The Private Student Loan Industry Doesn't Need Better Regulation: It Needs to Be Exterminated

Businesses that protect homeowners from termites and roaches call themselves pest control companies. But speaking as a homeowner, I don't want the roaches in my house to be controlled. I want them dead.

Image credit: pestcontrolman.cm

The Consumer Financial Protection Bureau (CFPB) is much like a pest control company that looks out for the interests of the pests.  It wants to regulate the the nation's rapacious financial services sector in a way that doesn't cause the banks too much discomfort. When it comes to the private student loan industry, this attitude is a mistake.

As the New York Times pointed out in a recent editorial, private student loans are very different from federal student loans.  Students who take out federal student loans get a fixed interest rate, and they can apply for an economic hardship deferment if they run into financial difficulties.  Private lenders often offer variable interest rates that allow monthly loan payments to adjust upward,  and they usually don't have any process in place to assist financially distressed borrowers.

The CFPB collects hundreds of complaints each year from people who took out private student loans. In a recent analysis,  the  Bureau reported that some private student-loan borrowers were forced into default without warning even though they were current on their loan payments In particular, the CFPB documented that some student-loan borrowers who were making regular payments on their loans were forced to pay back the entire amount of their loans if a person who co-signed their loan died.  Some student borrowers received notice from their lender that their loans were being called due at the same time they were mourning the loss of the parent or grandparent who had cosigned the student's college loan. Now that's crumby behavior.

And guess which private lender received the most complaints? Sallie Mae.  The CFPB received 995 complaints about Sallie Mae between October 2013 and March 2014.  That's a 50 percent jump over the previous measuring period.

And coming in second place for most number of complaints was JP Morgan Chase.

Issuing private loans is a particularly lucrative business for the banking industry. Why? First of all, in 2005, the banks got Congress to amend the bankruptcy laws to make private student loans almost impossible to discharge in bankruptcy.

Second, about 90 percent of these loans are co-signed--often by a parent or a grandparent. Co-signers stand jointly liable with the student borrower when it comes to paying off a private student loan. And co-signers--like the student borrowers themselves--cannot discharge a private student loan in bankruptcy except under very rare circumstances.

In its recent report, the CFPB practically begged the banks to be more compassionate to their student-loan debtors.  Rohit Chopra, CFPB's Student Loan Ombudsman, pointed out that a student-loan borrower who had a bad experience with a bank would be less likely to use that bank for other banking matters. And, Chopra added, treating student-loan borrowers  badly might hurt the banks' reputation.  Yes--the CFPB's Student Loan Ombudsman actually expressed concern about the banks' reputation!

The New York Times, commenting on the CFPB's report, thinks more federal regulation is the way to deal with the rapacious private student-loan industry. "Federal regulators clearly have a lot to do to address what amounts to a student loan crisis," the Times editorialized. Regulators "can begin by preventing contracts that unfairly burden borrowers," the Times suggested and loan terms "should be clearly stated."  And--the Times concluded, student-loan borrowers should be notified when their loans are at risk and borrowers in good standing should not be "shoved into default."

Personally, I don't give a damn about Sallie Mae's reputation or the reputation of the banks that have been mistreating private student-loan debtors. And I don't think another layer of regulation will make the banks behave more compassionately or more responsibly.

The way to deal with problems in the private student-loan industry is to shut this sleazy business down. And that can be easily done. All Congress needs to do is to repeal the 2005 law that made it exceedingly difficult for private student-loan debtors and their guarantors to discharge student loans in the bankruptcy courts.

If Sallie Mae, JP Morgan Chase, Wells Fargo and the other major players in the private student loan industry knew that distressed student-loan debtors could discharge their student loans in bankruptcy in the same way they could discharge other non-secured debts, they would get out of the student loan business in a hurry.  And that is exactly what we should want them to do.

References

Rohit Chopra. Mid-year update on student loan complaints. Consumer Financial Protection Bureau, April 2014.

Editorial. Troubling Student Loans. New York Times, April 29, 2014, p. A20.

David Leonhardt says it's harder and harder to get into Harvard University: "Frankly, my dear, I don't give a damn!"

David Leonhardt wrote an essay in the Sunday issue of the New York Times about how hard it is these days for someone get admitted to an Ivy League college--particularly if the applicant is an American. In 1994, Leonhardt wrote, about 45 college-age Americans out of every 100,000 were attending Harvard.  In 2012, that number dropped to just 33 out of every 100,000.

David Leonhardt

At the same time, the number of foreign students attending our nation's most elite institutions is growing. According to Leonhardt, about 10 percent of the student body at many of the nation's most selective colleges are foreigners.

