American Law Schools Have Embraced Greed And Have Become Poor Models for the Ethical Practice of Law

Many years ago when I was a practicing lawyer, my senior law partner made an observation I never forgot. Law graduates become the kind of attorney they will always be, he remarked, based on their first law job.

And based on my experience, my law partner's assessment is 100 percent accurate. Young people who graduate from law school and begin working for an ethical law firm are molded into ethical lawyers and remain ethical lawyers all their lives. Fledgling attorneys who join firms with sloppy ethics or an undue focus on making money become ethically sloppy themselves, and the slipshod ethical standards of their first employer shape their entire careers.

But of course attorneys' ethical values are being shaped even before they take their first law jobs. Law students first begin developing their ethical standards while in law school. In their classroom interactions and their examinations, they learn the value of honesty and fair dealing.

And if this is true, then it is important for law students to attend law schools that model the highest ethical standards. For if law students see their law schools make decisions based on greed and self-promotion, it seems likely that the students themselves will adopt similar attitudes about the legal  profession.

And this brings me to an editorial in today's Sunday Times entitled "The Law School Debt Crisis." In 2012, the Times reported, the average law graduate accumulated $140,000 in debt; and yet newly minted attorneys are entering a job market in which 43 percent of them cannot find long-term, full time jobs in the legal field.

Simply put, the market for lawyers is flooded. Many sensible young people have analyzed their job prospects if they go to law school and have decided to choose other professions. In fact, as Steven J. Harper reported in a New Times op ed essay a few months ago, law-school enrollment has slipped from 52,000 in 2010 to 38,000 last year.

But the drop in law-school enrollments has not kept pace with the slump in demand for lawyers. Most law schools depend on tuition money for the vast majority of their income; they simply must attract students to maintain their revenue streams. Consequently, they have lowered admissions standards to keep heir enrollments up. In 2014, the Times pointed out, test scores on the common portion of the LSAT were the lowest they have been in 25 years.

In sum, this is the state of the legal field. Law schools all over the United States hiked their tuition in response to a change in federal law that allowed students to borrow the full amount of their graduate education. And law schools also admitted more students to boost revenues. When the market for lawyers crashed, law schools did not reduce their fees or cut their enrollments sufficiently. The result, to use the Times' language, is a "death spiral" in the legal job market with unemployed or under-employed attorneys carrying mountains of student-load debt that they can't pay off.

Ironically, the glut in lawyers is occurring at the same time distressed student-loan debtors are filing for bankruptcy without the aid of  attorneys. When these overburdened student-loan borrowers file adversary proceedings to discharge their student loans through bankruptcy, they are opposed by loan collection companies that have plenty of high-paid legal talent.

How can this disaster be turned around? The Times recommends expanding the Obama administration's so-called gainful employment rules that tie an institution's eligibility for federal student-aid money to its success in preparing graduates for good jobs. Currently the rule only applies to for-profit law schools, but the Times urges the rule be amended to cover nonprofit law schools as well.

The Times also thinks a cap should be placed on the amount of federal student loans a student can obtain. A cap in federal loan money, the Times believes, would drive tuition down.

 I support both these ideas, but I would go further. I would shut off federal student-aid money to all for-profit schools, including for-profit law schools, which charge extraordinarily high tuition and have lousy records for placing their graduates in good jobs that require law degrees.

For the American people, the stakes are high. Our society is based on the rule of law, and our law schools must produce graduates who are intelligent and have the highest ethical standards. But American law schools have set a poor ethical example for their students. They have bloated their student rolls and raised their tuition for the sole purpose of sucking up student-loan money and enhancing their revenues.

Our justice system will break down completely if our nation's lawyers adopt the ethical standards of the law schools they attended and begin thinking of their profession solely as a way to get rich.

References

Editorial. The Law School Debt Crisis. New York Times, October 25, 2015. Accessible at: http://www.nytimes.com/2015/10/25/opinion/sunday/the-law-school-debt-crisis.html

Steven J. Harper. Too Many Law Students, Too Few Legal Jobs. New York Times, August 25, 2015.  Accessible at: http://www.nytimes.com/2015/08/25/opinion/too-many-law-students-too-few-legal-jobs.html

Elizabeth Olsen. Burdened With Debt, Law School Graduates Struggle In Job Market. New York Times, April 26, 2015. Accessible at: http://www.nytimes.com/2015/04/27/business/dealbook/burdened-with-debt-law-school-graduates-struggle-in-job-market.html

 

The Department of Defense Suspends University of Phoenix from Military Tuition Benefits Program: Senators John McCain, Jeff Flake and Lamar Alexander Ask DOD to Reconsider

The Department of Defense recently sanctioned the University of Phoenix by suspending it from participation in the U.S.  Military's tuition benefits program. Why? Allegedly, Phoenix sponsored improper recruiting events and inappropriately used the DOD's seal.

