to use litigation, lobbying, and strategic campaign contributions to protect their interests.

But the Corinthian bankruptcy does mark a new phase in the downward spiral of the federal student loan program. First of all, Corinthian is one of the largest for-profit college chains in the United States, with 350,000 former students. Under federal law, its closure will require the Department of Education to forgive the student loans of at least some of those students. According to the New York Times, if all 350,000 apply for loan forgiveness and those applications are granted, Corinthian's collapse will cost taxpayers about $3.5 billion.

Thus far, DOE has granted loan forgiveness to 3,000 former Corinthian students, which will cost the taxpayers about $40 million (as reported in Chronicle of Higher Education). But that's only a drop in the bucket.

Let's say half of Corinthians' ex-students are entitled to a loan discharge on the grounds that they were victims of misrepresentations or did not receive fair value for their tuition dollars, which, it seems to me, would be a reasonable estimate of the percentage who are entitled to relief.  Half of all of Corinthian Colleges' former students is about 175,000 people.  And if all those people's loans were forgiven it would cost the American taxpayers well over $2 billion.  And Corinthian is just one of many for-profits who have given students very little of value for the tuition that was paid with federal student loans.

But of course the Department of Education will never grant relief on that scale. It will bustle about the edges of the for-profit scandal, making sympathetic clucking noises while failing to confront this huge crisis. According to the Chronicle of Higher Education, DOE has received just 12,000 applications for some kind of loan relief from former Corinthian students, a small fraction of the total number of people who deserve assistance.  

Meanwhile, as DOE bureaucrats grant loan relief to a handful of  student-loan debtors who attended Corinthian campuses, DOE lawyers go into the federal bankruptcy courts again and again to oppose bankruptcy discharge for the few desperate individuals who have the temerity to seek justice through the bankruptcy process.

Nevertheless, to paraphrase Churchill, the Corinthian debacle is the end of the beginning. Whether DOE wants to admit it or not, the federal student-loan crisis is gathering steam like a locomotive and thundering down the tracks toward a disaster for America's colleges and universities.

Fortunately for President Obama and Secretary of Education Duncan, they have time to get off the tracks before the train arrives. By the time the student-loan program blows up in America's face, they will be out of office and safely ensconced in cushy academic posts at one of the elite universities that made their own contributions to the student-loan catastrophe.

Arne feels your pain--just a little bit of your pain.

References

Kelly Field, "U.S. Has Forgiven Loans of More Than 3,000 Ex-Corinthian Students, Chronicle of Higher Education, September 3, 2015. Accessible at: http://chronicle.com/article/US-Has-Forgiven-Loans-of/232855/?cid=pm&utm_source=pm&utm_medium=en


Tamar Lewin, "Government to Forgive Student Loans at Corinthian Colleges," New York Times, June 8, 2015. Accessible at: http://www.nytimes.com/2015/06/09/education/us-to-forgive-federal-loans-of-corinthian-college-students.html?_r=0

 


Wednesday, September 2, 2015

The Beginning of the End: Signs Are Everywhere that the Student Loan Program Is Collapsing

In the spring of 1940, just before the Battle of France, the people of Paris were enjoying themselves. As William Shirer wrote in The Collapse of the Third Republic:
The sands at Auteuil were full for the annual spring racing, and betting was heavy. Crowds flocked to the spring art exhibition at the Grand Palais. The cinemas and theaters played to full houses. The windows of the great jewelry shops in the rue de la Paix sparkled with diamonds and other gems, and inside business was good. (p. 604)
And then the Germans invaded the Low Countries and within a month the Nazis were in Paris.

When the party's over, it's over.
American  higher education, it seems to me, is behaving much as the Parisians did on the eve of their World War II disaster. Tuition goes up every year, even though the colleges offer steeper and steeper discounts just to lure students in the door. The average freshman now pays just 50 percent of a college's sticker price.

