For years, for-profit colleges have required students to sign mandatory arbitration clauses as part of their student enrollment documents. These clauses prohibit students from suing the institutions they attended for fraud or misrepresentation. Instead, the clauses force students to arbitrate their claims in a forum that is often more favorable for the college than for the aggrieved student.
The Department of Education recently criticized this practice and is working on some regulations that will prohibit or sharply limit the ability of colleges to stick arbitration clauses in their enrollment documents. Last May, University of Phoenix announced that it will abandon its practice of requiring students to sign arbitration agreements.
Magno v. The College Network, Inc.
Last month, a California appellate court invalidated the arbitration clause in a purchase agreement offered by The College Network, Inc., an education provider based in Indiana but operating in California. Entitled Magno v. The College Network, Inc., the decision strikes a strong blow against a practice that has sharply limited the ability of college students to sue their for-profit colleges when they are hoodwinked by aggressive and misleading college recruiters.
Here are the facts of the case as outlined by the California Court of Appeals for the Fourth Appellate District:
Bernadette Magno, Rosanna Garcia, and Sheree Rudio were Licensed Vocational Nurses (LVNs) in California who sought to become Registered Nurses. A recruiting representative for The College Network Incorporated (TCN) encouraged the three to enroll in TCN's partnership with Indiana State University (ISU) and California State University (CSU). The recruiter told them they could complete much of the necessary coursework for a B.S. degree in Nursing through ISU's distance-learning program and complete their clinical training with CSU.
Magno and her companions signed up for the program, but they found out later that ISU had suspended its LVN to B.S. nursing program. They sued TCN in a California court for violation of California consumer-protection laws. They alleged that TCN concealed important information and falsely represented that enrolling in the TCN program would qualify them to enter ISU's nursing program.
TCN responded to the suit by asking a California trial court to compel the plaintiffs to arbitrate their claims in accordance with an arbitration clause in the purchase agreement each of them had signed. That agreement required Magno and her co-plaintiffs to arbitrate their claims in Indiana before an arbitrator chosen by TCN.
Fortunately, the trial court denied TCN's request, and the trial court's decision was upheld on appeal. The appellate court acknowledged that arbitration clauses are generally favored as a way to settle disputes. Nevertheless, arbitration agreements will be struck down if they were both procedurally and substantively unconscionable.
The arbitration clause was procedurally unconscionable
As the court explained, an arbitration agreement is procedurally unconscionable if the weaker party lacks the ability to negotiate and has no meaningful choice but to sign the agreement or if the disadvantaged party was surprised by the arbitration clause.
In the California court's opinion, the arbitration clause was procedurally unconscionable
in both regards. "Plaintiffs were young, were rushed through the signing process, had no ability to negotiate, did not see the arbitration language 'buried on the back of the preprinted carbon paper forms,' and did not separately initial the arbitration clause."
Moreover, the plaintiffs testified that they were not sophisticated and that TCN's recruiter told them "how everything would be fine and to simply sign here and there." In addition, the recruiter told the plaintiffs they would get a discount if they signed right away. And the plaintiffs also testified that they were unaware of the arbitration clause until after they filed suit.
Based on this evidence, the appellate flatly court ruled that the arbitration clause was procedurally unconscionable. "The arbitration agreement is an adhesion contract; it lies within a standardized form drafted and imposed by a party with superior bargaining strength, leaving Plaintiffs with only the option of adhering to the contract or rejecting it."
The arbitration clause was substantively unconscionable
The court then looked at the language of the arbitration clause and found it to be substantively unconscionable as well because the clause was "unreasonably favorable to the more powerful party." First of all, the court pointed out, the clause required the plaintiffs, who were all California residents, to arbitrate their dispute with TCN in Indiana. This, in the court's view, was substantively unconscionable. After all, TCN solicited the plaintiffs' business in California, and plaintiffs would not have reasonably expected to be forced to arbitrate their disputes with TCN in Indiana.
Nor was the clause less pernicious because it permitted the plaintiffs to participate in the arbitration by phone or video. This forced Magno and her co-plaintiffs to "choose whether to incur significant expenses to pursue their claims in an unreasonable forum or to appear remotely, foregoing the ability to testify in person, while TCN, a company that solicited business in California, participates in proceedings in its own backyard."
Also unconscionable in the court's opinion was the provision that TCN got to unilaterally choose the arbitrator. Although plaintiffs were permitted to withhold their consent to TCN's choice so long as consent was "not unreasonably withheld," that did not alter the fact that TCN had the unilateral right to select the arbitrator.
Finally, the appellate court pointed out that the arbitration clause required the plaintiffs to present their claims within one year, while California consumer protection laws gave plaintiffs much longer to present their claims. In the court's opinion, this was yet another indication that the clause was substantively unconscionable.
Conclusion: The Magno opinion is a win for the good guys
Magno v. The College Network, Inc. is a win for the good guys. All over the United States, for-profit colleges have forced students to waive their right to file lawsuits for fraud or misrepresentation by forcing them to arbitrate their claims in forums generally more favorable to the colleges.
Not all of these arbitration clauses are as unfair as the one TCN was cramming down students' throats, but most are fundamentally unfair. The Magno decision is good ammunition for students who attended for-profit colleges and wish to sue the institutions they attended for fraud or misrepresentation under state consumer-protection laws.
References
Magno v. The College Network, Inc.. (Cal. Ct. App. 2016). Accessible at http://caselaw.findlaw.com/ca-court-of-appeal/1741812.html
U.S. Department of Education. U.S. Department of Education Takes Further Steps to Protect Students from Predatory Higher Education Institutions. March 11, 2016. Accessible at http://www.ed.gov/news/press-releases/us-department-education-takes-further-steps-protect-students-predatory-higher-education-institutions?utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery&utm_term=
News Release. Apollo Education Group to Eliminate Mandatory Arbitration Clauses. May 19, 2016.
