DOE plays Whack-a-Mole with the Student Loan Program: Not a safety net but a noose

According to Techopedia, the term “whack-a-mole” describes a process "where a pervasive problem keeps recurring after it is supposedly fixed."

That's a great description of what the Department of Education is doing with the federal student-loan program.  It's playing whack-a-mole.

Here's DOE's latest fun-house trick to create a "safety net" to "permanently fix a broken student loan system."

The Department is going to revamp its Rube Goldberg system of income-based repayment plans into a new program that will make college damn near free for millions of college students.

As DOE spokespeople explained, student debtors in income-based repayment plans will only be required to pay five percent of their discretionary income toward paying back their loans--no matter how much they borrow!

Pretty sweet. But the deal gets sweeter.  DOE's generous new repayment plan describes discretionary income as 225 percent of a person's income above the federal poverty level.

Here's an example of how DOE's new repayment scheme will work. Single student borrowers will only have to pay 5 percent of their annual income above $30,000 on their student debt. 

Let's suppose a single guy graduates from St. Nobody College owing $58,000 in student loans. (That's the average debt load for graduates of private schools.)

Let's further suppose our guy earns a salary of $55,000 a year, the average starting salary for a recent college graduate.

What will be our guy's monthly student-loan payment on the $58,000 he borrowed to attend St. Nobody? 

The math is simple. He will pay five percent of $25,000 ($55,000 minus $30,000). That's $1,250 a year or $104 a month.

And if our young scholar is married and has two children when he graduates from college, his discretionary income will be adjusted upward. He won't have to pay anything on his student loans--not one fuckin' dime!

Don't take my word for it. That's what DOE's January 10 press release reported. 

How about accruing interest? Under DOE's old income-based repayment plans, small monthly payments on student loans often don't cover accruing interest on the debt, so the debt grows larger with each passing month.

Again, no problem! Education Secretary Cardona's new student-loan bonanza won't charge you interest! 

In sum, Education Secretary Cardona is playing whack-a-mole with the student loan program. Instead of doing something to fix this trillion-dollar problem, he's rolling out a scheme that's designed so that most student borrowers don't have to pay back their debts.

James Kvall, Undersecretary of Education, described DOE's razzle-dazzle plan as a safety net.  But's he wrong. It's not a safety net; it's a noose designed to strangle American taxpayers.

Let's play whacka-mole!

Color Me Cynical. Department of Education Statement Out of Touch on Loan Forgiveness. Essay by Steve Rhode

by Steve Rhode

Can we be honest for a minute?

The entire issue of forgiving student loans with a one-time approach is stupid. It does not address the systemic breakdown of the cost of higher education or the realities of the BS schools selling students into debt for the corporation’s benefit.

If the Biden student loan forgiveness plan were to be allowed, it would clear the debt of many, and the cycle would start over again.

Here is the POV from the Department of Education:

U.S. Secretary of Education Miguel Cardona issued the following statement after the Departments of Education and Justice filed a legal brief with the Supreme Court on the Biden-Harris Administration’s Student Debt Relief Program:

The Biden-Harris Administration remains committed to fighting to deliver essential student debt relief to tens of millions of Americans. As part of this commitment, today the Departments of Education and Justice filed a legal brief with the Supreme Court explaining our legal authority under the Higher Education Relief Opportunities for Students Act to carry out our program of one-time, targeted debt relief. We remain confident in our legal authority to adopt this program that will ensure the financial harms caused by the pandemic don’t drive borrowers into delinquency and default. We are unapologetically committed to helping borrowers recover from the pandemic and providing working families with the breathing room they need to prepare for student loan payments to resume. As previously announced, student loan payments and interests will remain paused until the Supreme Court resolves the case because it would be deeply unfair to ask borrowers to pay debt they wouldn’t have to pay, were it not for meritless lawsuits.”

If the Department of Education, Administration, and lawmakers were so committed to resolving this problem, it would take one action, allow all student loans to be dealt with in bankruptcy as any other debt.

Until that happens, the gyrations from what we want, and you can’t have camps, is just a waste of human energy and time.

The current student debt problem is not about federal student loans alone. This didn’t arise with the pandemic. This has been an epidemic in college financing and has been growing for decades.

I would love for student loan debtors today to have solutions and prevent future students from winding up in the same cesspit.

Someone needs to wipe the lipstick off of this pig.

*****

This essay was originally posted on January 9, 2023, on the  Get Out of Debt Guy website. 

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.

