Tardy praise for the Obama Administration's regulations to cut down on abuse in the for-profit college industry

Arne Duncan

I have criticized President Obama and Secretary of Education Arne Duncan for not doing enough to stop the abuse in the for-profit college industry and for failing to pass measures to ease the suffering of millions of stressed-out student-loan debtors.  I have argued for bankruptcy reform so that insolvent student-loan borrowers can discharge their student loans, and I favor a law that would prohibit the federal government from garnishing the Social Security checks of elderly student-loan defaulters. I also favor a crackdown on Dickensian loan-collection practices against student-loan defaulters.

I still favor those things, and I still think the Obama administration has not done enough to help people who have been injured by their participation in the federal student loan program.  But President Obama and Secretary of Education Duncan have tried to rein in the abuses in the for-profit college industry, and they deserve praise for their efforts.

In October 2010, the Obama administration released new regulations--called the program integrity rules--in an effort to stop fraud, misrepresentations, and high-pressure recruiting by for-profit colleges.  The rules prohibited for-profit colleges from paying bonuses to employees based on the number of students they recruited, a practice that encouraged recruiters to sign up students who were unqualified for the programs they borrowed money to enter.  The rules also contained sanctions against institutions that misrepresented their programs or their programs' costs.

In 2011, the Department of Education issued its gainful employment rules--rules designed to close down colleges that did not produce significant numbers of graduates who made enough money to pay off their student loans.

The for-profit industry sued to invalidate these regulations, and they enjoyed quite a bit of success.  A federal court struck down important sections of the program integrity rules, and another federal court essentially gutted the Department of Education's gainful employment rules.

But a few days ago, the Department of Education released new regulations to rein in abuse among the for-profit colleges. These new regulations wee drafted to avoid the legal pitfalls that led the original regulations to be struck down by the courts.

Of course, the for-profits may sue to strike down these new regulations, and they will certainly turn their lobbyist loose to keep the government from effectively stopping abuses in an industry that is ripe with abuse.

But at least President Obama and Secretary of Education are still trying to clean up the for-profit college industry. They face long odds, but they deserve credit for their perseverance.

References

Association of Private Sector Colleges and Universities v. Duncan, 681 F.3d 427 (D.C. Cir. 2012).

Association of Private Sector Colleges and Universities v.Duncan, 870 F. Supp. 2d 133 (D.D.C. 2012).

Chris Kirkham. For-Profit Colleges That Bury Students in Debt Face Second Obama Crackdown. Huffington Post, March 13,  2014. Available at: http://www.huffingtonpost.com/2014/03/13/for-profit-colleges-obama_n_4961163.html

Obama advances a good idea: Tax exemptions for student-loan borrowers whose student loans are forgiven

President Obama has proposed legislation that will give tax exemptions to student-loan borrowers who complete income-based repayment programs and whose loan balances are forgiven at the end of the repayment period. This is a good idea.

As is well known, the Obama administration is encouraging more student-loan borrowers to switch from standard 10-year repayment plans to income-based repayment plans (IBRPs)  that will stretch the repayment period out to 20 or 25 years. The advantage of these plans is that monthly loan payments are based on a percentage of the borrowers' income, which means most monthly payments will go down. People who are unemployed will not be required to make any monthly payments.


All well and good except that student-loan balances will actually grow for borrowers who are not making loan payments or are making payments that are not large enough to cover accruing interest on their loans.  Thus, many student-loan borrowers who elect IBRPs will find they still have a loan balance at the end of their 20- to 25-year repayment periods.

The New York Times carried a story recently that illustrates this point. A woman who borrowed around $300,000 to attend veterinary school obtained a job in her field but the job did not pay enough to allow her to pay off her loan in 10 years and still maintain a reasonable standard of living.   The veterinarian elected a long-term repayment plan, which lowered her monthly payments to a percentage of her income; but these payments did not cover accruing interest on her loans. The New York Times, figuring her likely income trajectory, estimated she would owe a total of  $600,000 on her student loans at the end of her 25-year repayment period--double the amount she originally borrowed!