Accessible at http://phx.corporate-ir.net/phoenix.zhtml?c=79624&p=irol-newsArticle&ID=2169809
Wednesday, July 20, 2016
Tuesday, July 19, 2016
Susan Dynarski's Fix for the Student Loan Crisis: Simplistic, Dangerous, and Ineffective
Susan Dynarski published an essay recently in the Business section of the Sunday Times with the provocative title of "America Can Fix Its Student Loan Crisis. Ask Australia." Her prescription is simplistic, dangerous, and ineffective.
Essentially, Dynarski recommends putting American student borrowers into income-based, long-term repayment plans. She doesn't say how long, but she wrote approvingly of the English system--which, she attests, gives students 30 years to pay off their loans.
She also recommends putting student borrowers into a payroll withholding system whereby
debtors have their monthly loan payments deducted from their paychecks based on a percentage of their income. When borrowers' incomes go up, their payments would be larger; if their incomes go down, their payments would be reduced as well.
Dynarski's proposal is very close to what the Obama administration is already doing--pushing millions of student borrowers into income-based repayment plans that stretch out over 20 or 25 years.
Dynarski says long-term student-loan repayment plans make sense because college graduates benefit from their college experience over their entire lives. "A core principle of finance is that the length of debt payments should align with the life of the asset," she writes didactically. "We pay for cars over five years and homes over 30 years because homes last a lot longer than cars." Likewise, Dynarski reasons, "[a]n education pays off over a lifetime, so it makes sense that student loans should be paid off over a long term."
Dynarski urges the United States to follow the example of those savvy Europeans, who give students longer to pay off their student loans than we do here in the U.S. "All the international student loan experts I have spoken with are shocked by how little time American students are given to pay off their student loans," she informs us. Shocked!
Simplistic
Dynarski's simplistic proposal is based on erroneous premises. First of all, contrary to Dynarski's view, many student borrowers do not have college experiences that benefit them over a lifetime. Students who borrow to attend for-profit colleges and have substandard experiences don't receive a lifetime of benefits. Perhaps that is why almost half of a recent cohort of students who attended for-profit colleges defaulted within five years. People who drop out of college before graduating don't receive a lifetime of benefits either, although they may acquire a lifetime of debt.
And many people who borrow money to obtain liberal arts degrees are not receiving much benefit. I for one received almost no benefit from the sociology degree I obtained from Oklahoma State University many years ago. But at least I didn't borrow money to pay for it.
People who borrow $100,000 or more to get degrees in sociology, history, women's studies, religious studies, etc. generally are paying far more than their degrees are worth. In fact, 45 percent of recent graduates take jobs that don't even require a college degree. And in the workplace as a whole, about a third of college graduates are in jobs that don't require a college education.
Moreover, Dynarski's comparison between American college financing and Europe is not very useful. As she herself points out, higher education in many European countries is free, and most European countries have a bigger social safety net for their citizens than the U.S. does. It is one thing to pay on student loans for 20 years if health care is free and an old-age pension is assured. It is quite another thing for people to pay on their student loans over a majority of their working lives while saving for retirement and paying for health insurance.
Ineffective
If we think about Dynarski's proposal for just a few moments, we can see how ineffective it is for solving the student loan crisis. American higher education is the most expensive in the world, and stretching out students' loan repayments for 25 or 30 years will do nothing to get those costs under control. In fact, the reason so many higher education insiders favor long-term income-based repayment plans is because it enables them to continue jacking up tuition prices.
And Dynarski's plan takes no account of accruing interest. Borrowers who make small monthly loan payments due to their low salaries won't be paying off interest as it accrues. Most Americans who enter these plans will never pay off their loan balances even if they faithfully make their monthly loan payments for 300 consecutive months. Isn't it also a core principle of finance that people should actually pay off their loans?
Dangerous
Finally, Dynarkski's proposal is simply dangerous to the long-term well being of Americans who go to college. Basically, she is proposing a special tax that everyone who borrows to attend college must pay over the majority of their working lives. Student loan payments will just be another deduction from people's paychecks--like federal income tax withholding and Social Security contributions.
Essentially, Dynarski is proposing a modern-day sharecropper system very much like the one that prevailed in the American South prior to World War II. The sharecropper system of the 1930s required tenant farmers to pay a portion of their crops to Southern plantation owners; the modern system forces college students to pay a portion of their future wages to the government over a majority of their working lives.
Both sharecropper systems are unjust: and Dynarski, by pitching the new sharecropper system in the Business section of the New York Times, has become an apologist for exploitation.
References
Mathew Boesler. More College Grads Finding Work, But Not in the Best Jobs. Bloomberg.com, April 7, 2016. Accessible at http://www.bloomberg.com/news/articles/2016-04-07/more-college-grads-finding-work-but-not-in-the-best-jobs
Susan Dynarski. American Can Fix Its Student Loan Crisis. Ask Australia. New York Times, July 10, 2016. Business Section, p. 6.
Essentially, Dynarski recommends putting American student borrowers into income-based, long-term repayment plans. She doesn't say how long, but she wrote approvingly of the English system--which, she attests, gives students 30 years to pay off their loans.
She also recommends putting student borrowers into a payroll withholding system whereby
debtors have their monthly loan payments deducted from their paychecks based on a percentage of their income. When borrowers' incomes go up, their payments would be larger; if their incomes go down, their payments would be reduced as well.