Meanwhile, the major public institutions of the South and Midwest pay their varsity football coaches $4 million and even $5 million a year to producing winning teams; and the assistant coaches often make a million dollars a year or more.

The campus book stores sell fewer and fewer books but make a profit selling junk.  Fewer books means more space to sell college-branded  t-shirts, sunglasses, and coffee mugs at outrageous prices. Most campuses now have a Starbuck, where students can buy elaborate coffee drinks for $5 a pop.

More and more, colleges and universities are outsourcing their student services. University employees no longer cook the meals.  Let them eat at Taco Bell, conveniently located in the Student Union. As a percentage of  total college enrollment, fewer and fewer undergraduates live in college dorms. Instead they flock to expensive, privately developed coed student-housing ghettos that provide undergraduates with swimming pools, game rooms, and plenty of space to park their late-model cars.

And why not? Student loans will pay for just about everything. And if the kids need more money than they can borrow on their own account, mom and pop will be glad to co-sign student loans at private banks. Total outstanding student-loan debt is now $1.3 trillion.

But it can't go on forever.

Almost 7 million people are currently in default on their loans, which means they haven't made a student-loan payment for more than a year. Millions more have obtained economic hardship deferments and aren't making student-loan payments.

More and more people have signed up for income-based repayment payment plans that stretch out the loan repayment period to as long as 25 years--3.9 million people, according to the Department of Education. That's a 56 percent surge in just one year.

DOE describes the uptick in long-term repayment plans as a victory because students' monthly payments go down. But many people in these plans are making payments so low they will never pay off their loans. And anyway, who wants to pay a percentage of their income for a quarter of a century just for the privilege of getting a crummy college education?

Nor is it clear that most people will stick with a long-term payment plan for 25 years. Not long ago, DOE reported that more than half of the people in those plans failed to report their annual income, a prerequisite for continuing in an income-based repayment program.

This house of cards is about to come tumbling down. Already, private liberal arts colleges are folding or on the verge of folding as students realize that it makes no sense to pay $40,000 or $50,000 a year to attend a nondescript private liberal arts college in nowheresville. Sweetbriar's debacle is just the first of many more college closings to come.

And the bloom is off the rose for the for-profits, which have been insanely profitable for the private equity groups and wealthy investors who own them. Corinthian Colleges' bankruptcy is but the harbinger of a major shakeup in the for-profit college industry.  And what happens to Corinthians's 300,000 former students, most of whom used student-loan money to pay their tuition? How many Corinthian alums will pay back their student loans?

There's only one solution to this giant economic disaster--reasonable access to bankruptcy for overburdened student-loan debtors. But DOE and its loan-collection agencies fight student-loan bankruptcies tooth-and-nail. DOE even opposed bankruptcy relief for a quadriplegic debtor who was working full time but couldn't make enough money to compensate his full-time caregiver and and still pay his fundamental living expenses (Myhre v. U.S. Department of Education, 2013).

DOE knows that if bankruptcy relief becomes an option for people who are swamped by their student loans that a flood of debtors will flow into the bankruptcy courts. If that ever happens, this enormous fraud on American young people will be exposed.

So colleges and universities waddle long, academic year after academic year, jacking up their tuition and hiring more and more bureaucrats and administrators.  College presidents hob nob with wealthy donors and watch the football games in executive sky boxes.  Tenured professors teach less and less, and low-paid adjuncts teach more and more of the college curriculum.

But the metaphorical equivalent of German panzer tanks are hiding in the shrubbery of our well-groomed college campuses. And some day soon, American higher education--the envy of the world our college leaders tirelessly assure us--will collapse.

References

Mitchell, Josh. School-Loan Reckoning. 7 Million Are In Default. Wall Street Journal, August 21, 2015.

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

Shirer, William. The Collapse of the Third Republic. New York: Simon and Schuster, 1969.





