Interest, fees and penalties are burying millions of student-loan debtors--not the amount these poor people borrowed to go to college

Sometimes, huge problems can be analyzed best by simply boiling down the complexity of a situation into a simple phrase.  For example, "It's the economy, stupid," crafted by Democratic political strategist James Carville, summarized a central theme of Bill Clinton's 1992 presidential campaign.

Likewise, we can summarize at least one huge element of the student-loan crisis by focusing on one core fact: accrued interest, penalties and fees are burying millions of student-loan debtors, not the amount of money these poor people borrowed to attend college.

For example, I have a friend on the East Coast who borrowed a total of about $55,000 to obtain a bachelor's degree and a graduate degree; and he paid nearly $14,000 on those loans.  Unfortunately, my friend suffered a series of unfortunate life events--health issues, divorce, and job loss.  Now at age 67, he is living entirely on Social Security and a small pension. The Department of Education is garnishing his meager retirement income, and he is living on only $1200 a month.

A few weeks ago, my friend filed an adversary complaint in bankruptcy court, seeking to discharge his student-loan debt based on the Bankruptcy Code's "undue hardship" provision. Guess how much the government says he owes? $120,000--including accrued interest and $23,000 in collection costs. That's more than twice the amount my friend borrowed.

And this case is not atypical. In Halverson v. U.S. Department of Education, Stephen Halverson borrowed about $132,000 to obtain two master's degrees. Just as with my East Coast friend, life happened for Mr. Halverson: a job loss, serious health issues, a divorce, medical expenses for a child, and expenses incurred to care for an aging parent.

At times, Mr. Halverson was unable to make payments on his student loans, but he obtained a series of economic hardship deferment, and he was never in default.  Nevertheless, when Halverson was in his 60s, it was clear he could never pay back his student loan debt. By the time he filed for bankruptcy, his total deb had ballooned to almost $300,000--more than twice the amount he had borrowed. And Mr. Halverson's job at that time only paid $13.50 an hour.

Various public-policy analysts have argued that there is no student-loan crisis because most people borrow relatively modest amounts of money--typically about the amount of a car loan. But these analysts ignore two key facts:

1) Even a small student loan is a huge burden for someone who doesn't have a job or who has a low-income job.

2) People who are unable to make their monthly loan payments must obtain an economic hardship deferments or enter a long-term repayment plan in order to avoid default. And both options mean that the debtor's loan balance goes up due to accruing interest.

Thus we see people like Liz Kelly, featured in a recent New York Times article, who owes $410,000 on her student loans, far more than she borrowed to attend college and graduate school. Today, at age 48, the annual interest cost on her indebtedness is more than the entire amount she borrowed to obtain her bachelor's degree!

And I know a man in California who borrowed around $70,000 to finance his education, and paid back about $40,000. Now the Department of Education claims he owes more than $300,000, including a one-time penalty assessed in the amount of $59,000! That one penalty is more than 80 percent of the entire amount he borrowed!

Surely it should be apparent to everyone--even Secretary of Education Arne Duncan, President Obama and Congress--that adding interest, fees and penalties to people's student-loan debt only increases the likelihood of default.

The higher education industry and the Department of Education have embraced economic-hardship deferments and long-term repayment plans because both programs hide the fact that millions of people can't pay off their student loans.

Does anyone think, for example, that Liz Kelly, who was unable to pay back the $25,000 she borrowed to get an undergraduate degree, will ever pay back the $410,000 she currently owes.? Does anyone think my East Coast friend, who is living on about $1,200 a month, will ever pay back $120,000?

Like a seething volcano about to erupt, pressure is building on the federal student loan program. Currently, about 41 million Americans owe a total of $1.3 trillion in outstanding student loans. Let's face it: at least half that amount will never be paid back.