Dynarski's proposal is very close to what the Obama administration is already doing--pushing millions of student borrowers into income-based repayment plans that stretch out over 20 or 25 years.
Dynarski says long-term student-loan repayment plans make sense because college graduates benefit from their college experience over their entire lives. "A core principle of finance is that the length of debt payments should align with the life of the asset," she writes didactically. "We pay for cars over five years and homes over 30 years because homes last a lot longer than cars." Likewise, Dynarski reasons, "[a]n education pays off over a lifetime, so it makes sense that student loans should be paid off over a long term."
Dynarski urges the United States to follow the example of those savvy Europeans, who give students longer to pay off their student loans than we do here in the U.S. "All the international student loan experts I have spoken with are shocked by how little time American students are given to pay off their student loans," she informs us. Shocked!
Simplistic
Dynarski's simplistic proposal is based on erroneous premises. First of all, contrary to Dynarski's view, many student borrowers do not have college experiences that benefit them over a lifetime. Students who borrow to attend for-profit colleges and have substandard experiences don't receive a lifetime of benefits. Perhaps that is why almost half of a recent cohort of students who attended for-profit colleges defaulted within five years. People who drop out of college before graduating don't receive a lifetime of benefits either, although they may acquire a lifetime of debt.
And many people who borrow money to obtain liberal arts degrees are not receiving much benefit. I for one received almost no benefit from the sociology degree I obtained from Oklahoma State University many years ago. But at least I didn't borrow money to pay for it.
People who borrow $100,000 or more to get degrees in sociology, history, women's studies, religious studies, etc. generally are paying far more than their degrees are worth. In fact, 45 percent of recent graduates take jobs that don't even require a college degree. And in the workplace as a whole, about a third of college graduates are in jobs that don't require a college education.
Moreover, Dynarski's comparison between American college financing and Europe is not very useful. As she herself points out, higher education in many European countries is free, and most European countries have a bigger social safety net for their citizens than the U.S. does. It is one thing to pay on student loans for 20 years if health care is free and an old-age pension is assured. It is quite another thing for people to pay on their student loans over a majority of their working lives while saving for retirement and paying for health insurance.
Ineffective
If we think about Dynarski's proposal for just a few moments, we can see how ineffective it is for solving the student loan crisis. American higher education is the most expensive in the world, and stretching out students' loan repayments for 25 or 30 years will do nothing to get those costs under control. In fact, the reason so many higher education insiders favor long-term income-based repayment plans is because it enables them to continue jacking up tuition prices.
And Dynarski's plan takes no account of accruing interest. Borrowers who make small monthly loan payments due to their low salaries won't be paying off interest as it accrues. Most Americans who enter these plans will never pay off their loan balances even if they faithfully make their monthly loan payments for 300 consecutive months. Isn't it also a core principle of finance that people should actually pay off their loans?
Dangerous
Finally, Dynarkski's proposal is simply dangerous to the long-term well being of Americans who go to college. Basically, she is proposing a special tax that everyone who borrows to attend college must pay over the majority of their working lives. Student loan payments will just be another deduction from people's paychecks--like federal income tax withholding and Social Security contributions.
Essentially, Dynarski is proposing a modern-day sharecropper system very much like the one that prevailed in the American South prior to World War II. The sharecropper system of the 1930s required tenant farmers to pay a portion of their crops to Southern plantation owners; the modern system forces college students to pay a portion of their future wages to the government over a majority of their working lives.
Both sharecropper systems are unjust: and Dynarski, by pitching the new sharecropper system in the Business section of the New York Times, has become an apologist for exploitation.
References
Mathew Boesler. More College Grads Finding Work, But Not in the Best Jobs. Bloomberg.com, April 7, 2016. Accessible at http://www.bloomberg.com/news/articles/2016-04-07/more-college-grads-finding-work-but-not-in-the-best-jobs
Susan Dynarski. American Can Fix Its Student Loan Crisis. Ask Australia. New York Times, July 10, 2016. Business Section, p. 6.
The Labor Market for Recent College Graduates. Federal Reserve Bank of New York, 2016. Accessible at https://www.newyorkfed.org/research/college-labor-market/index.html
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
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
Saturday, July 16, 2016
More than a third of college graduates say they would not have attended college had they known what it would cost: Buyer's Remorse
Jessica Dickler reported recently on a survey of college graduates conducted by Citizens Bank. According to Dickler, the survey found that 36 percent of the students surveyed said they would not have attended college had they known what it would cost them. And half said they regretted the amount of indebtedness they incurred to get their college degrees.
Even more startling, the survey found that 60 percent of college graduates had no idea when their loans would be paid off and a third didn't know the interest rate they were paying.
In addition, the same survey found that recent graduates are devoting about 20 percent of their salaries to student-loan payments and that most recent graduates expect to be paying on their student loans until they are in their 40s. As a consequence, survey respondents reported, they have limited amounts of money to spend on travel, housing, eating out, and entertainment.
I wonder if Citizens Bank will rethink its student-loan policy based on the results of its survey. It was Citizens, you may recall, that loaned $161,000 to Lorelei Decena so she could attend an unaccredited medical school in Africa. Decena successfully discharged her debt to Citizens based on the fact that the school she attended was not on the U.S. Department of Education's approved list of schools
Do you suppose Decena took Citizens' survey? If so, was she was one of the 36 percent who said they regretted their college experience?
References
Decena v. Citizens Bank, 549 B.R. 11 (Bankr. E.D.N.Y. 2016).
