Tuesday, January 3, 2017

Governor Cuomo proposes free college education at New York's public institutions, but the for-profits and private liberal arts schools will likely oppose this plan

Earlier this week, New York Governor Andrew Cuomo announced his plan to offer a free college education at New York's public colleges and universities for all New York families making $125,000 or less. This plan is nearly identical to the proposal put forward by Hillary Clinton last fall during the presidential campaign.

In a press release, U.S. Secretary of Education  John B. King quickly endorsed Cuomo's plan, noting that it is similar to President Obama's proposal for a free community-college education.  "I applaud Governor Andrew Cuomo for his leadership in expanding the doors of opportunity for New Yorkers, particularly those who otherwise may not be able to afford [a college education]," King said.

Governor Cuomo's proposal is a sound idea, Hillary Clinton's proposal is a sound idea, and President Obama's proposal for a free community-college education is a sound idea as well. And, contrary to what critics have said about these plans, they are not financially irresponsible.

The federal government already spends $150 billion a year on student aid programs--Pell grants, student loans, work-study programs, etc. The states also spend billions on higher education every year. New York, for example, spends a $1 billion a year in tuition assistance for the state's students.

If all this money was dedicated toward offering a free college education at public colleges and universities, taxpayers might actually save money.  But none of these plans will work if the federal and state governments continue to subsidize the for-profit college industry and private nonprofit colleges.

If Governor Cuomo's plan moves forward, you can expect to see for-profit and nonprofit colleges oppose it. Catharine Hill, president of Vassar College, came out against free college tuition in a New York Times op ed essay last year--back when Bernie Sanders was the only politician endorsing the idea. And New York's association of private colleges has already expressed skepticism about Governor Cuomo's free tuition plan.

The next six months will be a time of great turmoil for higher education. A number of for-profit colleges have closed or gone bankrupt, and many more are hanging on by their fingernails, hoping the Trump administration treats them more kindly than the Obama administration did during its waning days.  Several nonprofit liberal arts colleges have closed as well and more are on the brink of closing.

If the for-profit college industry collapses and the nonprofit college sector shrinks dramatically, then proposals to offer a free college education at public colleges might actually work. But they will not work if federal and state governments continue to prop up the nonpublic college sector with public money.

Bernie & Andrew Cuomo support free college education at public institutions
(photo credit, Sam Hodgson, New York Times)


References

Catharine Hill. Free Tuition Is Not the AnswerNew York Times, November 30, 2015, p. A23.

Jesse McKinley. Cuomo Proposes Free Tuition at New York State Colleges for Eligible Students. New York Times, January 3, 2017.

Rick Seltzer. Free Tuition Idea Revived. Inside Higher Ed, January 4, 2017.

U.S. Department of Education Press Release. U.S. Education Secretary John B. King Jr.'s statement on New York Gove. Andrew Cuomo's free college tuition proposal. U.S. Department of Education, January 3, 2017.

Tuesday, December 27, 2016

Social Security offsets imposed on elderly student-loan defaulters: Heartless and Pointless

You can be young without money but you can't be old without it.
Tennessee Williams

If you are in your late 50s or early 60s, you've probably obtained an estimate for how much Social Security income you will receive when you retire. Most retired Americans depend on their Social Security checks to provide a significant amount of their overall retirement income. 

But if you defaulted on a student loan, you may not receive your full Social Security benefit. The government may deduct part of your Social Security income and apply the deduction to your unpaid student loans. 