Why are our elite institutions admitting more foreign students?  Because they can pay the full freight of tuition, room and board without the need for grants or scholarships In other words, foreign students from wealthy families are an important revenue source for America's most prestigious colleges and universities.

Leonhardt's essay appeared just a few days after Evan Mandery published an article in the Times deploring the fact that the nation's most elite institutions give admission preferences to the children of their alumni.  Mandery said that legacies have a big edge in the admissions process similar to the edge given to African Americans, Hispanics, and varsity athletes.

Take together, Leonhardt's essay and Mandery's essay convey a very clear message. If you want to go to an Ivy League college or a handful of other selective institutions it will help you if you are Hispanic, African American, the child of an alumnus, a varsity athlete or a wealthy foreigner.  And as Leonhardt pointed out, a "large fraction" of students from all these categories come from high-income families.

I could not tell whether Leonhardt was critical of this trend or a supporter.  Like so many New York Times op ed essays, Leonhardt's article wallows in cryptic indecision.  Leonhardt concludes his essay with these lines: "[T]hese [elite] schools have become a patchwork of diversity--gender, race, religion, and now geography. Underneath the surface, though, that patchwork still has some common threads." 

I have no idea what that means.

I do know that white male Southerners and Midwesterners who come from low-income families have very little chance of being admitted to an Ivy League school.  But so what?  Why would anyone who grew up living in the real world want to enter a higher education environment in which admission decisions are based--even in part--on race and greed? 

In my opinion, young people who want to expand their horizons by going to college should skip the elitist institutions--Harvard, Yale, Emory, Brown, etc. etc.  Instead, they should consider studying outside the United States.  Why not attend college in Monterrey or Guadalajara, for example?  Even if the educational experience is unexceptional, Americans studying in Mexico will learn an important second language and immerse themselves in another culture.

As it happened, Leonhardt's essay appeared in the same issue of the Times as an article about  Elizabeth Warren, a former Harvard Law professor and now U.S. Senator.   Warren has been critical of the federal government for regulating the finance industry in a way that favors Wall Street. "The game is rigged," Warren was quoted as saying, "and the American people know it."

Warren is right of course, but it is not only Wall Street that has rigged the game against the American people. Our elite colleges and universities have rigged the game as well.  It is no accident that Lawrence Summers, former president of Harvard, has also been a hedge fund manager and was one of President Obama's top economic advisers.

Warren quotes Summers as telling her she could be an outsider or an insider, and Warren obviously portrays herself as an outsider and friend of the little guy.  And maybe she is.  But we should not forget that Warren advanced herself in the world of academia by portraying herself as being part Native American--specifically a Cherokee--when in fact she almost certainlyis  not.

And so I repeat my question. Why would anyone want to attend an elite college where a person's advancement can be enhanced by the fact that he or she might have a trace of Native American blood?

Yes indeed, Elizabeth. The game is rigged.

"The game is rigged."

References

David Leonhardt. Getting Into the Ivies. New York Times, April 27, 2014, Sunday Review Section, p. 1.

Gretchen Morgenson. From Outside or Inside, the Deck Looks Stacked. New York Times, April 27, 2014, Sunday Business Section, p. 1.

Elitist Colleges Give Admissions Preferences to Children of Alumni: Let's Kick Them Out of the Federal Student Aid Program

Evan Mandery wrote an op ed essay in the New York Times recently decrying the preferential

admissions polices of our elitist colleges.  No--Mandery was not talking about affirmative action, whereby colleges give preference to minority applicants when making admissions decisions. He was talking about the special preferences many elitist colleges give to the children of alumni--often called legacies.

According to Mandery, the children of alumni have a 45 percent greater chance of admissions at 30 of our nation's most elite colleges than non-legacies. Mandery thinks it is wrong for colleges to favor the children of alumni when making admissions decisions, and I agree. The legacy preferences of our elitists colleges stink.

Almost in passing, Mandery acknowledged that our elitist institutions also give admission preferences to racial minorities.  In fact, Mandery noted that being a legacy is "the equivalent of 160 additional points on an applicant’s SAT, nearly as much as being a star athlete or African-American or Hispanic."  

So here is the bottom line. If you want to attend Harvard, Yale, or a couple of dozen other elitist universities, it will help enormously  if you are Hispanic, African American, or the child of an alumnus.

Like most New York Times essayists, Mandery probably thinks he is a liberal progressive. But his suggestions for ending legacy preferences are about as radical as 1950s era Reader's Digest article.  Here are  his suggestions: "a huge reform" of the nation's tax structure and "improved access to higher education."  My God, Mandery's an anarchist!

Such twaddle.

Mandery's suggested reforms have nothing to do with the rotten and corrupt way our nation's elitist colleges are admitting students.  As Mandery admits--these slimy institutions give preferences to their rich alums and to racial minorities.   What's more, they brag about it!