Jessica Dickler. Buyer's College buyer's remorse is real. CNBC News, April 7, 2016. Accessible at http://www.cnbc.com/2016/04/07/college-buyers-remorse-is-real.html
Jessica Dickler. College costs are out of control. CNBc News, July 16, 2016. Accessible at http://www.cnbc.com/2016/07/12/college-costs-are-out-of-control.html
Citizens Bank. Millennial College Graduates with Student Loans Now Spending Nearly One-Fifth of Their Annual Salaries on Student Loan Repayments. April 7, 2016. Accessible at http://investor.citizensbank.com/about-us/newsroom/latest-news/2016/2016-04-07-140336028.aspx
Even more startling, the survey found that 60 percent of college graduates had no idea when their loans would be paid off and a third didn't know the interest rate they were paying.
In addition, the same survey found that recent graduates are devoting about 20 percent of their salaries to student-loan payments and that most recent graduates expect to be paying on their student loans until they are in their 40s. As a consequence, survey respondents reported, they have limited amounts of money to spend on travel, housing, eating out, and entertainment.
I wonder if Citizens Bank will rethink its student-loan policy based on the results of its survey. It was Citizens, you may recall, that loaned $161,000 to Lorelei Decena so she could attend an unaccredited medical school in Africa. Decena successfully discharged her debt to Citizens based on the fact that the school she attended was not on the U.S. Department of Education's approved list of schools
Do you suppose Decena took Citizens' survey? If so, was she was one of the 36 percent who said they regretted their college experience?
References
Decena v. Citizens Bank, 549 B.R. 11 (Bankr. E.D.N.Y. 2016).
Jessica Dickler. Buyer's College buyer's remorse is real. CNBC News, April 7, 2016. Accessible at http://www.cnbc.com/2016/04/07/college-buyers-remorse-is-real.html
Jessica Dickler. College costs are out of control. CNBc News, July 16, 2016. Accessible at http://www.cnbc.com/2016/07/12/college-costs-are-out-of-control.html
Citizens Bank. Millennial College Graduates with Student Loans Now Spending Nearly One-Fifth of Their Annual Salaries on Student Loan Repayments. April 7, 2016. Accessible at http://investor.citizensbank.com/about-us/newsroom/latest-news/2016/2016-04-07-140336028.aspx
Thursday, July 14, 2016
Nicholas Dirks, UC Berkeley Chancellor, under investigation for "alleged misuse of public funds, personal use of campus fitness trainer"
The University of California rolls through scandals like a great battleship being assaulted by BB guns. Nothing seems to scathe it.
The University of California: The Teflon University System
Or--to switch my metaphor--the University of California might be called the ultimate teflon university system. Scandal slides right off it like a burned fried egg in a teflon-coated pan. Remember the UC Davis pepper-spray incident when campus police officers assaulted passive students with pepper spray--a weapon the officers weren't even authorized to use?
No big deal. UC simply got out its checkbook as if it were a middle-class householder paying the monthly bills. Around 20 or so assaulted students sued, but UC settled with them for a million bucks-mere pocket change. It even paid off one of the assaulting police officers who filed a disability claim, based on the stress he said he experienced from pepper spraying students.
Hey, that's only fair. If UC is going to pay off the victims of violence, it should compensate the perpetrators as well.
Then the Sacramento Bee reported that no fewer than nine UC campus chancellors were getting outside money from sitting on various corporate boards. Did anyone get fired for that embarrassment? Naah.
And then Sujit Choudhry, the Dean of the Berkeley Law School, was accused of sexually harassing a subordinate. He stepped down from his deanship but retained his tenured professor's salary--more than a quarter of a million dollars a year.
Space doesn't permit a review of UC Davis Chancellor Linda Katehi's various scandals. She is apparently on paid leave as the University sorts out nepotism allegations. But she's still getting paid, God bless her.
Allegations Against UC Berkeley Chancellor Nicholas Dirks: A Nonstarter
And now Nicholas Dirks, Chancellor of UC's flagship Berkeley campus, is being investigated for allegedly misusing public funds. As the Los Angeles Times reported it, a whistleblower accused Chancellor Dirks of getting free services from a campus fitness trainer. In addition, Dirks's wife, a tenured history professor, took the trainer with her on a trip to India. There are also questions about a $700,000 fence constructed around Dirks's residence--installed to protect him from student protesters.
In my view, the allegations against Dirks are a tempest in a teapot. Getting free use of a campus fitness trainer is no big deal. The director of the UC Berkeley recreational center approved the arrangement, which the director compared to getting free tickets to a varsity football game.
The same trainer accompanied Dirks's wife on a trip to India, but apparently the Berkeley Alumni Association paid for this perk, so no public funds were involved.
As for spending 700 grand to build a fence around Chancellor Dirks's house, I say what the hell. If the project complied with University spending regulations--and it probably did--no wrongdoing occurred. I doubt any of the allegations against Chancellor Dirks are serious enough to get him fired.
UC Berkeley Chancellor Nicholas Dirks: University President as Potentate
On the other hand, Chancellor Dirks is very well paid. He makes a half million a year, gets free housing and a generous car allowance. Can't the guy pay the cost of a personal fitness trainer?
Likewise, why is someone picking up the tab for Janaki Bakhle, Dirks's wife, to take Dirks's personal trainer with her on a trip to India? After all, Bakhle is a humble history professor. Where does she get off traveling the globe with a personal trainer paid for by the alumni association?
And let's face it; $700,000 is a lot of money to put a security fence around Dirks's personal residence. Berkeley's campus police defended the expense as a money saver. According to the UC cops, having a fence around the chancellor's house saves the university $360,000 a year in security costs.
But that defense is laughable. Was UC Berkeley really spending more than a third of a million dollars a year to protect Dirks's house?