A few weeks ago, the U.S. Government Accountability Office issued a lengthy report  (82  pages) on the government's Social Security offset activities. Here are some of the highlights.
  • In 2015, 173,000 Americans had their Social Security income offset due to defaulted student loans. This is a dramatic increase from 2002, when the government only applied offsets to 36,000 Social Security recipients (page 11).
  • Some Social Security recipients whose income was offset lived below the federal poverty guideline and others dropped below the poverty level after their Social Security checks were reduced (p. 27). In fact, as Senator Elizabeth Warren emphasized in a recent press release, "Since 2004, the number of seniors whose Social security benefits have been garnished below the poverty line increased from 8,300 to 67,300."
  • More than 7 million people age 50 and older still owe on student loans, and 870,000 people age 65 and older have student loan debt. Among student-loan borrowers age 65 and older, 37 percent are in default (figure 2, page 10).
  • The amount of money the government collects from Social Security offsets is small beer. The government  only collected $171 million from Social Security offsets in 2015, about one eighth the amount Hillary Clinton raised for her 2016 presidential campaign ($1.4 billion). 
  • Most of the money collected from Social Security offsets went toward paying fees and accumulated interest.  "Of the approximately $1.1 billion collected through Social Security offsets from fiscal year 2001 through 2015 from borrowers of all ages, about 71 percent was applied to fees and interest" (p. 19).
GAO also reported that several hundred thousand people who have experienced Social Security offsets are totally disabled and entitled to have their student loans forgiven, but only a minority of these people have applied for loan forgiveness (p. 31). Commendably, DOE has suspended offsets for people who are totally disabled whether or not they applied for loan forgiveness.  Unfortunately, the government treats the amount of the forgiven debt as taxable income (p. 31).

The GAO report is packed with additional information and findings, but the bottom line is this: The government is hectoring elderly and disabled student-loan defaulters even though the amount of money the government collects is a pittance. Most of the money collected goes toward paying down fees and accumulated interest and does not reduce the individual defaulters' loan balances.

In short, the Department of Education's Social Security offset practices is pointless. Elderly or disabled people who defaulted on their student loans and are surviving on their Social Security checks will never pay off their loans. 

Sandy Baum, a widely renowned expert on student loans, recommended in her recent book that the government stop offsetting the Social Security checks of defaulted student-loan debtors. Does anyone disagree? 

In fact, the government's Social Security offset practices strike me as an administrative form of sadism--the bureaucratic equivalent of small children who joylessly tear the wings off of insects.

Senator Elizabeth Warren has called for an end to the practice of garnishing student-loan defaulters' Social Security checks. Surely she can gather legislative support for a law that bans this practice. If she can't get that done, then Senator Warren is really not much of a consumer advocate.



References

Sandy Baum. Student Debt: Rhetoric and Realities of Higher Education Financing. New York: Palgrave-MacMillan, 2016.

Senator Elizabeth Warren Press Release, December 20, 2016. McCaskill-Warren GAO Report Shows Shocking Increase in Student Loan Debt Among Seniors

United States Government Accountability Office. Social Security Offsets: Improvement to Program Design Could Better Assist Older Student Borrowers with Obtaining Permitted Relief. Washington DC: Author, December 2016).



Wednesday, December 21, 2016

Department of Education's fumbling efforts to aid students defrauded by Corinthian Colleges: No relief for the Walking Dead

David Goldman wrote a  highly informative article for Bloomberg yesterday about the Department of Education's fumbling efforts to process Borrower Defense claims filed by people who claim they were defrauded by Corinthian Colleges. I am grateful to Steve Rhode for calling my attention to Goldman's article.

Essentially, here's the story. Corinthian Colleges filed for bankruptcy last year under a cloud of fraud allegations. In fact, the the State of California got a $1.1 billion judgment against Corinthian for its wrongdoing in that state. At the time it filed bankruptcy, Corinthian had 335,000 former students.

DOE has an administrative process whereby it will forgive the student loans taken out by students who were defrauded by for-profit institutions. So far, 82,000 former Corinthian students have filed those claims.  But DOE's process for reviewing those claims is slow. Goldman reported that so far only about 15,000 students have gotten debt relief through the Borrower Defense process.

DOE won't grant blanket forgiveness to all of Corinthian's former students, arguing that not all of them were defrauded.  But in fact, a high percentage were defrauded. As Goldman reported, "Department officials concluded that Corinthian engaged in 'widesperead placement rate fraud' for almost 800 programs at nearly every one of its more than 100 U.S. campuses."

 David Vladek, a former director of the Federal Trade Commission's consumer protection division, said this about Corinthian's former students: "These kids by and large have been scammed, and the Department of Education in some sense is continuing the harm by making them jump through hoops to get the relief to which they are entitled."

But it gets worse. Not only is DOE not processing loan-forgiveness claims quickly, it is actually employing debt collectors to hound Corinthian's former students, even though most of these students are entitled to have their loans forgiven.  Although DOE states on its web site that it will stop all loan collection efforts on Corinthian borrowers, that statement is not true.

