In my last post I reported on Decena v. Citizens Bank, in which a New York bankruptcy judge discharged Lorelei Decena's student-loan debt in bankruptcy because Decena had borrowed the money to attend an African medical school that was not on the Department of Education's Federal School Code List.
Normally, student-loan debt is not dischargeable in bankruptcy unless the borrower can show that repayment would create an "undue hardship," a very difficult standard to meet. But in Decena's case, the bankruptcy judge ruled that St. Christopher's College of Medicine, the African medical school Decena attended, was not an "eligible educational institution" because the school was not on the Department of Education's list of approved schools Thus, Decena could discharge the loans she took out to attend St. Christopher's (more than $160,000) without having to show undue hardship.
Richard Gaudreau, writing for Huffington Post, recently reported on another case in which a student-loan debtor freed herself from student-loan debt because the institution she attended was not listed in DOE's Federal School Code List.
In Davidson v. Sallie Mae, Jennifer Lynn Davidson borrowed approximately $20,000 from Sallie Mae to attend a "Co-Active Coach Training Program" operated by an outfit called CTI. As she explained in her Adversary Proceeding complaint, Davidson quickly became disenchanted with the program after her instructor swore at her during the first session and then announced that there would be a clothing-optional pool party at the end of the program day. She immediately notified CTI that she was withdrawing from the program.
Davidson sued Sallie Mae in an Oregon bankruptcy court to discharge her educational loans in bankruptcy, and she eventually persuaded Sallie Mae to sign a Stipulated Judgment agreeing to allow her to discharge the debt.
Why did Sallie Mae throw in the towel and allow Davidson to free herself from her student loans? Because--as Gaudreau explained in his Huffington Post article--CTI was not on the Department of Education's Federal School Code List.
What are we to make of Davidson's victory?
First, Sallie Mae is apparently loaning money to people to enroll in all kinds of so-called educational programs without regard to program quality, secure in the belief that people who take out loans for these programs will find it virtually impossible to discharge their debt in bankruptcy. In Davidson's case, however, Sallie Mae slipped up and loaned Davidson money to attend CTI's "Co-Active Coach Training Program" without checking to see whether CTI was on the Department of Education's Federal School Code List.
Second, students who borrow money to enroll in programs at marginal institutions like CTI and St. Christopher's College of Medicine should definitely consult DOE's School Code List to determine if the institution they attended is on it. If the school is not on that list, a borrower has a reasonable shot at shedding the student-loan debt in bankruptcy without having to show that it would be an "undue hardship" to repay the loan.
As Gaudreau pointed out, bankruptcy courts are not in total agreement as to what constitutes an educational loan that is covered by the Bankruptcy Code's undue hardship rule. But Lorelei Decena convinced a bankruptcy judge that St. Christopher's College of Medicine was not an "eligible educational institution" for purposes of the undue hardship standard; and Jennifer Lynn Davidson apparently persuaded Sallie Mae that loans taken out to attend CTI were likewise not subject to the undue hardship rule.
Congratulations to Lorelei Decena and Jennifer Lynn Davidson for their victories in the bankruptcy courts. As for Sallie Mae and Citizens Bank, which collectively lost $180,000, they got the bankruptcy-court outcomes they so richly deserved.
References
Davidson v. Sallie Mae, Case No. 12-33122-TMB-7, Adversary Proceeding Number 12-03171 (Bankr. D. Or. Aug. 15, 2012) (Stipulated Judgment to Discharge Educational Loan Debt and Dismiss Adversary Proceeding) (from an article appearing in Getoutofdebt.org). Accessible at https://getoutofdebt.org/wp-content/uploads/2013/07/183-1_new.pdf
Decena v. Citizens Bank, 549 B.R. 11 (Bankr. E.D.N.Y. 2016).
Richard Gaudreau. Some Private Loans Eligible for Automatic Discharge. Huffinton Post, June 21, 2016. Accessible at http://www.huffingtonpost.com/richard-gaudreau/when-is-a-student-loan-no_b_10530086.html
U.S. Department of Education. Federal School Code List 2016-1017.