The allegations against Dirks are a window into the world of a mega university president. These people no longer serve primarily as academic leaders. In their new role, they are more like a viceroy overseeing a British colony. They get paid extravagant salaries, which are often padded with outside income and special perks like life insurance, car allowances, and palatial housing. They travel the world in private jets, hobnobbing with the global elites.
Meanwhile, if recent news reports are to be believed, a large number of college students aren't getting enough to eat. Students borrow more and more every year to attend college and then graduate into a job market that puts nearly half of new graduates into jobs that do not even require a college degree. No wonder a large percentage of them regret ever going to college.
But Chancellor Dirks and his tenured wife are doing fine, thank you very much. And if the students get restless and protest escalating college costs, Dirks knows he can rest secure behind his $700,000 security fence.
References
Nanette Aimov. UC Berkely law dean Choudhry resigns amid harassment scandal. San Francisco Chronicle, March 20, 2016. Accessible at http://www.sfgate.com/education/article/UC-Berkeley-law-dean-resigns-amid-harassment-6882570.php
Jessica Dickler. College costs are out of control. CNBC, July 13, 2016. Accessible at http://www.cnbc.com/2016/07/12/college-costs-are-out-of-control.html
Conor Friedersdorf. A costly suspension for UC Dav's embatled chancellor. Atlantic, April 28, 2016. http://www.theatlantic.com/politics/archive/2016/04/a-100k-suspension-for-uc-davis-embattled-chancellor/480300/
Larry Gordon (2012, September 13). UC to pay settlement in Davis pepper spray case. Los Angeles Times (online edition). http://articles.latimes.com/2012/sep/13/local/la-me-uc-pepper-spray-20120914
Steve Gorman. University of California cop who pepper sprayed student protesters awarded $38,000. Reuters, October 23. Accessible at: http://usnews.nbcnews.com/_news/2013/10/23/21105239-university-of-california-cop-who-pepper-sprayed-student-protesters-awarded-38000
Diana Lambert and Alexei Koseff. UC Davis chancellor apologizes, will donate textbook stock to student scholarships. Sacramento Bee, March 4, 2016. Accessible at http://www.sacbee.com/news/investigations/the-public-eye/article64041327.html
Teresa Watanabe. UC Berkeley chancellor under investigation for alleged misuse of public funds, personal use of campus fitness trainer. Los Angeles Times, July 14, 2016. Accessible at http://www.latimes.com/local/education/la-me-ln-berkeley-chancellor-probe-20160712-snap-story.html
The University of California: The Teflon University System
Or--to switch my metaphor--the University of California might be called the ultimate teflon university system. Scandal slides right off it like a burned fried egg in a teflon-coated pan. Remember the UC Davis pepper-spray incident when campus police officers assaulted passive students with pepper spray--a weapon the officers weren't even authorized to use?
No big deal. UC simply got out its checkbook as if it were a middle-class householder paying the monthly bills. Around 20 or so assaulted students sued, but UC settled with them for a million bucks-mere pocket change. It even paid off one of the assaulting police officers who filed a disability claim, based on the stress he said he experienced from pepper spraying students.
Hey, that's only fair. If UC is going to pay off the victims of violence, it should compensate the perpetrators as well.
Then the Sacramento Bee reported that no fewer than nine UC campus chancellors were getting outside money from sitting on various corporate boards. Did anyone get fired for that embarrassment? Naah.
And then Sujit Choudhry, the Dean of the Berkeley Law School, was accused of sexually harassing a subordinate. He stepped down from his deanship but retained his tenured professor's salary--more than a quarter of a million dollars a year.
Space doesn't permit a review of UC Davis Chancellor Linda Katehi's various scandals. She is apparently on paid leave as the University sorts out nepotism allegations. But she's still getting paid, God bless her.
Allegations Against UC Berkeley Chancellor Nicholas Dirks: A Nonstarter
And now Nicholas Dirks, Chancellor of UC's flagship Berkeley campus, is being investigated for allegedly misusing public funds. As the Los Angeles Times reported it, a whistleblower accused Chancellor Dirks of getting free services from a campus fitness trainer. In addition, Dirks's wife, a tenured history professor, took the trainer with her on a trip to India. There are also questions about a $700,000 fence constructed around Dirks's residence--installed to protect him from student protesters.
In my view, the allegations against Dirks are a tempest in a teapot. Getting free use of a campus fitness trainer is no big deal. The director of the UC Berkeley recreational center approved the arrangement, which the director compared to getting free tickets to a varsity football game.
The same trainer accompanied Dirks's wife on a trip to India, but apparently the Berkeley Alumni Association paid for this perk, so no public funds were involved.
As for spending 700 grand to build a fence around Chancellor Dirks's house, I say what the hell. If the project complied with University spending regulations--and it probably did--no wrongdoing occurred. I doubt any of the allegations against Chancellor Dirks are serious enough to get him fired.
UC Berkeley Chancellor Nicholas Dirks: University President as Potentate
On the other hand, Chancellor Dirks is very well paid. He makes a half million a year, gets free housing and a generous car allowance. Can't the guy pay the cost of a personal fitness trainer?
Likewise, why is someone picking up the tab for Janaki Bakhle, Dirks's wife, to take Dirks's personal trainer with her on a trip to India? After all, Bakhle is a humble history professor. Where does she get off traveling the globe with a personal trainer paid for by the alumni association?
And let's face it; $700,000 is a lot of money to put a security fence around Dirks's personal residence. Berkeley's campus police defended the expense as a money saver. According to the UC cops, having a fence around the chancellor's house saves the university $360,000 a year in security costs.
But that defense is laughable. Was UC Berkeley really spending more than a third of a million dollars a year to protect Dirks's house?
