Sunday, June 14, 2015

Ron Lieber of the New York Times published an antidote to Lee Siegel's poisionous essay about the virtues of student-loan default

An antidote is a substance given to counteract the effects of poisoning; and yesterday, Ron Lieber, a New York Times reporter, published the antidote for Lee Siegel's poisonous essay touting the virtues of student-loan default, which the Times had thoughtlessly published in its Sunday Review section on June 7.


In his reckless essay, Siegel had advised student-loan borrowers to do three things before defaulting on their student loans: 1) Take out a lot of credit cards to establish good credit before your credit is damaged by a student-loan default; 2) Establish a good history of paying rent to increase your chances that landlords will rent to you in spite of your default; and 3) marry or live with someone who has a good credit rating.

Lieber poked holes in all that advice, so anyone who reads Siegel's article and is tempted to default on student loans should read Lieber's article too.

Lieber wrote a good rebuttal to Siegel's essay, but he failed to convey some other important information. First, there is no statute of limitations on student-loan debt. A student-loan borrower may suffer no consequences of  default for a quarter century or more. But the government and its debt collectors can go after a defaulter right up to the moment of death. And that includes you, Mr. Siegel.

Second, defaulters face liability for more than just the amount of money they borrowed. They also face liability for accrued interest, fees, and penalties, which can total 25 percent of the amount borrowed plus accumulated interest. It is not uncommon for student-loan borrowers to stumble into bankruptcy court owing double, or even, triple the amount of money they borrowed. By that time, of course, they are in a world of hurt.

Also, Lieber understated the number of elderly people who have seen their Social Security checks garnished by the federal government for nonpayment of student loans. Lieber's article incorrectly stated that the number of people whose Social Security checks were garnished in 2013 was 33,000, but that is the approximate number  of people whose Social Security checks were garnished in 2002. By 2013, the number of people whose Social Security checks were garnished for nonpayment on student loans was 155,000, as reported by the General Accounting Office.  Between 2002 and 2013, the number of elderly people who were having their Social Security checks garnished grew by more than four fold!

Millions of people have defaulted on their student loans, at least 7 million, according to a report from the Consumer Financial Protection Bureau.  But most did not default in order to live more fulfilling lives, which was Siegel's reason for defaulting. Most defaulted because they simply could not make their student-loan payments and still have enough left over from their paychecks to eat and pay rent. And many have seen their loan balances balloon due to additional interest that accumulated during periods when they couldn't make their loan payments.

In short, most student-loan defaulters quit making loan payments out of a sense of hopelessness and despair, not to lead more creative lives. All these people deserve relief from their oppressive student-loan debt. Unfortunately, Siegel may have given Americans the erroneous impression that most student-loan defaulters are feckless deadbeats, when in fact most are honest individuals who wound up in default due to a variety of tragic life circumstances--job loss or failure to find a good job, divorce, or health issues.

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

Lieber, Ron. The Downside of Defaulting on Student Loans. New York Times, June 13, 2015, p. B1.

Siegel, Lee. Why I Defaulted on My Student Loans. New York Times, June 7, 2015, Sunday ReviewSection, p. 4.



Friday, June 12, 2015

Lee Siegel is not the poster child for the student loan crisis: Single mothers are more typical of defaulting student-loan borrowers than self-proclaimed cultural critics

It is unfortunate--truly unfortunate--that the New York Times chose to publishe Lee Siegel's op ed essay in which he defended his decision to default on his student loans. Siegel has received a lot of negative feedback on his essay, including several letters that were published in the New York Times, and some people may have gotten the impression that Siegel is a typical student-loan debtor.

But he is not typical, and it would be tragic if Siegel becomes the poster child for the student-loan crisdis.

Americans need to understand that most student-loan defaulters are not successful, self-employed professionals like Siegel. Rather, they are typically people in desperate circumstances due a a host of negative life events (job loss, divorce, illness) that left them unable to manage their student-loan debts.  

If Americans are looking for a poster child for the student loan crisis, I nominate Alethea Lamento. 


Arethea Lamento, Not Lee Siegel, is the Poster Child for the Student Loan Crisis

As explained by a sympathetic bankruptcy court, Alethea Lamento was a 35-year-old single mother of two when she filed for bankruptcy. She was working for a grocery store chain for $10.15 an hour, and she only made ends meet for herself and her two children by living rent-free with her mother and her step-father.

