Angry students sue more than 50 colleges after instruction goes on line in response to the coronavirus

A bunch of black swans showed up this spring, and they landed on top of every college administration building in America.

Last March, virtually every postsecondary institution shut down in response to the coronavirus pandemic. Students who lived in campus dorms were told to scram.  Face-to-face instruction screeched to a halt, and the colleges began teaching their students online. The departing students lost access to professors, libraries, and college recreational facilities.

Most universities refunded dorm fees and student meal plans on a  proportional basis. But the universities didn't refund tuition, arguing that students are still getting fair value because their classes are continuing online.

The students aren't buying it. So far, students have sued more than 50 colleges demanding to get their tuition money back. Online instruction is inferior to interacting with professors in a real classroom, they maintain. And of course, they are right.

The colleges respond, with some justification, that they did not anticipate the coronavirus pandemic and are doing the best they can under the circumstances.   "Faculty and staff are literally working around the clock," Peter McDonough, a lawyer for a college trade group, argued defensively.

I sympathize with the colleges, but I can say with authority that professors don't work around the clock on anything.  If they claim to be working 24/7, they mean they're working 24 hours in a seven-day week.

And if the universities claim their distance-learning format is equal to face-to-face teaching, they are not telling the truth.  A few professors are tech-savvy and can quickly shift to online education, but a lot of them can't.

In any event, America's elite private schools have justified their nosebleed tuition by professing to offer small class sizes and ample opportunities to personally interact with their professors.  They can't credibly change their story now and claim that their online instruction justifies tuition at $50,000 a year.

Regardless of whether colleges win these lawsuits, they will be severely stressed financially in the coming months. One study predicts that four-year colleges could lose up to 20 percent of their fall enrollment. Any small private school that loses 20 percent of its students this fall will be closed by May.

If you are a professor who works at a small private college, it is time to formulate a Plan B. What will you do if your school shuts down and you are thrown out of work?

And if you are a student who plans to enroll at a small, private school this fall, you too need a Plan B. You need to find out what your institution's financial situation is. You do not want to take out student loans to pay tuition to attend a college that may close before you graduate.

The black swan: Coming soon to a campus near you

Rodger Love v. U.S. Department of Education: Betsy DeVos wears no clothes (metaphorically speaking)

According to Urban Dictionary, "The Emperor Wears No Clothes," is a phrase "often used in political or social contexts for any obvious truth denied by the majority despite the evidence of their eyes, especially when proclaimed by the government."

This metaphor came to mind as I read the adversary complaint filed in Love v. U.S. Department of Education.  Rodger Love is asking a Kansas bankruptcy court to discharge his student loans--both federal and private.

As Mr. Love said in his complaint, he "has no hope of paying back the loans, and they have created a noose around [his] neck for the remainder of his economically productive years."

Mr. Love is clearly right. He is 47 years old. Although he is employed full-time, he "does not anticipate receiving substantial raises or promotions in the future." Nevertheless, Love is saddled with $167,000 in student loan debt, apparently to study at Washburn University, where he did not obtain a degree.

He now owes far more than he actually borrowed.  Love took out $29,000 in federal loans and $68,000 in private loans--totally just $97,000. The balance of his debt--about $70,000--is mostly accumulated interest.

Indubitably, Betsy DeVos's Department of Education will oppose a student-loan discharge for Mr. Love. DOE will probably argue that Mr. Love has not done enough to maximize his income--no matter what he has done to improve his financial circumstances. 

If Mr. Love eats a hamburger at McDonald's twice a month, DOE will say he hasn't been frugal.  And no matter what the court records reveal, DOE will almost certainly argue that Mr. Love has not handled his student loans in good faith.

But that will be government bullshit, already packaged in DOE lawyers' canned legal briefs.

I'll bet you dollars to donuts that DOE will tell the bankruptcy judge that Mr. Love should sign up for a 25-year repayment plan.  But, as he pointed out in his complaint, he will be 72 years old before he finishes a 25-year plan.  And since the payments won't cover accruing interest, he will owe more than he owes right now when the plan terminates in 2045.  And whatever amount is forgiven will be taxable to him as earned income.