The allegations against Dirks are a window into the world of a mega university president. These people no longer serve primarily as academic leaders. In their new role, they are more like a viceroy overseeing a British colony. They get paid extravagant salaries, which are often padded with outside income and special perks like life insurance, car allowances, and palatial housing. They travel the world in private jets, hobnobbing with the global elites.
Meanwhile, if recent news reports are to be believed, a large number of college students aren't getting enough to eat. Students borrow more and more every year to attend college and then graduate into a job market that puts nearly half of new graduates into jobs that do not even require a college degree. No wonder a large percentage of them regret ever going to college.
But Chancellor Dirks and his tenured wife are doing fine, thank you very much. And if the students get restless and protest escalating college costs, Dirks knows he can rest secure behind his $700,000 security fence.
 |
| Nicholas Dirks: Potentate of UC Berkeley |
Nanette Aimov. UC Berkely law dean Choudhry resigns amid harassment scandal. San Francisco Chronicle, March 20, 2016. Accessible at http://www.sfgate.com/education/article/UC-Berkeley-law-dean-resigns-amid-harassment-6882570.php
Jessica Dickler. College costs are out of control. CNBC, July 13, 2016. Accessible at http://www.cnbc.com/2016/07/12/college-costs-are-out-of-control.html
Conor Friedersdorf. A costly suspension for UC Dav's embatled chancellor. Atlantic, April 28, 2016. http://www.theatlantic.com/politics/archive/2016/04/a-100k-suspension-for-uc-davis-embattled-chancellor/480300/
Larry Gordon (2012, September 13). UC to pay settlement in Davis pepper spray case. Los Angeles Times (online edition). http://articles.latimes.com/2012/sep/13/local/la-me-uc-pepper-spray-20120914
Steve Gorman. University of California cop who pepper sprayed student protesters awarded $38,000. Reuters, October 23. Accessible at: http://usnews.nbcnews.com/_news/2013/10/23/21105239-university-of-california-cop-who-pepper-sprayed-student-protesters-awarded-38000
Diana Lambert and Alexei Koseff. UC Davis chancellor apologizes, will donate textbook stock to student scholarships. Sacramento Bee, March 4, 2016. Accessible at http://www.sacbee.com/news/investigations/the-public-eye/article64041327.html
Teresa Watanabe. UC Berkeley chancellor under investigation for alleged misuse of public funds, personal use of campus fitness trainer. Los Angeles Times, July 14, 2016. Accessible at http://www.latimes.com/local/education/la-me-ln-berkeley-chancellor-probe-20160712-snap-story.html
Friday, July 8, 2016
Message to Distressed Student-Loan Debtors: Don't Give Up! Change is In the Wind
Don't give up
'cause you have friends
Don't give up
You're not the only one
Don't give up
No reason to be ashamed
Don't give up
You still have us
Don't give up now
We're proud of who you are
Don't give up
You know it's never been easy
Don't give up
'cause I believe there's a place
There's a place where we belong
Don't Give Up
Lyrics by Kate Bush & Peter Gabriel
If you are overwhelmed by your student-loan debt, discouraged, and don't know where to turn, take my advice. Go to your refrigerator, pop the cap off a Shiner, and then listen to Don't Give Up, written by Peter Gabriel and Kate Bush. Several artists have sung the song, but I prefer Willie Nelson's version.
Some of the lyrics prompt me to reflect on the millions of Americans who are burdened by their unpayable student loans. "Don't give up," Willie tells us. "No reason to be ashamed." You still have your friends.
And I personally believe that change is in the wind regarding the federal student loan program. I think the magnitude of the student-loan disaster has grown so enormous that the federal government can't ignore it. I see faint signs that help is on the way.
Why do I think this?
First, the Department of Education is finally moving forward on banning mandatory arbitration clauses in student-enrollment contracts at the for-profit colleges. If DOE follows through, students who were defrauded by their colleges can sue and can even join class actions. This is a good sign, and could mark the beginning of the end for the rapacious for-profit college industry.
Second, Hillary essentially embraced Bernie Sanders's call for free college education at public universities this week (with some qualifications). This is also a good sign, because no scheme to offer free tuition is workable without massive reform of the federal student-loan program.
Third, and more importantly, Hillary called for a 3-month hiatus on student-loan payments while students refinance their loans to take advantage of lower interest rates. Once the federal government begins a wholesale effort to refinance millions of loans, it will be apparent to everyone that the student-loan program is a train wreck. Broad relief could emerge from Hillary's idea.
Fourth, the bankruptcy courts are beginning to remember their purpose, which is to offer a fresh start to honest but unfortunate debtors. The recent cases are all over the place, with some courts still issuing callous decisions. But there are a lot of good decisions: Roth, Hedlund, Krieger, Abney, McDowell, Fern, etc.
Fifth, the Department of Education issued an important letter in July, 2015 outlining when it would not oppose bankruptcy discharge for student-loan debtors. DOE said creditors should consider the cost of opposing bankruptcy discharges, whether or not they think a debtor can show undue hardship if forced to repay student loans.
So far, this letter has been largely ignored. In my opinion, DOE did not act in harmony with the letter when it opposed bankruptcy discharge in the Abney case out of Missouri. But DOE is now on record that it recognizes a variety of circumstances when a bankruptcy discharge is appropriate for some student loan debtors.
Richard Precht used that letter to his advantage in a Virginia bankruptcy decision earlier this year. He presented the letter to a very receptive Virginia bankruptcy judge, and DOE agreed not to oppose a discharge of Precht's debt.
I acknowledge that all these signs of hope are faint and that a lot of misery lies ahead for millions of college borrowers who now hold about $1.5 trillion in student-loan debt.