Under the terms of the veterinarian's IBRP, the federal government will forgive this loan --all $600,000 of it; but under current IRS regulations, the forgiven amount is taxable income to her.  Thus, at the end of her 25-year repayment period, she faces a sizable tax bill.

President Obama's proposal would exempt her from this tax, which is a good thing.

Nevertheless, I don't agree with the Obama administration's push to get more student-loan borrowers to sign up for IBRPs. Nor do I agree with proposals to make long-term income-based repayment plans the default option for students who borrow money to attend college, which several commentators have suggested.

Look where we are headed--toward a higher education landscape in which millions of people will be paying on their student loans for the majority of their working lives.  And for many of these people, their loan payments will not be large enough to cover the accumulating interest, which means the federal government will be forgiving massive amounts of student-loan indebtedness.

And of course IBRPS do nothing to reign in the ever-growing cost of attending college.

Forcing people to pay a portion of their income to the government for a quarter of a century is imposing too high a price for the privilege of attending college. As I have said before, we need to allow distressed student-loan debtors reasonable access to bankruptcy.

References

Michael Stratford. Tax Breaks for Students. Inside Higher Education, March 4, 2014. Available at: http://www.insidehighered.com/news/2014/03/04/obama-budget-calls-changes-education-tax-benefits

"Bleep the EU": Victoria Nuland, another Obamacrat Ivy Leaguer, makes a fool of herself

Americans curse more and more--especially on reality-show TV.  Profanity has become so commonplace on television that the producers of Duck Dynasty actually add gratuitous bleeps for the Robertson family's dialog, because the Robertsons--evangelical Christians from central Louisiana--don't curse.

"Bleep the EU"

So we shouldn't be too shocked to learn that Assistant Secretary of State Victoria Nuland said "F--- the EU" in a leaked conversation with the United States Ambassador to the Ukraine, Geoffrey Pyatt.  What's most embarrassing, of course, is that the United States government and the New York Times have been lecturing Russia about meddling in the Ukraine, but the leaked phone call shows that it is the U.S. that turns out to be the biggest meddler.

And where did Ms. Nuland attend college? Brown University.  Yes, Ms. Nuland is another one of Barack Obama's people who was educated at an Ivy League college.  Apparently, these schools do not teach civility and diplomacy; they just  teach people to be scornful and arrogant.

Thus we have Secretary of State John Kerry, a Yale man, who insults the Syrians at the peace talks on the Syrian uprising by basically telling the Assad regime up front that it has to go.  He behaves so arrogantly to the Israelis that the Israeli Defense Minister  accused him of having a messiah complex.  And Barack Obama himself is so contemptuous of the American people that he lies to them repeatedly without bothering to even make a decent apology.

I've said it before, and I'll say it again.  All three branches of our government--but the Executive Branch and the Judicial Branch in particular--are stuffed with people who achieved degrees from elite universities who do not know how to behave decently.  They do not have the simple dignity, grace and character that most Louisiana crawfish harvesters innately possess.

References

Michael R. Gordon & Jodi Rudoren. Israeli Official's Reported Criticisms of Kerry and Peace Effort Draws U.S. Rebuke. New York Times, January 15, 2014, p. A8.

Andrew Higgins & Peter Baker. Russia Claims U.S. Meddling Over Ukraine. New York Times, February 7, 2013, p. A1.

"Fill out those forms, fill them out!" Michelle Obama recklessly urges low-income students to go into debt to attend college

Michelle Obama and Secretary of Education Arne Duncan were in Alexandria, Virginia earlier this week urging students to fill out federal financial-aid forms to attend college. "Fill out those forms, fill them out!" Michelle urged students as she watched them fill out the forms. "Don't leave money on the table."

Fill out those forms, fill them out!

I don't mean to be hard of Ms. Obama.  I commend her for urging high school students to attend college.  And I realize most low-income students need to borrow money in order to pursue the dream of a college education.  And the forms are complicated to fill out, although the Department of Education is trying to make them simpler.

Nevertheless, it is reckless and irresponsible to urge poor families to borrow money to attend college unless that advice includes some warnings about the trouble poor kids can get into when they take out college loans.