References

Kevin Carey. (2015, November 29). Lend With a Smile, Collect With a Fist. New York Times, Sunday Business Section, 1. Accessible at: http://www.nytimes.com/2015/11/29/upshot/student-debt-in-america-lend-with-a-smile-collect-with-a-fist.html?_r=0


Halverson v. U.S. Department of Education, 401 B.R. 378 (Bankr. D. Minn. 2009).

Racist hiring at the University of Louisville: Does it matter?

 The University of Louisville got caught this week by openly doing what most universities are doing surreptitiously: hiring faculty member based on race.  Through some incredible slip up at the University's human resources office, the Department of Physics and Astronomy posted a job that contained this language:

The Department of Physics and Astronomy announces a tenure-track assistant professor position that will be filled by an African-American, Hispanic American or a Native American Indian [sic].

 Let's give the University of Louisville credit for at least being honest. Most American universities, both public and private, now take race into account when hiring faculty and admitting students. In fact, in Gratz v. Bollinger, one of the Supreme Court's seminal opinions on affirmative action, Justice Ruth Ginsburg argued in a dissenting opinion that the courts should allow universities to admit students based on race because they will do it anyway, even if the Supreme Court rules that it is a constitutional violation. Let them do it openly, Ginsburg counseled, rather than force them do it with winks and subterfuge.

So what difference does it make if the University of Louisville decides that whites and Asians are not eligible for a faculty position in the Physics Department? On one level, it's no big deal.

Twenty-five years go, when I was a doctoral student at Harvard Graduate School of Education, it was well known that only minority students would be admitted to the staff of the Harvard Educational Review. In fact, one faculty member told me candidly that the Harvard Educational Review was "a racial ghetto."  I applied, and I was not selected.

But being rejected by the Harvard Educational Review had no major impact on my life. I feel quite confident that I have published more scholarly work than all the students in my HGSE doctoral cohort put together--certainly more than all the students who were on the Harvard Educational Review when I was at Harvard.

Likewise, the whites and Asians who won't be hired for a Physics professor's position at the University of Louisville will probably find other jobs.

And certainly, greater diversity on America's college campuses is good thing.  We need more African American and Hispanic professors, and we need more minority students.

But here's the thing. Academia's obsession with race, gender and sexual orientation has diminished higher education as a moral enterprise.

First of all, most racial and gender preferences are done dishonestly. The University of Louisville goofed when it said in print that whites and Asians would not be considered for a particular faculty position. In fact, a university spokesperson said the job advertisement was an "error" and muttered some gobbledygook about the university's commitment to diversity. But in fact, at least some people at the University of Louisville wanted to make a hiring decision based on race. You can call that diversity if you want, but that's racism.

And this dishonesty has permeated every aspect of American higher education. The universities are dishonest about their racism, dishonest about their tuition prices, and many are dishonest about the employment prospects of their graduates.

Moreover, this morbid obsession with race is eroding the rigor of higher education. Just last year, students at three prestigious law schools--Harvard, Columbia and Georgetown-- asked to postpone their examinations because they were so upset about the racially charged shooting death of an African American in Ferguson, Missouri that they couldn't study for their exams.
Think about that. People trained at our top law schools are so sensitive that they can't do their school work because they are upset by current events. Who would want to hire a lawyer who gets the vapors from reading the morning newspaper?

And occasionally, racial fixations at our elite universities have become downright embarrassing. Awhile back, Harvard Law School claimed to have a Native American on its faculty. A real live Indian! And who did that Indian turn out to be? Elizabeth Warren, who said vaguely that she thought her grandmother might have been a Cherokee!

Who cares, in an authentic academic environment, whether a law professor is one sixteenth Cherokee? The fact that Harvard Law School thought it was legitimate to claim it had a Native American faculty member based on Elizabeth Warren's unverified assertions tells you all you need to know about the intellectual and moral rigor of Harvard Law School.

Eventually, young Americans are going to ask themselves why they bother to enroll in these flim-flam shops--these palaces of hot air that obsess on race and blather about academic freedom while charging outrageous tuition prices that most people can't pay without taking out student loans.