Tuesday, July 5, 2016
Thursday, June 23, 2016
Decena v. Citizens Bank: A woman borrowed $161,000 to attend medical school in Africa and discharged the debt in bankruptcy
Lorelei Decena, an American, attended medical school at St. Christopher's College of Medicine in Senegal, West Africa. After completing the program in 2004, she returned to the United States only to learn that St. Christopher's was not an accredited medical school and that she was not eligible to take the medical board exams in many states.
Decena financed her medical studies with a series of loans totaling $161,592, which she took out from Citizens Bank, which is headquartered in Rhode Island. She made loan payments from 2006 until 2011, but she quit making payments when she returned to school to obtain a masters' degree.
In 2015, Decena filed a "no asset" Chapter 7 bankruptcy petition and later filed an adversary complaint to discharge her student loans with Citizens Bank. Citizens Bank failed to answer her complaint and the court clerk entered a default.
At a hearing to get a default judgment entered against Citizens, an attorney appeared to represent the bank. Citizens' attorney argued that the default should be set aside on the ground that Decena had sent her lawsuit by regular mail rather than certified mail. The bankruptcy court rejected this argument, reasonably pointing out that Citizens obviously had notice of Decena's lawsuit because it had sent a lawyer to defend the bank's interests.
The court then considered whether Decena had a legitimate ground for discharging her student-loan debt in bankruptcy. Interestingly, Decena did not argue that it would be an undue hardship for her to pay back the loans--the position taken by most student-loan debtors in bankruptcy. Rather she maintained that the loan was not the kind education loan debt that was covered by the undue hardship exception.
The court agreed with her. In essence, the court ruled that a private loan to attend an unaccredited, unlicensed medical school is not the kind of loan that can be excepted from discharge in bankruptcy under the undue hardship rule. Nor was it a "qualified education loan" that came under the undue hardship exception.
Key to the court's decision was its finding that St. Christopher's College of Medicine was not listed in the Federal Schools Code during the year Decena completed her studies. Thus, the court ruled, Decena "established a prima facie case that St. Christopher's is not an 'eligible educational institution,'" entitled to benefit from the Bankruptcy Code's undue hardship rule.
What can we learn from this quirky case? Three things:
1. Don't enroll in an unlicensed, unaccredited African medical school if you want to practice medicine in the United States. Perhaps Lorelei Decena should have investigated St. Christopher's a little more thoroughly before borrowing money to study there.
2. If you are a bank, don't lend money to someone to study medicine in Africa unless the institution the debtor will attend is on the Federal Schools Code list. Citizens Bank was apparently under the impression that its loans to Decena could not be easily discharged in bankruptcy, but the bank was wrong.
3. If you are an African medical school that seeks to enroll American students, you should make sure your institution is listed in the Federal Schools Code.
In fact, St. Christopher's lapse in this regard is puzzling. Over 500 foreign institutions are listed on the Federal Schools Code, making them eligible to participate in the U.S. student loan program, including more than two dozen foreign medical schools. Why didn't St. Christopher's do whatever it had to do to get its name on that list?
This case illustrates the global expanse of the federal student loan program, which allows Americans to borrow money to attend colleges all over the world (although not St. Christopher's in Senegal). We are a wealthy nation of more than 300 million people. You would think we could manage medical education in such a way that no one would need to borrow money in order to study medicine in a foreign country.
Note. St. Christopher's web site contains these statements:
References
Decena v. Citizens Bank, 549 B.R. 11 (Bankr. E.D.N.Y. 2016).
Decena financed her medical studies with a series of loans totaling $161,592, which she took out from Citizens Bank, which is headquartered in Rhode Island. She made loan payments from 2006 until 2011, but she quit making payments when she returned to school to obtain a masters' degree.
In 2015, Decena filed a "no asset" Chapter 7 bankruptcy petition and later filed an adversary complaint to discharge her student loans with Citizens Bank. Citizens Bank failed to answer her complaint and the court clerk entered a default.
At a hearing to get a default judgment entered against Citizens, an attorney appeared to represent the bank. Citizens' attorney argued that the default should be set aside on the ground that Decena had sent her lawsuit by regular mail rather than certified mail. The bankruptcy court rejected this argument, reasonably pointing out that Citizens obviously had notice of Decena's lawsuit because it had sent a lawyer to defend the bank's interests.