 I suppose laws could be passed to ban these practices, but as Justice  Ruth Ginsburg said in her dissenting opinion in Gratz v. Bollinger, our nation's colleges would probably continue giving racial preferences when admitting students even if it were illegal; they would just lie about it. 

Evan J. Mandery
photo credit: Amazon.com

As for me, I think we should kick the elitist colleges and universities out of the federal student loan program and invest this money solely in public universities and public community colleges.  I favor letting Harvard, Yale, Dartmouth, Brown, Wesleyan, Smith and all the other private elitist institutions stew in their own postmodern and often racist juices.  Let them admit  students however they want; just don't give them access to federal student loan money or  Pell Grants. 

Moreover, just as our elitist colleges give special preferences to minorities and the children of their alumni when making admissions decisions, I think the American public should give a special preference to anyone who did not graduate from one of these sleazeball institutions when choosing our nation's leaders.

In other words, people who graduate from Harvard or Yale should be penalized in the public mind if they run for president, seek a federal judgeship, or apply for a cabinet post .  As everyone knows, our government is now run almost entirely by elitist college graduates, and the Russians are showing them up to be fools.

References

Evan J. Mandery. End College Legacy Preferances. New York Times, April 24, 1014.  Accessible  at: http://www.nytimes.com/2014/04/25/opinion/end-college-legacy-preferences.html?_r=0

The New York Times Said Something Sensible Today About Predatory For-Profit Trade Schools

I seldom agree with the New York Times.  I live in the real world, and the Times editorial writers and op ed essayists live in the land of gobbledygook.  Nevertheless, every now and then the Times makes contact with planet earth and says something sensible.

And today is such a day. In an editorial entitled "Reining in Predatory Schools," the Times commended the Obama administration for its attempts to regulate the predatory for-profit trade-school industry that has hurt so many poor and disadvantaged students.

The Obama administration seeks to impose reasonable rules on the for-profit trade schools, requiring them to maintain average debt levels for their graduates that don't exceed 8 percent of their total annual earnings. In addition, to remain eligible for student-aid money, the trade schools must keep their student loan default rates at no more than 30 percent.

These are good rules, and the Obama administration deserves credit for pushing these rules forward in spite of ferocious opposition from the for-profit college industry, its lobbyists, and the lap-dog legislators who receive receive campaign contributions from the for-profits and do the industry's bidding.  But--as the Times noted--the rules do not go far enough.

Currently, the for-profits risk being kicked out of the federal student-loan program if their student-loan default rates exceed 25 percent for three consecutive years.  As I have pointed out before, the Feds only measure loan defaults during the first three years of a student's repayment period.  Any student who defaults after three years is not counted in an institution's default rate.

The for-profits have been successful in hiding their true default rates by encouraging their former students to sign up for economic hardship deferments, which excuse students from making their loan payments.  In fact, many for-profits have formal "default management" programs that target former students and help them get deferments.

Hundreds of thousands of former trade-school students who obtained economic hardship deferments will never pay back their loans and for all practical purposes are in default.  The Times is right to say that this problem must be addressed.

And just as importantly, the federal government needs to identify all the people who took out federal loans to pay for worthless for-profit training programs-well over a million people--and forgive these loans. Otherwise, all the people who defaulted on these loans will be hounded by their student loan debts for the rest of their lives.  As I have said before, these people deserve reasonable access to the bankruptcy courts.

I could say more on this topic, but today I simply tip my hat to the Obama administration for its efforts to rein in the predatory trade-school industry and to the New York Times for supporting the Obama administration and urging it to do more.

References

Editorial. Reining In Predatory Schools. New York Times, April 17, 2014, p. A20.

The Student Take-Over of the Dartmouth President's Office: Three reasons not to borrow money to attend an elitist American college

Dartmouth students staged a takeover of the Dartmouth College president's office recently, protesting a variety of isms: racism, sexism, heterosexism, ableism, and another ism I can't recall right now.  Will they be disciplined in any way? Probably not.

Students take over Dartmouth President's Officve
photo credit: lipstickalley.com

This is the kind of event that drives Bill O'Reilly crazy, but I'm not going to comment on the insanity of this incident. I think it is enough to say that Dartmouth is one of the most politically correct institutions on earth. It is totally incomprehensible to me why students who are privileged to attend Dartmouth--a thoroughly liberal-minded institution--would behave so irrationally.

But the Dartmouth president's office takeover illustrates why smart, decent young people should avoid attending elitist higher education institutions--especially if attending a nuthouse like Dartmouth requires borrowing money.  Here are three reasons to skip the elitist college experience:

1. The inmates are running the asylum.  First, as the Dartmouth president's office takeover shows, the inmates are running the asylum.  It is the students at our nation's elitist colleges that get to lecture to the  professors--not the other way around. I understand one of the participants in the Dartmouth takeover was a freshman who had only attended Dartmouth for a few months.  Yet he felt himself entitled to condemn Dartmouth for its allegedly racist culture and practices.  And the professors cower in their offices--afraid to express any opinion that would attract the ire of the student thought police.