Senators John McCain, Jeff Flake and Lamar Alexander got involved in this matter on behalf of whom? Soldiers? No--they came to the aid of the University of Phoenix. The senators argued that the university had only committed "vague, technical violations" that UP had already fixed or promised to fix.

According to the senators, "The University of Phoenix has a long history of serving working adults and others for whom traditional university schooling is unavailable" and noted that the university had more than 200,000 students in 17 states. But the senators neglected to note that almost 1.2 million University of Phoenix students have accumulated $35 billion in student-loan debt and that UP's five-year default rate is 45 percent!

Why do you suppose these old croakers came to the aid of the University of Phoenix? It is headquartered in Arizona, which might explain Senators McCain and Flake's intervention. But even so, don't these guys have an obligation to protect the University of Phoenix's students--not the university itself? And doesn't the Department of Education deserve support when it tries to rein in abuses to the federal student aid program?

The reason the for-profit college industry is out of control is because this rapacious sector of higher education makes strategic campaign contributions and hires lobbyists to protect its interests in Washington. I couldn't find any evidence that the University of Phoenix has made campaign contributions to Senator John McCain, but I did find evidence that McCain's biggest contributors include Goldman Sachs, which owns a stake in a for-profit college, and Bank of America, one of the biggest players in the private student-loan market.

If you want to better understand how the for-profit colleges have ripped off American taxpayers, you should read David Halperin's article in The Nation.  "Many of America's for-profit colleges have proven themselves a bad deal for the students lured by their enticing promises--as well as for US taxpayers, who subsidize these institutions with tens of billions annually in federal student aid," Halperin wrote.

As Halperin explained, more than half of the students who enroll in for-profit colleges drop out within about four months.  Many of these colleges have been caught using deceptive advertising and misleading information about job placement rates.  And although the for-profits only enroll about 13 percent of postsecondary students, they account for nearly half of student-loan defaults.

How do they get away with this? By hiring lobbyists and making  campaign contributions to powerful federal legislators. According to Halperin, the industry's lobbyists include past Senate majority leader Trent Lott and Penny Lee, a former aid to Senate majority leader (now minority leader) Harry Reid.  In fact, as Senator Dick Durbin put it, the for-profits "own every lobbyist in town" (as quoted in Halperin's article).

And why, you might ask, haven't supposedly independent voices in the higher-education policy world spoken out more forthrightly about the abuses in the for-profit college industry? Why hasn't Chronicle of Higher Education taken a stand? Why hasn't the National Urban League been more aggressive in its policy recommendations for higher education? Perhaps it is because the for-profits advertise in the Chronicle and  Corinthian Colleges (now bankrupt) gave $1 million to the National Urban League.

As Halperin summarized at the end of his lengthy article, "There's a word for this state of affairs: corruption." And knowingly or unknowingly, Senators McCain, Flake and Alexander came to the aid of one of the for-profit industry's worst actors: University of Phoenix.  Senator McCain deserves this nation's respect for his heroism in the Vietnam War. How sad and how shameful to observe him in his dotage serving as a shill for the for-profit college industry.

References

Adam Looney & Constantine Yanellis.  A Crisis in student loans? Brookings Institution, September 10, 2015. Accessible at: http://www.brookings.edu/~/media/projects/bpea/fall-2015_embargoed/conferencedraft_looneyyannelis_studentloandefaults.pdf

David Halperin. The Perfect Lobby: How One Industry Captured Washington, DC. The Nation, April 3, 2014. Accessible at:  https://www.thenation.com/article/perfect-lobby-how-one-industry-captured-washington-dc/

Senator John McCain Press Release. Senators McCain, Flake & Alexander Question DOD's Probation Decision Regarding the University of Phoenix's Participation in the Military Tuition Assistance Program. October 22, 2015. Accessible at: http://www.mccain.senate.gov/public/index.cfm/press-releases?ID=d7d2b065-3df2-42ce-9763-82ed0310a6e6

Senator John McCain's Top Contributors. Center for Responsive Politics. Opensecrets.org. Acessible at: http://www.opensecrets.org/politicians/contrib.php?cycle=Career&cid=n00006424

All Student Loan Debtors Should Read Natalie Kitroeff's Recent Online Article in BloombergBusiness.Com

Every distressed student-loan debtor should read Natalie Kitroeff's recent article in BloombergBusiness.com about Murphy v. U.S. Department of Education and Educational Credit Management Corporation, now pending before the First Circuit Court of Appeals.  And any student-loan debtor who is trying to discharge a student loan in bankruptcy should read the amicus brief filed in that case by the National Consumer Law Center and the National Association of Consumer Bankruptcy Attorneys.