The court then considered whether Decena had a legitimate ground for discharging her student-loan debt in bankruptcy. Interestingly, Decena did not argue that it would be an undue hardship for her to pay back the loans--the position taken by most student-loan debtors in bankruptcy. Rather she maintained that the loan was not the kind education loan debt that was covered by the undue hardship exception.
The court agreed with her. In essence, the court ruled that a private loan to attend an unaccredited, unlicensed medical school is not the kind of loan that can be excepted from discharge in bankruptcy under the undue hardship rule. Nor was it a "qualified education loan" that came under the undue hardship exception.
Key to the court's decision was its finding that St. Christopher's College of Medicine was not listed in the Federal Schools Code during the year Decena completed her studies. Thus, the court ruled, Decena "established a prima facie case that St. Christopher's is not an 'eligible educational institution,'" entitled to benefit from the Bankruptcy Code's undue hardship rule.
What can we learn from this quirky case? Three things:
1. Don't enroll in an unlicensed, unaccredited African medical school if you want to practice medicine in the United States. Perhaps Lorelei Decena should have investigated St. Christopher's a little more thoroughly before borrowing money to study there.
2. If you are a bank, don't lend money to someone to study medicine in Africa unless the institution the debtor will attend is on the Federal Schools Code list. Citizens Bank was apparently under the impression that its loans to Decena could not be easily discharged in bankruptcy, but the bank was wrong.
3. If you are an African medical school that seeks to enroll American students, you should make sure your institution is listed in the Federal Schools Code.
In fact, St. Christopher's lapse in this regard is puzzling. Over 500 foreign institutions are listed on the Federal Schools Code, making them eligible to participate in the U.S. student loan program, including more than two dozen foreign medical schools. Why didn't St. Christopher's do whatever it had to do to get its name on that list?
This case illustrates the global expanse of the federal student loan program, which allows Americans to borrow money to attend colleges all over the world (although not St. Christopher's in Senegal). We are a wealthy nation of more than 300 million people. You would think we could manage medical education in such a way that no one would need to borrow money in order to study medicine in a foreign country.
_______________________________________________
Graduates of St. Christopher Iba Mar Diop College of Medicine may practice medicine in the United States through the Educational Commission for Foreign Medical Graduates (ECFMG).
*****
It is important that future students intending on practicing medicine in the United States obtain licensing information direct from the appropriate state agencies. This information can be obtained from the Federal State Medical Boards (FSMB). Students are expected to have a thorough understanding of medical licensure laws in their state or states of intended practice before applying. Many states have specific rules and requirements beyond the medical school curriculum and applicants are urged to make specific inquiries into what these are before making a commitment to the College.
References
Decena v. Citizens Bank, 549 B.R. 11 (Bankr. E.D.N.Y. 2016).
Tuesday, June 21, 2016
Federal student loans for Americans to study overseas: Is this a good use of taxpayer money?
If you've decided to get your degree from a school outside the U.S., congratulations. Now let us help you find out which international schools participate in the federal student aid programs and guide you through the process of getting federal aid to make a dent in that tuition bill.
Here's something I bet you didn't know. Not only can you take out federal loans to attend one of 5000 colleges and schools in the U.S., you can get a federal student loan to study abroad. In fact, the Department of Education lists more than 500 foreign schools that are eligible to receive federal student aid.
Would you like to study religion at the Nazarene Theological College in Manchester, England? Just take out a federal loan. Or perhaps you're interested in getting a psychology degree from the Salvation Army's Booth University College in Winnipeg, Canada. The federal government will loan you the money. Literally, you can use federal student loan money to attend college almost any place in the world: China, England, France, Israel, Australia, Hungary, Bulgaria--even Russia.
The Department of Education is particularly hospitable to foreign medical schools and maintains links on its web sites to 25 medical schools outside the U.S. DOE reported that American students attending Medical University of Silesia in Katowice, Poland, borrowed an average of $80,000 in federal student loans to attend that medical school, plus private loans averaging $55,000.
Or perhaps you prefer to study medicine in a sunnier clime? You can take out federal loans to attend American University of the Caribbean School of Medicine in St. Maarten, but it's pricier than a Polish medical school. American students borrowed an average of $315,674 to attend the medical school in St. Maarten, which is owned by DeVry Education Group, a publicly traded corporation on the New York Stock Exchange.