2.  You won't learn anything useful at an elitist college. A college education is supposed to teach people to think rationally, to learn how to solve problems and to gain a broad understanding of our civilization's history, art, literature and culture. But as the recent Dartmouth incident illustrates, students aren't learning much of anything at our elitist colleges.

I would admire today's college students if they took personal risks to advance social justice in this country. But these Dartmouth students went to the barricades (so to speak) to demand gender-neutral bathrooms!

3. The elitist institutions are deceptive.  You would think that our finest colleges and universities would be driven by the search for truth, that they would encourage a free flow of ideas and debate.  After all, Harvard's motto--Veritas--is the Latin word for truth.

But in fact, our elitist  higher education institutions operate in a web of deception and intellectual dishonesty.  Our colleges and universities pretend to be open to controversial ideas, but in fact they close their ears to anyone who voices an opinion that contradicts the elitists' postmodern worldview.

Ross Douthat made this point in a recent New York Times op ed essay.  Our nation's elitist institutions make a pretense of universality, Douthat observed, when in fact they will not tolerate points of view that are contrary to their own. "I can live with the progressivism," Douthat wrote. "It's the lying that gets toxic."

Of course our nation has experienced irrational social movements before, and most of them faded away after being subjected to the light of public scrutiny. The Know Nothing Party of the 1850s, the second rising of the Ku Klux Klan in the 1920s, the McCarthyism hysteria of the 1950s--all disappeared within two or three years of their first emergence.

But bizarre campus behavior like the recent bedlam at Dartmouth has become embedded in the culture of our elitist colleges.  We've seen campus building takeovers, irrational student demands, and anti-intellectual bullying on America's most prestigious universities for more than 40 years.  What happened at Dartmouth is not an aberration--it is an example of how our elitist college communities think and behave.

So my advice is this--skip the elitist college experience. Get your degree from a respected public university. You might not learn much there either, but at least it will be cheaper. No sensible person should invest a quarter of a million dollars to hang out for four years at a goofball institution like Dartmouth.

References

Ross Douthat. Diversity and Dishonest. New York Times, April 13, 2014, Sunday Review section, page 12.

Oppressed by the Ivy League: What Dartmouth's president should have told bullying students. Wall Street Journal, April 4, 2014. Available at: http://online.wsj.com/news/articles/SB10001424052702303987004579479501134392562

Two Americas--Where one man makes more in 20 minutes than a widow survives on for a year

Two stories in today's Times caught my eye. According to a report in the Business section, Larry Ellison, CEO of Oracle, makes $37,692 an hour--that's right, 37 grand an hour. Meanwhile, another Times article told the story of Carol Cascio, a widow, who lives on $900 per month. She had hoped for an additional $400 per month from her deceased husband's pension--which would just be a few seconds of Mr. Ellison's salary--but the pension fund went belly up and she will get nothing.

Obama in Silicon Valley
Photo credit: Pete Souza/White House

And the disparity is even worse than that. According to the Times story, Ms. Cascio borrowed money to finance her daughter's education. In fact, she was hoping to pay back the loan with the pension money she will not be getting.

There's something wrong with a nation in which one American makes three times as much in an hour as another person lives on in a year. And this is taking place in Barack Obama's America--the man who was supposed to bring us hope and change. And yet President Obama spends much more time with people like Mr. Ellison--wealthy people who can make campaign contributions--than people like Carol Cascio, who can do nothing to help Mr. Obama fill the Democratic Party's campaign coffers.

At least Ms. Cascio can take bankruptcy, you may be thinking, and discharge the education loan, assuming it has not been paid back. Probably not. Even someone in Ms. Cascio's situation will find it difficult to discharge an educational loan in bankruptcy. In fact, the Department of Education recently opposed bankruptcy discharge for a student-loan debtor who is a paraplegic and only owed $14,000! That's right, President Obama's Department of Education wanted the young man who is paralyzed from the neck down to sign up for a 25-year repayment plan. Fortunately, a federal bankruptcy judge was a bit more compassionate than the Department of Education and discharged this poor man's education loan.

We should think long and hard about the nation we have become--a nation in which wealthy pet owners call themselves "pet parents" and buy toys for their dogs to stimulate their pets' brains; a nation in which our leading and most respected newspaper printed a story about the new fashion trend in which wealthy women groom their public hair; a nation in which millions of people living on the boundary of poverty have college loans they can't pay back.