Sunday, June 14, 2015

Ron Lieber of the New York Times published an antidote to Lee Siegel's poisionous essay about the virtues of student-loan default

An antidote is a substance given to counteract the effects of poisoning; and yesterday, Ron Lieber, a New York Times reporter, published the antidote for Lee Siegel's poisonous essay touting the virtues of student-loan default, which the Times had thoughtlessly published in its Sunday Review section on June 7.


In his reckless essay, Siegel had advised student-loan borrowers to do three things before defaulting on their student loans: 1) Take out a lot of credit cards to establish good credit before your credit is damaged by a student-loan default; 2) Establish a good history of paying rent to increase your chances that landlords will rent to you in spite of your default; and 3) marry or live with someone who has a good credit rating.

Lieber poked holes in all that advice, so anyone who reads Siegel's article and is tempted to default on student loans should read Lieber's article too.

Lieber wrote a good rebuttal to Siegel's essay, but he failed to convey some other important information. First, there is no statute of limitations on student-loan debt. A student-loan borrower may suffer no consequences of  default for a quarter century or more. But the government and its debt collectors can go after a defaulter right up to the moment of death. And that includes you, Mr. Siegel.

Second, defaulters face liability for more than just the amount of money they borrowed. They also face liability for accrued interest, fees, and penalties, which can total 25 percent of the amount borrowed plus accumulated interest. It is not uncommon for student-loan borrowers to stumble into bankruptcy court owing double, or even, triple the amount of money they borrowed. By that time, of course, they are in a world of hurt.

Also, Lieber understated the number of elderly people who have seen their Social Security checks garnished by the federal government for nonpayment of student loans. Lieber's article incorrectly stated that the number of people whose Social Security checks were garnished in 2013 was 33,000, but that is the approximate number  of people whose Social Security checks were garnished in 2002. By 2013, the number of people whose Social Security checks were garnished for nonpayment on student loans was 155,000, as reported by the General Accounting Office.  Between 2002 and 2013, the number of elderly people who were having their Social Security checks garnished grew by more than four fold!

Millions of people have defaulted on their student loans, at least 7 million, according to a report from the Consumer Financial Protection Bureau.  But most did not default in order to live more fulfilling lives, which was Siegel's reason for defaulting. Most defaulted because they simply could not make their student-loan payments and still have enough left over from their paychecks to eat and pay rent. And many have seen their loan balances balloon due to additional interest that accumulated during periods when they couldn't make their loan payments.

In short, most student-loan defaulters quit making loan payments out of a sense of hopelessness and despair, not to lead more creative lives. All these people deserve relief from their oppressive student-loan debt. Unfortunately, Siegel may have given Americans the erroneous impression that most student-loan defaulters are feckless deadbeats, when in fact most are honest individuals who wound up in default due to a variety of tragic life circumstances--job loss or failure to find a good job, divorce, or health issues.

References

General Accounting Office. Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Borrowers. GAO-14-866T. Washington, DC: General Accounting Office. http://www.gao.gov/products/GAO-14-866T

Lieber, Ron. The Downside of Defaulting on Student Loans. New York Times, June 13, 2015, p. B1.

Siegel, Lee. Why I Defaulted on My Student Loans. New York Times, June 7, 2015, Sunday ReviewSection, p. 4.



Friday, June 12, 2015

Lee Siegel is not the poster child for the student loan crisis: Single mothers are more typical of defaulting student-loan borrowers than self-proclaimed cultural critics

It is unfortunate--truly unfortunate--that the New York Times chose to publishe Lee Siegel's op ed essay in which he defended his decision to default on his student loans. Siegel has received a lot of negative feedback on his essay, including several letters that were published in the New York Times, and some people may have gotten the impression that Siegel is a typical student-loan debtor.

But he is not typical, and it would be tragic if Siegel becomes the poster child for the student-loan crisdis.