First of all, the federal student loan program has created a giant morass of debt that has sucked many people into a lifetime of penury. People who attend for-profit colleges are especially vulnerable.  According to DOE's own data, one out of five students who take out loans to attend for-profit institutions default within three years of beginning repayment.   And, as I have said before, the true default rate is probably double that.  And research shows that low-income and minority kids are most likely to be snagged by the rapacious for-profit college industry.

Is it irresponsible for the First Lady to urge students to take out student loans without warning them about the for-profit colleges?  Yes, it is.

Second, millions of people with college degrees hold jobs that don't require a college education, and millions more have made poor borrowing decisions--borrowing money to get an expensive degree in art education, for example, that will never open the door to a high paying job.

Consequently, lots of people have defaulted on their loans or have gotten economic hardship deferments. According to the Consumer Financial Protection Bureau, a federal agency, 15 million people have either defaulted on their loans or have stopped making payments because they are under some sort of economic hardship deferment or other forbearance program.

 Among the people who are making loan payments, quite a few are making payments that don't cover accruing interest, which means their debt is growing larger over time, even though they make their loan payments every month.

Is it irresponsible for Michelle Obama to encourage young people to borrow money to attend college without warning them of the consequences of making poor choices in terms of a college major or the cost of tuition at the college they choose?  Again, the answer is yes.

Meanwhile, Arne Duncan's Department of Education is frantically urging student-loan borrowers to sign up for income-based repayment plans that lower monthly payments but stretch out the loan  repayment period to 20 or even 25 years.  In my opinion, DOE is setting up America's young people to become a class of indentured servants--forced to turn over a portion of their paychecks to student-loan creditors over the majority of their working lives.

Let's face it: Barack Obama, Michelle Obama, and Arne Duncan are in a frenzied effort to preserve the status quo for the higher-education industry--a bloated, self-satisfied, increasingly isolated and irrelevant bunch of institutions led by overpaid blow-hard presidents.

Millions of people have fallen into the student-loan trap.  Financially stressed debtors can't take bankruptcy to discharge their loans.  They don't have access to consumer protection laws.  Those who are ripped off by the for-profit colleges can't sue because the for-profits force students  to sign agreements promising not to sue as a condition of taking classes.

Michelle may think her life story is an inspiration for aspiring young people who are living in poverty.  But the chance that these kids will go to Princeton and Harvard Law School like Michelle did is about as good as getting a lucrative contract to play for the Pittsburgh Steelers.

If Barack, Michelle and Arne want to start behaving responsibly, they should work to kick the for-profit colleges out of the federal student loan program.  They should work to amend the Bankruptcy Code to allow insolvent student-loan debtors to discharge their loans in bankruptcy. They should publicize the true student-loan default rate--which is probably double what DOE reports every year.

But Barack, Michelle, and Arne won't do that.  The higher-education industry's lobbyists and campaign contributions make sure no serious reforms will ever take place.  And millions of low-income and minority young people are seeing their financial futures destroyed, not enhanced, by the federal student loan program.

References

Emmarie Huetteman. First Lady Urges Students to Apply for College Aid. New York Times, February 6, 2014, p. A15.

National Consumer Law Center Report on Sallie Mae: Good Recommendations But They Don't Go Far Enough

The National Consumer Law Center (NCLC) published a report this week on Sallie Mae, the nation's largest lender of private student loans and a major servicer of federal student loans.  The report documents a long history of poor performance and allegations of wrong-doing. As documented by NCLC, Sallie  Mae was under investigation by both the Consumer Financial Protection Bureau and the Justice Department during 2013.

NCLC has produced a very useful and interesting report--but like most reports on the student-loan industry, it does not go far enough with its reform recommendations. In this blog, I will briefly summarize the NCLC  report and give my own recommendations for reform.

Sallie Mae: A Summary of the NCLC Report

The Student Loan Marketing Association--commonly called "Sallie Mae"--began as a government-sponsored enterprise during the Nixon administration. Today it is a publicly traded corporation involved in nearly every aspect of the student loan business.