The people who run our country--President Obama's arrogant, power obsessed Ivy League bureaucrats; the media elite; and corporate oligarchs like Oracle's Larry Ellison--actually believe they are smarter and more sensitive than the average American holding down a job and raising a family.

But the people who run our country are nothing more than self-absorbed children who grab for all the power, money and recognition they can get while millions of decent Americans suffer economic hardship--hardship that grows worse with each passing day.

The people who run our country believe they are liberal; they believe they are sensitive; they believe they are progressive. But all it means to be a liberal in today's America is to vote the Democratic ticket, watch Jon Stewart on television, and show a proper degree of scorn toward the smucks who didn't get in one the action--perhaps a smuck like you who borrowed money to get a college education and don't make enough money to pay back your loans.

References

Peter Eavis. Invasion of the Supersalaries. New York Times, April 13, 2014, Business Section, p. 1.

David Hochman. You'll Go Far My Pet. New York Times, April 13 2014, Sunday Styles Section, p. 1.

Marisa Meltzer. Below the Bikini Line, A Growing Trend. New York Times, January 29, 2014. Available at: http://www.nytimes.com/2014/01/30/fashion/Brazilian-bikini-wax-women-hair-removal.html?_r=0


Myhre v. United States Department of Education, 503 B.R. 698 (Bkrtcy Rep. Wis. 2013).

Mary Williams Walsh, Thought Secure, Pooled Pensions Teeter and Fall. New York Times, April 13, 2014, p. 1.

More Bad News About Student Loans: The Default Rate for Parent PLUS Loans Has Nearly Tripled Since 2006

Inside Higher Education reported today that the default rate for Parent PLUS loans has nearly tripled since 2006.  According to the Department of Education's most recent report, the three-year default rate on these loans is 5.1 percent.  In 2006, the PLUS loan default rate was only 1.8 percent.

The higher PLUS loan default rate doesn't sound too bad when compared to the overall student-loan three-year default rate--about 14 percent, according to DOE's report last October.  But let's look at the PLUS Loan default rate for parents of students attending for-profit colleges--13.3 percent! 

That's a scary number. And keep in mind that parents are not required to begin making loan payments until their children complete their studies.  If a student takes six years to graduate  (which is typical) or enrolls for graduate studies, the parent is not obligated to make loan payments until those studies are complete. Meanwhile, the interest is accruing on those loans--making them more difficult to repay.

Some institutional players--the Historically Black Colleges and Universities, in particular, are protesting recent efforts by DOE to tighten loan standards for PLUS loans. They say that making it more difficult for parents to borrow money for their children to attend college will disproportionately effect African American families and make it more difficult for African Americans to attend college.

But the HBCUs are primarily thinking about themselves, don't you think?  They don't want the feds to reduce the flow of federal student-aid dollars by making it harder for parents to take out PLUS loans.

A number of people commented on today's Inside Higher Education article, and it is clear to me that many of the commentators know a lot about the PLUS loan issue.  But as of this morning, not a single commentator pointed out that PLUS loans, like all federally-sponsored student loans cannot be discharged in bankruptcy unless the parents can show "undue hardship."

In other words, parents who borrow money under the PLUS program don't have reasonable access to the bankruptcy courts if they run into financial trouble caused by illness or the loss of a job. Thus, if their children get in over their heads by borrowing more money than they can pay back, both the student and the parents will be saddled with a debt that cannot be discharged in bankruptcy absent very unusual circumstances.

The higher education industry's discussions about the federal student loan crisis has an Alice in Wonderland quality about it.  The colleges and universities--whether public, private, for-profit or HBCUs--are primarily interested in keeping that federal student aid money flowing. They are like crack addicts--addicted to federal money just to keep their doors open.

We should be making every effort to keep college costs from continuing to rise. We should discourage parents from taking out personal loans to pay for their children's education. And--this is very important--we should amend the Bankruptcy Code to allow overburdened student loan debtors to discharge their debts in bankruptcy, whether they are students or the parents of students.

References

Michael Stratford, Education Department releases default rate data on controversial Parent PLUS loans. Inside Higher Education, April 3, 2014.  Available at:

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

Say it ain't so, Joe! Penn State coach Joe Paterno was in bed with Bank of America

According to a story in the Pittsburgh Post-Gazette, Penn State football coach Joe Paterno--Penn State's beloved "Joe Papa"--signed two $100,000 contracts to promote Bank of America products and sign some football helmets and footballs.

Jerry Sandusky and Joe Paterno
Photo credit: Paul Vathis/Associated Press

Apparently, Joe's $13 million pension, his access to a private jet, and his million dollar salary were not enough for him.  He had to sign on as a shill for Bank of America. No wonder he didn't spot Jerry Sandusky seducing little boys in the Penn State locker room.  Joe was too busy autographing footballs.

