Jeffrey Dorfman wrote an online essay for Forbes this week entitled "Time To Stop the Sob Stories About Student Loan Debt." Basically, Dorfman argued that there is no student-loan crisis, pointing out that most students have only modest student-loan debt loads, usually smaller than a typical car loan.
Mr. Dorfman is right to point out that the number of people who have borrowed extravagantly to
attend college is relatively small. "In fact," Dorfman wrote, "only four percent of households headed by people between 20 and 40 years old have student loan debt of over $36,000 per person and two-thirds of those have a graduate degree to show for that debt."
But I think Mr. Dorman's article overlooked some key data that are very troubling. First, as Mr. Dorfman pointed out, the three-year student-loan default rate is 14.7 percent, and that number is disturbing by itself. Student-loan default rates have doubled in just six years.
Moreover, the Department of Education's official student-loan default rate only measures people who default in the first three years of the repayment period. Many people default on their loans after three years. And the student-loan default rate for people who attended for-profit colleges is more than 20 percent. That's right--one out of five people who attended for-profit colleges during DOE's latest measurement period defaulted within the first three years of repayment!
And, as Senator Tom Harkin's Senate Committee report pointed out, the for-profit colleges are encouraging their former students to get economic hardship deferments that temporarily excuse debtors from making loan payments. This strategy helps the for-profits keep their institutional default rates down.
But in reality, many people who obtained economic hardship deferments will never pay back their loans, and their loan balances get larger as interest accrues during the time they are not making loan payments.
In my opinion, the student-loan default rate for people who attended for-profit colleges is probably 40 percent when measured over the lifetime of the loan repayment period, and that should alarm everybody--even Mr. Dorfman.
And Mr. Dorfman did not comment on recent reports that more and more people in their late 20s and early 30s are living with their parents and that more than 40 percent of college graduates hold jobs that don't require college degrees. Nor did he comment on recent efforts by the Obama administration to lure student-loan debtors into long-term income-based repayment plans that will require debtors to pay on their loans for 25 years. Isn't that a sign that the student-loan program is in trouble?
Finally, although Mr. Dorfman is correct to say that most people with student loans have modest loan balances, even $10,000 is very hard to pay off if you are holding a minimum-wage job. Many of the people who borrowed money to attend for-profit colleges are from low-income families. If those people dropped out of a for-profit college without getting a degree (and a large percentage of people fall into this category), paying off even a small loan may be impossible.
The Brookings Institution, which Mr. Dorfman cited, has been downplaying the student-loan crisis even as it advocates for long-term repayment plans. But the crisis is real.
A lot of people who live in Mr. Dorman's world are making money off the federal student loan program or the private student loan industry. Sallie Mae is making money off of student loans, the banks are making money off of private student loans, the loan servicing companies are making money chasing down student-loan debtors who are in default,and colleges and universities are making money as they raise their tuition every year. Goldman Sachs owns an interest in Education Management Corporation, the entity behind several for-profit colleges, and the Washington Post Company has a stake in Kaplan University.
But millions of Americans are suffering under unsustainable student-loan debt, and the crisis grows larger every day. Mr. Dorfman is living in a fantasy world if he thinks otherwise.
References
Dorfman, Jeffrey. Time To Stop the Sob Stories About Student Loan Debt. Forbes, September 18, 2014. Accessible at http://www.forbes.com/sites/jeffreydorfman/2014/09/18/time-to-stop-the-sob-stories-about-student-loan-debt/
Ashlee Kieler. For-Profit Colleges: Good For Investors. . . Not-So-Good For Students. Consumerist, April 24, 2014. Accessible at: http://consumerist.com/2014/04/24/your-college-education-might-be-a-better-investment-for-goldman-sachs-than-it-is-for-you/
Saturday, September 20, 2014
Friday, September 19, 2014
Is it OK to beat a dead horse? The Consumer Financial Protection Bureau sues Corinthian Colleges
According to Chronicle of Higher Education, the Consumer Financial Protection Bureau has sued Corinthian Colleges, accusing the company of "predatory lending and illegal collection tactics."
As the Chronicle noted, Corinthian is "the crippled for-profit higher-education company that is in the process of winding down its operations." In fact, Corinthian has entered into a deal with the U.S. Department of Education, whereby the company will sell or close most of its campuses in exchange for continued access to federal student aid money.
The CFPB is accusing Corinthian of some pretty bad stuff. "We believe Corinthian lured in consumers with lies about their job prospects upon graduation, sold high-cost loans to pay for that false hope, and then harassed students for overdue debts while they were still in school," Richard Cordray, the CFPB chief,was quoted as saying in the Chronicle article.
If Corinthian Colleges did the things the CFPB accused it of doing, then it certainly deserves to be sued. But, as the Chronicle of Higher Education pointed out, the company was already in financial trouble.
I am happy to see the Consumer Financial Protection Bureau take some strong action against the for-profit college industry, which has been wracked by reports of abusive behavior. Several for-profits have been accused of engaging in unsavory practices. But I would be happier still if the CFPB would go after abusive for-profit colleges that are not teetering on the edge of closure.
It is OK, I suppose, to beat a dead horse now and then. But I would like to see the CFPB to beat a few live ones.
References
Field, Kelly. Federal Watchdog's Lawsuit Accuses Corinthian Colleges of Predatory Lending. Chronicle of Higher Education, September 16, 2014.