Sallie Mae is incredibly profitable.  According to NCLC, it enjoyed a return of 30 percent on equity in 2006, and its income nearly tripled between 2010 and 2013. As of September 30, 2011, it has received almost $100 million from the federal government for servicing federal loans.

Sallie Mae's CEO, Albert Lord, received more than $200 million in compensation between 1999 and 2004 (NCLC Report, p.2).  According to Salary.com, Mr. Lord made more than $7 million in total compensation in fiscal year 2012.

Albert Lord, CEO of Sallie Mae
photo credit: Sallie Mae

How does Sallie Mae make its money? Besides servicing federal student loans, it lends money to student borrowers at high interest rates--often much higher than the rates charged under the federal student loan program.

In NCLC's view, Sallie Mae's activities are often not in the interest of student-loan borrowers.  Its private student-loan business offers loans at higher interest rates than loans offered through the federal student loan program and these loans do not provide options for forbearance and long-term repayment that are available to students who borrow from the federal program. Default rates are high for Sallie Mae's "nontraditional" loan, including loans made to students with poor credit ratings who attend for-profit schools.

NCLC also criticizes Sallie Mae's work as a servicer of federal student loans.  According to  NCLC,  Sallie Mae often encourages students who are delinquent on their loans to apply for forbearances instead of steering them into income-based repayment plans, which might be in the students' best interest.  Students who receive forbearnces on their loans are excused from making payments but interest accrues on the loan balance, making them more difficult to pay off.

NCC's Recommendations for Reform

NCLC recommends better oversight of Sallie Mae's activities and urges the government to hold Sallie Mae and other private loan servicers accountable for poor performance and legal violations.  Who can disagree?

NCLC also recommends the creation of a "safety net" for distressed student borrowers who took out private student loans, "including bankruptcy discharge rights and cancellation rights for fraud victims." Again, who could disagree?

My Own Belief: The Private Student-Loan Business Should Be Shut Down

NCLC's recommendations are reasonable, but they don't go far enough. In my view, the federal student loan program should be the exclusive provider of college loans.  In other words, the feds should shut down the private student-loan business completely.

Certainly, Sallie Mae and the major corporate banks should not be offering college loans to students at high interest rates and with inadequate consumer protections--loans which are almost impossible to discharge in bankruptcy. It is outrageous that Congress amended the Bankruptcy Code in 2005 to make private student loans nondischargeable in bankruptcy absent a showing of "undue hardship."

Even the banks themselves have come to realize that the their private student-loan activity is dirty business.  The banks have reduced their student-loan business from $22 billion in loans in 2008 to only $6.4 billion n 2012.  And JP Morgan Chase recently announced recently that it is getting out of the private student-loan business altogether.

All Congress needs to do to shut down the private student-loan industry is to repeal its 2005 Bankruptcy Code amendment and allow distressed student-loan borrowers to discharge their private student loans in bankruptcy just like any other unsecured loan.  That one reform would cause the banks to voluntarily stop offering private student loans.

Why won't Congress enact this one simple reform? Perhaps it is because Sallie Mae, the banks and the for-profit college industry pay powerful lobbyists to discourage Congress from cleaning up the giant mess that the student-loan business has become--both the federal student loan program and the private student-loan industry.  As NCLC pointed out, Sallie Mae paid lobbyists more than $22 million between 2007 and 2013 to protect its interests.

The Feds Should Not Be Paying Private Firms to Manage the Federal Student Loan Program

In addition, the Feds should stop paying private companies to service federal student loans and act as loan collection agencies.  The government now has $1 trillion in outstanding student loans and 39 million borrowers in repayment status.  It is time the government itself takes over the management of this huge portfolio of debt instead of outsourcing loan management to Sallie Mae and other private entities who act in their own private interest and not the interest of student borrowers.

