California bans state-funded travel to Texas. Frankly, my dear, Texans don't give a damn.

In a fit of governmental lunacy, the California legislature passed a law last year banning government-funded travel to any state that discriminates against LGBT people.  As of this week, eight states are on California's travel-ban list: Alabama, Kansas, Kentucky, Mississippi, North Carolina, South Dakota, Tennessee, and Texas. 

As a former Texan who is proud to have received a law degree from the state's flagship university, I feel quite confident in saying that Texans don't give a damn.  Ken Paxton, the Texas Attorney General, jokingly remarked that California probably imposed the travel ban to reduce the number of Californians who visit Texas and decide to relocate. 

In fact, 600,000 Californians moved to Texas over the last decade, while only 350,000 Texans moved to California. Between 2009 and 2014, California suffered a net population loss of nearly 1 million people; and Texas absorbed more California emigrants than any other state.

California's travel ban is a display of cultural arrogance equal to that displayed by the British Empire toward India during the days of the Raj. Texas, after all, is not a cultural backwater. It has the nation's second largest economy, and its cities are as culturally diverse as Los Angeles. Houston, which will soon pass Chicago to become the nation's third largest city, has a thriving gay community and even elected a lesbian mayor. 

As of now, California's travel ban only applies to eight states; but there will surely be more. Kentucky, for example, was put on the travel-ban list because it passed a religious freedom statute. But 19 other states have adopted similar laws. Why single out Kentucky?

Let's face it. In the eyes of California's progressive politicians, the entire country is benighted compared to the Golden State. Why doesn't California Attorney General Xavier Becerra, who put Texas on the travel-ban list, make a clean sweep and ban state-funded travel anywhere in the United States except Boston and New York City?

No one in California wants to visit flyover country anyway, and people in flyover country will do just fine even if they receive fewer visitors from California.

Frankly, my dear, I don't give a damn if you don't want to visit Texas.

References

John Daniel Davidson. California's travel ban messes with Texas. The Federalist, June 27, 2017.

Phillip Reese. Roughly 5 million people left California in the last decade. See where they went. Sacramento Bee, 2017.

Trump should fire Betsy DeVos as Secretary of Education for gross incompetence. If Trump fails to act, Congress needs to do whatever is necessary to drive her from office

Let us take our minds off Russia for just a moment and focus on a massive economic problem that affects millions of Americans: the collapsing student loan program. Forty-three million Americans now hold about $1.4 trillion in student loan debt, and a lot of that money will never be paid back. 

As the New York Times recently reported, borrowers defaulted at the rate of 3,000 a day last year; and a total of more than 8 million people are in default. Default rates are highest in the for-profit college industry; five-year default rates in this sector are almost 50 percent.

The Department of Education is trying to keep default rates down by pressuring borrowers into income-driven repayment plans, but that tactic isn't working. Nearly half the people who sign up for those plans drop out within three years; and a lot of defaulting borrowers don't even bother to sign up.

In short, the federal student loan program is a train wreck, a catastrophe, an unmitigated disaster. 

As President Trump's Secretary of Education, it is Betsy DeVos's job to address the student-loan crisis; but in a series of wrongheaded decisions, DeVos has demonstrated that she is either grossly incompetent or in bed with the sleazy for-profit college industry. President Trump must fire her immediately, and if he does not, then Congress needs to bring all its forces to bear to drive her from office.

Here is a brief list of DeVos's fumbling misbehavior:

First, she hired consultants from the for-profit industry to give her advice, which is like a hiring a burglar to be a bank guard.

Second, she canceled the Obama administration's order that restrained loan processors from slapping huge fees on student-loan defaulters who quickly brought their loans back into repayment status.

Third, she is overhauling the Department of Education's new regulations for processing borrowers' applications to have their student loans forgiven based on claims of institutional fraud. This bureaucratic delay tactic will leave thousands of defrauded college borrowers in limbo for months and even years.

And finally, DeVos blocked implementation of a Department of Education directive banning for-profit colleges from forcing students to sign mandatory arbitration clauses as a condition of enrollment.

In my view, allowing the for-profit colleges to continue including mandatory arbitration clauses in their student enrollment documents is DeVos's most outrageous decision. Mandatory arbitration clauses bar students from suing their institution for fraud and prevent students from banding together to file class actions suits against colleges that engage in massive fraudulent behavior.