And the alumni association for Penn State University, Joe Papa's employer, also had a special deal with Bank of America. According to the same Pittsburgh Post-Gazette story, Penn State received more than $2.7 million in fees and royalties  from a deal to help a Bank of America subsidiary market high-interest credit cards to Penn State students and alumni.

Penn State's alumni association received a "1 percent kickback royalty" on retail purchases made by Penn State alumni on the Penn-State branded card and the association got 0.5 percent of purchases made by Penn State students.

Of course, both deals were confidential. We would not know about them were it not for a 2009 federal law that requires colleges and universities to file copies of their agreements with credit card companies with the Consumer Financial Protection Bureau. At one time, more than a thousand colleges and universities had deals with credit card companies. Today that number has dropped to about 600.

According to the Consumer Financial Protection Bureau, some universities made millions on these deals, but others got very little.  The University of St. Thomas, a Catholic university in Houston, Texas, only made $2,365 on its credit card deal in 2012. Why sell your soul for peanuts?

The Pittsburgh Post-Gazette story is another indication of the corporatization of American colleges and universities. Instead of focusing on their mission, which is to provide students with a high-quality education at a reasonable price, they wandered into the banking business, taking kickbacks from credit card companies in return from helping them peddle high-interest credit cards to college students.

This tawdry tale provides yet another reason for a federal open-records law that would require all colleges and universities that receive federal student-aid money to make all their records available to the public.

References

Associated Press. Joe Paterno earned $13.4M pension.  ESPN College Football, May 22, 2012. Accessible at: http://espn.go.com/college-football/story/_/id/7959425/joe-paterno-earned-134m-pension-penn-state-nittany-lions

Jo Becker. Joe Paterno Won Sweeter Deal Even as Scandal Played Out. New York Times, July 14, 2012. Accessible at: http://www.nytimes.com/2012/07/14/sports/ncaafootball/joe-paterno-got-richer-contract-amid-jerry-sandusky-inquiry.html?_r=0

Consumer Financial Protection Bureau. College Credit Card Agreements. Accessible at: http://www.consumerfinance.gov/credit-cards/college-agreements/

Tim Grant. Penn State leads U.S. in earnings from collected credit card royalties. Pittsburgh Post-Gazette.com, January 11, 2013.  Accessible at:

Such hypocrisy! The Obama administration urges private college-loan lenders to play nice with student borrowers

Obama administration officials summoned the leading private student-loan creditors to a meeting at the Treasury Department yesterday to urge them to do more to help student-loan borrowers who are in danger of default.

Who attended this meeting?  Arne Duncan, Secretary of Education, and Richard Cordray, chief of the Consumer Financial Protection Bureau, represented the government.

And these are some of the banks that attended: Sallie Mae, Wells Fargo, JP Morgan Chase, RBS Citizens Financial, PNC Financial Services, SunTrust Banks, and Discover Financial Services.

The Obamacrats delivered their usual blather about easing the plight of overburdened student-loan borrowers.  This is how a government  spokeswoman described the meeting.

Participants discussed strategies to assist borrowers in successfully managing their private student loans, including servicing best practices and approaches to private student loan modifications and refinancing.

Yak, yak, yak.  The only way to get the private banks to behave decently toward indebted college students is to force them out of the student-loan business altogether.  And this could be done so easily.

In 2005, Congress amended the Bankruptcy Code to make private student loans nondischargeable in bankruptcy absent "undue hardship"--the same standard that applies to federal student loans. Consequently, private student loans--like federal student loans--are almost impossible to discharge in a bankruptcy court.

All Congress needs to do to reform the private student-loan industry is repeal the 2005 law and allow insolvent debtors with private student loans to discharge those loans in bankruptcy. I guarantee you, this single legislative change would dry up the private student-loan industry overnight.

But Congress won't do the straightforward thing.  No--it will tinker with all kinds of cosmetic fixes and allow the private banks to continue exploiting colleges students.  

Hands down, Sallie Mae is the chief offender. According to a 2012 news story, Albert Lord, Sallie Mae's CEO, made $225 million between 1999 and 2004 and was building his own private golf course.  What do you think his total compensation is today?

Democrats seem to think they can establish their liberal credentials simply by expressing sympathetic platitudes. Arne Duncan talks about helping student borrowers but hasn't done a damn thing to alleviate the student loan crisis.  And Senator Elizabeth Warren, a self-proclaimed consumer's  advocate, is all bark and and no bite.

Thanks, Arne,ever so much!

Why doesn't Congress act more aggressively to give college students some relief? Maybe because the private lenders and private-college industry hire well-paid lobbyists to protect their interests and make strategic campaign contributions to powerful politicians.