The essence of the Murphy case can be summarized in a few words. Robert Murphy took out federal PLUS loans (student loans taken out by parents to pay their children's college costs), but he lost his job as the president of a manufacturing firm.  He's been unemployed for 13 years--too old, he says, to find comparable employment and overqualified for lower-paying jobs in his field.

Today, Murphy is 65 years old, and his total student-loan indebtedness has grown to almost a quarter of a million dollars due to accumulated interest. He and his wife are living on an income of $15,000 a year, which his wife earns working as a teachers aide.

Murphy filed for bankruptcy, seeking relief from his PLUS loans, but a bankruptcy court refused to discharge the debt. Like so many debtors who try to shed their student loans in bankruptcy, Murphy is acting as his own attorney.  His case is now on appeal before the First Circuit.

Murphy hopes to persuade the First Circuit to abandon the harsh Brunner test for determining when it would be an "undue hardship" for insolvent debtors to be forced to repay their student loans. That test requires debtors to show that they cannot repay their student loans and maintain a minimal standard of living, that their financial circumstances aren't likely to change soon, and that they made good faith efforts to repay their loans.

In the Ninth Circuit BAP Court's Roth decision, Judge Pappas filed a concurring opinion arguing that the Brunner test no longer makes sense. He pointed out that the Brunner test was devised at a time when student-loan debtors could discharge their student loans without restriction after a relatively short period of time--after five or seven years.

Today, Judge Pappas explained, student-loan debtors hold a trillion dollars in outstanding student-loan debt. And Congress amended the Bankruptcy Code so that insolvent debtors must prove "undue hardship" no matter when they file for bankruptcy, even if it is decades after the loans were taken out.

John Rao, attorney for the National Consumer Law Center, filed a brilliant amicus brief in support of Murphy, arguing that the Brunner test should be overturned. Rafael Pardo, a nationally renowned legal scholar from Emory Law School, also filed an amicus brief in support of Murphy's position.

If the First Circuit rules in Murphy's favor, bankruptcy might become a viable option for millions of distressed student-loan debtors. And if that happens, the world will turn upside down for the federal government, the federal student-loan program, and the colleges and universities that have feasted off of student-aid money without regard to whether their students could pay off their student loans.

Kitroeff's article pointed out that total outstanding indebtedness has doubled in just seven years. At the current rate of growth, total indebtedness will double again within 10 years, ballooning to well over two trillion dollars.

Let's all say a prayer for Robert Murphy and the two amicus attorneys who came to his aid: John Rao and Rafael Pardo. Ten million people are now delinquent on their student loans or are in default, and nine million more hold deferments or forbearances that temporarily excuse them from making payments.  Almost 4 million people are making payments under income-based repayment plans, which means total indebtedess for most of them is going up, not down, because their loan payments don't cover accruing interest.

This situation can't go on forever, and Robert Murphy may be the guy that ushers in relief for millions of fellow sufferers.  If you are a student-loan debtor in bankruptcy, you must read the amicus briefs in the Murphy case and get the arguments made in those briefs before your bankruptcy judge. Mr. Murphy, Mr. Rao, and Mr. Pardo are on the side of the angels, and I think their arguments will be persuasive to many bankruptcy judges around the United States regardless of what the First Circuit does.

References

Amicus Brief filed by National Consumer Law Center and National Association of Consumer Bankruptcy Attorneys in Support of Appellant (Robert Murphy) in Murphy v. U.S. Department of Education & Educational Credit Management Corporation. (Written by John Rao, esq.) Accessible at: https://www.nclc.org/images/pdf/bankruptcy/brief-murphy-1st-cir-amicus.pdf

Amicus Brief filed by Rafael Pardo, arguing for reversal of District Court's decision in Murphy v. U.S. Department of education and Educational Credit Management Corporation. Accessible at: http://www.businessweek.com/pdfs/murphy-pardo-brief.pdf

Natalie Kitroeff. This Court Case Could Unshackle Americans From Student Debt. BloombergBusiness.com, October 8, 2015. Accessible at:  http://www.bloomberg.com/news/articles/2015-10-08/this-court-case-could-unshackle-americans-from-student-debt

Kelly v. Sallie Mae & Educational Credit Management Corporation: Fees, Interest and Penalties Are Dragging Down Student-Loan Debtors

Some policy experts argue that there is no crisis in the student loan program. Most students borrow only modest amounts of money, they say. The people who owe more than $100,000 are just a tiny fraction of the 41 million student-loan borrowers.