But most Americans don't take out federal loans to obtain medical degrees overseas; most use student-loan money to study abroad for a semester or a year. Indeed, the growing popularity of Study Abroad programs is one reason an American college education costs so much more than it once did. Americans are taking out student loans to spend a few months in Paris, London, Barcelona, or dozens of other exotic cities.
American taxpayers are already subsidizing 5,000 U.S. colleges and schools that participate in the federal student aid program--institutions running the gamut from Harvard University to Toni & Guy Hairdressing Academy. Do we really want to loan students money to attend schools overseas--especially at a time when so many colleges in the U.S. are on the verge of closing due to declining enrollment?
Saturday, June 18, 2016
Student-Loan Default Rates Go Down As Enrollment in Income-Driven Repayment Plans Goes Up:" It Hurts So Much To Face Reality"
Earlier in the week, the Department of Education issued a press release that contains good news about the student loan program. Or does it?
DOE reported that enrollment is increasing in the Department's various income-driven repayment plans (IDRs), including PAYE, REPAYS and six other income-based student loan repayment programs. About 5 million are now enrolled in IDRs, up 117 percent from March of 2014.
At the same time, student-loan hardship deferments, loan delinquencies, and new defaults are going down. According to DOE:
Is this good news? Yes and no.
Obviously, a trend toward fewer economic-hardship deferments, fewer student-loan defaults, and fewer lower delinquencies is a good thing. It is especially heartening to see a decline in the number of people who have loans in deferment, because these people see their loan balances go up due to accruing interest during the time they aren't making loan payments.
But this good news comes at a cost. DOE's report is a clear indication that more and more people are signing up for long-term income-based repayment plans that stretch out their repayment period for as long as 20 to 25 years. According to DOE, five million people are in IDRs now, and DOE hopes to enroll 2 million more by the end of 2017. Clearly, long-term repayment plans has become DOE's number one strategy for dealing with rising student-debt loads.
What's wrong with IDRs? Four things.
Growing Loan Balances. First, as I have said many times, most people in IDRs are making payments based on a percentage of their income, not the amount of their debt; and most people's payments are not large enough to cover accruing interest on their loan balances. Thus, for almost everyone in a 20- or a 25-year repayment plan, loan balances are going up, not down.
This was starkly illustrated by a recent Brookings Institution report. According to a paper published for Brookings by Looney and Yannelis, a majority of borrowers (57 percent) saw their loan balances go up two years after beginning the repayment period on their loans. For students who borrowed to attend for-profit instiutions, almost three out of four (74 percent) saw their loan balances grow two years after entering the repayment phase
Reduced Incentives for Colleges to Rein in Tuition Costs. As more and more borrowers elect to join IDRs, the colleges know that tuition prices becomes less important to students.Whether students borrow $25,000 to attend college or $50,000, their payment will be the same.
In fact, some IDRs actually may act as an inverse incentive for students to obtain more postsecondary education than they need. I have several doctoral students who are collecting multiple graduate degrees. I suspect they are enrolled in the 10-year public-service loan forgiveness plan, the government's most generous IDR. Since monthly loan payments are based on income and not the amount borrowed, I think some people have figured out that it makes economic sense to prolong their studies.
Psychological Costs of Long-Term Repayment Plans. Third, there are psychological costs when people sign up for repayment plans that can stretch over a quarter of a century, a cost that some bankruptcy courts have noted. And these psychological costs are undoubtedly higher for people who sign up for IDRs in mid-life. Brenda Butler, for example, who lost her adversary proceeding in January of this year, signed up for a 25-year income-based repayment plan when she was in her early 40s, after struggling to pay back her student loans for 20 years. As the court noted in Butler's case, her loan obligations will cease in 2037--42 years after she graduated from college. That's got to be depressing.
A Drag on Consumer Spending. Finally, people who are making loan payments for 20 years have less disposable income to buy a home or a car, to marry, to have children, and to save for their retirement. In fact, in the Abney case decided in late 2015, a bankruptcy court in Missouri rejected DOE's argument that a 44-year old truck driver should enter a long-term repayment plan to service loans he took out years ago for a college education he never completed.
As the court pointed out, Mr. Abney was a truck driver who was not likely to see his income increase markedly. Forcing him into a long-term repayment plan would diminish his ability to save for retirement or even to buy a car.