Personally, I won't start believing the so-called liberal Democrats who express concern about the student-loan crisis until some of them throw their support behind some straightforward and simple reforms.  First and foremost, insolvent students who took out private loans to finance their education should have access to bankruptcy.  

References

U.S. Urges Private Lenders and services to Help Borrowers. Inside Higher Education, January 20, 2014. Accessible at: http://www.insidehighered.com/quicktakes/2014/01/10/us-urges-private-lenders-and-servicers-help-borrowers

Sophia Zamen. "Education is Worth It": Students Take on Sallie Mae CEO Albert Lord at Shareholder Meeting.  Alternet.org, May 21,2012. Accessible at: http://www.alternet.org/newsandviews/article/932971/%22education_is_worth_it%22%3A_students_take_on_sallie_mae_ceo_albert_lord_at_shareholder_meeting

Note: My description of the meeting at the Treasury Department comes from the Inside Higher Education story.  My references to Sallie Mae are taken from Sophia Zamen's essay for Alternet.org

"Ye shall know the truth . . ." Have our great public universities lost touch with the people they were founded to serve?

Americans revere our Ivy League universities. Hundreds of American cities have a Harvard Street or a Yale Avenue. I live in the College Town subdivision of Baton Rouge, and Harvard Avenue is just a few blocks from my house.

But American adoration of the Ivy League colleges is misplaced. The real jewels in the crown of American higher education are our nation's great public universities: University of Wisconsin, University of Michigan, University of California and a few others. Founded and funded by state legislatures, these public universities were intended to be places where young men and women could receive a first-class education in their home states. 

University of Texas
"Ye shall know the truth and the truth shall set you free."

University of Texas, where I attuned law school, certainly ranks with the University of Michigan and the University of California as one of the nation's leading public universities.  At one time, bright young men and women from the cities and small towns of Texas could enroll at UT at very little cost and see a whole new world open up--the world of great ideas and great ideals.

In North Toward Home, Willie Morris, who later became a noted journalist and editor of Harper's magazine, wrote of his experience at UT in the 1950s.  Morris grew up in the small town of Yazoo City, Mississippi and attended the University of Texas in the early 1950s. He later made his home among the intellectual elites of New York City.

Years later, this is how Morris described how the University of Texas changed his life. "I believe now," Morris wrote, "that the University of Texas was somehow beginning to give me an interest and a curiosity outside my parochial ego."  It was at the University of Texas, Morris reflected, where he came to accept the notion of ideas "as something worth living by."

I first read North Toward Home while a student at UT, and my experience was similar to Morris's.  I still recall standing in front of the University's Main Library and reading these words above the steps, chiseled in stone in letters two feet high: "Ye shall know the truth and the truth will set you free."

Those words thrilled me then, and I must say UT kept its promise.  The law school opened a whole new world for me--a world of disciplined and clear thinking, academic rigor, and a reverence for ordered law.

I attended UT Law School at minimal expense; tuition was only $500 per semester. At that time, the Law School existed primarily for Texans. In fact, the law school was legally obligated to admit 85 percent of each entering class from among Texas citizens.  I met young men and women from all over Texas: African Americans from Houston and Dallas, Latinos from the Rio Grande Valley, Anglo men and women from such small towns as Vernon and Longview.

Today, I fear, the great American public universities have morphed into entirely different entities from the ones envisioned by the state legislatures that founded them.  As state funding has shrunk, the universities have become more and more dependent on tuition, endowments, and research funds.

Over time the great public universities have become to look very much like our elite private universities. They have lost their connection to the people of their respective states.

I see this phenomenon illustrated by rising costs and by the elitist posturing of our major public universities on social issues.  At their best, these universities once offered an education to the bright young men and women of their states--regardless of race, class, or wealth.  And tuition was kept down so the cost of receiving a college education would not be prohibitively expensive.

Today, the law school I attended for $1,000 a year charges Texas residents $36,000 a year in tuition, and it takes race into account when making admission decisions.  In fact, I believe all the major public universities have aggressive affirmative action policies in place. Until the policy was struck down by the Supreme Court, the University of Michigan even had a point system for admitting undergraduates that gave special preference to minorities.

Our great public universities are not only obsessed with race, they have increasingly become hostile to tradition religious values. The University of California's Hastings Law School refused to recognize a campus chapter of the Christian Legal Society as a student organization on the grounds that it declined to accept members who did not subscribe to traditional Christian doctrine on sexual morality. The University of Texas tried to bar a student group from handing out literature opposing abortion.

Today, our major state universities still describe themselves as public institutions but they increasingly look like the elite private universities in terms of their values.  Serving the common people of their respective states is too parochial for them.  Leave that to the regional institutions like Sam Houston State University in Huntsville or Western Michigan University in Kalamazoo.