Americans need to understand that most student-loan defaulters are not successful, self-employed professionals like Siegel. Rather, they are typically people in desperate circumstances due a a host of negative life events (job loss, divorce, illness) that left them unable to manage their student-loan debts.  

If Americans are looking for a poster child for the student loan crisis, I nominate Alethea Lamento. 


Arethea Lamento, Not Lee Siegel, is the Poster Child for the Student Loan Crisis

As explained by a sympathetic bankruptcy court, Alethea Lamento was a 35-year-old single mother of two when she filed for bankruptcy. She was working for a grocery store chain for $10.15 an hour, and she only made ends meet for herself and her two children by living rent-free with her mother and her step-father.

Lamento had accumulated $70,000 in student loan debt while trying to obtain an education that she hoped would open the door to a better life. Unfortuantely, she married a man who, according to the bankruptcy court, was "abusive in multiple ways," and her husband did not want her to go to college. She made several attempts to get training to increase her income but she was unsuccessful due in part to the fact that she was a mother of two and married to a man who discouraged her from obtaining an education. 

As the court explained, Lamento was never able to make a voluntary payment on her student loans, and the federal government eventually began garnishing her paychecks to collect on the accumulated debt. Lamento then filed for bankruptcy.

In the bankruptcy proceedings, the U.S. Department of Education and Educational Credit Management Corporation appeared as creditors and opposed Lamento's request to have her student-loan debt discharged. They argued she should be put in a 25-year income-based repayment plan.

But a sympathetic and compassionate bankruptcy court rejected these arguments and discharged Lamento's student loans. First of all, the court pointed out, it was obvous that Arethea would not be able to maintain a minimal standard of living if she were forced to pay off her student loans.


 “At the age of 35, she has no money to pay rent or utilities for housing for herself and her two children,” the court wrote. “Without the generosity of her mother and stepfather, her family would have nowhere to live” (p. 676). Alethea’s salary did not allow her to pay rent or utilities, which the bankruptcy court considered to be basic needs. Nor did she have health insurance, which the court also considered to be a basic need. 

Alethea's creditors argued that her financial circumstances would improve, but the court did not agree.  “The evidence showed conclusively that Alethea’s financial situation is not temporary and that it is likely to persist for a significant part of the repayment period,” the court ruled.  

In the bankruptcy court's view, Alethea had filed for bankruptcy in good faith. It was true, the court acknowledged, that Alethea had made no voluntary payments on her student loans. Nevertheless, it was undisputed that with her limited income and tight budget, Alethea had never made enough money to make student-loan payments.

ECMC and the Department of Education tried to make much of the fact that Alethea had refused their offer to enter into a 25-year income-based repayment plan. In their view, her refusal to agree to a long-term repayment plan showed her lack of good faith.

But the court rejected this line of reasoning. As the court pointed out, the creditors’ position basically amounted to the argument that the only way a student-loan debtor can show good faith in a bankruptcy proceeding is to sign up for a long-term repayment plan.

The court ruled that Alethea’s reasons for rejecting a 25-year income-based repayment plan “to be credible, convincing, and offered in good faith” (p. 679). In the court’s opinion, it was clear that Alethea was not able to pay anything on her student loans and would be unable to do so in the foreseeable future. Thus her participation in an income-based repayment plan would be futile.

In addition, the court pointed out, there were burdens associated with such agreements. First, if Alethea agreed to a 25-year repayment plan, she would essentially be trading one nondischargeable debt for another. Second, signing up for such a repayment plan would require Alethea to report her income to her student-loan creditors for the next 25 years.

Finally, and perhaps most importantly, the court noted that the creditors’ insistence on a long-term repayment plan overlooked “the psychological effect” of having a significant debt obligation stretch out over a quarter of a century. “Given Alethea’s desperate circumstances, and her status as the proverbial honest but unfortunate debtor, she is entitled to sleep at night without these unpayable debts continuing to hang over her head for the next 25 years” (p. 679, emphasis supplied).