But this argument fails to take into account interest, penalties, and fees that borrowers accumulate if they run into financial trouble and can't make their loan payments.  Some distressed borrowers obtain economic-hardship deferments or forbearances that excuse them from making payments. But the fees and interest that accrue over time can double, triple, or even quadruple the size of their loan balance. When that happens, they are doomed.

And here's a case that illustrates my point: Kelly v. Sallie Mae, Inc. (2015). Laura Kelly borrowed about $24,000 to pay for her undergraduate degree in political science at Seattle University. She made payments for eight years, but she ran into financial trouble and filed for bankruptcy in 2008.

By the time Kelly entered bankruptcy, her debt had more than QUADRUPLED to $105,000 due to collection fees and accumulated interest. She filed an adversary proceeding to clear this debt, and a bankruptcy court gave her a partial discharge. The court concluded that Kelly was unable to pay off her loans, that her financial situation was not likely to improve soon, and that she had acted in good faith in the way she had handled her indebtedness.

Sallie Mae and Educational Credit Management Corporation, perhaps the most ruthless of the federal government's debt collectors, appealed the bankruptcy court's decision; and a federal district court reversed. The district court upheld the lower court's conclusion that Kelly could not pay back the hundred grand and still maintain a minimal standard of living. And it upheld the conclusion that Kelly's financial situation would not improve soon.

But the district court reversed the bankruptcy court's conclusion that Kelly had acted in good faith. The district court thought Kelly should have explored alternative payment plans, including a Public Service loan-payment program. And it also believed she could cut her expenses and make some sort of loan payment.  "In short," the district court ruled, "Ms. Kelly made no effort, much less good faith effort, to repay her loans."

Proceeding without a lawyer, Kelly appealed the district court's opinion to the next level: the Ninth Circuit Court of Appeals. The Ninth Circuit, considerably more compassionate than the district court, reversed the district court's decision and reinstated the bankruptcy court's partial discharge. This is what the Ninth Circuit said:

The bankruptcy court justified its conclusion that Kelly had acted in good faith with reference to its findings that, among other things, Kelly had maximized her income, had incurred only marginally excessive expenses, paid thousands of dollars toward her student debt over an eight year period before filing for bankruptcy, and at least minimally investigated payment alternatives such as debt consolidation, deferment, and a federal loan repayment program. . . . Moreover, though Kelly did not pursue loan repayment options, the bankruptcy court did not clearly err in its conclusion that Kelly had a good-faith belief that she was ineligible for the program, and that applying for the program would have been futile since she could not afford the payments after consolidation. 

The Ninth Circuit's Kelly decision is significant for three reasons:

1) First, Kelly successfully fought Sallie Mae and Educational Credit Management Corporation, two of the federal government's most sophisticated and relentless  debt collectors, without a lawyer all the way to the Ninth Circuit.  But look how long the process took. Kelly filed for bankruptcy in 2008, and the Ninth Circuit didn't issue its opinion until 2015. Most debtors wouldn't have the stamina for a seven-year court fight, which is what ECMC and Sallie Mae are counting on. Thus, Kelly should be saluted as a hero for fighting ECMC and Sallie Mae for so long.

2) Second, the Kelly decision is one of a string of recent federal appellate court decisions that ruled in favor of student-loan debtors. Kelly is not as significant as the Ninth Circuit BAP Court's Roth decision or the Seventh Circuit's Krieger decision. Nevertheless, by upholding the bankruptcy court's decision to grant Kelly some relief, the Ninth Circuit has signaled that it will support compassionate bankruptcy courts that rule in favor of student-loan debtors if those rulings are grounded in solid fact findings.

3) Third, and most importantly, Kellv v. Sallie Mae & ECMC dramatically demonstrates how penalties, accumulated interest, and collection fees can turn a manageable debt into a nightmare.  Kelly only borrowed $24,000 to pay for her college education. By the time she arrived in bankruptcy court, the debt had quadrupled in spite of the fact that she had made loan payments for eight years.