Thursday, September 11, 2014
But who really cares? Rosemary Anderson, age 57, borrowed $65,000 in college loans and now owes $152,000
Let's take a minute to examine what happened to Rosemary Anderson, a student-loan debtor who was featured in two CNN stories recently. More than twenty years ago, Rosemary began borrowing money to attend college; and she eventually got a bachelor's degree and a master's degree in human resources. She has a job and she makes pretty good money.
Nevertheless, Rosemary is now 57 years old, and the $65,000 she originally borrowed has grown to $152,000! How did that happen?
As for so many Americans trying to survive in today's dog-eat-dog economy, life got in the way. Rosemary experienced a divorce, a job loss, and a family illness. Loans got out of hand, and she stopped making payments for a period of time. Later, she consolidated her loans at an interest rate of 8.25 percent--far higher than the prevailing rate. Interest accrued, penalties were tacked on to what she borrowed; and now Rosemary owes $$152,000.
Although the CNN article didn't make her current situation entirely clear, apparently Rosemary is now in a 25-year Income-Based Repayment Plan, because CNN reported she will be paying nearly $700 a month until she is 81 years old!
That's right--she will finally finish paying off her student loans more than 40 years after she got her undergraduate degree. "I will be working for as long as I'm employable. I will never be able to retire," Rosemary said in the CNN story.
Is that how the American dream is supposed to work? Is this how higher education is supposed to pay off?
Some people might tell Rosemary that she has no one but herself to blame. You borrowed too much money, they might tell her, or you should never have stopped paying on your loans.
Well, sure, Rosemary probably made some mistakes in financing her higher education, but a lot of people make mistakes. That's what bankruptcy is for. But people like Rosemary will find it very difficult to discharge their student loans in bankruptcy court.
But who really cares? The media is obsessed with what happened in Ferguson, Missouri and the details of Ray Rice's elevator assault on his girl friend. Rosemary Anderson got featured in a couple of CNN stories, but millions of people in similar situations suffer in silence.
Meanwhile, college and universities, both public and private, gorge on federal student loan money and the money students borrow from private banks to pay for their college education. University presidents may pretend to care about distressed student debtors, but they are focused on raising money to construct more buildings. President Obama pretends to care, but he's not doing anything much to help people like Rosemary Anderson. Maybe Rosemary could get a golf date with the President so she could explain her situation to him personally.
No sensible person can read Rosemary Anderson's story without coming to the conclusion that people like Rosemary need easier access to bankruptcy. But that's not going to happen any time soon. Why? Because the people who have the power to come to Rosemary's aid don't really care about people like Rosemary.
And that's pretty scary to think about because there are literally millions of distressed student-loan debtors, and the number grows larger every day.
References
Blake Ellis. Student Loan Debt Surges for Senior Citizens. CNN, September 11, 2014. http://finance.yahoo.com/news/student-loan-debt-surges-senior-211900000.html
Patrick M. Sheridan. I'm 57 and owe $152,000 in student loans. CNN, August 14, 2014. http://money.cnn.com/2014/08/13/news/economy/older-student-debt?source=yahoo_hosted
Nevertheless, Rosemary is now 57 years old, and the $65,000 she originally borrowed has grown to $152,000! How did that happen?
As for so many Americans trying to survive in today's dog-eat-dog economy, life got in the way. Rosemary experienced a divorce, a job loss, and a family illness. Loans got out of hand, and she stopped making payments for a period of time. Later, she consolidated her loans at an interest rate of 8.25 percent--far higher than the prevailing rate. Interest accrued, penalties were tacked on to what she borrowed; and now Rosemary owes $$152,000.
Although the CNN article didn't make her current situation entirely clear, apparently Rosemary is now in a 25-year Income-Based Repayment Plan, because CNN reported she will be paying nearly $700 a month until she is 81 years old!
That's right--she will finally finish paying off her student loans more than 40 years after she got her undergraduate degree. "I will be working for as long as I'm employable. I will never be able to retire," Rosemary said in the CNN story.
Is that how the American dream is supposed to work? Is this how higher education is supposed to pay off?
Some people might tell Rosemary that she has no one but herself to blame. You borrowed too much money, they might tell her, or you should never have stopped paying on your loans.
Well, sure, Rosemary probably made some mistakes in financing her higher education, but a lot of people make mistakes. That's what bankruptcy is for. But people like Rosemary will find it very difficult to discharge their student loans in bankruptcy court.
But who really cares? The media is obsessed with what happened in Ferguson, Missouri and the details of Ray Rice's elevator assault on his girl friend. Rosemary Anderson got featured in a couple of CNN stories, but millions of people in similar situations suffer in silence.
Meanwhile, college and universities, both public and private, gorge on federal student loan money and the money students borrow from private banks to pay for their college education. University presidents may pretend to care about distressed student debtors, but they are focused on raising money to construct more buildings. President Obama pretends to care, but he's not doing anything much to help people like Rosemary Anderson. Maybe Rosemary could get a golf date with the President so she could explain her situation to him personally.
No sensible person can read Rosemary Anderson's story without coming to the conclusion that people like Rosemary need easier access to bankruptcy. But that's not going to happen any time soon. Why? Because the people who have the power to come to Rosemary's aid don't really care about people like Rosemary.
And that's pretty scary to think about because there are literally millions of distressed student-loan debtors, and the number grows larger every day.