Conclusion: Millions of Student-Loan Defaulters are Entitled to Bankruptcy Relief

Perhaps Lee Siegel should have paid off his student loans, but millions of people who took our student loans in good faith don't make enough money from their jobs to pay back their loans. All these people are entitled to bankruptcy relief.

As Americans contemplate the growing student-loan disaster, they need to realize that Rober Siegel is not the typical student-loan debtor. More typical by far is Alethea Lamento, a single mother of two and an "an honest but unfortuante debtor," who deserves relief from oppressive student loans.

Note: Parts of this blog essay are taken from an article I co-authored with Robert C. Cloud and which appeared in Teachers College Record Online earlier this year. The opinions expressed in this blog are soley my own.

References

Delisle, J. & McCann, C. (2014, September 26). Who's Not Repaying Student Loans? More People Than You Think. Forbes.com. Retrieved from http://www.forbes.com/sites/jasondelisle/2014/09/26/whos-not-repaying-student-loans-more-people-than-you-think/

Fossey, R. & R. C. Cloud. (2013, November 22). "The Law Does Not Require a Party to Engage in Futile Acts”: Student Loans, Bankruptcy and a Compassionate Federal Court. Teachers College Record, http://www.tcrecord.org,  ID Number: 1733.

Fossey, R. & R. C. Cloud (2015, February 23). In Re Lamento: An Honest But Unfortunate Debtor Is Entitled To Sleep At Night Without Worrying About Unpayable Student-Loan Debt. Teachers College Record Online, http://www.tcrecord.org ID Number: 17871

In re Lamento, 520 B.R. 667 (Bkrtcy. N.D. Ohio 2014).

In re Roth, 490 B.R. 908 (9th Cir. BAP 2013).

Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (6th Cir. 2013).

David Marans, This Author Called for A Student Loan Boycott, And CNBC Was Not Having It. Huffington Post, June 8, 2015. Accessible at: http://www.huffingtonpost.com/2015/06/08/cnbc-student-loan-boycott_n_7537432.html

Lee Siegel. Why I Defaulted on My Student Loans. New York Times, June 7, 2015, Sunday ReviewSection, p. 4.

Student borrowers and the economy (2014, June 10). New York Times. Retrieved from http://www.nytimes.com/2014/06/11/opinion/student-borrowers-and-the-economy.html?_r=0




Thursday, June 11, 2015

Student Loan Forgiveness for Students Who Attended One of the Schools Owned by Corinthian Colleges: I Recommend Chiang Kai-Shek's Fire Hose Approach

Chiang Kai-shek was the  leader of the Nationalist government of China for many years, but he was also a Methodist of sorts. I read somewhere that he once baptized his soldiers en masse, using a fire hose.  I'm not sure that story is true, but I like to think of all those Chinese soldiers who became Methodists. I'm sure it did them a world of good.

Regardless of the truth of that story, I believe the Department of Education should adopt Chiang Kai-shek's  fire-hose technique when designing a student-loan forgiveness program for all the people who attended one of  institutions operated by Corinthian Colleges--which is now bankrupt.


Chiang Kai-shek(蔣中正).jpg
Chiang Kai-shek: Did he baptize his troops with a fire hose?
The Department of Education is designing a process whereby students who attended a Corinthian campus can apply for loan forgiveness, which at least some of them are legally entitled to do due to Corinthian's shutdown. According to the New York Times, DOE estimates that 350,000 people attended one of the Corinthian  campuses over the past five years. If all of them apply for loan forgiveness and receive debt relief, it will cost taxpayers $3.5 billion.

In the past, DOE has utilized a cumbersome loan-forgiveness process for  students who attended colleges that closed, and DOE says that only 6 percent of students who were eligible for debt relief due to a college closure  actually applied for that relief (as reported in the New York Times).


Secretary of Education Arne Duncan promises a streamlined loan-forgiveness process for former Corinthian students. "We will make this process as easy as possible for them, including by considering claims in groups wherever possible" Duncan said.