Elderly Student-Loan Defaulters Will See Their Social Security Checks Garnished When Pause on Student Loan Payments Ends

In response to the COVID pandemic, the Department of Education stopped garnishing the Social Security checks of elderly student-loan defaulters in March 2020. However, DOE will return to that practice soon--probably by midsummer 2023.

In an article posted on MSN.com, Vance Cariaga estimated that garnishment of Social Security checks will cost senior student-loan defaulters, on average, about $2,500 a year. 

Only a small percentage of elderly Americans have outstanding student-loan debt, but that percentage will likely go up in coming years, partly because millions of college borrowers are signing up for income-based repayment plans that can stretch out for as long as a quarter of a century.

In fact, Variaga cited estimates that 22 percent of Black Social Security beneficiaries will have student-loan debt in the coming years, along with 14 percent of White Social Security beneficiaries and 10.4 percent of Hispanics. 

Think about that. Virtually every American is eligible for Social Security benefits. Thus, if the estimates Cariaga cited are accurate, more than one out of five Black Americans will still have student debt when they reach retirement age.

If we were to poll members of Congress, I doubt that a single one supports garnishing Social Security checks of student-loan defaulters in their senior years. Not only is it heartless, but it's also pointless. A Government Accountability Office report that appeared several years ago found that money collected from garnishing Social Security checks seldom reduced defaulters' loan balances. Most of the garnished funds went toward paying accrued interest.

Why doesn't DOE abandon the practice? Alternatively, why doesn't Congress abolish the practice?

I'll tell you why. Despite all the rhetoric, litigation, and policy proposals, our nation's education and political leaders refuse to focus on the core reality of the student loan crisis, which is that millions of college borrowers have had their lives blighted by student debt they can't pay back. Burdened by student loans, Americans are increasingly unable to buy homes, save for retirement, or even get married or start families.

If Congress truly grasped the magnitude of the student-loan catastrophe, it would do at least these two things: It would abolish the practice of garnishing Social Security checks of elderly student-loan defaulters, and it would allow overburdened student debtors to discharge their student loans in the bankruptcy courts. 

Federal Reserve says student-loan delinquencies will go up if Biden's loan forgiveness plan is scrapped

 Last August, President Biden announced his plan to forgive between $10,000 and $20,000 in student debt to individuals who make less than $125,000 a year. He also extended the pause on making student loan payments until at least midsummer.

Who could object?

Turns out, a lot of folks objected. The NAACP didn't think Biden's plan was generous enough, calling it "a slap in the face." Senate Minority Leader Mitch McConnell called the plan "wildly unfair" because it forces taxpayers to subsidize a government program that mainly benefits high-income individuals. 

Several state governments are also unhappy. A group of states sued the Biden Administration (Nebraska v. Biden), seeking a court ruling that the President's loan forgiveness program is illegal. The Eighth Circuit stopped Biden from implementing his plan pending a judicial ruling on its legality.  The Supreme  Court is reviewing the controversy and is expected to give a final decision on Biden's giveaway by the end of June.

A few days ago, the Federal Reserve Bank of New York weighed in with a highly technical report buttressed by multiple charts, graphs, and mathematical formulae. Here's what the New York Fed concluded about Biden's debt-forgiveness plan:

The plan will cost $441 billion and grant debt relief to 38 million eligible college borrowers. In the Fed's view, Biden's proposal is progressive. In other words, it does not disproportionately benefit rich people. The Fed also estimates that almost fifteen million borrowers with low loan balances will see their student debt wholly erased. 

Ominously, the Fed also noted a recent uptick in credit card and auto loan delinquencies, a sign that student borrowers are struggling to make ends meet even though they've been excused from making student-loan payments for almost three years.  The Fed predicts that the student-loan delinquency rate will rise if college borrowers don't get debt relief and are forced to resume making their monthly student-loan payments next summer.

Here's my take on President Biden's student-loan forgiveness plan and the litigation it triggered.

First, I support modest debt relief for some student debtors. Many college borrowers with low loan balances are college dropouts who took a few courses but never got a degree.  Given all the helicopter money the government dumped on the business community during the COVID crisis, forgiving $10,000 or $20,000 in student debt seems reasonable. 

However, if Biden's proposal is such a good idea, why didn't Congress initiate the plan through legislation? It's Congress's job--not President Biden's--to preside over what the Fed called "the largest mass discharge of consumer debt in modern history."  I think the Supreme  Court will likely strike down Biden's loan-forgiveness scheme when it rules on Nebraska v. Biden later this year.

Finally, as the Federal Reserve Bank pointed out in its report, loan forgiveness will not solve the growing crisis in college affordability. 