Kelly's case is not unusual. I know a student-loan debtor who borrowed around $80,000 to attend graduate school and made payments totally approximately $40,000. The Department of Education now says he owes $315,000!

Our government has designed a student-loan program that is totally insane. For many students, it is the fees, penalties and accumulated interest that are sinking them--not the amount of the original debt.

References

Educational Credit Management Corporation v. Kelly, 2012 U.S. Dist. LEXIS 56052 (Bankr. W. D. Wash. 2012), reversed, Kelly v. Educational Credit Management Corporation, 594 Fed. App. 413 (9th Cir. 2015).

Kelly v.Sallie Mae, Inc. & Educational Credit Management Corporation, 594 Fed. App. 413 (9th Cir. 2015).

Natalie Kitroeff. Loan Monitor Is Accused of Ruthless Tactics On Student Debt. New York Times, January 1, 2014. Accessible at: http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html?_r=0

Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (9th Cir. 2013).

Roth v. Educational Credit Management Corporation, 409 B.R. 908 9th Cir. BAP 2013).  

When You Reach the Broken Promised Land: Student-Loan Debtors Have Much in Common with Undocumented Immigrants

                             When you reach the broken promised land
                             And every dream slips through your hands
                             Then you'll know that it's too late to change your mind
                             'Cause you've paid the price to come so far
                             Just to wind up where you are
                             And you're still just across the borderline 

Across the Borderline                              

Ry Cooder, John Hiatt & Jim Dickinson

Across the Borderline is perhaps the most powerful of the musical border laments, even more stirring than Woodie Guthrie's immortal song, Deportees (Plane Wreck at Los Gatos). No one with an ounce of human empathy can listen to Willie Nelson's rendition of Across the Borderline and not be moved by the suffering and hardship that so many of our Mexican immigrants have experienced.

Recently, as I reflected on the lyrics of this song, it occurred to me that it could serve just as well as a lament for our nation's distressed student-loan debtors. Indeed, much like our Mexican immigrants, millions of young Americans from disadvantaged backgrounds have tried to "cross the borderline" to economic prosperity by borrowing money to enroll in our nation's colleges. And like our Mexican immigrants, many college students have paid a high price only to see their dreams slip away and to wind up "just across the borderline" with thousands of dollars of student-loan debt that they are unable to repay.

Ten million Americans have defaulted on their student loans or are delinquent in their loan payments. Another 4 million have signed up for long-term repayment plans that can last up to 25 years.  And about 9 million have gotten deferments or forbearances that give them only temporary relief from making loan payments while the interest on their indebtedness piles up month by month.

Why haven't our politicians addressed this calamity? 

I'll tell you why. We've become a nation run by oligarchs who are making money on the federal student loan program. The private equity groups who own most of the for-profit colleges are getting rich. Our public universities are feasting off of Pell grant money and student loans, and they get their federal dollars whether or not students benefit from their college experiences. Our politicians are getting campaign contributions from the people who who want to preserve the status quo, and so-called non-profit corporations are collecting big fees to manage loan portfolios stuffed with promissory notes signed by 41 million student-loan debtors.

In fact, our nation's distressed student-loan debtors are treated exactly like undocumented immigrants. Both are derided as scofflaws and deadbeats, even though most of these people want nothing more than to be productive and to make a decent living for their families. And both groups are exploited. Undocumented immigrants are working in the construction trades and the hospitality industry for substandard wages, and college students are borrowing millions in order to pay exorbitant tuition fees to get education and training that doesn't lead to good jobs. 

Both groups cry out for justice. But they won't get justice because too many powerful people like things just they way they are. 

Reflections on Gretchen Morgenson's Recent New York Times Column on Student-Loan Processing Companies

Gretchen Morgenson is the New York Times' best columnist. Week after week, she writes with clarity and precision about the shady dealings of our nation's financial industry.  In fact, in some issues, Morgenson's column is the only writer worth reading in the Sunday Times.

Thus, I was pleased when I opened the Business Section of yesterday's Sunday Times and saw Morgenson's column on the student-loan servicing industry. As she pointed out, the U.S.  government pays 11 companies a total of $600 million a year to service millions of student loans. And these companies are doing a terrible job.

A recent report by the Consumer Financial Protection Bureau, which Morgenson summarized, analyzed numerous complaints by student-loan borrowers. The loan servicing companies are giving out misinformation, failing to record loan payments properly, and failing to tell borrowers about payment options that might help them stay out of default.