Indeed, DOE's debt collection activities are a hell of a lot more efficient than their loan forgiveness process. As Maggie Robb, a consumer-rights attorney, observed, " When the Department of Education wants to collect money, it doesn't stop."

Goldman's story focused solely on Corinthian Colleges' former students, but there are hundreds of thousands of people who took out loans to attend for-profit colleges who have been scammed. I know one woman with a documented claim for fraud against DeVry University who filed a Borrower Defense claim with DOE last August and still hasn't gotten a response from DOE.

In short, people who have been defrauded by the for-profit college industry are the real life representations of the Walking Dead. Fraud victims have debt hanging over their heads, which DOE has not discharged; and if they default on their loans they are subject to abusive debt collection tactics, wage garnishment, income-tax offsets, and ruined credit. Many are continuing to make loan payments on debt they don't really owe; and most did not get fair value for their for-profit college experiences.

In DOE's defense, the Department is simply overwhelmed by the implosion of the for-profit college industry. It does not have the resources to process claims by Corinthian students or to even notify those students that they may be entitled to debt relief. ITT's closure and bankruptcy will bring a deluge of new claims, and other for-profits are sure to follow over the next few months. (Globe University and Charlotte School of Law, for example, have been accused of misrepresentation and many of their students will be filing Borrower Defense claims.)

There is really only one sensible solution: DOE should allow all people who borrowed money to attend for-profit colleges and who are insolvent to file for bankruptcy relief in the federal bankruptcy courts. Whether or not a a particular student debtor can prove fraud should be irrelevant. If they took out loans to attend a for-profit college, the odds are better than even that they were scammed or did not get fair value for their money.

Image result for walking dead'
Students who were scammed by for-profit colleges are the Walking Dead.

Note: All quotations come from Mr. Goldman's article.

References

David Goldman. The U.S. Government Is Collecting Student Loans It Promised to Forgive, Bloomberg News, December 19, 2016.

Tuesday, December 20, 2016

Charlotte School of Law loses access to federal student aid money: The beginning of the end for bottom-tier law schools?

In less than two weeks, Charlotte School of Law will lose all access to federal student financial aid money. CSL is a for-profit law school with an undistinguished reputation. According to Law School Transparency, an organization that gathers data on American law schools, only 46.3 percent of CSL graduates passed their bar exams in 2015. LST calculates that 50 percent of its 2014 freshman class had credentials so low that they were at extreme risk of failing the bar.  LST also reported that not a single one of CSL's 2015 graduates obtained a federal judicial clerkship, another indication of CSL's mediocrity.

The Department of Education's decision to deny student aid money to CSL is probably the school's death knell. Most of CSL's students must take out student loans to pay CSL's extremely high tuition--about $44,000 a year.

The American Bar Association had already found that the law school was out of compliance with the ABA's accrediting standards, but DOE did not pull the plug on CSL solely for that reason.

Rather, as DOE's press release explained, CSL was found to have made misleading statements about itself to prospective students:
"The ABA repeatedly found that the Charlotte School of Law does not prepare students for participation in the legal profession. Yet CSL continuously misrepresented itself to current and prospective students as hitting the mark," said U.S. Under Secretary of Education Ted Mitchell. "CSL's actions were misleading and dishonest. We can no longer allow them continued access to federal student aid."
Without federal student-loan money, CSL won't survive long. And if the school closes, that will be a good thing for the legal profession and all the potential students who might have borrowed money to attend this extremely lackluster institution.

Nevertheless, even if CSL closes, hundreds of the school's graduates will suffer. Most have borrowed a lot of money to attend CSL; few obtained jobs that made the financial investment worthwhile.

DOE needs to do more than just cut off funds from one lower-tier law school. It needs to allow graduates of CSL and similar bottom-feeder law schools to discharge their student loans in bankruptcy.

And then DOE needs to get busy and shut off student aid money to some other law schools that have low admission standards and that are not placing enough of their graduates in well-paying law jobs. Here are some schools DOE needs to examine:

North Carolina Central University
Southern University Law Center
Appalachian School of Law
Florida Coastal School of Law
Ave Maria School of Law
Arizona Summit Law School

LST calculates that  these schools admitted students with LSAT scores so low that 50 percent of their 2014 freshman class were at extreme risk of failing the bar exam.