Lamento had accumulated $70,000 in student loan debt while trying to obtain an education that she hoped would open the door to a better life. Unfortuantely, she married a man who, according to the bankruptcy court, was "abusive in multiple ways," and her husband did not want her to go to college. She made several attempts to get training to increase her income but she was unsuccessful due in part to the fact that she was a mother of two and married to a man who discouraged her from obtaining an education. 

As the court explained, Lamento was never able to make a voluntary payment on her student loans, and the federal government eventually began garnishing her paychecks to collect on the accumulated debt. Lamento then filed for bankruptcy.

In the bankruptcy proceedings, the U.S. Department of Education and Educational Credit Management Corporation appeared as creditors and opposed Lamento's request to have her student-loan debt discharged. They argued she should be put in a 25-year income-based repayment plan.

But a sympathetic and compassionate bankruptcy court rejected these arguments and discharged Lamento's student loans. First of all, the court pointed out, it was obvous that Arethea would not be able to maintain a minimal standard of living if she were forced to pay off her student loans.


 “At the age of 35, she has no money to pay rent or utilities for housing for herself and her two children,” the court wrote. “Without the generosity of her mother and stepfather, her family would have nowhere to live” (p. 676). Alethea’s salary did not allow her to pay rent or utilities, which the bankruptcy court considered to be basic needs. Nor did she have health insurance, which the court also considered to be a basic need. 

Alethea's creditors argued that her financial circumstances would improve, but the court did not agree.  “The evidence showed conclusively that Alethea’s financial situation is not temporary and that it is likely to persist for a significant part of the repayment period,” the court ruled.  

In the bankruptcy court's view, Alethea had filed for bankruptcy in good faith. It was true, the court acknowledged, that Alethea had made no voluntary payments on her student loans. Nevertheless, it was undisputed that with her limited income and tight budget, Alethea had never made enough money to make student-loan payments.

ECMC and the Department of Education tried to make much of the fact that Alethea had refused their offer to enter into a 25-year income-based repayment plan. In their view, her refusal to agree to a long-term repayment plan showed her lack of good faith.

But the court rejected this line of reasoning. As the court pointed out, the creditors’ position basically amounted to the argument that the only way a student-loan debtor can show good faith in a bankruptcy proceeding is to sign up for a long-term repayment plan.

The court ruled that Alethea’s reasons for rejecting a 25-year income-based repayment plan “to be credible, convincing, and offered in good faith” (p. 679). In the court’s opinion, it was clear that Alethea was not able to pay anything on her student loans and would be unable to do so in the foreseeable future. Thus her participation in an income-based repayment plan would be futile.

In addition, the court pointed out, there were burdens associated with such agreements. First, if Alethea agreed to a 25-year repayment plan, she would essentially be trading one nondischargeable debt for another. Second, signing up for such a repayment plan would require Alethea to report her income to her student-loan creditors for the next 25 years.

Finally, and perhaps most importantly, the court noted that the creditors’ insistence on a long-term repayment plan overlooked “the psychological effect” of having a significant debt obligation stretch out over a quarter of a century. “Given Alethea’s desperate circumstances, and her status as the proverbial honest but unfortunate debtor, she is entitled to sleep at night without these unpayable debts continuing to hang over her head for the next 25 years” (p. 679, emphasis supplied).

Conclusion: Millions of Student-Loan Defaulters are Entitled to Bankruptcy Relief

Perhaps Lee Siegel should have paid off his student loans, but millions of people who took our student loans in good faith don't make enough money from their jobs to pay back their loans. All these people are entitled to bankruptcy relief.

As Americans contemplate the growing student-loan disaster, they need to realize that Rober Siegel is not the typical student-loan debtor. More typical by far is Alethea Lamento, a single mother of two and an "an honest but unfortuante debtor," who deserves relief from oppressive student loans.

Note: Parts of this blog essay are taken from an article I co-authored with Robert C. Cloud and which appeared in Teachers College Record Online earlier this year. The opinions expressed in this blog are soley my own.

References

Delisle, J. & McCann, C. (2014, September 26). Who's Not Repaying Student Loans? More People Than You Think. Forbes.com. Retrieved from http://www.forbes.com/sites/jasondelisle/2014/09/26/whos-not-repaying-student-loans-more-people-than-you-think/

Fossey, R. & R. C. Cloud. (2013, November 22). "The Law Does Not Require a Party to Engage in Futile Acts”: Student Loans, Bankruptcy and a Compassionate Federal Court. Teachers College Record, http://www.tcrecord.org,  ID Number: 1733.

