Wednesday, March 2, 2016

Linda Katehi, DeVry University and the UC Pepper Spray Incident: Chancellor Katehi should be fired

UC Davis Chancellor Linda Katehi, who presided over UC Davis's scandalous pepper-spray incident, got caught with her hand in the cookie jar. Yesterday, she announced she was resigning from the corporate board of DeVry Education Group, owner of DeVry University. DeVry is currently being sued by the U.S. Federal Trade Commission for making false claims about its job placement rates.

Katehi is making at least $400,000 as boss of UC Davis, more than the Governor of California. But apparently that wasn't enough for her.  According to a CBS report, DeVry paid Katehi $70,000 to be on its corporate board.

Why do suppose DeVry put Katehi on its board? Did it appreciate the great judgment she showed after  UC Davis police officers pepper-sprayed peaceful and nonthreatening students who were participating in an Occupy Wall Street demonstration?

Did DeVry admire the way Katehi handled the pepper-spray incident, denying she knew the police were going to use pepper spray and then allowing the university to file charges against the student victims?

Or perhaps DeVry appreciated Katehi's crisis management skills. After all, she hired a a PR flack in the wake of the pepper-spray incident at a salary of $260,000--more than a quarter of the amount UC Davis paid the pepper-spray victims to settle their lawsuit.

Or maybe DeVry was impressed by Katehi's transparency.  UC Davis refused to turn over the names of the police officers who were involved in the pepper-spray assault for more than two years. In fact, it did not release the names of the officers until it lost a court battle with the Sacramento Bee.

No, we all know why for-profit universities put high-profile figures like Chancellor Katehi on their governing boards. They do it to buy influence, credibility and political cover.

In my opinion, the University of California should fire Katehi for gross misjudgment. Everyone knows that America's for-profit colleges are ripping off vulnerable and unsophisticated students, that they charge too much, and that their student-loan default rates are shockingly high.  For Katehi, who bungled UC Davis's pepper-spay scandal and who is overpaid, to glom on to an extra 70,000 clams by serving on DeVry University's board is disgraceful.

Image result for linda katehi uc davis
Linda Katehi, Chancellor of UC Davis 


Brad Branan. UC Davis cuts PR post that drew criticism for its $260,000 salary. Sacramento Bee, September 26, 2015. Accessible at

Paul Collins. That's Rich.  The chancellor of UC Davis is a bona fide 1 percenter. Slate, March 5, 2012.  Accessible at:

Larry Gordon (2012, September 13). UC to pay settlement in Davis pepper spray case. Los Angeles Times (online edition).

Scott Jaschik. Davis Will Drop Charges Against, Pay Medical Bills of Pepper Spray Students. Inside Higher Ed, November 23, 2011. Available at

Sam Stanton. Bee wins legal battle for names of UC Davis officers in pepper spray incident. Sacramento Bee, August 21, 2014. Available at

Danny Weil. For-Profit Kaplan University Pays Executives a Quarter Billion Dollars, Courtesy of Students and Taxpayers., January 14, 2012. Accessible at

Tuesday, March 1, 2016

The Student-Loan Bubble: Will the rising level of student-loan indebtedness lead to a national economic catastrophe?

This is the way the world ends
Not with a bang but a whimper.

T.S. Eliot                       
The Hollow Men            

In recent years, I have heard speculation that the federal student-loan program is similar to the real estate bubble that developed in the early years of this century and which ultimately led to the national financial meltdown of 2008.  Does the student loan program have the potential for running our economy into the ditch?

I once discounted this notion. After all, the home-mortgage crisis involved a lot more money than the federal student-loan program.  It is true that Americans now owe about $1.3 trillion in student loans, which is not chicken feed. But compared to the national debt--about $19 trillion--the student-loan program doesn't seem like a big deal. After all, the government's quantitative easing program involved the creation of $1 trillion a year when it was in full swing.