"It Hurts So Much To Face Reality"
As Robert Duvall sang in the movie Tender Mercies (the best contemporary western movie of all time), "it hurts so much to face reality."
Without a doubt, DOE is refusing to face reality by huckstering college-loan debtors into long-term student-loan repayment plans. DOE has adopted this strategy to keep student-loan defaults down, but IDRs do not relieve the burden of indebtendess for millions of student borrowers. Lowering monthly loan payments by stretching out the repayent period makes rising tuition more palatable, but it does nothing to check the rising cost of a college education--which has spun out of control.
In short, IDRs are creating a modern class of sharecroppers, whereby millions of people pay a percentage of their incomes over the majority of their working lives for the privilege of getting a crummy education from a college or university that has no incentive to keep tuition costs within the bounds of reason.
References
Abney v. U.S. Department of Education, 540 B.R. 681 (W.D. Mo. 2015).
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: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults
U.S. Department of Education, Education Department Announces New Data Showing FAFSA Completion by District, State. Press release, June 16, 2016. Accessible at http://www.ed.gov/news/press-releases/education-department-announces-new-data-showing-fafsa-completion-district-state
DOE reported that enrollment is increasing in the Department's various income-driven repayment plans (IDRs), including PAYE, REPAYS and six other income-based student loan repayment programs. About 5 million are now enrolled in IDRs, up 117 percent from March of 2014.
At the same time, student-loan hardship deferments, loan delinquencies, and new defaults are going down. According to DOE:
As of March 31, 2016, about 350,000 [Direct Loan] recipients were deferring their payments due to unemployment or economic hardship, a 28.6 percent decrease from the prior year. In that same time period, there was a 36.6 percent decrease in the number of FFEL recipients in a deferment status due to unemployment or economic hardship.DOE also reported that delinquency rates are down 10.6 percent from last year, and student-loan default rates are also down.
Is this good news? Yes and no.
Obviously, a trend toward fewer economic-hardship deferments, fewer student-loan defaults, and fewer lower delinquencies is a good thing. It is especially heartening to see a decline in the number of people who have loans in deferment, because these people see their loan balances go up due to accruing interest during the time they aren't making loan payments.
But this good news comes at a cost. DOE's report is a clear indication that more and more people are signing up for long-term income-based repayment plans that stretch out their repayment period for as long as 20 to 25 years. According to DOE, five million people are in IDRs now, and DOE hopes to enroll 2 million more by the end of 2017. Clearly, long-term repayment plans has become DOE's number one strategy for dealing with rising student-debt loads.
What's wrong with IDRs? Four things.
Growing Loan Balances. First, as I have said many times, most people in IDRs are making payments based on a percentage of their income, not the amount of their debt; and most people's payments are not large enough to cover accruing interest on their loan balances. Thus, for almost everyone in a 20- or a 25-year repayment plan, loan balances are going up, not down.
This was starkly illustrated by a recent Brookings Institution report. According to a paper published for Brookings by Looney and Yannelis, a majority of borrowers (57 percent) saw their loan balances go up two years after beginning the repayment period on their loans. For students who borrowed to attend for-profit instiutions, almost three out of four (74 percent) saw their loan balances grow two years after entering the repayment phase
Reduced Incentives for Colleges to Rein in Tuition Costs. As more and more borrowers elect to join IDRs, the colleges know that tuition prices becomes less important to students.Whether students borrow $25,000 to attend college or $50,000, their payment will be the same.
In fact, some IDRs actually may act as an inverse incentive for students to obtain more postsecondary education than they need. I have several doctoral students who are collecting multiple graduate degrees. I suspect they are enrolled in the 10-year public-service loan forgiveness plan, the government's most generous IDR. Since monthly loan payments are based on income and not the amount borrowed, I think some people have figured out that it makes economic sense to prolong their studies.
Psychological Costs of Long-Term Repayment Plans. Third, there are psychological costs when people sign up for repayment plans that can stretch over a quarter of a century, a cost that some bankruptcy courts have noted. And these psychological costs are undoubtedly higher for people who sign up for IDRs in mid-life. Brenda Butler, for example, who lost her adversary proceeding in January of this year, signed up for a 25-year income-based repayment plan when she was in her early 40s, after struggling to pay back her student loans for 20 years. As the court noted in Butler's case, her loan obligations will cease in 2037--42 years after she graduated from college. That's got to be depressing.