Fossey, R. & R. C. Cloud (2015, February 23). In Re Lamento: An Honest But Unfortunate Debtor Is Entitled To Sleep At Night Without Worrying About Unpayable Student-Loan Debt. Teachers College Record Online, http://www.tcrecord.org ID Number: 17871

In re Lamento, 520 B.R. 667 (Bkrtcy. N.D. Ohio 2014).

In re Roth, 490 B.R. 908 (9th Cir. BAP 2013).

Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (6th Cir. 2013).

David Marans, This Author Called for A Student Loan Boycott, And CNBC Was Not Having It. Huffington Post, June 8, 2015. Accessible at: http://www.huffingtonpost.com/2015/06/08/cnbc-student-loan-boycott_n_7537432.html

Lee Siegel. Why I Defaulted on My Student Loans. New York Times, June 7, 2015, Sunday ReviewSection, p. 4.

Student borrowers and the economy (2014, June 10). New York Times. Retrieved from http://www.nytimes.com/2014/06/11/opinion/student-borrowers-and-the-economy.html?_r=0




Thursday, June 11, 2015

Student Loan Forgiveness for Students Who Attended One of the Schools Owned by Corinthian Colleges: I Recommend Chiang Kai-Shek's Fire Hose Approach

Chiang Kai-shek was the  leader of the Nationalist government of China for many years, but he was also a Methodist of sorts. I read somewhere that he once baptized his soldiers en masse, using a fire hose.  I'm not sure that story is true, but I like to think of all those Chinese soldiers who became Methodists. I'm sure it did them a world of good.

Regardless of the truth of that story, I believe the Department of Education should adopt Chiang Kai-shek's  fire-hose technique when designing a student-loan forgiveness program for all the people who attended one of  institutions operated by Corinthian Colleges--which is now bankrupt.


Chiang Kai-shek(蔣中正).jpg
Chiang Kai-shek: Did he baptize his troops with a fire hose?
The Department of Education is designing a process whereby students who attended a Corinthian campus can apply for loan forgiveness, which at least some of them are legally entitled to do due to Corinthian's shutdown. According to the New York Times, DOE estimates that 350,000 people attended one of the Corinthian  campuses over the past five years. If all of them apply for loan forgiveness and receive debt relief, it will cost taxpayers $3.5 billion.

In the past, DOE has utilized a cumbersome loan-forgiveness process for  students who attended colleges that closed, and DOE says that only 6 percent of students who were eligible for debt relief due to a college closure  actually applied for that relief (as reported in the New York Times).


Secretary of Education Arne Duncan promises a streamlined loan-forgiveness process for former Corinthian students. "We will make this process as easy as possible for them, including by considering claims in groups wherever possible" Duncan said.


But why make Corinthian students jump through hoops to have their student loans forgiven--any hoops at all? Why not adopt Chiang Kai-shek's methods and forgive all those loans en masse? I agree with Luke Herrine, a member of the Debt Collective, who argued that all Corinthian students should be given "blanket relief."


Why give blanket loan -forgiveness to former Corinthian students? First of all, the government is not going to get that money back anyway. In all likelihood, a majority of Corinthian students will either default on their loans or apply for economic-hardship status that will exempt them from making loan payments until they get on their feet financially, which for many Corinthian victims will be never.


Second, the Department of Education is morally responsible for the mess it created by shoveling student-aid money to for-profit colleges that paid their executives lavish salaries while delivering substandard educational programs. A quarter of all student-aid money goes to for-profit colleges, which have the highest default rates. 


The for-profits have kept this shell game going by hiring lobbyists to represent their interests, employing lawyers to file lawsuits to stop DOE's regulatory efforts, and making campaign contributions to strategic members of Congress.  In fact, Corinthian's bankruptcy filings lists its lobbyists as some of its creditors.

No, DOE needs to spray all these students with a metaphorical fire hose, forgiving Corinthian's former students' loans through executive action. These unfortunate folk have been through enough. Duncan shouldn't make them fill out any more forms in order to rid themselves of student-loans they took out to attend one of Corinthian's colleges.