That's nuts. Why does DOE continue, year after year, to oppose bankruptcy relief for student-loan debtors who are clearly at the end of their rope?

One reason.  DOE forces desperate debtors into long-term repayment plans so it can pretend that mountains of student debt are loans in good standing. But that is not true. Billions of dollars in outstanding student loans is not collectable.

If Education Secretary Betsy Devos believes DOE's opposition to student-loan bankruptcy helps maintain the solvency of the federal student loan program, she is the emperor who wears no clothes.  That stance defies the naked truth, which is this: Forty-five million Americans have outstanding student loans, and at least half of it will never be paid back.

References

Love v. U.S. Department of Education, Case No. 13-41680 (Bankr. D. Kan. Jan. 28, 2020) (complaint).

Hey, Betsy--put some clothes on!

Hyperinflation is coming to the United States: You're not going to like it

In olden times, middle-class people had checking accounts; and they kept close track of their account balances. No one wanted to inadvertently write a "hot" check that would "bounce" back to them. Oh, the shame! The embarrassment!

Those days are gone. Today, many Americans don't pay much attention to their checking account balances. If they don't have money in their account to buy a suitcase of Miller Lite, they just put their purchase on a credit card.

That's basically what our government is doing. The national debt tripled between 2008 and 2019 and reached about $20 trillion when Trump came into office.

By the third year of Trump's term in office, the national debt had risen to $22 trillion. Last summer, Congress passed a two-year deficit budget at a time when America had a booming economy with historically low unemployment.

Then came the coronavirus pandemic, and our government whipped up more than $2 trillion to deal with that. State and local governments are running massive deficits because tax revenues are down, and the Democrats want to dole out another $1 trillion to send to the states.

So that brings the national debt to what--$24 trillion? Folks, we can never pay back this money, and no one believes we can.

If the federal government can't pay its debts—and it can't—it only has two choices: It can default on its obligations or inflate the money supply.  It will choose inflation, and the consequences won't be pretty.

Inflation, the wise economists tell us, is a way for the rich to steal from the poor. When hyperinflation starts, the people who will be hurt are the elderly living on fixed incomes and young people whose wages won't be enough to pay for the inflated price of necessities like food and rent.

Germany suffered hyperinflation in the 1920s as it struggled to pay war reparations to the Allied powers after World War I.  The German government responded to this onerous burden by printing more money. This triggered hyperinflation that soon drove the value of the German mark to virtually zero. The mark became worth so little that people had to carry baskets of paper currency to pay for their daily needs.

Historians tell us that this period of hyperinflation destroyed the German economy, causing massive hardship for the German people, whose lives devolved into a day-to-day struggle for food. The anger and bitterness that resulted laid the groundwork for Nazism.

Adam Ferguson wrote a book about Germany's inflationary period titled When Money Dies. Ferguson warns us about the existential danger of hyperinflation. "The question to be asked," Ferguson wrote, "is how inflation, however caused, affects a nation: its government, its people, its officials, and its society."

If the experience of Germany is anything to go by, Ferguson cautioned, "then the collapse of a national currency unleashes such greed, violence, unhappiness, and hatred, largely bred from fear, as no society can survive uncrippled and unchanged." In Germany, racial passions were unleashed, and nihilistic sexuality prevailed in 1920s Berlin.

Already, our national politicians make hysterical and groundless charges of racism against their political opponents. State and local governments refuse to abide by federal immigration law even as they demand more federal money to prop up their sagging budgets.  Our elite intellectuals have cast off almost all sexual norms and obsess on transgender bathrooms.

Is contemporary America exactly like Germany in the 1920s? Of course not. But like 1920s Germany, our government is running up debt that it can't repay. Will this lead to a 21^st century Hitler?  Probably not, but our future is definitely going to be unpleasant.

Massive student-loan forgiveness is now a mainstream idea: Even Al Jazeera is on board

Around 45 million Americans owe a total of $1.6 trillion in student loans, and approximately 20 million of those debtors are not paying them back.  Betsy DeVos, President Trump's Education Secretary, admitted more than a year ago that only one out of four student borrowers was paying down principal and interest on their federal loans. "In the commercial world," DeVos observed, "no bank regulator would allow this portfolio to be valued at full, face value."  