But this catastrophe will someday come to an end--it can't go on forever. I recall my father, who was captured by the Japanese on the Bataan Peninsula during World War II ad endured the living hell of a Japanese prison camp from April 1942 until August 1945.
Two thirds of the men who were captured with my father did not survive the war. Some were murdered, some starved to death, and a few committed suicide. But my father survived, and the war ended.
Likewise, the federal student-loan program will eventually collapse, and millions of deserving college borrowers will get relief. So, remember Willie's advice: Don't give up.
And keep a six-pack of Shiner on hand in your refrigerator. (My advice, not Willie's, but I'm sure he would agree.)
| Don't give up: You've still got your friends |
References
Stephanie Saul and Matt Flegenheimer. Hillary Clinton Embraces Ideas From Bernie Sanders's College Tuition Plan. New York Times, July 6, 2016. Accessible at http://www.nytimes.com/2016/07/07/us/politics/hillary-clinton-bernie-sanders-education.html?_r=0
Anne Gearan and Abby Phillip. Clinton to propose 3-month hiatus for repayment of student loans. Washington Post, July 5, 2016. Accessible at https://www.washingtonpost.com/news/post-politics/wp/2016/07/05/clinton-to-propose-3-month-hiatus-for-repayment-of-student-loans/?hpid=hp_special-topic-chain_clinton-loans-11pm%3Ahomepage%2Fstory
Stephanie Saul and Matt Flegenheimer. Hillary Clinton Embraces Ideas From Bernie Sanders's College Tuition Plan. New York Times, July 6, 2016. Accessible at http://www.nytimes.com/2016/07/07/us/politics/hillary-clinton-bernie-sanders-education.html?_r=0
Anne Gearan and Abby Phillip. Clinton to propose 3-month hiatus for repayment of student loans. Washington Post, July 5, 2016. Accessible at https://www.washingtonpost.com/news/post-politics/wp/2016/07/05/clinton-to-propose-3-month-hiatus-for-repayment-of-student-loans/?hpid=hp_special-topic-chain_clinton-loans-11pm%3Ahomepage%2Fstory
Thursday, July 7, 2016
Hillary embraces Bernie Sanders' plan for a free college education: God bless Senator Sanders
You did it! You did it! You said that you would do it, And indeed you did. I thought that you would rue it; I doubted you'd do it. But now I must admit it That succeed you did.
lyrics from My Fair Lady
Hillary Clinton announced this week that she favors a tuition-free college education at in-state public colleges for all families with annual incomes up to $125,000. As the New York Times correctly noted, by taking that step, Hillary "largely embraced" Bernie Sanders's core position about a free college education at public institutions for all Americans.
God bless Bernie Sanders! As the Democratic primary season ground on, attacks by Hillary's supporters became more and more vicious. Froma Harrup insinuated he was a racist, Barney Frank accused him of McCarthyism, and a New York Times reporter suggested he was a sexist. I think someone in the Clinton camp would have accused him of antisemitism were it not for the fact that he is Jewish.
All shameful poppycock. But doughty Bernie went the distance, and the Democratic Party has essentially adopted one of his core campaign issues.
What does this mean?
If Clinton is elected President, which seems likely, Congress will be forced to grapple with real reform for the federal student-loan program. Clinton crossed the Rubicon when she endorsed Bernie's free-college tuition proposal. There is no going back. And by calling for a 3-month moratorium on student-loan payments to allow college borrowers to refinance their college loans, Clinton has forced the Democratic Party and the American public to face the fact that the student loan program is a train wreck.
As Winston Churchill said after the battle for Egypt, "Now this is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning."
A calamity has descended on American higher education. In the coming years, the for-profit sector will collapse,dozens of small liberal arts colleges will close, and millions of Americans will be forced into 20-and 25-year repayment plans. The student-loan program as we now know it will unravel.
It's going to be ugly, but at least Hillary's two recent pronouncements about higher education finance are an acknowledgement that we have to embrace radical change. And we can thank Senator Bernie Sanders of Vermont for pushing America's most important domestic policy issue to the front and center of American politics.
And let us not forget what I have been arguing for 20 years: There is no way out of this morass without allowing millions of student borrowers to shed their student loans in bankruptcy.
References
Stephanie Saul and Matt Flegenheimer. Hillary Clinton Embraces Ideas From Bernie Sanders's College Tuition Plan. New York Times, July 6, 2016. Accessible at http://www.nytimes.com/2016/07/07/us/politics/hillary-clinton-bernie-sanders-education.html?_r=0
Anne Gearan and Abby Phillip. Clinton to propose 3-month hiatus for repayment of student loans. Washington Post, July 5, 2016. Accessible at https://www.washingtonpost.com/news/post-politics/wp/2016/07/05/clinton-to-propose-3-month-hiatus-for-repayment-of-student-loans/?hpid=hp_special-topic-chain_clinton-loans-11pm%3Ahomepage%2Fstory
Wednesday, July 6, 2016
Hillary Clinton proposes a three-month moratorium on student-loan payments and massive loan refinancing: A good idea, but difficult to implement
According to the Washington Post, Hillary Clinton has proposed a
three-month moratorium on student-loan payments to allow borrowers time
to restructure their student loans at lower interest rates.
Let me say flat out that this is a good
idea. As the press has widely reported,
about 40 percent of college-loan borrowers who are in the repayment phase of
their loans aren't making payments. These people are seeing their loan balances
go up as interest accrues on unpaid debt, and they desperately need repayment
options they can afford.
In addition, millions of people who are
making their loan payments would benefit from repayment plans that would lower
monthly payments and take advantage of lower interest rates.