References


Tamar Lewin. Government to Forgive Student Loans at Corinthian. New York Times, June 9, 2015, p. A11.


Help for Victims of College Fraud (Editorial). New York Times, June 10, 2015, p. A24.

Hurtling toward catastrophe at warp speed: How the cost of higher education spun out of control

I recently attended a small dinner party in my neighborhood. Only seven guests attended, and three of them shared personal experiences about the cost of higher education.

One man I spoke with is a hospital administrator. He told me he regularly meets intern pharmacists at his hospital who have $200,000 in student loans, even though the market for pharmacists is saturated. A woman at the party confided that her daughter borrowed $200,000 to obtain an education, and a young man explained how much it is costing him to obtain an MBA.

I try to keep abreast of higher education costs. Nevertheless, I was shocked at the cost of an MBA program at public universities these days. An online MBA from Louisiana State University now costs $45,000 for two years of study. The University of North Carolina, my dinner guest told me, charges $70,000 for an online MBA.  And an MBA from the University of Texas (my own google search revealed) costs $100,000 for two-years of study, when living expenses are included.

My dinner partner chose to enroll in a new MBA program at LSU Shreveport, which charges about $1,000 per online course. That sounds pretty reasonable. But there are 500 people enrolled in his first course! That's right. A regional public institution rakes in a half million dollars to offer just one graduate-level class in business administration.

In 1980, I graduated from the University of Texas Law School, one of the top-ranked law schools in the United States, and it only cost me $3,000 ($1,000 a year for tuition and fees). Today, tuition and fees to attend UT Law School is $108,000--36 times time what I paid!

How Did Higher Education Become So Expensive?

How, over the course of just one generation, did higher education become so expensive?

Differential pricing. Several reasons. First, the universities changed their philosophy about tuition pricing. Thirty years ago, public universities tried to keep their costs down so that even a poor person (a person like myself when I was young) could obtain a first-rate college education and even a professional degree.  Of course, students from wealthy families got a heck of bargain, obtaining college degrees and professional degrees for much less than they would be willing to pay. But the universities' doors were open to anyone who met the admission requirements.

Today, universities engage in what they call differential pricing. They set fees at a level that wealthy people are willing to pay and then they offer discounts in the form of scholarships, grants, and loan packages to "worthy" individuals who can't afford to pay the sticker price.

Don't worry about the cost, the universities tell prospective students. The real cost of attending our institution is lower than the sticker price. But of course, no one knows how the universities decide which students get the discounts. Legacies, minorities, and students with high standardized test scores get the scholarship money; and the suckers are forced to take out student loans to pay their tuition bills.

And so universities raised their tuition costs, especially in high-demand programs like business administration,veterinary programs, medicine and law. And they did this without paying any attention to the job market. Now we see law graduates who obtained their degrees from second- and third-tier law schools with massive amounts of debt and no job prospects.

Money is no object. Second, a philosophy now prevails in many middle-class families that money is no object.  If I can just get into the most prestigious college that will admit me, many young people tell themselves, I have a ticket to a better life. Or at least I can maintain the middle-class lifestyle that my parents achieved.

If only that were true. Unfortunately, people are finding out to their sorrow that a degree in women's studies from New York University, one of the most expensive schools in the country, does not lead to a six-figure salary.

The federal student loan program has sowed the seeds of catastrophe. And finally, it is now obvious to nearly every honest person that the accelerating cost of higher education was fueled by the federal student loan program and student loans from private banks. Universities have avoided sticker shock about higher tuition prices because students simply borrow more and more money to pay their tuition bills.

Moreover, although most people failed to realize it, higher education was costing more and more at the same time it was becoming worth less and less. A liberal arts degree was once understood as an experience that shaped young people's ethical values and helped them develop civic virtues and the capacity for moral decisionmaking. But the liberal arts have collapsed under the brutal assault of postmodernism. Why get a degree in history or literature when the professors insist there are no ultimate values and that the values of past generations must be deconstructed until everyone understands that all the nation's heroes were nothing more than despicable racists, capitalist exploiters, and male chauvinist pigs?

Let's face it; sixty grand a year is a lot of money just to learn to be a cynic.

Moving Toward Catastrophe at Warp Speed

As St. Paul observed, we but see through a glass, darkly. I don't know for certain where higher education is ultimately headed. Nevertheless it is now clear we are hurtling toward some sort of catastrophe at warp speed.