This one-time forgiveness event [the Fed report stated]does not directly address the rising cost of post-secondary education that led to ever-exploding balances in the first place. In fact, if borrowers expect future debt cancellation events, they may borrow even more if there is some chance it will be forgiven in the future. 

Let's face it. A college education costs too damn much. It's nuts to ask students to pay $50,000 a year in tuition to get a college degree in liberal arts or the social sciences. 

Unfortunately, our nation's politicians and policymakers aren't even asking universities to reign in their costs, and college leaders inexorably raise their tuition rates year after year. 

We will never get the student loan crisis under control until we get college costs under control. But the federal government is not doing that. Instead, it subsidizes the increasingly dysfunctional and irrelevant college industry and forces college students to pay the bill.

 

 

'Is Harvard turning into a huge joke?' Grade inflation is a product of laziness

 Brad Polumbo recently posted an essay in the Washington Examiner titled "Is Harvard turning into a huge joke?" Polumbo focused on rampant grade inflation at the dowdy old school, where the average GPA for undergraduates is 3.8 out of 4.0. In other words, most Harvard students get As on their report cards.

In fact, grade inflation is so bad that Harvard abolished its Dean's List because most students were on it.  And this is not a new phenomenon. In 2001, more than twenty years ago, 91 percent of Harvard students graduated with Latin honors (summa, magna, or cum laude). Since then, the university has tightened its standards for an honors degree, but it still awards Latin honors to 50 percent of its graduates. 

As Polumbo points out, Harvard's grading system essentially gives students participation awards--turning America's most famous university into "glorified academic daycare."

Of course, Harvard is not the only university that has succumbed to grade inflation. I worked at four public universities before I retired, and I am confident that 95 percent of graduate students in the field of education received an A or B grade.  

Polumbo suggested that economics may explain the decline of rigorous grading. Colleges are desperate to enroll and retain students because they need the tuition revenue. They will do almost anything to keep their students happy.

However, that theory doesn't explain grade inflation at Harvard. Harvard College has a highly selective admissions process; it only admits about 4 percent of all applicants.  Harvard administrators are not worried about attracting and retaining students.

Grade inflation at Harvard and colleges across the country can best be explained by an age-old human weakness--sloth. 

 Grading a stack of student essays takes a lot of work. It is difficult to determine which students turned in superior work that deserves an A. It is even more challenging to establish which students submitted above-average work worthy of a B or a B+ but not an A-.

And it is excruciatingly onerous to hand out C grades for mediocre exams and then articulate an objective justification for that grade to a disappointed and angry student who might slap a professor with a grade appeal to the Dean.

It is much easier to distribute A grades to everyone, much like tossing out beads and baubles from a Mardis Gras float.

Of course, there is a price to be paid for grade inflation. Exceptionally bright students lose their enthusiasm for learning when they realize they will get the same grade whether or not they push themselves to excel.

Likewise, lazy students soon figure out that they will probably get a high grade even if they turn in shoddy work.  

Moreover, the value of a college degree is eroded by grade inflation. If the universities do not insist on rigor, how can they justify their exorbitant tuition prices? 

More ominously, once university culture is dominated by mediocrity, that ethos will seep into American society as a whole. Young people who slouch their way through college will be programmed to slouch their way through life.

Everybody gets an A!
Photo credit: KPEL

Sam Bankman-Fried and the Crypto Scandal: Lessons for Average Americans

Sam Bankman-Fried, founder of FTX, a cryptocurrency exchange, was once worth billions of dollars. Today he is sitting in a Bahamian jail, abiding with rats and maggots. Worse--the prison doesn't offer a vegan menu.

Sam was to have testified before a Congressional hearing about his financial dealings. However, a federal prosecutor filed criminal charges against him, and the Bahamian authorities obligingly locked him up before he spilled the beans.

And so many beans to spill. Commentators estimate Sam has one million creditors, primarily investors. 

Federal prosecutors are accusing him of securities fraud, wire fraud, money laundering, and numerous violations of campaign finance laws.

The mainstream media has portrayed Bankman-Fried as a naive and inexperienced investor who got over his skis. I think that's bullshit.

SBF is no country bumkin. He graduated from the Massachusetts Institute of Technology with a degree in physics.

He certainly grew up in sophisticated surroundings. His Wikipedia bio says he was born "on the campus of Stanford University." (Evidently, Stanford has a maternity ward).

Sam's dad, a professor at Stanford School of Law,  is a tax specialist who got his law degree from Yale. Sam's mom, a recently retired Stanford law professor, has three degrees from Harvard, including a law degree.

So what's next for Sam Bankman-Friedman and his crypto empire, which some people describe as a giant Ponzi scheme?