Hillary's proposal underscores this stark
fact: The federal
student-loan program is in chaos. There are currently eight income-based
repayment plans, and even experts are confused about how the different options work
and which students are eligible for the various repayment plans. Giving
students a three-month hiatus to sort all this out is an excellent
idea.
But why is Hillary making this proposal
now? Was she prompted by pure politics--making a play for young people's votes?
Is her proposal an attempt to win over Bernie Sanders' supporters?
Obviously, Hillary's proposal was driven
by political consideration. But I think there is something more going
on--namely panic. I think Hillary and the Democratic establishment finally
realize that millions of Americans are overwhelmed by unmanageable student-loan
debt. These distressed debtors are frustrated, demoralized and angry; and they
won't vote for Hillary unless they think she will provide them with tangible
relief if she is elected President.
In short, the Democrats see blood in the
water; they know they must do something substantive to keep young voters in the
Democratic column in the November election. And even Hillary's fiercest
critics must admit that her massive student-loan refinancing proposal is substantive
and significant.
Nevertheless, I don't see how Hillary's
plan can be effectively implemented. The federal student loan program is like a
massive battleship plunging across a raging ocean at full speed--it can't be
turned around quickly. Here are some of the problems:
First, simply determining who is eligible
for Hillary's refinancing program will be a huge challenge. More than 40 million Americans have
outstanding student loans, and most of them are in the repayment phase.
Just figuring out who is eligible to stop making loan payments and who is
not will be an enormous headache.
For example, a lot of borrowers took out
private student loans that aren't part of the federal student loan program.
Of course, private loans won't be covered by Hillary's moratorium. But
research has shown that many borrowers don't know whether their loans are
federal or private, and some have both kinds of loans. If Hillary implements a
moratorium, a good many borrowers will stop making payments on their private
loans, which will get them in trouble with their lenders.
And 5 million borrowers are
already in income-based repayment plans under very favorable terms. Can these
people stop making payments for three months? If not, who is going to notify
them that they are not eligible to participate in the moratorium?
Second, the Department of Education may
not have the capacity to meet the bureaucratic challenge of refinancing
millions of loans over a three-month period. There are 43 million people with outstanding student
loans, but many borrowers signed multiple promissory notes--perhaps a dozen or
more. And some of these documents date back 20, 25, and even 30 years.
Refinancing all these loans will be a
gigantic undertaking, the bureaucratic equivalent of launching Obamacare. I
seriously doubt whether DOE or the various creditors have the resources to
refinance all these loans over a three-month period. After all, DOE has had great difficulty coping with Corinthian Colleges' former students who sought loan forgiveness in the wake of Corinthian's bankruptcy.
Third, once college borrowers are given
license to stop making payments for a brief period, it will be very difficult
to get them back in the repayment mode. In some ways, Hillary's proposal is like the European Union's
decision to accept refugees from the Middle East. Once the stream of migrants
began moving, the Europeans found themselves unable to handle the volume of refugees
that crossed into the EU. And there was no effective way to regulate the flow.
Likewise, Hillary's proposal to allow millions
of college borrowers to stop making loan payments while they refinance their
student loans will create a massive upheaval in the federal student loan
program. If her plan goes forward, I think we will see millions of people stop
making loan payments, whether or not they are eligible for Hillary's
moratorium.
Finally, Hillary's student-loan
refinancing plan may be nothing more than a way to shove borrowers into 20- and
25-year repayment plans. The Obama administration has been
aggressively pushing college borrowers into long-term income-based repayment
plans. It has said it hopes to have nearly 7 million people in IBRPs by the end of
2017.
Hillary's pan will accelerate the
movement of student borrowers into long-term repayment plans. If it is
implemented, we will surely see 10 million people or more in IBRPs, which will
effectively make them indentured servants to Uncle Sam, paying a percentage of
their income to the government for a majority of their working lives just for
the privilege of going to college.
As I have said repeatedly, IBRPs are a bad
idea and nothing more than a way to keep a lid on the student-loan crisis. It
would be very disappointing if Hillary implemented a student-loan refinancing
plan that has the primary effect of lengthening the loan repayment period for
millions of Americans.
Conclusion: In spite of its drawbacks,
Hillary's loan refinancing proposal is a good idea. In spite of all the drawbacks to
Hillary's refinancing idea, I hope she goes forward with it if she becomes
President. Almost anything is better than the present state of affairs.
Lowering interest rates will give millions of borrowers some relief from
their debt. And even if her plan forces more borrowers into IBRPs, that option
is better than having them continue to shoulder monthly payments that are
so large as to be unmanageable.
Besides, Hillary's scheme, if implemented,
will expose the utter chaos of the federal student loan program, which the
federal government has hidden from the American people. Once the public
realizes how many millions of people are suffering from their participation in the federal
student loan program, maybe we will see real reform--which is nothing more and
nothing less than reasonable access to the bankruptcy courts.
References
Anne Gearan and Abby Phillip. Clinton to propose 3-month hiatus for repayment of student loans. Washington Post, July 5, 2016. Accessible at https://www.washingtonpost.com/news/post-politics/wp/2016/07/05/clinton-to-propose-3-month-hiatus-for-repayment-of-student-loans/?hpid=hp_special-topic-chain_clinton-loans-11pm%3Ahomepage%2Fstory
Josh Mitchell. More than 40% of Student Borrowers Aren't Making Payments. Wall Street Journal, April 7, 2016. Accessible at http://www.wsj.com/articles/more-than-40-of-student-borrowers-arent-making-payments-1459971348
Alia Wong. When Loan Forgiveness Isn't Enough. Atlantic Monthly, June 15, 2015. Accessible at http://www.theatlantic.com/education/archive/2015/06/government-corinthian-college-loan-plan-problems/395513/
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