And here are some more schools that bear watching:

Florida A & M University
Texas Southern
Mississippi College
Thomas M. Cooley Law School
Valparaiso University
St. Thomas University-Florida
University of North Dakota
Ohio Northern University
University of South Dakota
Barry University
University of La Verne

LST has identified these schools as ones that admit students with LSAT scores so low that 25 percent of their  entering 2014 classes were at extreme risk of failing the bar exam.

DOE and the ABA must work together to raise the overall quality of legal education in the United States.  As Kyle McEntee, writing for Law School Transparency, observed:
Charlotte School of Law is not the only law school operating shamelessly to the detriment of the legal profession. This school, like several dozen more, set large percentages of their students up to fail, leaving them with high debts, wasted time, no job, and no hope. It’s long past time for these schools to go.
ABA needs to rescind accreditation for some of these schools, and DOE needs to cut off federal funding for at least a dozen more law schools.

References

Law School Transparency. 2015 State of Legal Education.

Kyle McEntee. Will This Law School Close After Feds Cut Funding? Bloomberg News, December 19, 2016.

U.S Department of Education. Charlotte School of Law Denied Continued Access to Federal Student Aid Dollars. U.S. Department of Education press release, December 19, 2016.



Thursday, December 15, 2016

Defrauded students file debt-relief applications with the Department of Education: Bankruptcy courts can provide relief faster and more efficiently than DOE bureaucrats

When Betsy DeVos takes over as the new Secretary of Education next year, she will inherit one huge headache--thousands of pending applications for loan forgiveness from students who claim they were defrauded by various for-profit universities.

As Andrew Kreighbaum explained in a recent article for Inside Higher Ed, the Department of Education had received 80,000 loan discharge applications as of last October; and the total number has likely grown to at least 100,000.

So far, DOE has approved 15,694 applications for discharge from students who attended three campuses owned by the now defunct Corinthian Colleges system, but many more of Corinthian's former students are surely eligible for loan forgiveness based on fraud claims. After all, Corinthian has 350,000 former students.

And there are hundreds of other student borrowers who may file loan-forgiveness applications: students from ITT Tech Services, Globe University, Minnesota School of Business, and several more for-profits that closed after being accused of wrongdoing.

I. Problems with forgiving loans through the DOE administrative process

DOE has been extremely slow to process borrower defense applications; I know one young woman who filed her application in August based on a claim she was defrauded by DeVry University. She has yet to receive a response from DOE.

New federal regulations for processing borrower defense claims will become effective next summer, but there are several fundamental challenges that new regulations won't solve:
1. Tax consequences. First, all former for-profit student who have their student loans forgiven will have a one-time tax liability because the amount of their forgiven loans is considered taxable income by the IRS. 
2. Forfeiture of college credits. Under the current debt-relief program, students whose student loans are forgiven due to fraud will forfeit any credits they received from the institution they attended.

3. Insufficient DOE resources. Third, the Department of Education simply doesn't have the resources to process thousands of loan forgiveness claims in a timely manner, not to mention the thousands of new claims that will inevitably be filed as more for-profit colleges close their doors.
II Bankruptcy is a better way to process loan forgiveness applications

Fortunately, there is a solution to these problems; it's called the bankruptcy courts.

First, debtors whose student loans are discharged in bankruptcy will not suffer tax consequences for a forgiven loan because under current IRS rules forgiven debts are not taxable to an individual who is insolvent at the time the loan is forgiven.

Second, a student debtor who discharges student loans from a for--profit college through the bankruptcy process will not forfeit credits or degrees conferred by the college.

Finally, the bankruptcy courts clearly have the resources to process hundreds of thousands of bankruptcy petitions filed by distressed student-loan debtors. Filing an individual Chapter 7 action is relatively simple and does not require a lawyer.  Bankruptcy petitions could be routinely resolved in the bankruptcy courts, which have the expertise to weed out fraudulent or unworthy claims.

III. DOE has the authority to reinterpret the  "undue hardship" standard 

Critics might argue that my proposal is unworkable because anyone seeking to discharge student loans in bankruptcy must meet the "undue hardship" standard, a very difficult standard to meet.  But there is a solution for that challenge as well.