But I'm beginning to think differently about the student-loan crisis based on these considerations:

Enormous growth in student-loan debt. First of all, total student-loan indebtedness has grown enormously over the past 10 years. According to a recent report by the Federal Reserve Bank of New York, total outstanding indebtedness grew from  around $400 billion in 2007 to more than $1.2 trillion in 2015. In other words, total indebtedness tripled in less than 10 years.

Indeed, as has been widely reported, student loans now comprise the second largest category of consumer debt, surpassed only by home mortgages.  Student -loan indebtedness is now larger than both automobile loans and credit card debt.

More student-loan debtors.  Second, the total amount of student-loan borrowers keeps growing--43 million people now have outstanding student loans. That's almost 18 percent of the nation's adult population.

High loan default rates. Third, student-loan default rates are distressingly high. Although the U.S. Department of Education reported recently that three-year default rates are dropping, the drop is deceptive. Three-year default rates are dropping because the Department of Education and the college industry are encouraging students to obtain economic-hardship deferments or other form of forbearance that excuse former students from making monthly loan payments. But the fact remains that a high percentage of borrowers in the repayment phase of their loans aren't making payments,

In fact, as the Brookings Institute reported, 5-year default rates are 28 percent.  In the for-profit sector, the five-year default rates is an eye-popping 47 percent! Given the catastrophic consequences of default, it is astonishing that almost half the people who attend for-profit colleges eventually default on their loans.

Discounted tuition rates. Finally, private colleges are discounting their tuition rates more and more, an indication that American families simply refuse to pay the sticker price for a college education.  According to an article in Inside Higher Ed, private colleges are now discounting tuition for freshman students by an average of 48 percent!

Obviously, the federal government can't go on forever lending ever larger quantities of money and expecting students to passively take out larger and larger loans for the privilege of going to college.

So yes, there is a student-loan bubble; and the bubble is going to burst. When? I don't know, but I think we will see growing turmoil in the for-profit-college industry and the private-college sector. Within five years, we will see a significant number of non-elite private colleges bite the dust. And we will see increasing pressure on the for-profit colleges.

But when the bubble bursts, I don't think we will witness a spectacular meltdown in the economy that we saw in 2008. To borrow a phrase from T. S. Eliot, the federal student loan program is not going to explode with a bang, but with a whimper.  And the people who will be whimpering most are the millions of people--probably 20 million--who simply cannot pay back their student loans and who cannot discharge them in bankruptcy.

In my opinion, everyone in the higher education industry should be praying for more compassionate bankruptcy judges who are willing to discharge billions of dollars in student-loan debt and give millions of distressed borrowers a fresh start. If distressed student-loan borrowers don't obtain some form of tangible relief, we are going to see a shrinking middle class and a class of lifetime student-loan debtors who have been pushed to the sidelines of the national economy by student loan debt from which they cannot shake free.  In other words, as I have said before, we are hurdling hell-bent toward a sharecropper economy.


Jesse Bricker, Meta Brown, Simona Hannon, and Karen Pence. How Much Debt Is Out There? FEDS Notes, August 7, 2015. Accessible at

Kelly Woodhouse. (2015, November 25). Discount Much? Inside Higher Ed. Accessible at:

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default rates. Washington, DC: Brookings Institution (2015). Accessible at:

Karyne Williams. Federal Reserve Bank of New York Takes On Student Debt Crisis in New Blog Series. Generation Progress, February 27, 2015. Accessible at

Friday, February 26, 2016

Student Loan Debtors and the Presidential Race: Hillary still has an opportunity to win over young voteers

Hillary Clinton devastated Bernie Sanders in the South Carolina Democratic Primary election. As Bernie candidly admitted, the Sanders team was "decimated." The only good news, he said, was this: Bernie beat Hillary among voters age 29 and younger.

Hillary talks herself hoarse telling voters how much she has done for them and much more she will do if she is elected President. But young people don't buy it. Essentially, they see her as an elderly political hack who sucks up to the banks.