But why make Corinthian students jump through hoops to have their student loans forgiven--any hoops at all? Why not adopt Chiang Kai-shek's methods and forgive all those loans en masse? I agree with Luke Herrine, a member of the Debt Collective, who argued that all Corinthian students should be given "blanket relief."


Why give blanket loan -forgiveness to former Corinthian students? First of all, the government is not going to get that money back anyway. In all likelihood, a majority of Corinthian students will either default on their loans or apply for economic-hardship status that will exempt them from making loan payments until they get on their feet financially, which for many Corinthian victims will be never.


Second, the Department of Education is morally responsible for the mess it created by shoveling student-aid money to for-profit colleges that paid their executives lavish salaries while delivering substandard educational programs. A quarter of all student-aid money goes to for-profit colleges, which have the highest default rates. 


The for-profits have kept this shell game going by hiring lobbyists to represent their interests, employing lawyers to file lawsuits to stop DOE's regulatory efforts, and making campaign contributions to strategic members of Congress.  In fact, Corinthian's bankruptcy filings lists its lobbyists as some of its creditors.

No, DOE needs to spray all these students with a metaphorical fire hose, forgiving Corinthian's former students' loans through executive action. These unfortunate folk have been through enough. Duncan shouldn't make them fill out any more forms in order to rid themselves of student-loans they took out to attend one of Corinthian's colleges.



References


Tamar Lewin. Government to Forgive Student Loans at Corinthian. New York Times, June 9, 2015, p. A11.


Help for Victims of College Fraud (Editorial). New York Times, June 10, 2015, p. A24.

Hurtling toward catastrophe at warp speed: How the cost of higher education spun out of control

I recently attended a small dinner party in my neighborhood. Only seven guests attended, and three of them shared personal experiences about the cost of higher education.

One man I spoke with is a hospital administrator. He told me he regularly meets intern pharmacists at his hospital who have $200,000 in student loans, even though the market for pharmacists is saturated. A woman at the party confided that her daughter borrowed $200,000 to obtain an education, and a young man explained how much it is costing him to obtain an MBA.

I try to keep abreast of higher education costs. Nevertheless, I was shocked at the cost of an MBA program at public universities these days. An online MBA from Louisiana State University now costs $45,000 for two years of study. The University of North Carolina, my dinner guest told me, charges $70,000 for an online MBA.  And an MBA from the University of Texas (my own google search revealed) costs $100,000 for two-years of study, when living expenses are included.

My dinner partner chose to enroll in a new MBA program at LSU Shreveport, which charges about $1,000 per online course. That sounds pretty reasonable. But there are 500 people enrolled in his first course! That's right. A regional public institution rakes in a half million dollars to offer just one graduate-level class in business administration.

In 1980, I graduated from the University of Texas Law School, one of the top-ranked law schools in the United States, and it only cost me $3,000 ($1,000 a year for tuition and fees). Today, tuition and fees to attend UT Law School is $108,000--36 times time what I paid!

How Did Higher Education Become So Expensive?

How, over the course of just one generation, did higher education become so expensive?

Differential pricing. Several reasons. First, the universities changed their philosophy about tuition pricing. Thirty years ago, public universities tried to keep their costs down so that even a poor person (a person like myself when I was young) could obtain a first-rate college education and even a professional degree.  Of course, students from wealthy families got a heck of bargain, obtaining college degrees and professional degrees for much less than they would be willing to pay. But the universities' doors were open to anyone who met the admission requirements.

Today, universities engage in what they call differential pricing. They set fees at a level that wealthy people are willing to pay and then they offer discounts in the form of scholarships, grants, and loan packages to "worthy" individuals who can't afford to pay the sticker price.