There are two possibilities. If Sam's shenanigans are fully exposed, the public may discover that many influential politicians profited from Sam's activities, which could trigger a political earthquake and multiple indictments.

On the other hand, the full extent of this scandal may never come to light. Sam is in a Bahamian jail awaiting extradition to the United States. Sam might be prosecuted vigorously, but he will likely take a plea deal without ever publicly testifying.

Regardless of how this saga plays out, Americans can learn a lot from Sam Bankman-Fried and the FTX fiasco.

First, people should only invest in financial vehicles they understand. Who really knows what cryptocurrency is or why it has value? And yet, millions of people invested their savings in crypto.

Second, financially insecure people should not invest their meagrer savings in desperate schemes to reverse their fortunes.  Many Americans are approaching their retirement years with inadequate savings and are panicking.

Nevertheless, impecunious people who think they can get rich by investing in cryptocurrency are like the guy who loses heavily at the roulette wheel and places his entire dwindling stake on black. Desperate gambling often leads to disaster.

Finally, FTX's collapse is a reminder that people who have degrees from elite universities aren't necessarily smart.  Sam Bankman-Fried and almost everyone associated with FTX holds a degree from an exclusive school. Yet look what happened?

Sam Bankman-Fried has a degree in physics from M.I.T.

"Let's all pretend we couldn't see it coming" (The US Working-Class Depression) by Dahn Shaulis

How is the working-class Depression of 2020 similar to the other 47 financial downturns in US history? 

Downturns are frequently precipitated by poor economic and cultural practices and preceded by lots of signals: over-speculation, overuse of resources, oversupplies of goods, and exploitation of labor. What I see are many poor practices brought on by corruption--with overconsumption, climate change, growing inequality, and moral degeneration at the root.

The "disrupters" (21st century robber barons) have enabled an alienating and anomic system that is highly dysfunctional for most of the planet, using "algorithms of oppression." And this cannot be solved with data alchemy, marketing, and other forms of sophistry.

Put down your iPhone for a minute and ponder these rhetorical questions:

• How did people not know that another economic crisis was around the corner?
• Doesn't anyone have a sense of US economic history?
• Doesn't anybody read? Even a little?
• Wasn't it only a dozen years ago that we faced a similar crisis?  
  

Warm Koolaid (2016) signified corporate America's use of myths and distractions to sedate the masses. 

How long have we known about all of this dysfunction? Academics have known about the effects of global climate change and growing US inequality since at least the 1980s. The Panic of 2020 should be a lesson so that we don't have a larger economic, social and environmental collapse in the future.

Who will hear the warnings and do something constructive for our future? Or is this Covid crisis another opportunity for the rich to cash in on the tragedy?

The answer lies, in part, to an ignorance of history and science, and oversupply of low-grade information, poor critical thinking skills, and lots of distractions. That's in addition to the massive greed and ill will by the rich and powerful.

US downturns are baked into this oppressive system. And crises are used to further exploit working families. With climate change and a half century of increasing inequality, these situations are likely to worsen.

"An economy based on mass deception, exploitation, degradation and oppression, violence, war, and massive environmental destruction...is unsustainable."

Workers will resist and fight oppression; they always do, but will they have a voice as the US faces another self-induced crisis, as trillions are doled out to those who already have trillions?

Here are the dates of the largest economic downturns.

1797-1800

1807–1814

1819–1824

1837–1843

1857–1860

1873–1879 (The Long Depression)

1893–1896 (The Long Depression)

1907–1908

1918–1921 (World War I, Spanish Flu, Panic of 1920-21)

1929–1933 (Stock Market Crash, Great Depression)

1937–1938 (Great Depression)

Feb-Oct 1945

Nov 1948–Oct 1949

July 1953–May 1954

Aug 1957–April 1958

April 1960–Feb 1961

Dec 1969–Nov 1970

Nov. 1973– March 1975

Jan-July 1980

July 1981–Nov 1982

July 1990–March 1991

Mar-Nov 2001

December 2007 – June 2009 (The Great Recession)

March 2020-

We live in an economic system that is unsustainable, unjust, and exploitative. While many of us in academia and the thought industry have known this for decades, those with greater wisdom have known for centuries. Techies and disrupters think it can all be solved with technology, not with profound wisdom. The ultimate in hubris and reductionism. We have to change the system politically, socially, and culturally. We have to be wiser.

How do we do that, radically change society, when our economic system has driven us in the wrong direction for so long? Some of these lessons can be learned from working-class history, but they have to be applied with wisdom.

*****

This essay, written by Dahn Shaulis, was originally posted on Higher Education Inquirer.