So why not just forgive all this festering debt--debt that is preventing struggling Americans from buying homes, having children, or saving for their retirement?

That notion is now a mainstream idea in American politics. Senator Bernie Sanders got the ball rolling when he called for wiping out all this debt.  Senator Elizabeth Warren proposed something slightly less radical--forgiving student debt up to $50,000.  And Joe Biden, the Democrats' presumptive nominee for the Presidency, wants to forgive all debt owed by individuals who attended a public university or a historically black college (HBCU).

Even Al Jazeera, an Arabic-focused news organization, based in Qatar, wants to forgive all federal student loan debt.  America is experiencing its worst economic crisis since the 1930s, Al Jazeera reporters pointed out, and the U.S. needs to prioritize relief  for "people, not profit." Al Jazeera calls for canceling all student loan debt, which would "help those hit hard by the coronavirus pandemic to "rebuild their futures."

Writing off all federal student debt is not a crazy idea, especially, as I just said, a bunch of it isn't being paid back anyway. But does Congress have the political will to do it? I don't think so.

After all, the straightforward solution to this crisis would be to simply allow overwhelmed debtors to discharge their student loans in bankruptcy. Bills have been introduced in Congress that would accomplish just that, but those bills have gotten nowhere. 

I've said this before, and I will repeat it. Congress should allow insolvent Americans to file for bankruptcy and discharge their student loans like any other consumer debt: credit cards, car loans, and business obligations. 

And all Congress needs to do to accomplish this sweeping reform is to remove two words from the U.S. Bankruptcy Code: "undue hardship." It is the "undue hardship" language, after all, that the federal courts have interpreted so harshly, and which has denied bankruptcy relief to millions of honest student-loan debtors.

Of course, if Congress abolished the "undue hardship" standard, it would need to appoint a lot more bankruptcy judges to deal with a torrent of bankruptcy filings. And the judges would need to make sure that people who have the financial wherewithal to repay their loans don't fraudulently apply for bankruptcy relief.

In my view, calls to wipe out all student debt are irresponsible because politicians know this is never going to happen. Bankruptcy reform provides an orderly and fair way to give unfortunate student debtors a fresh start while guarding against fraud. 

Coronavirus bailouts for the casinos but nothing for harried student-loan debtors: Let'em eat cake!

Congress turned on the money spigot last month and spewed out cash to millions of people and businesses that were hurt by the coronavirus pandemic.

The airlines are getting bailout money, the casinos are eligible for aid, and corporations are accepting loans they don't need. AutoWeb, for example, got a $1.4 million federal loan and gave its CEO a $1.7 million bonus one week later.

Meanwhile, millions of Americans are burdened by federal student loans they can't repay.  More than a year before the coronavirus outbreak, Education Secretary Betsy DeVos publicly admitted that only one out of four student borrowers were paying down both principal and interest on their federal loans.  One out of five borrowers, DeVos disclosed, were delinquent on their debts or in default.

Now, with the unemployment rate hovering near 15 percent, and millions of hourly workers out of a job, college-loan debtors are struggling more than ever.

And what has the Department of Education done to assist harried student debtors? Not much.

DOE is giving college-loan borrowers a six-month deferment from making their monthly payments, and it won't assess interest on outstanding loans during that time. DOE has also temporarily stopped seizing wages, Social Security benefits, and tax refunds of people who defaulted on their federal student loans.

In other words, the Trump administration is shoveling big bucks to corporations, while it throws a few crumbs to college-loan borrowers.

Here's an illustration that shows just how meaningless the Trump administration's response to the student-loan crisis has been.

Laurina Bukovics borrowed $20,000 more than 30 years ago to obtain a bachelor's degree from Wisconsin University. Through the years, she made regular monthly loan payments except during times when DOE gave her deferments or forbearances due to her financial difficulties.

Over 25 years, Bukovics repaid $29,000 on her student loans—140 percent of what she borrowed. Nevertheless, by the time she showed up in bankruptcy court, her student-loan debt had grown to $80,000—four times what she had received from the federal loan program.