Elizabeth Warren:
I think I am a Cherokee Indian

References

Philip Marcelo. Law Schools Delay Exams For Students Upset by Ferguson, Eric Garner Decisions. Huffington Post, December 10, 2014. accessible at: http://www.huffingtonpost.com/2014/12/10/law-schools-exams-ferguson_n_6301282.html

Up the Lazy River without a paddle: Universities use student fees to fund campus renovations and construction

In spite of financial woes so severe that LSU president F. King Alexander ruminated publicly about institutional bankruptcy, Louisiana State University is moving forward with an $85 million "leisure project" that will include a man-made "Lazy River" that spells out "LSU."

Shouldn't this project be put on hold until LSU's financial problems are solved? Not at all. LSU administrators insist that The Lazy River has nothing to do with LSU's budget worries.  This entirely gratuitous facility will be funded by a special fee assessment, which was earmarked for the Lazy River and the Lazy River alone.

But why? Laurie Braden, LSU's Director of Recreation said simply this: "I will put it up against any other collegiate recreational facility in the country when we are done because we will be the benchmark for the next level.”

Of course, LSU is not the only institution that is using student fees to fund campus construction and renovation projects. The New York Times reported recently that some universities are tacking mandatory meal plans on students' tuition bills, even if they don't eat on campus.  As reported in the Times, the University of Tennessee slapped a $300-per-semester meal plan on all undergraduates who do not purchase other meal plans, including commuters. The revenue generated will help pay for a new student union.

According to the Times, universities are outsourcing food services to private contractors and boasting about the cost savings. But as the Times noted, the cost of these contractual arrangements generally gets passed on to students.

Moreover, Times reporter Stephanie Saul wrote, "the particulars of the contracts reveal that much of the meal plan cost does not go for food at all. Colleges use the money to shore up their balance sheets, build workout facilities, create academic programs and projects, fund special "training tables" to feed athletes, and even pay for meals for prospective students touring campus."

All across America, anguished families are struggling with the high cost of attending college. "Why does it cost so much?" they ask.  "Reduced state funding,"glassy-eyed college administrators always mutter: that's the sole source of the problem.

But that's not true. Excessive student fees, outsourcing student services, cozy contractual relations with banks that manage students' money--all these things add up.

Why do college leaders outsource so many services and tack on so many fees?

Because they're lazy.  It is easier for university administrators to raise tuition every year and to tack on additional fees and charges than to make tough decisions about managing their institutions more efficiently.

So Lazy River is an apt metaphor for the state of higher education today. Every year, millions of students borrow more and more money in order to drift up a lazy river of increasingly expensive higher education, inching their way toward financial disaster.

The situation wouldn't be so bad if deserving students could discharge their overwhelming student-loan debt in bankruptcy. But most of them can't. They've truly gone up that Lazy River without a paddle.

LSU's proposed water recreation facility:
Up the Lazy River without a paddle

References

Stephanie Saul. Student Meal Plans Also Fund Renovations at Some Colleges.  New York Times, December 6, 2015, p. 1. Accessible at: http://www.houstonchronicle.com/news/nation-world/nation/article/Student-meal-plans-also-fund-renovations-at-some-6678716.php

Aalia Shaheed. LSU's *85M 'lazy river' leisure project rolls on, despite school's budget woes. Fox News, May 17, 2015.  Accessible at: http://www.foxnews.com/us/2015/05/17/lsu-85m-lazy-river-leisure-project-rolls-on-despite-school-budget-woes/

College presidents' salaries are going up. Don't governing boards know they can hire dunderheads for a lot less money?

Salaries for private college presidents went up 5.6 percent between 2012 and 2013, according to a  Chronicle of Higher Education survey. Lee Bollinger is the highest paid president. He made $4.6 million in total compensation in the survey year. Amy Gutmann ranked second. Her total compensation was more than $3 million in the year of the survey including a bonus totally a cool million and a half.