One thing is certain: the current trend of ever-rising college costs can't go on forever. And so I will share my modest predictions about the future of higher education:

In the next 10 or 15 years, we will certainly see the collapse of the non-elite private liberal arts colleges--those small institutions that were started 100 years ago by philanthropists and religious institutions. Many of the stately, ivy-covered edifices that dot the campuses of the nation's non-selective liberal arts colleges will be converted into condominiums.

Professional education will evolve into something different and cheaper. We may see three-year law programs shrink into two-year experiences. Second- and third-tier law schools and MBA programs will close.

In my own field--education--the public has already woken up to the obvious fact that colleges of education have done less than a stellar job of preparing school teachers and administrators. Alternative certification programs are booming, and student enrollments in education classes are steadily shrinking. Faculty numbers in colleges of education are also shrinking, and academic departments are closing or being consolidated.

Online degree programs have begun to blur the distinction between prestigious programs at reputable institutions and cheap knock offs at for-profit colleges and less prestigious public universities. And that trend will continue and accelerate.

For-profit colleges, many of which have preyed on low-income students, will finally be found out; and the great profits that were reaped by the owners of these dubious institutions will start to shrink. The sooner that happens the better.

Of course, when the great shakeout in higher education is over, some colleges and universities will emerge unscathed. Harvard will always be Harvard, and it will become ever more apparent that the elite institutions still do what they have always done--issue credentials to the ruling class. Harvard began in the 17th century as an institution for training Protestant preachers--mostly pious prigs. It still is in the business of producing pious prigs, only the current crop doesn't believe in God.

And the Greek system will also survive--binge drinking and womanizing never goes out of fashion.

And here is my final prediction. Our smartest and best young people will figure out that American higher education is not doing what most Americans once thought it did--produce productive and knowledgeable citizens capable of leading happy, prosperous, and meaningful lives.

And when they figure that out, they will decide just to skip the college experience altogether.


College? Yeah, I went to college.




Tuesday, June 9, 2015

Lee Siegel foolishly touts the virtues of student-loan default in a New York Times op ed essay

Lee Siegel, a successful writer, defaulted on his student loans;  and he bragged about it in the New York Times.

In a Times op ed essay, Siegel admitted that his loans paid for a valuable college experience. In fact, Siegel wrote, his education "opened a new life to me beyond my modest origins."

So why didn't Siegel pay off his loans? Apparently because meeting his financial obligations would have destroyed his "precious young life" by forcing him to take a job that would have stifled his creativity.

Siegel was vague about his loan obligations in his Times essay. He did not say where he attended college, how much he borrowed, or how much he now owes. Nor did he say how he manages to live comfortably with a huge debt hanging over his head, although he advised defaulters to marry or at least live with someone who has good credit. Thanks for the tip, Lee.

Siegel described his philosophy as one of "desperate nihilism," but I would be surprised if there is anything desperate about his lifestyle. He writes for the nation's most prestigious journals, he has written books, he appeared as a celebrity guest on CNBC. He has probably traveled overseas on numerous occasions. Perhaps he vacations in the Hamptons.

I think it was a mistake for Siegel to brag about defaulting on his student loans in the New York Times. He may think his essay displays his edginess, even his nobility. But basically he told the entire world he is a deadbeat.

Most student loan defaulters enter a world of pain.
Fortunately, Siegel stopped short of urging others to default on their student loans; it is a tort after all to interfere with others' contractual obligations. He did suggest, however, that a mass number of student-loan defaults might trigger wholesale reform of the way higher education is financed.

But Siegel is wrong about that. According to the Consumer Financial Protection Bureau, 7 million people are in default on their student loans and 9 million more are not making loan payments because they are in some form of deferral or forbearance.  Another million and half or so are in income-based repayment plans, and half of the people in those plans were kicked out for not reporting their income on an annual basis.Those are big numbers, but the massive meltdown of the federal student loan program has not prompted Congress to reform it.

It is totally irresponsible for a successful writer to tout student-loan default as a noble course of action. Most of the defaulting millions have had their lives wrecked by their failure to pay off their student loans. Their credit is shot, their wages are garnished, their income-tax refunds are levied, and they are hounded by debt collectors. And, if they are elderly, their Social Security checks are subject to garnishment.   Is there anything noble about that scenario?