All DOE needs to do to ease the path to bankruptcy relief for insolvent student-loan debtors with fraud claims is to write an official letter expressing its view that every insolvent debtor who attended a for-profit college that has been found to have acted fraudulently meets the undue hardship standard.

In essence, such a letter would be a a revision of DOE's letter issued on July 7, 2015, giving the Department's interpretation of the "undue hardship" rule. In all likelihood, the bankruptcy courts would defer to DOE's revised interpretation of "undue hardship" and begin discharging student loans routinely.

Of course, DOE would also need to direct the various student-loan guaranty agencies to stop opposing bankruptcy relief for any insolvent debtor with a fraud claim against a for-profit college.

Easing the path to bankruptcy relief for distressed debtors who took out student loans to attend dodgy for-profit colleges will cost taxpayers billions. But most of the people who took out these loans will never pay the money back anyway. Almost 50 percent of the people who took out loans to attend for--profit colleges default on those loans within five years. Others enter into income-driven repayment plans that lower monthly payments, but according to the Government Accountability Office, about half the people who begin these plans are kicked out for failing to verifying their income on an annual basis.

So let's begin cleaning up the mess our government created when it began shoveling federal student-aid money to  the rapacious for-profit college industry. Let's shut these colleges down and wipe out the student-loan debt accumulated by millions of victims of massive fraud. Incoming Secretary of Education Betsy DeVos will have the authority to grant relief to these victims by easing the path toward bankruptcy. Let's hope this is what she does.

Incoming Secretary of Education Betsy DeVos


References

Andrew Kreighbaum. Activists and borrowers call on Obama administration to provide debt relief to defrauded students. Inside Higher Ed, December 14, 2016.

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 ratesWashington, DC: Brookings Institution (2015). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults

Lynn Mahaffie, Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings. CL ID: GEN 15-13, July 7, 2015.

Eric Rosenberg.You Need to Know How Student Loan Forgiveness Is Taxed.  Studentloanhero.com, July 18, 2016.

US. Government Accounting Office. Federal Student Loans: Education Needs to Improve Its Income-Driven Repayment Plan Budget Estimates. Washington, DC: U.S. Government Accounting Office, November, 2016.







Monday, December 12, 2016

University of Pennsylvania demotes Shakespeare and Colby-Sawyer College eliminated its English major: We don't need no stinkin' Shaksespeare

Students at the University of Pennsylvania recently removed a portrait of William Shakespeare from a prominent place in the building that houses the English Department. They dumped Shakespeare's mug in the Department Chair's office and replaced it with a photo of Audre Lorde, a black female writer.

Jed Esty, chair of Penn's English Department, apparently approved. "Students removed the Shakespeare portrait and delivered it to my office as a way of affirming their commitment to a more inclusive mission for the English Department," he wrote benignly.

In the same spirit of tolerance, Esty also wrote this:"We invite everyone to join us in the task of critical thinking about the changing nature of authorship, the history of language, and the political life of symbols." I have no idea what that means.

Meanwhile, at approximately the same time, Colby-Sawyer College in New London, New Hampshire, eliminated its English major altogether. Colby-Sawyer has seen its enrollment drop from 1,500 students four years ago to just 1,100 today and has had a budget shortfall for the last three years.

What is the significance of these two unrelated events?

The lunatics are running the asylum. First, regarding the University of Pennsylvania, it is worth noting that it was students, not the faculty, who decided to take Shakespeare's portrait down and replace it with the image of an author of their own choosing.

There was a time when the faculty determined the curriculum and focus of a university department based on the common assumption that the faculty knew what was is doing.

But no more. Now the students dictate to the professors what is worth studying. Let's read more Audre Lorde and less Shakespeare, the Penn students decreed. And perhaps that's just as well. The English professors at Penn may not know any more about Shakespeare than the students.

The liberal arts are dead. Second, I think recent events at the University of Pennsylvania and Colby-Sawyer are signs that liberal arts education is dead.  A liberal arts degree has become incredibly expensive even as its purpose becomes ever more difficult to articulate. Colby-Sawyer, for example, is experiencing annual budget shortfalls and shrinking enrollment. In the years to come, fewer and fewer young people will be willing to borrow $100,000 or more to attend a tiny liberal arts college in an obscure New England town. Even at the University of Pennsylvania,  a prestigious university located in Philadelphia, fewer students can be expected to take out student loans to read a book by Audre Lorde.