Lots of these academic high rollers get salary enhancements in the form of puffball performance bonuses and deferred compensation packages that help them manage their taxes. As if some bloated college president needs the incentive of a  financial bonus in order to make key executive decisions like raising tuition, and outsourcing student services.

Of course the governing boards insist they have to pay ridiculous salaries to attract top talent. What a load of horse manure.  You don't need to pay $4.6 million to find a president wiling to defend race-based admission policies, like Bollinger did at the University of Michigan.

You don't need to pay a guy millions of dollars to wear a bow tie and host elaborate parties for big-shot donors, like Ohio State University did when it had Gordon Gee on the payroll.

Gordon Gee: Goof balls can be hired for a lot less money.

You don't have to pay $3.0 million a year to hire someone who writes mediocre books, which is what University of Pennsylvania pays Amy Gutmann, author of Democratic Education, one of the purest examples of academic bull crap you'll ever want to read. And Vassar could certainly find a dullard president for less than it pays Catharine Hill, whose only solution to the student  loan crisis is better counseling and long-term repayment plans!

You don't need to pay a half million or so to find a president willing to hold photo ops serving pancakes to students while presiding over a university that pays assistant football coaches a million dollars a year--more than the president himself makes--as Louisiana State University did when it hired F. King Alexander.

This is the same Louisiana State University, by the way, that is planning the construction of an $85 million "lazy river" recreational project that includes a "water feature" shaped in the letters of LSU.  Why is LSU doing this?

According to Laurie Braden, LSU's Director of University Recreation,  “I will put it up against any other collegiate recreational facility in the country when we are done because we will be the benchmark for the next level.” The next level of what--the next level of insanity?

I wonder how much Braden makes for dishing out that kind of logic?

University governing boards need to be clued in to this simple fact: They can hire dunderheads for a lot less than a million dollars  a year.  For a lot less money, presidents can be found who will sign contracts with Starbucks  so that university students pay four bucks for a cup of coffer instead of a quarter.  Presidents can be hired who will sign contracts with Barnes & Noble to sell overpriced textbooks to students and give the university a  percentage of the profits. Presidents can be found at reasonable salaries who will collude with banks and credit card companies to encourage students to utilize the services of favored financial institutions.

CEOs can certainly be found at very reasonable salaries who are willing to kiss the butts of student protesters and coddle the kids who take over the presidents' offices.

In short, this nation could run a crappy higher education system like the one we have for a lot less money.

LSU President F. King Alexander: Would you like pancakes with your fee bill?
Photo credit: Baton Rouge Advocate and Hilary Scheinuk

In the Jubilee Year of Mercy, Catholics Should Urge the Government to Forgive Student-Loan Debt

According to Old Testament scripture, a jubilee year occurs every fifty years; and in that year, slaves are freed and debts are forgiven. Leviticus 25:8-13. Pope Francis has proclaimed a Jubilee Year of Mercy for the Catholic Church that begins on December 8, the Feast of the Immaculate Conception. Would not this be a good time for the  U.S. government to forgive  $1.3 trillion in student-loan debt?

Perhaps not all of it. Of the 41 million people who have outstanding student loans, a great many received good value for their college education and can pay back what they borrowed. But 10 million people have either defaulted on their student loans or are delinquent in their payments. Millions more have gotten economic hardship deferments and aren't paying down their loans.

And for some people, their student loan debt is completely out of control. Liz Kelly, for example, featured in a recent New York Times article, is a 48-year old school teacher who owes $410,000 in student-loan debt--most of it accumulated interest. Will she ever pay it back? Not likely.

A 2014 law review article reported that 241,000 people with student-loan debt filed for bankruptcy in 2007, but less than 300 of them even tried to discharge their student loans. Either they figured it would be hopeless to try wipe out their student-loan debt in the bankruptcy courts or they didn't have the money to hire a lawyer to assist them.