A Drag on Consumer Spending. Finally, people who are making loan payments for 20 years have less disposable income to buy a home or a car, to marry, to have children, and to save for their retirement. In fact, in the Abney case decided in late 2015, a bankruptcy court in Missouri rejected DOE's argument that a 44-year old truck driver should enter a long-term repayment plan to service loans he took out years ago for a college education he never completed.
As the court pointed out, Mr. Abney was a truck driver who was not likely to see his income increase markedly. Forcing him into a long-term repayment plan would diminish his ability to save for retirement or even to buy a car.
"It Hurts So Much To Face Reality"
As Robert Duvall sang in the movie Tender Mercies (the best contemporary western movie of all time), "it hurts so much to face reality."
Without a doubt, DOE is refusing to face reality by huckstering college-loan debtors into long-term student-loan repayment plans. DOE has adopted this strategy to keep student-loan defaults down, but IDRs do not relieve the burden of indebtendess for millions of student borrowers. Lowering monthly loan payments by stretching out the repayent period makes rising tuition more palatable, but it does nothing to check the rising cost of a college education--which has spun out of control.
In short, IDRs are creating a modern class of sharecroppers, whereby millions of people pay a percentage of their incomes over the majority of their working lives for the privilege of getting a crummy education from a college or university that has no incentive to keep tuition costs within the bounds of reason.
| "It hurts so much to face reality." |
References
Abney v. U.S. Department of Education, 540 B.R. 681 (W.D. Mo. 2015).
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: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults
U.S. Department of Education, Education Department Announces New Data Showing FAFSA Completion by District, State. Press release, June 16, 2016. Accessible at http://www.ed.gov/news/press-releases/education-department-announces-new-data-showing-fafsa-completion-district-state
Thursday, June 16, 2016
Small colleges and for-profits are closing at an accelerating rate: Do Not Resuscitate
Resuscitate: to bring (someone who is unconscious, not breathing, or close to death) back to a conscious or active state again.
Merriam-Webster Dictionary
Two sectors of the higher education are under extreme stress: for-profit institutions and small liberal arts colleges. In both sectors, schools are closing or downsizing at an accelerating rate.
In the last two weeks alone, Dowling College and St. Catharine College announced they are closing. Grace University, an interdenominational school in Nebraska, is raising tuition and cutting salaries to deal with financial problems; and for-profit Brown Mackie College announced that it is closing 22 of its 26 campuses over the next few years and will not accept any new students.
These failing colleges and universities are the educational equivalent of terminally ill patients. They see death approaching, but they deal with their mortality in different ways. Some failing colleges shut down in an orderly fashion and make arrangements for their current students to complete their programs at other institutions. Others refuse to accept the inevitable and search desperately for a survival strategy.
For example, Sweet Briar College in Virginia announced it was closing more than a year ago, but new leadership and some moneyed alumni rushed in to keep it open. But this year, Sweet Briar only enrolled 24 freshmen.
Likewise, although Dowling College announced its closure, it is now trying to partner with Global University Systems, "an educational investment firm" that has multiple partnerships with universities in England, Canada and the U.S. Personally, I can't see how this new relationship will have any bearing on Dowling's future.
In my view, all these faltering for-profits and struggling private colleges should close their doors with dignity once they have explored all reasonable strategies for remaining viable Most of them are on life support--existing from month to month on infusions of student-loan money. It is irresponsible for failing institutions to continue recruiting students when trustees and administrators know these students will be going into debt to obtain an education from a college that will be closing in the very near future.