References

Albert L. Lord executive compensation. Salary.com. Accessible at: http://www1.salary.com/Albert-L-Lord-Salary-Bonus-Stock-Options-for-SLM-CORP.html

JP Morgan Chase to stop making student loans. USA Today, September 5, 2013. Accessible at:
http://www.usatoday.com/story/money/personalfinance/2013/09/05/jpmorgan-chase-student-loans/2772509/

Deanne Loonin. The Sallie Mae Saga: A Governmet-Created, Student Debt Fueled Profit Machine. National Consumer Law Center, January 2014.

We live on different planets: The World of the New York Times is not the world of the average American

I live in fly-over country and can't get home delivery of the New York Times. Nevertheless, I get the Sunday Times  delivered to my home; and I can pick up a copy of the weekday issues at Benny's Car Wash on Perkins Road. I try to read it every day as part of my effort to stay informed about world events.

Lately, however, I have begun to suspect that the New York Times writers and I don't live on the same planet.  And today's issue heightened my suspicion.  Here are some stories that make me shake my head.

First, I read Frank Bruni's op ed essay excoriating the state of Texas for keeping an unborn baby alive even though its mother is brain dead, the victim of a pulmonary embolism.  The woman's husband and parents want the pregnancy terminated, but doctors say they are bound by law to bring the pregnancy to term.

As Bruni himself said, there are no happy outcomes to this sad scenario, but Bruni says Texas is devaluing the lives of the baby's father and it grandparents by not snuffing out the baby's life. 

I'm sorry, but I just don't get it. I think most husbands would want the baby to live in this situation and so would most grandparents.  I think it is unfortunate that they apparently find the baby inconvenient.  But to say that the state of Texas and the doctors in charge of this unborn baby's care are cruel is nonsense.

Let's move on.  Today's Sunday Review section contained two--count-em two--positive articles about legalized gambling.  Moises Velasquez-Manoff  wrote a piece on Indian casinos in which she compared casino distributions to Native American families to a mother nurturing her child  Yeah, right.  Ms. Velasquez-Manoff should spend some time strolling around the nation's casinos. She will see a lot of stressed-out, chain smoking elderly people pumping cash into slot machines--cash that most of them don't have to spare. Do those people looked nurtured?

And then there is an article by Greg Grandin, a professor at New York University (where students graduate with the highest average student-loan debt in the country).  Grandin analyzed an obscure Melville novel that Barack Obama once read and somehow linked it with contemporary American racism, Sarah Palin, Rand Paul, and the Tea Party.  Wonder what it costs NYU students to take a course from this guy?

Then we have an essay by Sam Polk, a wealthy former financier who claims to have been addicted to making money.  He was dissatisfied, he confessed when he only got a  bonus of $3.6 million.  Hey, fellah. Dorothy Day's got a cure for that addiction. Read Matthew 25.

And finally we have an op ed essay by Thomas Friedman, who urges President Obama to tell Americans in his next State of the Union speech that American kids are not doing as well in school as kids in other countries because American parents aren't demanding that their children be challenged more in the classroom.  OK, we get it.  The American education crisis is the parents' fault.

After pondering all this, I felt like I was reading news from a parallel universe--a world in which I do not live.  Some people might point out that the New York Times is not meant to be read by people like me and that I should stick to reading the Farmer's Almanac.  And they may be right. Certainly, all the advertisements for luxury goods that appear in the Times' supplements are not aimed at me or my family.

But here is the problem.  The  New York Times, the people who read the Times and the politicians that the Times adores (Barack Obama) are contemptuous of the people who live in fly-over country; but they want to dictate how these people live. They express outrage when state legislatures try to put reasonable restrictions on abortion or try to maintain marriage in the Judeo-Christian tradition.  They imply that politicians who speak for some of us are white supremacists. They show disdain for American values but they want people who hold those values to fight and die in foreign wars the Obama administration doesn't even believe in.

I do not write this from a partisan political perspective. I am no red-stater.  I have no more regard for Sarah Palin than the New York Times editorial board.  I write from the perspective of a person who believes that traditional American culture--what we might call middle-class culture or Judeo-Christian culture--is basically benign and healthy. And I am alarmed to see powerful political forces  show disdain for the traditional values that served this nation pretty well for over 200 years.