And yet, as Paul Campos explained on his blog site and in a recent book,  we have thousands of unemployed or underemployed attorneys, many of whom have crushing student-loan debt themselves. Why doesn't the government, as an act of mercy, encourage these idle lawyers to help people discharge their student loans in bankruptcy?

Mercy, Pope Francis reminds us demands justice. "True mercy, the mercy God gives to us and teaches us, demands justice, it demands that the poor find a way to be poor no longer," Pope Francis explained. Mercy demands that institutions strive to make sure that "no one ever again stands in need of a soup-kitchen, of makeshift lodgings, of a service of legal assistance in order to have his legitimate right recognized to live and to work, to be fully a person."

Our country now has 23 million people who are unable to pay off their student-loan debt.  Indeed, about 150,000 elderly people are having their Social Security checks garnished by the federal government to offset unpaid student loans. For these people there is no Jubilee Year of Mercy--no forgiveness, and little relief even in the bankruptcy courts.

We are now a secular people--a people who pride themselves on having driven religion out of the schools and the public square. But surely we are not a heartless people. Surely our hearts are susceptible to warming by the words of a great man like Pope Francis.

So let us do mercy in the Jubilee Year of Mercy. And if our government is incapable of mercy, let us look for ways we as individuals can render mercy and to work for a system of higher education that does not drive millions of students into the poor house.

New York Times essayists argue for subsidized food, housing, and transportation for college students. Well, why the hell not?

Sara Goldrick-Rab and Katharine M. Broton argued in the New York Times today that federal poverty programs should be expanded to include college students. Some college students are homeless, the authors point out, and one in five reported in a recent survey that they had gone hungry at least once in the previous 30 days due to lack of money.

This is the second vacuous essay published in the New York Times over the space of less than a week about the cost of higher education and what to do about it. Just a few days ago, Vassar's President Catharine Hill argued against Bernie Sanders' "College For All" proposal to allow people to attend a public four-year college for free. Hill said the solution to the high cost of higher education is better counseling and long-term repayment plans.

If I were grading President Hill's essay, I would give it a C- and scribble "trite and unoriginal!" in the margin of her paper in bold red ink. If I were grading Goldrick-Rab and Broton, I would assign them a failing grade but give them the opportunity to resubmit after doing a little research.

Yes, there are homeless college students--about 50,000, according to one report. But at least some of those people were unscrupulously recruited by colleges who just want their Pell Grant money and the proceeds from their student loans. Do we really want to expand the federal school-lunch program to deal with those people as Goldrick-Rab and Broton propose? Shouldn't we just help homeless college students in the same way we help all homeless people?

Currently, the U.S. government is spending about $165 billion a year on various student-aid programs, including loans, grants, and campus work-study jobs. And the government gives food stamps to 52 million people, including some college students. Isn't that enough?

Interestingly, neither Vassar's Hill or Goldrick-Rab and Broton (from the University of Wisconsin apparently) offered any serious plan for reducing college costs. Hill said vaguely that students need longer repayment plans to pay their tuition bills and the Wisconsinites didn't offer any suggestions at all.

Higher education is a great business isn't it? The universities can jack up their tuition as high as they like, knowing the students will simply borrow more money to cover their fee bills.  Who cares if the saps can't repay their student loans? "Not my problem" is the higher education industry's stance.

And when the public wakes up to the fact that the cost of going to college is out of control, who does it turn to for answers? People like Catharine Hill, Sara Goldrick-Rab and Katharine Broton--lackeys of the institutions that created the problem. And the New York Times, which doesn't really give a damn about the student-loan crisis, obligingly prints these dopes' essays on its op ed pages.