References
Candice Ferette and John Hildebrtand. Dowling, still officially open, can award degrees over summer. Newsday, June 14, 2016. Accessible at http://www.newsday.com/long-island/education/dowling-still-officially-open-can-award-degrees-over-summer-1.11916403
Emily Nohr. Grace University will raise tuition, cut baseball and softball, reduce salaries to cope with financial problems. Omaha World-Herald, June 14, 2016. Accessble at http://www.omaha.com/news/education/grace-university-will-raise-tuition-cut-baseball-and-softball-reduce/article_499c0d2c-325d-11e6-84e8-17b1280538f5.html
Ashley A. Smith. Decreases in enrollment lead to Brown Mackie closing. Inside Higher Ed, June 15, 2016. Accessible at https://www.insidehighered.com/news/2016/06/15/decreases-enrollment-lead-brown-mackie-closing
Another Small Private Closes Its Doors. Inside Higher Ed, June 1, 2016. Accesible at https://www.insidehighered.com/quicktakes/2016/06/01/another-small-private-closes-its-doors-dowling-college?utm_source=Inside+Higher+Ed&utm_campaign=a0fafeb056-DNU20160601&utm_medium=email&utm_term=0_1fcbc04421-a0fafeb056-198564813
Paul Fain. The Department and St. Catharine. Inside Higher Ed, June 2, 2016. Accessible at https://www.insidehighered.com/news/2016/06/02/small-private-college-closes-blames-education-department-sanction?utm_source=Inside+Higher+Ed&utm_campaign=3d1c6eed79-DNU20160602&utm_medium=email&utm_term=0_1fcbc04421-3d1c6eed79-198565653
Rick Seltzer. Sweet Briar falls short of initial enrollment target, but leaders remain optimistic. Inside Higher Ed. May 5, 2016. Accessible at https://www.insidehighered.com/news/2016/05/05/sweet-briar-falls-short-initial-enrollment-target-leaders-remain-optimistic
Kellie Woodhouse. Closures to Triple. Inside Higher Education, September 28, 2015. Accessile at https://www.insidehighered.com/news/2015/09/28/moodys-predicts-college-closures-triple-2017
Paul Fain. The Department and St. Catharine. Inside Higher Ed, June 2, 2016. Accessible at https://www.insidehighered.com/news/2016/06/02/small-private-college-closes-blames-education-department-sanction?utm_source=Inside+Higher+Ed&utm_campaign=3d1c6eed79-DNU20160602&utm_medium=email&utm_term=0_1fcbc04421-3d1c6eed79-198565653
Rick Seltzer. Sweet Briar falls short of initial enrollment target, but leaders remain optimistic. Inside Higher Ed. May 5, 2016. Accessible at https://www.insidehighered.com/news/2016/05/05/sweet-briar-falls-short-initial-enrollment-target-leaders-remain-optimistic
Kellie Woodhouse. Closures to Triple. Inside Higher Education, September 28, 2015. Accessile at https://www.insidehighered.com/news/2015/09/28/moodys-predicts-college-closures-triple-2017
Lee Gardner. Where Does the Regional State University Go From Here? Partners 4 Affordable Excellence. May 22, 2016http://partners4edu.org/regional-state-university-go/
Wednesday, June 15, 2016
PAYE and REPAYE: Long-term student loan repayment plans are a bad option for older student-loan debtors
You can be young without money, but you can't be old without it.
Tennessee Williams
President Obama's Department of Education is pushing distressed student-loan debtors into long-term income-based repayment plans. Five million people are in them now, and DOE hopes to enroll two million more by the end of next year. Without a doubt, DOE will reach this goal. In fact, I predict at least 10 million people will be enrolled in long-term repayment plans within four years.
To advance this goal, the Obama administration launched two new income-based repayment programs: PAYE and REPAYE. These are the most generous of the government's eight income-based repayment plans. PAYE and REPAYE allow debtors to make payments equal to ten percent of their adjusted gross income for 20 years. At the end of that time, any unpaid debt is forgiven, although debtors may be forced to pay federal income tax on the forgiven portion of their loans.
As I have argued repeatedly, long-term income-based repayment plans are nothing more than a cynical scheme to hide the magnitude of the student-loan crisis. By lowering monthly payments, the Feds hope to keep the student-loan default rate down even though most people in these programs are making payments so low that they will never pay off their student loans.
Nevertheless, I understand why debtors are signing up for these plans. If they've had their loans in deferment for any considerable length of time, their loan balances will have ballooned to double the amount they borrowed or more because of accrued interest. Once that happens, they will never be able to pay off their student loans over the conventional 10--year repayment term. In short, people with large loan balances and low-paying jobs have no choice--they are forced to enter 20- or 25-year repayment plans in order to avoid default.
But long-term repayment plans are a terrible option for older student-loan debtors. People in their forties, fifties and sixties need to maximize their retirement savings in order to be able to retire with dignity; and most of them of them can't do that if they are making student-loan payments equal to 10 or 15 percent of their annual income.