References
Blake Ellis. Student Loan Debt Surges for Senior Citizens. CNN, September 11, 2014. http://finance.yahoo.com/news/student-loan-debt-surges-senior-211900000.html
Patrick M. Sheridan. I'm 57 and owe $152,000 in student loans. CNN, August 14, 2014. http://money.cnn.com/2014/08/13/news/economy/older-student-debt?source=yahoo_hosted
The General Accounting Office's Report on Student Loan Indebtedness Among Elderly Americans: Scary Reading
The General Accounting Office released a report this week on elderly Americans with student loan debt. The report is 30 pages long but can be summarized in a few paragraphs.
First, the percentage of people aged 65 through 74 who have outstanding student loans is small but growing. In 2004, only 1 percent of people in this age category still owed on student loans. By 2010, that percentage had grown to 4 percent.
Second, the amount of student-loan debt held by elderly Americans is also growing. It grew six fold between 2005 and 2013--from $2.8 billion in 2005 to $18.2 billion last year.
Third, the number of elderly Americans who are having their Social Security Checks garnished because they defaulted on student loans has increased dramatically in recent years. In 2002, only 31,000 people had Social Security benefits garnished because they had defaulted on their student loans. That number has ballooned five fold in just 11 years; 155,000 Americans saw their Social Security checks reduced in 2013 because they had defaulted on student loans.
On one level, the GAO's report is no big deal. Currently, there are 39 million people with outstanding student loans. The number of elderly student-loan defaulters who are having their Social Security checks garnished---155,000--is only a drop in the bucket.
But that number will undoubtedly grow larger in the coming years. GAO reported that 6.9 million people who are 50 years old or older are carrying student-loan debt. That number has gone up 130 percent since 2005.
Moreover, the GAO pointed out that the amount of student loan debt held by elderly Americans grew much faster in recent years than it did for the general population. Between 2005 and 2013, the total amount of student loan indebtedness more than doubled, from $400 million to $1 trillion. But for people in the 65 to 74 age group, the amount of student loan debt grew six fold during those years.
And here's the scary part. Elderly student-loan debtors have higher default rates than younger people. Only 12 percent of federal student loans held by people in the 25 to 49 age bracket are din default. Among people 75 or older, more than half are in default!
I will make just a couple of points about this useful report.
First, in my view, a humane society should not garnish people's Social Security checks because they defaulted on their student loans. As I have said many times, Congress needs to amend the law to stop the garnishment of Social Security checks of elderly student-loan defaulters.
Let's face it, taking a small portion of people's Social Security checks (a maximum of 15 percent) probably won't even put a dent in individual debtors' total loan balances. Undoubtedly, most of them owe far more than they borrowed due to accruing interest and penalties.
Second, the Obama administration's proposal to encourage student-loan debtors to sign up for 20- and 25-year Income Based Repayment Programs (IBRPs) will only make this problem worse. A lot of people will be in their late 20s, early 30s, or even older when they begin paying off their student loans under 25-year repayment plans. Without a doubt, the percentage of people who enter retirement with outstanding student loan debt is going to increase as more and more people elect IBRPs to service their student loans.
The Department of Education, the Brookings Institution and several other education policy groups have endorsed IBRPs as a good way to help people manage their burgeoning student-loan obligations; and the New York Times also seems to like IBRPS.
But IBRPs are a terrible idea. Our nation cannot prosper economically if we have a high percentage of Americans paying on their student loans over the majority of their working lives.
It will take political courage to solve the student-loan crisis, and we won't solve it until we begin reducing the amount of money people borrow to attend college.
But we are going in the wrong direction. Every year, Americans borrow more and more money to attend college, and every year the average amount of individual indebtedness goes up. Encouraging people to pay off their loans over 25 years instead of 10 years just postpones the day when Americans will finally admit that the federal student loan program is out of control.
The federal student loan program is slowly destroying our economy and the integrity of higher education in the United States. And--with the advent of IBRPs--the number of elderly Americans who will see their retirement years blighted by student-loan debt is going to go no direction but up.
References
General Accounting Office. Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Borrowers. GAO-14-866T. Washington, DC: General Accounting Office. http://www.gao.gov/products/GAO-14-866T
First, the percentage of people aged 65 through 74 who have outstanding student loans is small but growing. In 2004, only 1 percent of people in this age category still owed on student loans. By 2010, that percentage had grown to 4 percent.
Second, the amount of student-loan debt held by elderly Americans is also growing. It grew six fold between 2005 and 2013--from $2.8 billion in 2005 to $18.2 billion last year.
Third, the number of elderly Americans who are having their Social Security Checks garnished because they defaulted on student loans has increased dramatically in recent years. In 2002, only 31,000 people had Social Security benefits garnished because they had defaulted on their student loans. That number has ballooned five fold in just 11 years; 155,000 Americans saw their Social Security checks reduced in 2013 because they had defaulted on student loans.
On one level, the GAO's report is no big deal. Currently, there are 39 million people with outstanding student loans. The number of elderly student-loan defaulters who are having their Social Security checks garnished---155,000--is only a drop in the bucket.
But that number will undoubtedly grow larger in the coming years. GAO reported that 6.9 million people who are 50 years old or older are carrying student-loan debt. That number has gone up 130 percent since 2005.