Moreover, the New York Times acted irresponsibly when it published Siegel's essay. Siegel's self-serving defense of voluntary student-loan default may encourage other people to take the same reckless course of action; and most people who default on their student loans will enter a world of hurt.

It is true, of course, that millions of student-loan debtors are morally entitled to have their loans forgiven. People who were lured by fraud or misrepresentations into worthless for-profit college programs should have their loans wiped out. Many naive young people who borrowed money to enroll in mediocre programs at elite private colleges are also morally entitled to loan forgiveness.

But many people who borrowed money to attend college have done quite well; and apparently Lee Siegel is one of them. It is the height of arrogance for someone in Siegel's position to say, in essence, that the taxpayers should pay for his college education, an education he admits was valuable to him.

I have said, and I say again, that a reasonable bankruptcy process is the proper way to determine which people are legally entitled to have their student loans discharged. People who borrowed money for worthless college experiences; people who fell on hard times due to a job loss, illness, or divorce; people who tried to maximize their income but were unable to make enough money to pay on their student loans--all these people should be legally entitled to bankruptcy relief.

But simply walking away from student-loan debt is not an option. In fact, people who default on their student loans suffer catastrophic consequences. The Times would serve its readers better by editorializing in favor of bankruptcy relief for oppressed student-loan debtors, rather than publishing Siegel's very foolish essay.

References

David Marans, This Author Called for A Student Loan Boycott, And CNBC Was Not Having It. Huffington Post, June 8, 2015. Accessible at: http://www.huffingtonpost.com/2015/06/08/cnbc-student-loan-boycott_n_7537432.html

Lee Siegel. Why I Defaulted on My Student Loans. New York Times, June 7, 2015, Sunday ReviewSection, p. 4.









Monday, May 11, 2015

Senator Elizabeth Warren and the Brookings Institution's Matthew Chingos are ignoring reality: The federal government is not making a profit off the student-loan program

Do you believe the federal government is making a profit off the student loan program? You do? Then I have some beautiful beachfront property in southwestern Oklahoma I would like to sell you. That's right--Caddo County, Oklahoma is going to be the next Hamptons! 


Caddo County, Oklahoma in springtime
Beachfront lots are still available!
Uncle Sam is not making a profit on student loans

Some people actually believe that Uncle Sam is making a bundle off the federal student loan program. Senator Elizabeth Warren is of that mind. She once said that the government's profits from the student-loan program are "obscene."


And last February, Senator Warren and five other U.S. Senators wrote Secretary of Education Arne Duncan a scolding letter charging the Department of Education with making a profit off of student loans. The Senators accused the government of overcharging student borrowers and "pocketing the profits to spend on unrelated government activities."


Senator Elizabeth Warren: Government profits on student loans are "obscene"
And apparently, the policy wonks over at the Brookings Institution also think the student loan program is producing a profit for the federal government. Matthew Chingos recently published a Brookings paper proposing to significantly lower interest rates on student loans while assessing student borrowers a fee that would be placed in a "guarantee fund" to cover student loan defaults. Chingos argued that his plan would keep the government from profiting from student loans while having a contingency fund to cover the cost of defaults.

Theoretically (and only theoretically), the government is making a profit on student loans.  The government's cost for borrowing money is about 1.9 percent on ten-year Treasury Bonds . And the government is currently loaning money to undergraduate students at a 4.7 percent interest rate. If all students paid back their loans, the government would indeed make a handsome profit.

But, as everyone knows, a high percentage of students are defaulting on their loans. According to Chingos, the government estimates only 0.6 percent of students will default, but of course that is absurd. Every year, for the past 20 years, the Department of Education has been issuing reports on the percentage of students in the most recent cohort of borrowers who default within two years of beginning the repayment phase of their loan. Over that period, that number has never been lower than about 5 percent. Last year, the figure was 10 percent--16 times higher than the DOE default estimate that Chingos cited.

In a Forbes.com article, Jason Delisle and Clare McCann reported that the government estimates that about 20 percent of student-loan borrowers will eventually default on their loans--that's 30 times higher than the rate cited by Chingos.

And let's not forget A Closer Look at the Trillion, the Consumer Financial Protection Bureau's 2013 report on the federal student loan program.   CFPB reported that 6.5 million out of 50 million outstanding student loans were in default--13 percent.