But Hillary can still make headway with young voters if she would only promise some tangible and substantive reforms to the student-loan program. After all, there are 43 million Americans with outstanding student-loan debt; and most of them are young.

What could she promise? How about this:

1) "If elected president, I will instruct the IRS to draft regulations specifying that forgiven student-loan debt is not taxable."  

Under current law, about 4 million people are in income-based repayment plans, and most of them are seeing their total debt grow larger with each passing month due to accruing interest. When they complete their long-term repayment plans (after 20 or 25 years), their loan balances will be forgiven, but the forgiven amount will considered taxable income by the IRS. This is a real problem for people in income-based repayment plans. Why not just fix that problem with an IRS regulation?

2) "If elected president, my Department of Education will enact regulations that will cut off federal funding to any for-profit college that forces students to sign a promise not to sue the college for fraud or misrepresentation. And I will instruct the Department of Justice to cooperate with State Attorney Generals who are investigating and suing for-profit colleges that exploit students."

This promise demonstrates nothing more than common decency and would be well received by young people.

3) "When I am your president, the government will stop garnishing Social Security checks of elderly student-loan defaulters. And my administration will not oppose bankruptcy relief for elderly student-loan defaulters who are living below the poverty level."

There is nothing radical about this proposition. In fact, last month, in Precht v. U.S. Department of Education, DOE agreed to bankruptcy discharge of an elderly person's student-loan debt and stopped garnishing his Social Security check.

4) "My administration will renegotiate all contracts with student-loan debt collectors like Educational Credit Management Corporation. All these entities will be required to disclose the salaries of their executives and employees. They will also be required to disclose their profits. And I will eliminate the penalties and fees that the collection agencies have been charging distressed student-loan borrowers."

The beauty of these promises is this. All the reforms I listed could be implemented by President Hillary Clinton on the day she takes office. None of them require congressional approval.  And even if they did require statutory changes, what federal legislator would say no to these modest reforms if President Hillary asked for them?

If Hillary made these promises, she would demonstrate that she understands the magnitude of the student-loan crisis and that she  plans to take energetic action to grant some relief.  But my prediction is this: Hillary won't promise any substantive reforms of the student loan program because Goldman Sachs and the banks would disapprove. And that--in a nutshell--is why young people are not voting for Hillary.


Natalie Kitroeff. Loan Monitor is Accused of Ruthless Tactics on Student Debt. New York Times, January 1. 2014. Accessible at

Stephen Burd. Signing Away Rights. Inside Higher Ed, December 17, 2013. Available at

Ashley A. Smith. U.S. Urged to Deny Aid to For-Profits That Force Arbitration. Inside Higher Ed, February 24, 2016. Available at:

Thursday, February 25, 2016

Loan forgiveness for college students defrauded by for-profit colleges: Why not simply allow defrauded students to take bankruptcy?

The Department of Education is revising the regulations for handling student-debtor requests for debt relief. Under present regulations, student-loan borrowers  are eligible for debt relief if they can show they were victims of misrepresentation by the institution they attended.

But the old regulations are cumbersome, and DOE has been swamped by debt relief requests after Corinthian Colleges closed last year. Corinthian had 350,000 students or former students.

Apparently, the Department of Education is proposing some sort of hearing process where students who claims to be fraud victim can confront the colleges that lured them into enrolling and taking out student loans.

But how will that work? All the for-profit colleges have teams of lawyers, and the defrauded students who confront them at hearings will likely  have no lawyer at all.  That's a crumby idea.

Second, DOE is contemplating some kind of statute of limitation that would bar a student's fraud claim if not filed by some yet-to-be-defined time limit. Another crumby idea. Student-loan creditors can pursue student-loan defaulters any time they want--30 years after a loan was incurred if they choose. That's because there is no statute of limitation on debt collection of a student loan. So why should students be restricted by a time limit to file misrepresentation claims?