Moreover, the GAO pointed out that the amount of student loan debt held by elderly Americans grew much faster in recent years than it did for the general population. Between 2005 and 2013, the total amount of student loan indebtedness more than doubled, from $400 million to $1 trillion. But for people in the 65 to 74 age group, the amount of student loan debt grew six fold during those years.
And here's the scary part. Elderly student-loan debtors have higher default rates than younger people. Only 12 percent of federal student loans held by people in the 25 to 49 age bracket are din default. Among people 75 or older, more than half are in default!
I will make just a couple of points about this useful report.
First, in my view, a humane society should not garnish people's Social Security checks because they defaulted on their student loans. As I have said many times, Congress needs to amend the law to stop the garnishment of Social Security checks of elderly student-loan defaulters.
Let's face it, taking a small portion of people's Social Security checks (a maximum of 15 percent) probably won't even put a dent in individual debtors' total loan balances. Undoubtedly, most of them owe far more than they borrowed due to accruing interest and penalties.
Second, the Obama administration's proposal to encourage student-loan debtors to sign up for 20- and 25-year Income Based Repayment Programs (IBRPs) will only make this problem worse. A lot of people will be in their late 20s, early 30s, or even older when they begin paying off their student loans under 25-year repayment plans. Without a doubt, the percentage of people who enter retirement with outstanding student loan debt is going to increase as more and more people elect IBRPs to service their student loans.
The Department of Education, the Brookings Institution and several other education policy groups have endorsed IBRPs as a good way to help people manage their burgeoning student-loan obligations; and the New York Times also seems to like IBRPS.
But IBRPs are a terrible idea. Our nation cannot prosper economically if we have a high percentage of Americans paying on their student loans over the majority of their working lives.
It will take political courage to solve the student-loan crisis, and we won't solve it until we begin reducing the amount of money people borrow to attend college.
But we are going in the wrong direction. Every year, Americans borrow more and more money to attend college, and every year the average amount of individual indebtedness goes up. Encouraging people to pay off their loans over 25 years instead of 10 years just postpones the day when Americans will finally admit that the federal student loan program is out of control.
The federal student loan program is slowly destroying our economy and the integrity of higher education in the United States. And--with the advent of IBRPs--the number of elderly Americans who will see their retirement years blighted by student-loan debt is going to go no direction but up.
References
General Accounting Office. Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Borrowers. GAO-14-866T. Washington, DC: General Accounting Office. http://www.gao.gov/products/GAO-14-866T
Monday, September 8, 2014
There's No Fool Like an Old Fool: The New York Times Just Doesn't Get It When It Comes to the Student Loan Crisis
Today, the New York Times published an editorial on the Obama administration's efforts to encourage student-loan servicers to be less rapacious. According to the Times, the government is changing the incentive structures so that loan-collection companies have a financial incentive to help rehabilitate student loans that are delinquent instead of pushing borrowers into default.
The Times approves of reforms that will encourage students to sign up for Income-Based Repayment Plans, plans that will have borrowers paying a percentage of their income for the next 25 years. Some reform! The Times also likes the new rule that will give more weight to customer satisfaction surveys "in determining how well servicers do their jobs." That idea is about as radical as Aunt Sadie's Buick Regal.
The Times editorial then goes on to say that Obama's reform efforts don't go far enough. So what does the Times suggest? "More should be done to improve competition and transparency [among loan servicers]," the Times recommends. Borrowers should be able to jump from one loan servicer to another, the Times adds, and "set significant penalties for poor practices and create a portal where borrowers can get information about their accounts and report abuses to the Education Department instead of to the abusers."
This is the kind of timid advice you would expect from a newspaper that gets a lot of its revenue from advertising luxury goods that are targeted at its fat cat readers. I'm glad the Times wasn't in charge of negotiating with Adolph Hitler during World War II. It probably would have editorialized that Hitler needed to paint the concentration-camp barracks a more soothing color.
The Times does not seem to realize that people who fall into the hands of the student-loan servicers are dealing with truly heartless entities. Here are some examples:
How much do ECMC executives pay themselves to chase down poor and elderly student-loan debtors? A lot. Bloomberg reported in 2012 that Richard Boyle, ECMC's Chief Executive at the time, made $1.1 million in 2010. I could not find more recent compensation information on Educational Credit Management Corporation's new CEO, a guy named Dave Hawn, but I'll bet that Hawn is making at least as much as Boyle made four years ago.
So, New York Times editorialists, take your tepid and inadequate editorial recommendations and stick them "where the sun don't shine"--which is within your timid and obsequious little hearts.
You want to clean up the student-loan collection business? Here are some suggestions:
1) First, President Obama and Secretary of Education Arne Duncan should instruct all the student-loan servicers not to oppose bankruptcy relief for any elderly student-loan debtor who is living solely on Social Security, who has suffered long-term unemployment, or who has no real prospect of every paying off student-loan debt. And they should follow up with regulations or legislation that would make those instructions stick.
2) The government needs to put an upper-limit on fees and accrued interest that get tacked on to student-loan defaulters' total loan obligations. Several bankruptcy decisions have documented that debtors' original student loan balances had more than doubled by the time they filed for bankruptcy due to accrued interest, penalties and fees.
3) The Obama administration should propose amendments to the bankruptcy laws that will allow distressed student-loan debtors who took out loans in good faith to discharge their student loans in the bankruptcy process without going through expensive and traumatic adversary proceedings.