Liberal arts advocates pitch the notion that they are educating students to live rich and meaningful lives. But they know that's not true.

In fact, when Robert Oden, a former liberal-arts college president, was asked whether Colby-Sawyer will survive, he gave this disingenuous answer. "I do not know enough to say yes," Oden replied coyly.  "It's a highly regarded liberal arts college that has discovered a niche that distinguishes it."

The niche that distinguishes it! Oden did not identify which niche Colby-Sawyer fills, but perhaps it is this: Colby-Sawyer is one of the only liberal arts colleges in the United States that does not have a major in English.

References

Rob Wolfe. Colby-Sawyer Eliminates Five Majors to Stay Afloat. Valley News, December 9, 2016.

Olivia Sylvester. Students remove Shakespeare portrait in English dept., aiming for inclusivity. Daily Pennsylvanian, December 11, 2016.

Sunday, December 11, 2016

Pam Hunt, debt striker, begs Obama to forgive all student loan debt of former Corinthian Colleges students: Let's hope the President responds

When Barack Obama steps down from the presidency next month, he will leave a huge mess behind for the next president to clean up. 43 million Americans hold student loans, and almost half of them can't pay them back.

Most desperate among the victims are the hapless souls who attended for-profit colleges. Many were enticed to enroll by high-pressure and even fraudulent recruiting tactics. Most paid far too much for their educational experiences, and few obtained jobs that paid well enough to justify their educational investments.

Under pressure from state and federal regulators, some for-profit colleges are closing and filing for bankruptcy. Corinthian Colleges, with 350,000 former students, filed for bankruptcy last year. ITT Tech filed for bankruptcy a few months ago, and Dade Medical College filed a bankruptcy-type action in Florida after it closed under allegations of corruption. Global University lost all federal funding earlier this month and will likely close.

Unfortunately, most of the students who attended these ne'er-do-well colleges are still liable on their student loans.  The federal government has processes in place for students to obtain loan forgiveness if they can show they were enticed to take out loans through fraud. But the process is slow. In late September, Senator Elizabeth Warren wrote the Department of Education a letter, specifically complaining about the Department's failure to provide speedy relief for Corinthian students.

Earlier this week, Pam Hunt, a former Corinthian Student, appealed directly to President Obama to forgive the student-loan debt of all Corinthian students. "We're appealing to you this one last time," Hunt said. "Please forgive these debts before you leave office."

President Obama should head Hunt's plea, but he probably won't. Secretary of Education John King raised two objections to Hunt's proposal. First, King said, it is not clear that fraud occurred on every Corinthian campus. Second, he said that Corinthian students should testify individually that they were victims of fraud.

King is ignoring the fact that the for-profit college industry is riddled with corruption and fraud, and has victimized millions. DOE doesn't have the resources to deal with these victims on a case-by-case basis, and many for-profit students aren't sophisticated enough to file administrative actions anyway. After all, more than half of the people in income-driven repayment plans are not certifying their income on an annual basis, which is a requirement for remaining in these plans.  Few Corinthian students have applied for loan forgiveness under DOE guidelines, even though almost all are probably entitled to relief.

Hunt is right. DOE should forgive all student loans taken out by Corinthian students. And it should forgive all student debt taken out by ITT Tech students, Global University students, and students who attended Dade Medical College.

After all,whether DOE forgives these loans or not, most of these loans won't be paid back. It is in the national interest to give all victims of the for-profit college industry a fresh start.

Pam Hunt: "Please forgive these debts before you leave office."

References

Andrew Kreighbaum. New Call for Debt Relief Before Obama Leaves. Inside Higher Ed, December 6, 2016.

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

US. Government Accounting Office. Federal Student Loans: Education Needs to Improve Its Income-Driven Repayment Plan Budget Estimates. Washington, DC: U.S. Government Accounting Office, November, 2016.

Michael Vasquez. Dade Medical College sets in motion plan to sell assets. Miami Herald, November 18, 205.