This is fine, I suppose, but university leaders should be honest about their institutions' new identities.  Our most prestigious public universities now serve to advance a global culture of postmodernism and not the people of their states. In my view, state legislatures should cut all ties with these universities--formally designating them for what they really are: elitist private institutions.

 References

Christian Legal Society Chapter of the University of California v. Martinez, 130 S. Ct. 2971 (2010).

Gratz v.Bollinger, 539 U.S. 244 (2003).

Justice For All v. Faulkner, 410 F.3d 760 (5th    Cir. 2005).

Willie Morris. North Toward Home. New York: Delta Books, 1967.

Blah, blah, blah: Drew Faust, president of Harvard, lectures America on the value of arts education

Drew Faust, president of Harvard University, took time out from her busy schedule to co-author an op ed essay for USA Today on the value of arts education. Anxiety abounds, Faust and co-author Wynton Marsalis noted, about the ability of our current educational system to respond to a rapidly changing world. "Yet," they conclude, "the education we are fashioning for our children and their children seems ill-suited for the lives they will lead."

Faust and Marsalis went on to summarize the kind of education Americans need to live in the world we now inhabit and to shape the world to come:

We need education that nurtures judgment as well as mastery, ethics and values as well as analysis. We need learning that will enable students to interpret complexity, to adapt, to make sense of lives they never anticipated. We need a way of teaching that encourages them to develop understanding of those different from ourselves, enabling constructive collaborations across national and cultural origins and identities.

Faust and Marsalis then argue that many of the skills and attributes that students need to prepare themselves for life are taught through the arts--drama, music, dance, etc.

Well, who can argue with that? 

Drew Faust is president of  Harvard, the nation's most prestigious university and perhaps the most prestigious university in the world. We can reasonably assume that Harvard is providing students with an education that instills the values Faust and Marsalis articulated. Indeed, we might reasonably assume that all of the nation's elite universities--Harvard, Yale, Georgetown, Stanford, Brown, etc.--are instilling these values.

Drew Faust, President of Harvard Univefrsity

Unfortunately, I don't think these values are being taught in today's most prestigious universities.  Let's look at the people who work in the Obama administration, almost all of whom have undergraduate or graduate degrees from elite American universities.  For example, Jacob Lew, Secretary of the Treasury, has degrees from Harvard and Georgetown. Valerie Jarrett, one of President Obama's top advisers, received a degree from Stanford; and Obama himself has degrees from Columbia and Harvard Law School.

Do we see the Obamacrats exercising sound judgment as well as mastery? Do we see them demonstrating ethical values as well as analysis?  Do we see them expressing an appreciation for diverse cultures and religious traditions?

No, we do not.  Jacob Lew, our Secretary of the Treasury, received a $685,000 exit bonus from New York University when he left NYU to go to work for Citigroup. He also got a special deal from NYU on a home mortgage. Illegal? No. But certainly this compensation is inappropriate for a person working at a tax-exempt university.

And how about Valerie Jarrett, who basically said Americans are too dumb to understand President Obama's grand designs.  Has she demonstrated an understanding of people different from herself? No, she has shown contempt for the very people she is supposed to be serving.

And President Obama, who has accumulated honors and accolades all his life--has he demonstrated moral rectitude? Has he shown himself able to build "constructive collaborations across national and cultural origins and identities"? No, he has repeatedly insulted the Catholic Church, casually and perhaps even unknowingly. He has lied to the American public. His administration has managed to outrage many of the major nations of the world: France, Germany, Spain, Brazil, Mexico, Israel, Saudi Arabia and India among them.

It is time for Americans to realize that our nation's elite universities are not producing the leaders we need. The people who run our government--almost all graduates of our nation's elite colleges, are arrogant, provincial, condescending, and contemptuous of traditional American values, including the values associated with Christianity.  Perhaps more art education would produce better citizens as Faust and Marsalis suggest, but somehow I think President Obama and his cronies would still be as crude as they are now, even if they had taken a few art classes at their high-toned colleges.

References

Drew Faust and Wynton Marsalis. The Art of Learning. USA Today, January 2, 2014, p. 7A.

Danny Hakim. Obama's Treasury Nominee Got Unusual Exit Bonus on leaving N.Y.U. New York Times, February 25, 2013.  Accessible at: http://www.nytimes.com/2013/02/26/nyregion/lew-treasury-nominee-got-exit-bonus-from-nyu.html?_r=0

George F. Will. How a Presidency Unravels. Washington Post, November 22, 2013.  Accessible at: http://www.washingtonpost.com/opinions/george-will-obamas-presidency-unravels-through-chaos-and-crisis/2013/11/22/57132e74-52de-11e3-a7f0-b790929232e1_story.html