Sara Goldrick-Rab wants to expand the school-lunch program to include college students

References

Sara Goldrick-Rab and Katharine M. Broton. Hungry, Homeless and in College. New York Times, December 4, 2015, p. A33. Accessible at: http://www.nytimes.com/2015/12/04/opinion/hungry-homeless-and-in-college.html

Catharine Hill. Free Tuition Is Not the Answer. New York Times, November 30, 2015, p. A23. Accessible at: http://www.nytimes.com/2015/11/30/opinion/free-tuition-is-not-the-answer.html?_r=0

Let's admit it: Bernie Sanders' "College for All Act" proposal has some good ideas

Bernie Sanders' "College For All Act" proposal: "That's not gonna happen."

In an old episode of The Walking Dead, an armed wacko asks Sheriff Rick if he and his buddies can join Rick's tribe of survivalists. "That's not gonna happen," Sheriff Rick rasps with his impeccable Georgia accent.  And then Rick shoots the wacko dead with his trademark service revolver.

Something similar might be said about Bernie Sanders' "College For All Act" proposal. That's not gonna happen. Nevertheless, Bernie has come up with some good ideas that are worth examining.

First, and most importantly, Bernie proposes free college tuition for Americans to attend 4-year public colleges or universities. That's a great idea and would actually cost Americans much less than we are spending now in federal student aid.

But, as I said in a previous blog posting, the for-profit college industry and the private non-profits are happy with the status quo and couldn't survive a week without federal financial aid. The only way Bernie's free tuition plan could work would be to shut down the present student-aid program, and that's not gonna happen. So Bernie's College For All Act is--as I said earlier--Dead On Arrival.

Bernie's college funding proposal has some other good ideas, however. Along with a lot of other responsible people, Bernie proposes a simplified Student Aid Application process. Last year, Senators Lamar Alexander and Michael Bennett proposed a FAFSA form that only has two questions.  Almost everyone agrees that the present Student Aid Application process is confusing and overly complicated, so we should listen to Bernie when he says the process should be simplified.

Bernie also proposes lower interest rates and an unlimited opportunity for students to refinance their student loans at lower interest rates. This is a great idea because, as a recent New York Times article made clear, it is the accruing interest on student loans, not the amount that students originally borrowed, that is crushing millions of student-loan debtors. The Times told the story of Liz Kelly, who borrowed about $25,000 to get an undergraduate degree and then borrowed more to go to graduate school. The total amount Kelly borrowed was less than $150,000, but she now owes $410,000 due to the interest that accrued while her loans were in forbearance or deferment.

Critics will say that lower interest rates and easy loan consolidation will cost taxpayers billions, which is true. But let's face it: The people whose loans have ballooned out of control due to accrued interest and fees will never pay the loans back anyway. Do you think Liz Kelly will ever pay off the $410,000 she now owes?

There is one huge caveat to Bernie's proposal to allow students to refinance their loans. There are now 41 million outstanding student-loan debtors, and many of them took out multiple loans. Allowing millions of borrowers to refinance their loans would create an administrative nightmare. In my opinion, it would make more sense to just forgive the interest on those loans or give overwhelmed debtors reasonable access to the bankruptcy courts.

But, as Sheriff Rick said to the armed wacko, "That's not gonna happen." Apparently, our national government would rather create a real-life class of The Walking Dead than take responsible action to give honest but unfortunate student-loan debtors some relief.

The Walking Dead: These folks will never pay off their student loans.

References

Lamar Alexander & Michael Bennett. An Answer on a Postcard. New York Times, June 19, 2014, p.  A25. Accessible at: http://mobile.nytimes.com/2014/06/19/opinion/simplifying-fafsa-will-get-more-kids-into-college.html?_r=0

Kevin Carey. (2015, November 29). Lend With a Smile, Collect With a Fist. New York Times, Sunday Business Section, 1. Accessible at: http://www.nytimes.com/2015/11/29/upshot/student-debt-in-america-lend-with-a-smile-collect-with-a-fist.html?_r=0