Third, the proposed regulations are cumbersome legalese that many students won't understand. Here is a sample of proposal's text:
For loans first disbursed prior to July 1, 2007, the borrower may assert as a defense to repayment, any act or omission of the school attended by the student that relates to the making of the loan or the provision of educational services that would give rise to a cause of action against the school under applicable State law.
Got that?

If the Department of Education were willing to face facts, it would admit that millions of students who enrolled at for-profit colleges have valid misrepresentation claims.  The for-profit industry as a whole has a 5-year default rate of 47 percent--strong evidence that many of the programs the colleges offered did not lead to well-paying jobs.

Rather than construct an elaborate, expensive, and unworkable administrative process for sorting out student fraud claims, the Department of Education should simply allow all students who attended a for-profit college and who are now broke to discharge their student-loan debts in bankruptcy without having to meet the "undue hardship" standard that currently applies to student-loan debtors in the bankruptcy courts. In other words, an insolvent student-loan debtor who attended a for-profit college should be able to discharge student-loan debt in bankruptcy like any other nonsecured debt.

After all, the bankruptcy courts have the expertise and the resources to sort out valid bankruptcy claims from invalid ones.  But DOE won't expedite the loan forgiveness process because it knows that millions of people took out student loans for worthless college experiences. If every student who was huckstered by a for-profit college obtained student-loan debt relief, the cost of loan forgiveness would amount to hundreds of billions of dollars.


Michael Stratford. Obama Crackdown on College Fraud. Inside Higher Ed, February 9, 2016.

Michael Stratford. New Criteria For Debt Relief. Inside Higher Ed, February 17, 2016. Available at:

Kelly Field, "U.S. Has Forgiven Loans of More Than 3,000 Ex-Corinthian Students, Chronicle of Higher Education, September 3, 2015. Accessible at:

Tamar Lewin, "Government to Forgive Student Loans at Corinthian Colleges," New York Times, June 8, 2015. Accessible at:

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default rates. Washington, DC: Brookings Institution (2015). Accessible at:

Wednesday, February 24, 2016

Arbitration and For-Profit Colleges: Public Citizen, a consumer group, asks the Department of Education to bar for-profits from forcing students to arbitrate their fraud claims. What a good idea!

Public Citizen, a consumer rights group, formally petitioned the U.S. Department of Education to cut off federal student-aid money to for-profit colleges that force their students to sign arbitration agreements that bar students from suing the colleges for fraud or misrepresentation or from filing class-action lawsuits. Julie Murray, spokesperson for the group, explained Public Citizen's position. "Taxpayers should not have to subsidize predatory schools that deny their students a day in court," Murray said in a press release.

What a good idea! Everyone knows that thousands of low-income and minority students have been lured into enrolling at expensive for-profit colleges by misrepresentations and high-pressure recruiting tactics.  The for-profits have very high student-loan default rates, high dropout rates, and high percentages of students who are seeing their loan debt growing larger because they are forced into economic-hardship deferment programs due to the fact that their post-studies income is not high enough to pay off their student loans.

In fact, as Stephen Burd pointed out in an Inside Higher Ed essay, a for-profit institution's shareholders can sue a for-profit college for misrepresenting job-placement figures while the students themselves cannot.

Arbitration clauses always favor the for-profit industry because the for-profits pick the arbitration company, which gives the arbitrators an incentive to rule in favor of the colleges or at least to go easy on them in order to get "repeat business."  Discovery is often limited in arbitration proceedings, and arbitration can be expensive, since the student must bear part of the arbitrator's cost.

I agree with Mr. Burd, who wrote:
Congress should eliminate this injustice by barring colleges that participate in the federal student aid program from including binding arbitration clauses in enrollment agreements, just as Senators Tom Harkin of Iowa and Al Franken of Minnesota proposed . . . . As [the senators] wrote, "Colleges and universities should not be able to insulate themselves from liability by forcing students to preemptively give up their right to be protected by our nation's laws.
Student-loan debtors--and there are 42 million of you--should ask presidential candidates if they are willing to cut off federal student-aid funding to for-profit colleges that force their students to sign arbitration agreements.   What would Hillary's answer be? Donald Trump's? Bernie Sanders?