About a year ago, the Century Foundation urged the Department of Education to require the for-profits to stop including mandatory arbitration clauses in their enrollment documents, and two for-profits--University of Phoenix and DeVry University, publicly agreed to abandoned them voluntarily.

Numerous commentators have criticized the use of mandatory arbitration agreements when they are used by corporations to insulate them from lawsuits. Just within the last year, two courts have struck down mandatory arbitration clauses that for-profit education providers tried to enforce. In one case, a university's arbitration agreement required California students to arbitrate their claims in Indiana!

Since taking office, DeVos has shown herself to be a stooge for the for-profit college industry. If she knowingly does the bidding of this shady racket, then she behaving reprehensibly. If she is acting on the industry's behalf out of ignorance, then she's grossly incompetent.

But her motivations don't matter. Betsy DeVos has got to go. If Trump doesn't fire her soon, then federal legislators should join in a bipartisan call for her removal. Americans deserve a competent Secretary of Education who will act in the public interest, not the interests of the venal for-profit college industry. 

References

Patricia Cohen. Betsy DeVos's Hiring of For-Profit College Official Raises Impartiality Issues, New York Time, March 17, 2017. 

Danielle Douglas-Gabriel. Trump administration rolls back protections in default on student loans. Washington Post, March 17, 2017.

Seth Frothman & Rich Williams. New data documents a disturbing cycle of defaults for struggling student-loan borrowers. Consumer Financial Protection Bureau, May 15, 2017. 

Andrew Kreighbaum. Advocates say department inaction forced arbitration,defrauded borrowers in bind. Inside Higher ED, June 26, 2017.

Andrew Kreighbaum. Education Department to hit pause on two primary Obamaregulations aimed at for-profits. Inside Higher ED, June 15, 2017.

Consumer Financial Protection Bureau. New Data Documents a Disturbing Cycle ofDefaults for Struggling Student Loan Borrowers. May 15, 2017.

Tariq Habash & Robert Shireman. How College Enrollment Contracts Limit Students' Rights. Century Foundation, April 28, 2016.

Magno v. The College Network, Inc.. (Cal. Ct. App. 2016).

Morgan v. Sanford Brown Institute, 137 A.3d 1168 (N.J. 2016).

News Release. Apollo Education Group to Eliminate Mandatory Arbitration Clauses. May 19, 2016.

Federal court orders the Department of Education to rule on Everest College student's request for debt cancellation: Sarah Dieffenbacher v. Betsy DeVos

Dieffenbacher v. U.S. Department of Education: A Student Borrower seeks debt relief on grounds of fraud

From 2007 to 2012, Sarah Dieffenbacher attended Everest College-Ontario Metro, a for-profit college located in Ontario, California. She took out $50,000 in federal student loans to fund her studies.

In March 2015, Dieffenbacher filed a "borrower defense" application with the U.S. Department of Education, petitioning to have her loans cancelled on the grounds that Everest had engaged in fraudulent conduct in violation of California law.

In August 2015, Dieffenbacher defaulted on her loans. Educational Credit Management Corporation, her loan servicer, sent her a notice stating that it intended to begin garnishing her wages.

Dieffenbacher filed a timely objection and a request for a hearing. This objection consisted of a 29-page letter accompanied by 254 pages of exhibits. These exhibits included Diefenbacher's sworn statement and records from the California Attorney General's Office showing documented misconduct by Everest and its parent company, Corinthian Colleges.

On January 20, 2017, Dieffenbacher's attorney received a letter from the Department of Education stating that DOE was denying Dieffenbacher's objection to having her wages garnished. DOE said its decision was conclusive and that Dieffenbacher's only recourse was to file a lawsuit in federal court.

This Dieffenbacher did. In her lawsuit, Dieffenbacher claimed that DOE's decision was arbitrary and capricious and violated the Administrative Procedure Act.

Without admitting fault, DOE filed a motion to remand Dieffenbacher's case back to the Department so that its decision could be "reconsidered and re-issued in a way that would not be arbitrary, capricious, or contrary to law."