Don't worry about the cost, the universities tell prospective students. The real cost of attending our institution is lower than the sticker price. But of course, no one knows how the universities decide which students get the discounts. Legacies, minorities, and students with high standardized test scores get the scholarship money; and the suckers are forced to take out student loans to pay their tuition bills.

And so universities raised their tuition costs, especially in high-demand programs like business administration,veterinary programs, medicine and law. And they did this without paying any attention to the job market. Now we see law graduates who obtained their degrees from second- and third-tier law schools with massive amounts of debt and no job prospects.

Money is no object. Second, a philosophy now prevails in many middle-class families that money is no object.  If I can just get into the most prestigious college that will admit me, many young people tell themselves, I have a ticket to a better life. Or at least I can maintain the middle-class lifestyle that my parents achieved.

If only that were true. Unfortunately, people are finding out to their sorrow that a degree in women's studies from New York University, one of the most expensive schools in the country, does not lead to a six-figure salary.

The federal student loan program has sowed the seeds of catastrophe. And finally, it is now obvious to nearly every honest person that the accelerating cost of higher education was fueled by the federal student loan program and student loans from private banks. Universities have avoided sticker shock about higher tuition prices because students simply borrow more and more money to pay their tuition bills.

Moreover, although most people failed to realize it, higher education was costing more and more at the same time it was becoming worth less and less. A liberal arts degree was once understood as an experience that shaped young people's ethical values and helped them develop civic virtues and the capacity for moral decisionmaking. But the liberal arts have collapsed under the brutal assault of postmodernism. Why get a degree in history or literature when the professors insist there are no ultimate values and that the values of past generations must be deconstructed until everyone understands that all the nation's heroes were nothing more than despicable racists, capitalist exploiters, and male chauvinist pigs?

Let's face it; sixty grand a year is a lot of money just to learn to be a cynic.

Moving Toward Catastrophe at Warp Speed

As St. Paul observed, we but see through a glass, darkly. I don't know for certain where higher education is ultimately headed. Nevertheless it is now clear we are hurtling toward some sort of catastrophe at warp speed.

One thing is certain: the current trend of ever-rising college costs can't go on forever. And so I will share my modest predictions about the future of higher education:

In the next 10 or 15 years, we will certainly see the collapse of the non-elite private liberal arts colleges--those small institutions that were started 100 years ago by philanthropists and religious institutions. Many of the stately, ivy-covered edifices that dot the campuses of the nation's non-selective liberal arts colleges will be converted into condominiums.

Professional education will evolve into something different and cheaper. We may see three-year law programs shrink into two-year experiences. Second- and third-tier law schools and MBA programs will close.

In my own field--education--the public has already woken up to the obvious fact that colleges of education have done less than a stellar job of preparing school teachers and administrators. Alternative certification programs are booming, and student enrollments in education classes are steadily shrinking. Faculty numbers in colleges of education are also shrinking, and academic departments are closing or being consolidated.

Online degree programs have begun to blur the distinction between prestigious programs at reputable institutions and cheap knock offs at for-profit colleges and less prestigious public universities. And that trend will continue and accelerate.

For-profit colleges, many of which have preyed on low-income students, will finally be found out; and the great profits that were reaped by the owners of these dubious institutions will start to shrink. The sooner that happens the better.

Of course, when the great shakeout in higher education is over, some colleges and universities will emerge unscathed. Harvard will always be Harvard, and it will become ever more apparent that the elite institutions still do what they have always done--issue credentials to the ruling class. Harvard began in the 17th century as an institution for training Protestant preachers--mostly pious prigs. It still is in the business of producing pious prigs, only the current crop doesn't believe in God.

And the Greek system will also survive--binge drinking and womanizing never goes out of fashion.

And here is my final prediction. Our smartest and best young people will figure out that American higher education is not doing what most Americans once thought it did--produce productive and knowledgeable citizens capable of leading happy, prosperous, and meaningful lives.

And when they figure that out, they will decide just to skip the college experience altogether.


College? Yeah, I went to college.