Stephen Burd. Signing Away Rights. Inside Higher Ed, December 17, 2013. Available at

Ashley A. Smith. U.S. Urged to Deny Aid to For-Profits That Force Arbitration. Inside Higher Ed, February 24, 2016. Available at:

Tuesday, February 23, 2016

Alan Collinge is too pessimistic about bankruptcy relief for student-loan debtors: The Times May Be A-Changin'

Come writers and critics
Who prophesize with your pen
And keep your eyes wide
The chance won't come again
And don't speak too soon
For the wheel's still in spin
And there's no tellin' who
That it's namin'
For the loser now
Will be later to win
For the times they are a-changin'.
Bob Dylan
Alan Collinge wrote an interesting book a few years ago entitled The Student Loan Scam, which I reviewed in the Journal of Law and Education. He is very knowledgeable about the student-loan crisis, and much that he has to say about this problem is useful. Nevertheless, he is far too pessimistic about bankruptcy relief for student-loan debtors.

In an interview with Peter J. Reilly, a Forbes Magazine contributor, Collinge expressed a very bleak view regarding a distressed student-loan debtor's chances in the bankruptcy court. As Reilly summarized Collinge's position, "Alan argued that the chance of bankruptcy relief remains remote, and that the murmurers may be consultants who are engaging in bait and switch." In the interview itself, Collinge said, "Almost no well-versed lawyer will recommend it because of the unlikelihood of winning."

It is true that the Department of Education and its various loan collection agencies have vigorously fought bankruptcy relief for student-loan debtors in almost every case. As Colling observed:
[M]ake no mistake, even for the most destitute borrowers, the Department of Education, ECMC, and the entire lending industry are continuing to pour massive resources into defeating them in bankruptcy court by using shameless fear tactics with the judges, who they pressure ceaselessly--and usually successfully--to make bankruptcy determinations against [ ] these most impoverished individuals rather than for them.
And I think Collinge is also correct to say that so-called "debt coaches" and consultants may be dispensing inaccurate information about bankruptcy relief for the purpose of signing up distressed student-loan debtors in "loan rehabilitation" plans whereby student loans are repackaged into larger loans due to the various fees and penalties that get tacked on to the original principal.

But Collinge is just wrong to disparage the bankruptcy option for discharging student loans. Several bankruptcy courts have ruled with surprising compassion and common sense toward student-loan borrowers in recent years--relieving honest but unfortunate debtors of their student-loan obligations. Remarkably, many student-loan debtors have been successful in the bankruptcy courts even when they went to court without lawyers. Abney v. U.S. Department of EducationAcosta-Conniff v. ECMC, Johnson v. Sallie Mae, and Precht v. U.S. Department of Education--all decided within the last year--are recent victories for student-loan debtors who represented themselves in bankruptcy court.

It is true that some student-loan debtors have lost their cases in the bankruptcy courts. Butler v. ECMC, decided last month, is a particularly heartbreaking case because Brenda Butler's situation was more dire than several student-loan debtors who won their cases. But Roth v. ECMC and Krieger v. ECMC, two appellate-level decisions, are an indication that the federal courts are rethinking their harsh stance toward student-loan debtors.

One thing is certain. Overburdened and insolvent student-loan debtors have nothing to lose by trying to get their student-loan debt discharged in bankruptcy. And it is not helpful or useful to tell people that bankruptcy relief for student-loan debt is nearly impossible.

As Bob Dylan put it,"[D]on't speak too soon for the wheel's still in spin." In other words, the times may be a-changing.


Acosta-Conniff v. Educational Credit Corporation, 536 B.R. 326 (M.D. Ala. 2015).