Judge Virginia Phillips' decision

Last week, Judge Virginia Phillips, a California federal judge, denied DOE's request for a voluntary remand. In Judge Phillips' view, the Department "[had] not established a substantial or legitimate concern guiding its request for a remand."

The judge pointed out that Dieffenbacher's application for loan forgiveness had been pending for more than two years and that the Department had made contradictory arguments about what it intended to do.

Indeed, Judge Phillips' suggested that the Department of Education was attempting to get Dieffenbacher out of court so that it could garnish her wages. "The Department's request for remand appears to be an attempt to evade judicial review so that it can retain the ability to garnish [Dieffenbacher's] wages without a conclusive ruling as to the enforceability of her loans," the judge observed. "Under such circumstances, the remand request appears both frivolous and in bad faith" [emphasis supplied].

Judge Phillips concluded her opinion by ordering DOE to rule on Dieffenbacher's loan cancellation application within 90 days. If the Department fails to comply, the judge added, she would proceed to hear Dieffenbacher's claims on the merits.

The Dieffenbacher case: More Evidence of the Department of Education's Stall Tactics

The Dieffenbacher case is the latest example of the Department of Education's efforts to avoid dealing with student borrowers' legitimate applications for loan forgiveness.

In the Price case, which I wrote about recently, DOE took six years to rule on a University of Phoenix graduate's application for loan forgiveness based on her claim that Phoenix falsely certified that she had a high school diploma when she began her studies. Ultimately, DOE disallowed the claim. A federal court in Texas countermanded DOE's ruling and discharged the debt.

Last January, DOE sent a letter to 23,000 former students at Corinthian Colleges, assuring them that their loans had been approved for cancellation and that the loans would be forgiven within the next 60 to 120 days. Almost six months later, DOE has not kept its promise, which prompted a protest letter from 19 states' attorneys general.

So what's going on?

I think Betsy DeVos's DOE pencil pushers have added up the costs associated with discharging students loans under DOE's own rules and regulations and have found those costs to be enormous. DOE is trying to put the brakes on its administrative loan forgiveness process. The Department announced this week that it is rewriting the "borrow defense" regulations that Dieffenbacher relied on.

BUT IT IS TOO LATE. DeVos's efforts to slow down the loan forgiveness process will not withstand scrutiny in the federal courts, as the Price case and the Dieffenbacher case demonstrate.

The Consumer Financial Protection Bureau said in a recent report that eight million student borrowers are in default, with nearly 1.1 million defaulting in 2016 alone. As CFPB pointed out, people are defaulting at the rate of 2 borrowers every minute!

Two things must be done to bring the federal student loan program under control. First, the federal government must stop sending student aid dollars to for-profit colleges, which have shockingly high student-loan default rates.

Second, Congress must amend the Bankruptcy Code to allow distressed student borrowers to discharge their student loans in bankruptcy like any other unsecured consumer debt.

But Betsy DeVos's Department of Education refuses to face reality while it stalls for time. In the end, this approach is going to enrage millions of student borrowers. These borrowers are also voters, and they will vote for any politician who promises real debt relief to the legions of student borrowers who will never pay back their loans.

References

Dieffenbacher v. U.S. Dep't of Educ., ED CV 17-342-VAP (KK) (C.D. Cal. June 9, 2017).

Seth Frotman & Rich Williams. New data documents a disturbing cycle of defaults for struggling student loan borrowers. Consumer Financial Protection Bureau, May 15, 2017.

Andrea Fuller. Student Debt Payback Far Worse Than Believed. Wall Street Journal, January 18, 2017.

Andrew Kreighbaum. Court Orders Education Department to End Delay in Ruling on Loan Discharge. Inside Higher ED, June 9, 2017.

Andrew Kreighbaum. Education Department to hit pause on two primary Obama regulations aimed at for-profits. Inside Higher ED, June 15, 2017.

Andrew Kreighbaum. State AGs Want Action on Student Loan Discharge. Inside Higher Ed, June 6, 2017.

Lisa Madigan, Illinois Attorney General. Letter to Betsy DeVos, US. Secretary of Education, June 5, 2017.

Price v. U.S. Dep't of Educ., 209 Fed. Supp. 3d 925 (S.D. Tex. 2016). [Link is to U.S. Magistrate's opinion, which was affirmed by a U.S. District Judge.] 