4) Obama should propose legislation to reinstate a reasonable statute of limitation on the collection of delinquent student-loan debt--say six years, which is the same time period that applies to the collection of most monetary obligations.
5) The President should demand legislation that would stop the federal government from garnishing the Social Security checks of elderly student-loan defaulters who are totally dependent on their Social Security pensions.
6) All the companies participating in the student-loan servicing industry should be required to post the compensation of all its senior executives online so that Americans can see just how much money so-called non-profit agencies are making on the suffering of student-loan debtors.
All these recommendations are reasonable and all are more humane than the puny little recommendations the Times made in its editorial page. If the Times can't offer any suggestions more robust than it offered in its September 8th issue, then it should keep its mouth shut about the student-loan crisis and admit that all it is really concerned about when it comes to domestic economic issues is supporting Barack Obama and maintaining Democratic control of the White House.
References
A Fairer Shot for Student Debtors. New York Times, September 8, 2014, p. A16.
John Hechinger. Taxpayers Fund $454,000 Pay for Collector Chasing Student Loans. Bloomberg.com, May 15, 2013. Accessible at: http://www.bloomberg.com/news/2012-05-15/taxpayers-fund-454-000-pay-for-collector-chasing-student-loans.html
The Times approves of reforms that will encourage students to sign up for Income-Based Repayment Plans, plans that will have borrowers paying a percentage of their income for the next 25 years. Some reform! The Times also likes the new rule that will give more weight to customer satisfaction surveys "in determining how well servicers do their jobs." That idea is about as radical as Aunt Sadie's Buick Regal.
The Times editorial then goes on to say that Obama's reform efforts don't go far enough. So what does the Times suggest? "More should be done to improve competition and transparency [among loan servicers]," the Times recommends. Borrowers should be able to jump from one loan servicer to another, the Times adds, and "set significant penalties for poor practices and create a portal where borrowers can get information about their accounts and report abuses to the Education Department instead of to the abusers."
This is the kind of timid advice you would expect from a newspaper that gets a lot of its revenue from advertising luxury goods that are targeted at its fat cat readers. I'm glad the Times wasn't in charge of negotiating with Adolph Hitler during World War II. It probably would have editorialized that Hitler needed to paint the concentration-camp barracks a more soothing color.
The Times does not seem to realize that people who fall into the hands of the student-loan servicers are dealing with truly heartless entities. Here are some examples:
- Educational Credit Management Corporation (ECMC) opposed bankruptcy relief for a 63-year old man who had been unemployed for 12 years, whose home was going into foreclosure, and who had been living with his wife below the poverty level. This man had accumulated student-loan debt in the neighborhood of $240,000. Murphy v. Educational Credit Management Corporation (2014).
- ECMC opposed bankruptcy relief for an elderly student-loan defaulter who had chronic health problems and who was living solely on Social Security checks of less than $800 a month. Roth v. Educational Credit Management Corporation (2013).
- ECMC opposed bankruptcy relief for another elderly woman with student-loan debt that was more than twenty years old and who had a salary of about $500 per month and a history of homelessness. Stevenson v. Educational Credit Management Corporation (2011).
How much do ECMC executives pay themselves to chase down poor and elderly student-loan debtors? A lot. Bloomberg reported in 2012 that Richard Boyle, ECMC's Chief Executive at the time, made $1.1 million in 2010. I could not find more recent compensation information on Educational Credit Management Corporation's new CEO, a guy named Dave Hawn, but I'll bet that Hawn is making at least as much as Boyle made four years ago.
So, New York Times editorialists, take your tepid and inadequate editorial recommendations and stick them "where the sun don't shine"--which is within your timid and obsequious little hearts.
You want to clean up the student-loan collection business? Here are some suggestions:
1) First, President Obama and Secretary of Education Arne Duncan should instruct all the student-loan servicers not to oppose bankruptcy relief for any elderly student-loan debtor who is living solely on Social Security, who has suffered long-term unemployment, or who has no real prospect of every paying off student-loan debt. And they should follow up with regulations or legislation that would make those instructions stick.
2) The government needs to put an upper-limit on fees and accrued interest that get tacked on to student-loan defaulters' total loan obligations. Several bankruptcy decisions have documented that debtors' original student loan balances had more than doubled by the time they filed for bankruptcy due to accrued interest, penalties and fees.
3) The Obama administration should propose amendments to the bankruptcy laws that will allow distressed student-loan debtors who took out loans in good faith to discharge their student loans in the bankruptcy process without going through expensive and traumatic adversary proceedings.
4) Obama should propose legislation to reinstate a reasonable statute of limitation on the collection of delinquent student-loan debt--say six years, which is the same time period that applies to the collection of most monetary obligations.
5) The President should demand legislation that would stop the federal government from garnishing the Social Security checks of elderly student-loan defaulters who are totally dependent on their Social Security pensions.
6) All the companies participating in the student-loan servicing industry should be required to post the compensation of all its senior executives online so that Americans can see just how much money so-called non-profit agencies are making on the suffering of student-loan debtors.
All these recommendations are reasonable and all are more humane than the puny little recommendations the Times made in its editorial page. If the Times can't offer any suggestions more robust than it offered in its September 8th issue, then it should keep its mouth shut about the student-loan crisis and admit that all it is really concerned about when it comes to domestic economic issues is supporting Barack Obama and maintaining Democratic control of the White House.