Abney v. U.S. Department of Education, 540 B.R. 681 (W.D. Mo. 2015).

Fossey, R. (2009). Review of The Student Loan Scam: The Most Oppressive Debt in U.S. History—And How We Can Fight Back, by Alan Michael Collinge. Journal of Law and Education, 38, 715-718 (2009). Available at

Johnson v. Sallie Mae, ., No. 11-23108, Adv. No. 11-6250,  2015 WL 795830 (Bankr. D Kan. Feb. 19, 2015).

Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (7th Cir. 2013).

Precht v. United States Department of Education, AD PRO 15-01167-RGM (Bankr. E.D. Va. Feb. 11, 2016 (Consent Order).

Peter J. Reilly. Interview With Student Loan Activist Alan Collinge On Bankruptcy Protection, Forbes, October 28, 2015. Available at

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

Monday, February 22, 2016

Daniel Arbess, Writing In The Wall Street Journal, Says Bernie Sanders Supporters Are Clueless: But It Is the Wall Street Journal That Is Clueless

Daniel J. Arbess, writing in the Wall Street Journal, maintains that American young people who support Bernie Sanders are economically clueless. They blame Wall Street for the nation's financial malaise, Arbess argues, which is misguided. "Don't they realize," he asks plaintively, "that the financial markets are the lubricant of the entire economy--that Wall Street's capacity to provide liquidity and to broker capital is the lifeblood of American companies?"

Actually, Mr. Arbess, America's young people do understand that Wall Street is a lubricant. They've figured out that the global financial industry is a lubricant for raping the middle class.

Arbess seems to believe that young Americans should put their faith in unrestrained capitalism, which will eventually bring us all economic prosperity. But Arbess's own words belie his argument. As he himself says, the underemployment rate for young adults--that is, the percentage of people who are underpaid or working in jobs for which they are overqualified--is 60 percent! And 20 million Americans are burdened by student loans they can't pay back
The political elites, the financial industry, and the mainstream media seem to think Sanders' economic platform is nothing but a pipe dream; but two planks of that platform--universal health care and a free college education--resonate deeply with the young.

Young people know they must obtain useful postsecondary training to get middle-class jobs; and they also know they are being forced to pay far too much to attend a college or a graduate school. And they are coming to grips with the fact that borrowing money to pay for college can sometimes be an economic death sentence since it so difficult to discharge student-loan debt in bankruptcy.  Free college tuition to attend a state institution makes perfect sense to them, and Bernie's plan would actually be cheaper than the Byzantine student-loan program the government is now running.

And young people know that health care costs are eroding their take-home pay. Everyone I know who was forced into Obamacare is unhappy about it. Virtually all of them saw their health insurance costs went up and the quality of their coverage deteriorated. They understand that the United States could offer universal health care on a European model that would be more efficient and far cheaper than the cobbled-together scheme we now have in place that benefits no one but the medical industry and the insurance companies.

The fact that the Wall Street Journal thinks it is appropriate for a hedge fund manager to lecture Americans about the presidential campaign shows us just how clueless that newspaper is.
As for Mr. Arbess himself, I found a recent news story about his financial acumen. According to a 2014 online story in Bloomberg Business, "Perella Weinberg Partners LP is shutting its Xerion hedge fund, after its manager, Daniel Arbess, failed to recoup a 21 percent loss dating from 2011."

So maybe American young people are smarter than Mr. Arbess when it comes to making political decisions that affect their own economic well being.

Perella Weinberg’s Xerion Closing After 2011 Loss Proves Fatal
Mr. Arbess thinks young Bernie supporters are clueless.

Daniel J. Arbess. The Young and the Economically Clueless. Wall Street Journal, February 19, 2016. Available at

Kelly Bit and Katherine Burton. Peralla Weinberg's Xerion Fund To Close, Return Money. Bloomberg Business News, November 24, 2014. Available at