References

Thomas Friedman. Obama's Homework Assignment. New York Times, Sunday Review section p. 1.

Greg Grandin. Obama, Melville and the Tea Party. New York Times, Sunday Review section p. 6.

Sam Polk. For the Love of Money. New York Times, Sunday Review section p. 1.

Monica Velasquez-Manoff. When the Poor Get Cash. New York Times, Sunday Review section, p. 12.

President Obama's White House Summit with Higher Education Leaders: How Important Was It?

President Obama invited about 100 college presidents and higher-education industry leaders to the White House yesterday to talk about expanding education opportunities for low-income minority students. How important was this event?

Well, the New York Times carried the story on page 14, so perhaps the event wasn't too important.  As its ticket for admission, each institution submitted a plan for expanding college access for poor, non-white students; but I'm sure that didn't take any of those 100 institutions more than 5 minutes to develop.  Higher education has been obsessed with affirmative action for more than 30 years.  They all have plans in place to increase minority and low-income enrollment.

I commend President Obama for highlighting the fact that higher education has become far too expensive, which has created hardships for low- and moderate-income families who want to send their children to college. His bully pulpit approach has probably contributed to the gradual easing of annual tuition-price increases.  Universities that charge $50,000 a year for room, board and tuition are embarrassed to raise their prices much higher.

But let's step back and look at the big picture. The Higher Education Act of 1965 was intended to provide opportunities for low-income students to attend college, regardless of their financial wherewithal. Affirmative action, which the Supreme Court approved in Grutter v. Bollinger was intended to expand educational opportunities for minority students.

Today, the federal government pours more than $100 million a year into student financial aid, and total student indebtedness has reached $1.2 trillion.  Average student-loan indebtedness among those who take out loans (about 65 percent) is pushing toward $30,000 by the time students graduate.

Millions of college graduates (almost half) hold jobs that don't require a college degree, and the gap between college completion for low-income families and high income families has widened. Will more money, more special programs, more focus on affirmative action improve this picture?

I don't think so. I think Michelle Obama might have made the most perceptive observation at yesterday's White House Summit. Intervention and encouragement are the key, she said, to ushering low-income and minority students into the world of higher education.

I agree, and I speak from personal experience. I came from an Oklahoma farm family and got a bachelor's degree from a public university in Oklahoma without any guidance about what I was going to do with that degree.  I  had no clue about how to develop a career or find a rewarding job with a middle class salary.

A friend of mine was attending the University of Texas School of Law, and he encouraged me to explore going to law school. My friend gave me the name of the Dean of Students, the late Thomas J. Gibson; and I made an appointment to see him.

Dean Gibson took time out of his busy schedule to ask me about my background and interests, and he made arrangements for me to sit in on some law-school classes--including a class taught by the great Charles Alan Wright--one of the nation's premier authorities on federal civil procedure and the courts.

Charles Alan Wright

As the result of my friend's encouragement and Dean Gibson's kind interest in me, I went to law school and graduated with honors.  And my legal education changed my life.

My point is this. We can pour more money into higher education; we can establish more federal programs; and we can hire more college administrators to administer those programs.  But what young people really need is for someone to take a personal interest in them and help them navigate the seemingly impenetrable bureaucratic obstacles to finding out what they need to know to get an appropriate college degree without going into too much debt.

In short, we need more kind and civic-minded people in higher education--more people like Dean Gibson. Unfortunately, for all the rhetoric and posturing by our college presidents and senior administrators, kind people are in short supply in our nation's college and universities.  And a White House Summit is not going to change that sad reality.

References

Allie Bidwell. Millions of Graduates Hold Jobs That Don't Require a College Degree, Report Says. The Chronicle of Higher Education, January 28,2013.

Jackie Calmes. Obama Lauds Pledges to Expand College Opportunities. New York Times, January 17, 2014, p. A14.

Jason DeParle. For Poor, Leap to College Ends in Hard Fall. New York Times, December 22, 2012. Accessible at: http://www.nytimes.com/2012/12/23/education/poor-students-struggle-as-class-plays-a-greater-role-in-success.html?pagewanted=all&_r=0