References
A Fairer Shot for Student Debtors. New York Times, September 8, 2014, p. A16.
John Hechinger. Taxpayers Fund $454,000 Pay for Collector Chasing Student Loans. Bloomberg.com, May 15, 2013. Accessible at: http://www.bloomberg.com/news/2012-05-15/taxpayers-fund-454-000-pay-for-collector-chasing-student-loans.html
Brown, M., Haughwout, A., Lee, D., Mabutas, M., and van der Klaauw, W. (2012). Grading student loans. New York: Federal Reserve Bank of New York. Accessible at: http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html
Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (7th Cir. 2013).
Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (7th Cir. 2013).
Lockhart v. United States, 546 U.S. 142, 126 S. Ct. 699 (2005).
Murphy v. Educational Credit Management Corporation, 511 B.R. 1 (D. Mass. 2014).
Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).
Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011).
Murphy v. Educational Credit Management Corporation, 511 B.R. 1 (D. Mass. 2014).
Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).
Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011).
Sunday, September 7, 2014
It's All About the Money: Louisiana State University, Coached by Fried Chicken Huckster Les Miles, Whipped Sam Houston State By a Score of 56-0
Louisiana State University's varsity football program brings big money to the local Baton Rouge economy. The liquor store not far from my home opens at 6:00 AM on days when LSU plays at home: 6:00 AM! A Baton Rouge citizen who bought his bourbon at that hour yesterday had a solid 12 hours to drink before kickoff at 6:30 in the evening. So the liquor business makes good money off of LSU football.
And the restaurants and hotels also make money when LSU plays at home. According to The Baton Rouge Advocate, room rates go up by an average of 34 percent on the weekends that LSU plays in Tiger Stadium.
Other sectors of the Baton Rouge economy benefit as well. LSU added 10,000 seats to its stadium last year at the cost of $80 million, making Tiger Stadium one of the largest college football coliseums in the country. It also added two high definition video screens that are so large that they can be seen from the Interstate 10 bridge over the Mississippi River.
But the big money goes to the coaches and athletic administrators. Les Miles, LSU's head football coach, makes $4.3 million a year, about five times what LSU's president makes; and that doesn't include bonuses and and any product endorsement deals Miles might pick up. His face has appeared on advertisements for Raising Cane, a regional fried chicken chain, and I'm sure Les didn't lend his mug for free.
Joe Alleva, LSU's Athletic Director, is another guy who makes a handsome salary. The Baton Rouge Advocate reported that Alleva has been offered a contract extension that calls for a $725,000 yearly salary and includes incentive bonuses that could push his annual pay to $900,000. He will get a $100,000 bonus if LSU ranks in the top 5 in the NACDA Directors' Cup rankings--whatever that means. And Alleva will get an additional $25,000 if he maintains "financial solvency, no major infractions, [and makes] substantial contributions to [the] university and surrounding community" (as quoted in The Baton Rouge Advocate). What nonsense.
Of course, university professors have groused about the salaries of football coaches for as long as I can remember, and it's been at least 30 years since football coaches first began making more money than university presidents.
In fact, almost everyone in higher education admits that varsity sports--and football in particular--is all about the money. Still, LSU's home field opener last night was a particularly disgusting spectacle. It has become traditional for the nation's top college football teams to open their seasons by playing weak opponents who are lured into the stadiums by getting a share of the gate. This year, Sam Houston State University obligingly volunteered to be the sacrificial lamb, and got trounced before a crowd of about 100,000 fans (not counting thousands of fans who tailgated on the LSU campus yesterday).
The Baton Rouge Advocate reported this massacre on the sports page in headlines so big you would have thought Les Miles had defeated ISIS.
Some day, of course, all these enormous college football stadiums will stand empty, just as the old Roman coliseums now do. People will wonder just what it was that people saw in watching young men assault each other on a field of artificial turf, just as we wonder why the Romans enjoyed seeing Christians being devoured by lions.
But for now, as Robert Earl Keen put it, "the road goes on forever and the party never ends."The executive sky boxes are full of wealthy businessmen who watch football games while sipping bourbon, and rich donors make tax-deductible contributions to LSU's three foundations, which have annual revenues totalling $100 million. Who cares that Louisiana's educational system is crumbling and that almost half of Louisiana's children who start first grade never graduate from high school. All that matters, as LSU Athletic Director Joe Alleva phrased it, is that LSU be "in the hunt" to win football championships.
References
Ross Dellenger. LSU proposes 3-year contract extension for Alleva. The Baton Rouge Advocate, September 7, 2014, p. 17C.
Scott Rabalais. Highlight Night. The Baton Rouge Advocate, September 7,2014, p. 1C.
Roar Of Approval. Baton Rouge Advocate, September 7, 2014 p. 1A.
Gary Laney. Les Miles Staying at LSU. ESPN, November 28, 2012. Available at: http://espn.go.com/college-football/story/_/id/8687452/les-miles-remain-football-coach-lsu-tigers-receive-extension-raise
And the restaurants and hotels also make money when LSU plays at home. According to The Baton Rouge Advocate, room rates go up by an average of 34 percent on the weekends that LSU plays in Tiger Stadium.