In short, it's a mess. I hope Ms. Morgenson digs deeper into the activities of the loan servicing companies.  Here are some questions I have: Who are the senior executives of these companies: Navient, Discover Bank, Great Lakes, and the rest? What is the annual compensation of the fat cats who run the companies  that are mishandling the loan-collection process?  Are these companies making campaign contributions to key federal legislators? If so, which Congresspeople are getting the money, and how much?

And I would really like Ms. Morgenson to turn her attention to Educational Credit Management Corporation, the most prominent company that opposes bankruptcy relief for student-loan debtors. The Times recently published a story about ECMC's ruthless tactics in the bankruptcy courts,  and it ran another story about ECMC's tactics in the Roth case, involving an elderly woman with chronic health problems who was living on Social Security checks of less than $800 a month.

How much does ECMC's CEO make? We know that former CEO Richard Boyle made $1.1 million in 2010. What is the current CEO's annual compensation to run a company that hounds oppressed student-loan debtors? And to whom is ECMC making campaign contributions?

A lot of good investigative reporting needs to be done about the student-loan industry. And Gretchen Morgenson is probably the best person to do it. Go for it, Gretchen!

References

Tara Siegel Bernard. Judges Rebuke Limits On Wiping Out Student Loan Debt. New York Times, July 17, 2015. http://www.nytimes.com/2015/07/18/your-money/student-loans/judges-rebuke-limits-on-wiping-out-student-loan-debt.html

Natalie Kitroeff. Loan Monitor Is Accused of Ruthless Tactics on Student Debt. New York Times, January 1, 2014.  http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html

Gretchen Morgenson. A Student Loan System Stacked Against the Borrower. New York Times, October 9, 2015. Accessible at http://www.nytimes.com/2015/10/11/business/a-student-loan-system-stacked-against-the-borrower.html

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

23 million people are being "eaten alive" by Federal Student Loan Program: Even the New York Times is Getting Worried

Today, the New York Times editorialized once again on the student loan crisis. The Times criticized the student-loan servicing companies for doing a poor job of counseling distressed student-loan debtors. As a result of poor guidance, the Times charged, many debtors don't know that they are eligible for income-based repayment plans that could lower their monthly loan payments.

Writing in response to a recent report by the Consumer Financial Protection Bureau, the Times said this:

The Bureau's report--drawn from 30,000 public comments filed with the agency from May to July--suggests that some [student-loan] servicers are actually pushing struggling borrowers toward default by giving them misinformation, by making it difficult for them to refinance at lower interest rates and by withholding valuable information about affordable payment plans that are in the struggling borrower's best interest.

The Times is right to say that the government's loan processors are doing a crummy job of counseling student-loan debtors. Nevertheless, it fails to grasp the fact that income-based repayment plans--which the Obama administration and the Times both favor--are not a solution to the student-loan crisis.

These plans can last as long as 25 years, and most people who select this option will be making payments so small that their loan balances will actually go up because loan payments are not large enough to cover accruing interest. In fact, the Times editorial acknowledged this fact.

As the Times pointed out, 10 million people have either defaulted on their student loans or are in delinquency. But this figure understates the size of the crisis. In addition to the 10 million cited by the Times, 3.9 million are in income-based repayment plans, and another 9 million people are not paying down their loans because they obtained deferments or forbearances that excuse them from making loan payments.

In short, 23 million people are weighed down by student loans they can't pay back.

The Times said the Feds have come up with a plan "that they believe will prevent borrowers from being eaten alive."  But what is that plan? Basically, the federal government wants the loan servicers to make stronger pitches for long-term income-based repayment options.

This is a cowardly response to the student-loan crisis. The Times and the Feds think this enormous problem can be swept under the rug by enticing millions of people to make student-loan payments over 20 or 25 years instead of 10.

But that won't work. The Department of Education admitted a few months ago that more than half of the people who are enrolled in income-based repayment plans failed to file their annual income statements,which is a condition of participation.  People simply don't want to report their income to the Department of Education on an annual basis in return for the privilege of paying on their student loans for a majority of their working lives.

Department of Education insiders know that the federal student-loan program is heading toward disaster, but they are not trying to fix it. They are simply hoping to postpone the crisis until after the next presidential election.

Hey, is that Arne Duncan?

References

Editorial, "Why Student Debtors Go Unrescued." New York Times, October 7, 2015, A 26.