Need more data? The Federal Reserve Bank of New York issued its most recent report on household debt in February 2015. The Bank found student loan delinquency rates worsened in the 4th quarter of 2014, with 11.3 percent of aggregate student-loan debt being 90 days delinquent or in default.(up from 11.1 percent in the previous quarter).

Just one more tidbit of information. The Department of Education recently admitted that more than half of the student-loan borrowers who were signed up for income-based repayment plans, the government's most generous loan-payment option, had dropped out due to failure to file their annual personal income reports on time.  That is a clear sign that many student-loan borrowers are so discouraged that they aren't bothering to file the necessary paperwork to keep their loan status in good standing.

The Chingos Report and Senator Elizabeth's Letter to Secretary Duncan Ignore Reality

I am astonished that Michael Chingos and Senator Warren would publicly state that the government is making a profit off the student-loan program when it so clearly losing money. What's going on?

Tragically, our politicians and policy analysts simply can't face the fact that the student-loan program is out of control. It is so much easier to demand a pseudo reform based on the fantasy that the government is making money off the student loan program than to face reality.

References

Chingos, Matthew M. End government profits on student loans: Shift risk and lower interest rates. Brookings Institution, April 30, 2015. Accessible at: http://www.brookings.edu/research/papers/2015/04/30-government-profit-loans-chingos

Rohit Chopra. A closer look at the trillion. Consumer Financial Protection Bureau, August 5, 2013.  Accessible at: http://www.consumerfinance.gov/blog/a-closer-look-at-the-trillion/

Jason Delisle and Clare McCann. Who's Not Repaying Student Loans? More People Than You Think. Forbes.com, September 26, 2014. Accessible at: http://www.forbes.com/sites/jasondelisle/2014/09/26/whos-not-repaying-student-loans-more-people-than-you-think/?utm_content=buffer1e0e0&utm_medium=social&utm_source=facebook.com&utm_campaign=buffe

Federal Reserve Bank of New York. Quarterly Report on Household Debt and Credit: February 2015. Accessible at: http://www.newyorkfed.org/householdcredit/2014-q4/data/pdf/HHDC_2014Q4.pdf

Senator Elizabeth Warren, et. al to Arne Duncan, February 25, 2015. Accessible at: http://www.warren.senate.gov/files/documents/2015_25_02_Letter_to_Secretary_Duncan_re_Student_Loan_Profits.pdf

Sunday, May 3, 2015

An episode of The Walking Dead: Why did the U.S. Department of Education oppose bankruptcy relief for a quadriplegic student-loan debtor?

America's insolvent student-loan debtors are the walking dead

America's student-loan crisis is beginning to resemble an episode of The Walking Dead.  Like zombies, millions of distressed student-loan debtors stumble around the American landscape, basically pushed out of the economy and suffering in silence.

Just as Deputy Sheriff Rick tries to elude the zombies in Walking Dead, President Obama treads lightly, hoping to avoid encountering the millions of student-loan defaulters. Deputy Sheriff Rick doesn't have enough shotgun shells to dispatch all "the walkers" if they show up en masse; and the Obama administration doesn't have the intellectual or moral resources to deal with the masses of people whose lives were destroyed by their student loans.

Insolvent student-loan debtors: The Walking Dead

Basically the culprits who created the student-loan crisis or helped hide its magnitude--Congress, colleges and universities, think tanks like the Brookings Institution, the Department of Education, the College Board--are huddled in their bastions much like the characters in The Walking Dead, who holed up in an abandoned department store for awhile, hoping someone with a little courage and intelligence would come to their rescue.

Of course, if the United States was a humane society--which it isn't--people who were overwhelmed by student-loan debt could discharge their loans in bankruptcy. But Congress passed several laws making it quite difficult for insolvent student-loan debtors to get relief from the bankruptcy courts.

Still--a few brave souls make the effort, filing adversary actions in the bankruptcy courts, often without lawyers. And recently, the bankruptcy courts have begun to take notice of the nightmare that the student-loan program has become; and the courts have been discharging some student loans.

But every time an intrepid spirit tries to get relief from oppressive student loans in a bankruptcy court, lawyers for the Department of Education or one of the government's private debt-collection agencies show up to oppose relief. In fact, it is fair to say that the official position of the U.S. government--President Obama's government--is that no one should be relieved of student-loan debt in bankruptcy.