How much relief does a six-month moratorium on loan payments give to people like  Ms. Bukovics, who have been burdened by student debt for their entire adult lives and have seen their loan burdens double, triple, or even quadruple?

Hardly any relief at all.  The federal government has poured out trillions to alleviate the financial crisis that was triggered by the COVID-19 virus.  But much of this money has gone to corporations and businesses. 

When corporations ask the feds for money to help them get through the coronavirus pandemic, the government responds by saying, "Where do we send the check?"

On the other hand, when beaten-down student-loan debtors try to discharge their student debt in bankruptcy, the federal government almost always opposes relief. Ms. Bukovics, for example, was unemployed while she was in bankruptcy and living temporarily with a friend. She had no car, and she was so impoverished that she qualified for food stamps and Medicaid.

And what was the response by the Department of Education's debt collector to Ms. Bukovics's plight?  ECMC opposed bankruptcy relief because it believed Bukokvics was spending too much money on food.

Betsy DeVos's summer home

Laurina Bukovics v. ECMC: An Illinois woman took out $20,000 in student loans, paid back $29,000 and still owed $80,000

Laurina Kim Bukovics enrolled as a freshman at the University of Wisconsin in 1985 and graduated five years later. She took out about $20,000 in student loans to finance her studies. Over the years, she paid back $29,000--almost 140 percent of the principle. 

Nevertheless, 25 years after she graduated, Bukovics owed $80,000 on her student loans--four times what she borrowed.  Even though she had made 99 loan payments between 1999 and 2015—equivalent to more than eight years of twelve monthly payments-- her college-loan debt had quadrupled due to accumulating interest.

In 2015, Bukovics sought bankruptcy relief. Two years later, she filed an adversary proceeding to discharge her student loans. In 2018, while her adversary proceeding was pending, Bukovics lost her job.

Educational Credit Management Corporation, the federal government's ever-diligent debt collector, opposed a discharge of Bukovics's student-loan debt. ECMC argued that Bukovics could not meet the "undue hardship" test because she had not tried to maximize her income and not lived frugally.

In particular, ECMC accused Bukovics of spending too much money on food and not being diligent enough in looking for work.  Her job search was too narrow, ECMC claimed. 

In deciding Ms. Bukovics's case, Bankruptcy Judge Jack Schmetterer applied the three-part Brunner test to determine whether Bukovics could repay her student loans while still maintaining a minimal standard of living.  After conducting an extensive analysis of Bukovics's financial history, Judge Schmetterer ruled in her favor.

Clearly, Judge Schmetterer concluded, Bukovics could not maintain a minimal standard of living if she were forced to repay her student loans. After all, Bukovics was unemployed, temporarily living rent-free with a friend, receiving government nutritional assistance (food stamps), and getting her health care through Medicaid.

"Put simply, Judge Schmetterer wrote, given Bukovics's "frugal lifestyle and overall significant budget shortfalls, including the lack of money to provide for even basic needs, she would be unable to maintain a minimal standard of living if required to repay her student loan" (Bukovics v. ECMC, p. 189).

Judge Schmetterer rejected ECMC's arguments that Bukovics had spent too much money on food. On the contrary, he commented, spending $360 for sustenance over two to three months was not excessive.

In any event, Judge Schmetterer observed, ECMC's position "misses the point" (p.188). In the judge's opinion, ECMC was inappropriately looking for pennies that Bukovics might save when it was evident that her income was inadequate to meet her basic human needs.

Judge Schmetterer also rejected ECMC's claim that Bukovics had not looked hard enough for a job.  The judge pointed out that she had applied for over 200 positions over sixteen months and that several applications had led to job interviews (p. 187). Although the judge acknowledged that Bukovics voluntarily gave up her last job, she had testified that she had been pressured to quit and that her position had been eliminated after she terminated her employment.

Implications of the Bukovics decision

The Bukovics opinion is remarkable not so much because Laurina Bukovics won her case but for the fact that ECMC, the Department of Education's designated representative, would oppose her.