Other sectors of the Baton Rouge economy benefit as well. LSU added 10,000 seats to its stadium last year at the cost of $80 million, making Tiger Stadium one of the largest college football coliseums in the country. It also added two high definition video screens that are so large that they can be seen from the Interstate 10 bridge over the Mississippi River.
But the big money goes to the coaches and athletic administrators. Les Miles, LSU's head football coach, makes $4.3 million a year, about five times what LSU's president makes; and that doesn't include bonuses and and any product endorsement deals Miles might pick up. His face has appeared on advertisements for Raising Cane, a regional fried chicken chain, and I'm sure Les didn't lend his mug for free.
Joe Alleva, LSU's Athletic Director, is another guy who makes a handsome salary. The Baton Rouge Advocate reported that Alleva has been offered a contract extension that calls for a $725,000 yearly salary and includes incentive bonuses that could push his annual pay to $900,000. He will get a $100,000 bonus if LSU ranks in the top 5 in the NACDA Directors' Cup rankings--whatever that means. And Alleva will get an additional $25,000 if he maintains "financial solvency, no major infractions, [and makes] substantial contributions to [the] university and surrounding community" (as quoted in The Baton Rouge Advocate). What nonsense.
Of course, university professors have groused about the salaries of football coaches for as long as I can remember, and it's been at least 30 years since football coaches first began making more money than university presidents.
In fact, almost everyone in higher education admits that varsity sports--and football in particular--is all about the money. Still, LSU's home field opener last night was a particularly disgusting spectacle. It has become traditional for the nation's top college football teams to open their seasons by playing weak opponents who are lured into the stadiums by getting a share of the gate. This year, Sam Houston State University obligingly volunteered to be the sacrificial lamb, and got trounced before a crowd of about 100,000 fans (not counting thousands of fans who tailgated on the LSU campus yesterday).
The Baton Rouge Advocate reported this massacre on the sports page in headlines so big you would have thought Les Miles had defeated ISIS.
Some day, of course, all these enormous college football stadiums will stand empty, just as the old Roman coliseums now do. People will wonder just what it was that people saw in watching young men assault each other on a field of artificial turf, just as we wonder why the Romans enjoyed seeing Christians being devoured by lions.
But for now, as Robert Earl Keen put it, "the road goes on forever and the party never ends."The executive sky boxes are full of wealthy businessmen who watch football games while sipping bourbon, and rich donors make tax-deductible contributions to LSU's three foundations, which have annual revenues totalling $100 million. Who cares that Louisiana's educational system is crumbling and that almost half of Louisiana's children who start first grade never graduate from high school. All that matters, as LSU Athletic Director Joe Alleva phrased it, is that LSU be "in the hunt" to win football championships.
References
Ross Dellenger. LSU proposes 3-year contract extension for Alleva. The Baton Rouge Advocate, September 7, 2014, p. 17C.
Scott Rabalais. Highlight Night. The Baton Rouge Advocate, September 7,2014, p. 1C.
Roar Of Approval. Baton Rouge Advocate, September 7, 2014 p. 1A.
Gary Laney. Les Miles Staying at LSU. ESPN, November 28, 2012. Available at: http://espn.go.com/college-football/story/_/id/8687452/les-miles-remain-football-coach-lsu-tigers-receive-extension-raise
Saturday, September 6, 2014
Memo to Parents: For God's Sake, Don't Borrow Money to Pay For Your Kids' College Education
Are you a parent who is thinking about taking out a loan to pay for your child's college education? Before you do, read Murphy v. Educational Credit Management Corporation, a recent federal court decision.
In 2002, Robert Murphy lived in Duxbury, Massachusetts and was the president of a corporation. Unfortunately, he lost his job after the corporation was sold and its operations were moved overseas. Although he had diligently looked for a new job, he was still unemployed in 2014.
Between 2001 and 2007 Murphy took out 12 loans to finance a college education for each of his three children. This is remarkable, since he was unemployed during most of this six-year period. Apparently, Murphy had no difficulty borrowing money for his children's education even though he was out of a job. By May 2014, when a federal court issued its appellate opinion on his bankruptcy case, Murphy owed more than $240,000 on these loans.
By this time, Murphy was 63 years old, unemployed for almost 12 years, and in dire financial circumstances. He owed $700,000 on a home that was only worth $500,000, and his home was going into foreclosure. Although Murphy had once owned an IRA worth about a quarter of million dollars, he had cashed it out to cover expenses. The court did not report on Murphy's family income in 2014, but it noted that Murphy and his wife had only earned about $13,000 in both 2010 and 2011, money his wife had earned as a teacher's aide.
Pretty sad story, you might think. Nevertheless, a federal court upheld a bankruptcy court's decision to deny Murphy's request to have his children's student loans discharged. Although the court admitted that Murphy had no current ability to pay off the loans, it noted that Murphy was in good health and might still find a high-earning job that would allow him to pay off his enormous debt.
Ending its opinion on a remarkably callous note, the court observed that Murphy had struck a bargain with the government when he borrowed money to pay for his children's college education. "All bargains contain risks," the court pointed out, and Murphy's bargain was especially risky since he had been unemployed during the time he took out most of the loans.
In short, the court ruled, Murphy's situation did not present "truly exceptional circumstances" that would permit him to shed his student-loan debt. Thus, the federal court agreed with the bankruptcy court's decision to deny Murphy relief in bankruptcy for his children's student loans.