In fact, the evidence is mounting that the baby boomer generation is not ready for retirement; and millions are facing dire poverty if they lose their jobs. A recent article in the Star Tribune reported that two thirds of households in the 55-64 age group have savings that equal less than their annual income and one third have no savings at all.
According to the National Institute on Retirement Security, the median retirement account savings among households in the 55-64 age range is only $14,500! Due to the recent recession and stagnant wages, millions of Americans have been forced to cash out their retirement accounts just to meet daily living expenses. More than 40 percent of Americans have elected to take Social Security benefits early in recent years because they need the cash, even though early participation reduces annual benefits by 25 percent.
Obviously, the last thing financially strapped Americans need as they grow older is a 20-year obligation to contribute a percentage of their income to pay off student loans. Although long-term repayment plans can be defended for people who enroll in them when they are young, they are a disaster for people who sign up for PAYE or REPAYE or the six other income-based repayment plans when they are in their forties or even older.
But the government and the student-loan creditors insist on pushing student-loan debtors into these plans regardless of their age. For example, in the Halverson case, decided in 2009, Educational Credit Management Corporation argued that Steven Halverson should enter a 25-year income-based retirement plan even though he was 65 years old, had chronic health problems, and had an income of only about $13 an hour. (Fortunately, a Minnesota bankruptcy judge was sympathetic to Mr. Halverson's plight and discharged his student-loan debt.)
And in the Stevenson case, a Massachusetts bankruptcy judge insisted that a woman in her fifties sign up for a long-term income-based repayment plan even though she had a record of homelessness and was living on only $1,000 a month.
Perhaps most famously, ECMC hounded Janet Roth through the courts all the way to the Ninth Circuit Bankruptcy Appellate Panel, heartlessly arguing that Roth should be on an income-based repayment plan to pay off more than $90,000 in student-loan debt even though she was 68 years old, had chronic health problems and was living entirely off her Social Security income of $780 a month.
As a matter of public policy, the federal government simply must stop pressuring student-loan debtors who are in their forties or older into long-term repayment plans because this practice is making it impossible for these people to prepare for retirement.
We should occasionally remind ourselves why the federal student-loan program was inaugerated in the first place. The program's sole purpose is to enable people to get postsecondary education that will improve their lives.
But for millions of Americans, the federal student-loan program has driven them to the brink of indigence. And if they are forced to make loan payments until they are in their sixties, their seventies, or their eighties, we will have created a class of elderly debtors who will spend their final years in poverty and want.
In short, no one who is 40 years old or older should be forced into a 20- or 25-year student-loan repayment plan, No one. Older student-loan debtors who are otherwise eligible for bankruptcy relief should be able to shed their student-loan debt in the bankruptcy courts rather than be saddled with monthly student loan payments that will extend into their retirement years.
References
Bob Brenzing. AP Poll: Many take Social Security before full retirement, May 26, 2016.Fox News 17. Accessible at http://fox17online.com/2016/05/26/ap-poll-many-take-social-security-before-full-retirement/
Michael Greenstone and Adam Looney. The Uncomfortable Truth About American Wages. Brooking Institution, October 23, 2012. Accessible at http://www.brookings.edu/research/opinions/2012/10/22-wages-greenstone-looney
Bob Brenzing. AP Poll: Many take Social Security before full retirement, May 26, 2016.Fox News 17. Accessible at http://fox17online.com/2016/05/26/ap-poll-many-take-social-security-before-full-retirement/
Michael Greenstone and Adam Looney. The Uncomfortable Truth About American Wages. Brooking Institution, October 23, 2012. Accessible at http://www.brookings.edu/research/opinions/2012/10/22-wages-greenstone-looney
Katy Read. The real story about retirement: Millions of baby boomers face financial crisis. Star Tribune, Ocrober 21, 2015. Accessible at http://www.startribune.com/the-real-story-about-retirement-millions-of-baby-boomers-face-financial-crisis/334718191/
Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).
Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011).
John F. Wasik. Social Security At 62? Let's Run the Numbers. New York Times, May 14, 2014. http://www.nytimes.com/2014/05/15/business/retirementspecial/social-security-at-62-lets-run-the-numbers.html
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