Ms. Bukovics borrowed $20,000 to obtain a bachelor's degree from a well-respected public university. She repaid $29,000 by making almost 100 monthly payments. Although financial circumstances forced her to skip monthly payments from time to time, the Department of Education acknowledged her hardship by granting her 10 deferments or forbearances.

Thirty years after graduating, Bukovics had reduced her debt by one dime. In fact, she owed four times what she borrowed. She was in her early fifties and out of a job.

What reasonable person would argue that Laurina Bukovics should not be freed of debt she can never repay?  And yet ECMC, representing the United States government, made that argument.

Today, the American economy is crippled by the coronavirus pandemic, and the nation's unemployment rate is 15 percent. Millions of people are living in circumstances similar to those of Ms. Bukovics.  Surely we need a more compassionate and efficient way of freeing destitute Americans from unmanageable debt than applying the outdated and callous Brunner test that examines how much an unemployed person spends on food.

References

Bukovics v. Educational Credit Management Corporation, 612 B.R. 174 (Bankr. N.D. 2020).

Judge Jack Schmetterer: ECMC missed the point

Living in the Long Emergency, by James Howard Kunstler: A book review

James Howard Kunstler, prolific blogger, novelist, and social commentator, has written a new book titled Living in the Long Emergency. You should read it. America's economy and social order are careening toward the abyss, and Kunstler explains why.

Living in the Long Emergency is an update of The Long Emergency, which Kunstler published in 2005. In his earlier book, Kunstler predicted the collapse of America's industrial economy due to the world's rapidly depleting supply of recoverable petroleum. 

In Living in the Long Emergency, Kunstler reiterates his earlier thesis and explains why the so-called fracking miracle for extracting shale oil has not altered his predictions. Fracking is far more expensive than traditional methods of extracting oil, Kunstler writes, and is only viable when it can be financed through low-interest rates and high oil prices.  Moreover, it is a short-term phenomenon that does not alter the fundamental reality of dwindling petroleum reserves.  

As Kunstler summarized the matter:

The shale oil "miracle," therefore, was a very impressive financial and technological stunt. In practical terms, it provided a means to pull forward from the future the last dregs of recoverable oil, so the US could live large for a few years longer. As [an] independent oil analyst . . . put it: Shale is a retirement party for the oil industry."

Kunstler's new book also includes a brutal analysis of contemporary American culture, which our oil-dependent economy helped foster. His assessment of American life is unrelievedly bleak. A casual survey of American culture, Kunstler writes, "reveals shocking degrees of neuroticism, delusion, dishonesty, and functional failure in culture."

Suburbia, made possible by cheap gasoline, has "produced yawning ugliness on the landscape, an epidemic of loneliness, family dysfunction, and a dismal cavalcade of mass shootings in public schools." In America's heartland, what we now call flyover country, Kunstler sees traditional American values eroded by opiate addiction, suicide, obesity, and unemployment.

Kunstler is particularly hard on American higher education. "The thinking class," he writes, squanders its waking hours on a quixotic campaign to destroy every remnant of American common culture and, by extension, a reviled Western civilization . . . ."

I've spent a good deal of my life shuffling around in American universities, including a three-year stretch in Harvard's re-education camp (cleverly disguised as Harvard's Graduate School of Education). Kunstler's summation of American higher education is spot on. 

Rather than try to summarize Kunstler's cogent analysis, I'll simply quote him:

It case you haven't been paying attention to the hijinks on campus—the attacks on reason, fairness, and common decency, the kangaroo courts, diversity tribunals, assaults on public speech and speakers themselves, the denunciation of science—here is the key takeaway: It is not about ideas or ideologies anymore. Instead, it's purely about the pleasure of coercion, of pushing other people around, of telling them what to think and how to act.

Kunstler's book includes a lot more provocative ideas and social analysis than I have touched on here. My brief review doesn't do it justice. But I fully endorse his fundamental conclusion, which I think is this: America has crapped in its own mess kit and doesn't have the money or the moral energy to repair the damage it has inflicted on itself.

A hundred years from now, I believe people will still be reading James Howard Kunstler's work to understand how America went so wrong. In my mind, he is one of the very few people who comprehend what has happened to us.