The Murphy decision serves as a warning to all parents who are thinking about borrowing money to help their children get a college education. Whether the parent takes out a federal student loan or borrows money from a private bank, a college loan cannot be discharged in bankruptcy unless the parent can show "undue hardship."
Mr. Murphy was unable to show undue hardship in spite of the fact that he had been unemployed for 12 years, had liquidated his retirement account and was in the process of losing his house in foreclosure.
According to a recent article in the Huffington Post, parents currently owe an accumulated $62 billion in Parent Plus Loans, which are guaranteed by the federal government. And this figure doesn't include loans parents took out with private banks that are not federally guaranteed. A 2012 Huffington Post article reported that about one million Parent Plus loans were taken out during 2011, totally more than $10 billion in just that one year.
Parents who guarantee their children's college loans or who take out loans to pay for their children's education put their financial futures at grave risk. Before borrowing to pay for your children to go to college, you should think about Mr. Murphy. Sixty-three years old, unemployed, and living on an income near the poverty level, Mr. Murphy is burdened by almost a quarter million dollars of student-loan debt. That's a pretty scary story.
References
Murphy v. Educational Credit Management Corporation, 511 B.R. 1 (D. Mass. 2014).
Marian Wang, Beckie Supiano, & Andrea Fuller. Parent Plus Loans: How the Government Is Saddling Parents With Loans They Can't Afford. Huffington Post, October 5, 2012. Available at: http://www.huffingtonpost.com/2012/10/05/parent-plus-loan-government-parents-student-debt_n_1942151.html
Marian Wang. As Parents Struggle to Repay College Loans for Their Children, Taxpayers Also Stand to Lose. Huffington Post, April 4, 2014. Available at: http://www.huffingtonpost.com/2014/04/04/parent-plus-loans_n_5094931.html
In 2002, Robert Murphy lived in Duxbury, Massachusetts and was the president of a corporation. Unfortunately, he lost his job after the corporation was sold and its operations were moved overseas. Although he had diligently looked for a new job, he was still unemployed in 2014.
Between 2001 and 2007 Murphy took out 12 loans to finance a college education for each of his three children. This is remarkable, since he was unemployed during most of this six-year period. Apparently, Murphy had no difficulty borrowing money for his children's education even though he was out of a job. By May 2014, when a federal court issued its appellate opinion on his bankruptcy case, Murphy owed more than $240,000 on these loans.
By this time, Murphy was 63 years old, unemployed for almost 12 years, and in dire financial circumstances. He owed $700,000 on a home that was only worth $500,000, and his home was going into foreclosure. Although Murphy had once owned an IRA worth about a quarter of million dollars, he had cashed it out to cover expenses. The court did not report on Murphy's family income in 2014, but it noted that Murphy and his wife had only earned about $13,000 in both 2010 and 2011, money his wife had earned as a teacher's aide.
Pretty sad story, you might think. Nevertheless, a federal court upheld a bankruptcy court's decision to deny Murphy's request to have his children's student loans discharged. Although the court admitted that Murphy had no current ability to pay off the loans, it noted that Murphy was in good health and might still find a high-earning job that would allow him to pay off his enormous debt.
Ending its opinion on a remarkably callous note, the court observed that Murphy had struck a bargain with the government when he borrowed money to pay for his children's college education. "All bargains contain risks," the court pointed out, and Murphy's bargain was especially risky since he had been unemployed during the time he took out most of the loans.
In short, the court ruled, Murphy's situation did not present "truly exceptional circumstances" that would permit him to shed his student-loan debt. Thus, the federal court agreed with the bankruptcy court's decision to deny Murphy relief in bankruptcy for his children's student loans.
The Murphy decision serves as a warning to all parents who are thinking about borrowing money to help their children get a college education. Whether the parent takes out a federal student loan or borrows money from a private bank, a college loan cannot be discharged in bankruptcy unless the parent can show "undue hardship."
Mr. Murphy was unable to show undue hardship in spite of the fact that he had been unemployed for 12 years, had liquidated his retirement account and was in the process of losing his house in foreclosure.
According to a recent article in the Huffington Post, parents currently owe an accumulated $62 billion in Parent Plus Loans, which are guaranteed by the federal government. And this figure doesn't include loans parents took out with private banks that are not federally guaranteed. A 2012 Huffington Post article reported that about one million Parent Plus loans were taken out during 2011, totally more than $10 billion in just that one year.
Parents who guarantee their children's college loans or who take out loans to pay for their children's education put their financial futures at grave risk. Before borrowing to pay for your children to go to college, you should think about Mr. Murphy. Sixty-three years old, unemployed, and living on an income near the poverty level, Mr. Murphy is burdened by almost a quarter million dollars of student-loan debt. That's a pretty scary story.
References
Murphy v. Educational Credit Management Corporation, 511 B.R. 1 (D. Mass. 2014).
Marian Wang, Beckie Supiano, & Andrea Fuller. Parent Plus Loans: How the Government Is Saddling Parents With Loans They Can't Afford. Huffington Post, October 5, 2012. Available at: http://www.huffingtonpost.com/2012/10/05/parent-plus-loan-government-parents-student-debt_n_1942151.html
Marian Wang. As Parents Struggle to Repay College Loans for Their Children, Taxpayers Also Stand to Lose. Huffington Post, April 4, 2014. Available at: http://www.huffingtonpost.com/2014/04/04/parent-plus-loans_n_5094931.html
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