In virtually every student-loan bankruptcy case, the lawyers for DOE and the debt-collection companies argue that student-loan debtors should be put in 25-year income-based repayment plans (IBRPs) rather than have their loans discharged. Of course, this is a heartless position to take, and in some cases it is downright ridiculous.

In Stevenson v. Educational Credit Management Corporation, for example, Educational Credit Management Corporation argued that a woman in her 50s, who had a record of homelessness and was living on less than $1000 a month, should be put in a 25-year IBRP in spite of her record of poverty and in spite of the fact that this woman didn't file for bankruptcy until 25 years after she took out her first student loan.  And the bankruptcy judge agreed! I don't know what ultimately happened to this poor woman, but apparently she was forced into a repayment plan that would not end until a half century after she first borrowed money to go to college.

Myhre v. U.S. Department of Education: DOE opposes bankruptcy relief for a quadriplegic student-loan debtor

But for utter, depraved heartlessness, my nomination goes to the bankruptcy case of Myrhe v. U.S. Department of Education, in which the Department of Education opposed bankruptcy relief for Bradley Myhre, a quadriplegic student-loan debtor who had no muscle control below his neck.  Myhre had suffered a catastrophic spinal injury in a swimming-pool accident, but he borrowed money to attend college and was able to work full-time. Unfortunately, his salary wasn't enough to cover the cost of paying his full-time caregiver--the person Myhre employed to feed, dress and bathe him and drive him back and forth to work.

Incredibly, DOE--Arne Duncan's DOE--opposed bankruptcy relief for Myhre and argued that he shouldn't have spent money for cable television since that was money he could have applied to paying off his student loans.

Fortunately for Mr. Myhre, the bankruptcy court rejected DOE's arguments and granted him relief from his student loans. In fact, the court praised him for his courage. "Mr, Myhre is an articulate and personable young man," the court observed, "whose mobility is determined by his wheelchair and dexterity is only sufficient to operate a directional stick control." Myhre's daily life required "bravery and tenacity," the court wrote," and Myhre had "made a truly admirable effort to return to work in order to support himself financially rather than remain reliant on government aid" (Myhre v. U.S. Department of Education, 2013, p. 704).

The Department of Education's lawyers are like Daryl in The Walking Dead

Why did the Department of Education take such a heartless position regarding Mr. Myhre's student loans? I'll tell you why. DOE is driven to stop every student-loan bankruptcy because if the bankruptcy courts ever begin reviewing the plight of insolvent student-loan debtors from a humane perspective, the judges would start granting bankruptcy relief to these unfortunate souls. And if that ever happenes, millions of honest but unfortunate people--and I mean literally millions--will be filing for bankruptcy, which would topple the entire corrupt and putrid student-loan program.  DOE simply can't let that happen.

Much like a DOE lawyer opposing bankruptcy relief for student-loan debtors, Daryl quietly dispatches zombies
And so when DOE's lawyers go to court to oppose bankruptcy relief for student-loan debtors, they behave much like Daryl in The Walking Dead.  Daryl kills zombies silently with his crossbow, dispatching them efficiently without making a noise that would attract other zombies. Likewise, DOE attorneys overwhelm student-loan debtors who go to bankruptcy court without lawyers, beating them down with canned legal briefs they keep on the hard drives of their government computers for just such contingencies.

The metaphor isn't perfect, of course. The "walkers" that Daryl drills through the brain with his arrows are frightening creatures, while the poor folks dispatched by DOE's lawyers are decent human beings entirely deserving of our pity and our aid. And of course, I would be  slandering Daryl to compare him to a DOE attorney!

But overall, I like the metaphor. Our insolvent student-loan debtors are very much like the zombies in The Walking Debt, and the Department of Education's lawyers are quite like Daryl, quietly picking off the "walkers" who make their way into the bankruptcy courts.

I don't know how this series will end, but I feel pretty sure some scary episodes lie ahead. If there is any justice in the world, distressed student-loan debtors will rise up one day by the millions; and America's cowardly politicians, college presidents, and policy wonks will wind up eating stale canned goods while holed up in the real-life equivalent of The Walking Dead's abandoned Center for Disease Control.

Quiet! Don't let the walkers hear you.
References

Myhre v. U.S. Department of Education, 503 B.R. 698 (Bankr. W.D. Wis. 2013).

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).

Stevenson v. Educational Credit Management Corporation, 436 B.R. 586 (Mass. Bankr. 2011).