The for-profit college industry is shrinking: It's time to shut this sleazy sector down

We've known for a long time that the for-profit college industry is a cancer infecting the higher education community. Senator Tom Harkin's committee report, published in 2012, told us that.

The cost of attending a for-profit college is far higher than the cost of enrolling at a public college. Completion rates are low, job prospects for attendees are often bleak. Some for-profits spend more on recruiting than they do on instruction.

 And student-loan default rates at the for-profits are quite high. Forty-seven percent of the 2009 cohort of for-profit college borrowers defaulted on their loans within five years.

Here are the 5-year cohort default rates for selected for-profit colleges, as reported by a 2015 Brookings Institute paper:

• University of Phoenix-Phoenix campus: 45 percent
• DeVry University-Illinois: 43 percent
• Ashford University: 47 percent
• Kaplan University-Davenport campus: 53 percent

And of course these figures understate the number of for-profit college students who are not repaying their loans because many non-defaulters have their loans in deferment or forbearance and are not making their monthly loan payments.

But the good news is this: the for-profit college industry is shrinking. When the Harkin report came out five years ago, for-profit colleges enrolled 13 percent of all college and university students. In the spring semester of 2017, that figure had dropped to 5 percent. For the industry as a whole, for-profit enrollments dropped 10 percent between spring 2016 and spring 2017.

Part of this drop can be attributed to aggressive enforcement of consumer protection laws by state attorneys general and better regulation by the U.S. Department of Education. In the last two years alone, Corinthian Colleges and ITT Tech closed and went bankrupt. Together these institutions had a half million former students.

Moreover,  potential students are becoming more wary of aggressive for-profit college recruiters. This may explain why enrollments are plummeting at several well-established for-profit colleges, such as University of Phoenix and DeVry.

Now, while the for-profit college sector is shrinking, is the time to shut this sleazy industry down. I think the for-profits are hoping the Trump administration will be friendly to their interests, allowing them to get back on their feet.

But let's  hope the industry is wrong. If President Trump implements policies that reinvigorate the for-profit college industry, it will be the biggest mistake of his administration--far bigger than his goofy dinner conversation with FBI Director James Comey.

The for-profits are shrinking, shrinking!

References

Associated Press. Enrollment is tanking at University of Phoenix, DeVry, and other for-profit colleges, Los Angeles Times, September 22, 2016.

Paul Fain. Enrollments Continue to Slide at For-Profits and Community Colleges. Inside Higher Ed, May 24, 2017.

Tamar Lewin. Senate Committee Report on For-Profit Colleges Condemns Costs and Practices. New York Times, July 29, 2012.

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).

U.S. Senate Committee on Health, Education, Labor and Pensions. For Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. 112 Congress, 2d Session, July 30, 2012.

"Meet The Three Headed Debt Monster That's Going to Ravage the Economy," writes MN Gordon

A three-headed consumer debt monster is about to ravage our economy, writes MN Gordon in an Acting-Man essay that was republished on zerohedge.com. And what are the three heads?  Auto loans, credit card debt, and student loans.

As Gordon points out, all this massive debt is backed by essentially no collateral. Regarding credit-card debt, Gordon says this:

[C]redit card debt has been run-up purchasing 72-inch flat screen televisions, avocado toast, and combination platters at Applebee's. How does a creditor recover the cost of a meal that was consumed 2 years ago?

Of course, auto loans are secured by the cars that are purchased on credit. But, as Gordon put it, new cars lose value "nearly as fast as fresh tomatoes turn to rot." Thus, a repossessed car is rarely worth as much as the debt it was  meant to secure.

And of course student loans form the third and most vicious head of the three-headed consumer debt monster. As has been often reported, student loans have now outstripped credit card debt and auto loans as the biggest sector of consumer debt (excluding home mortgages).

The federal government issues more than $100 billion in student loans every year, and student loans are backed by absolutely no collateral.  How do you repossess a law degree from Thomas Jefferson Law School or a liberal arts degree from Vassar?

The entire postsecondary education industry--from Harvard University to Bob's Barber College--subsists on federal student-aid money. The for-profit colleges get almost 90 percent of their revenues from the federal government. Most for-profit colleges could not last a month without regular infusions of federal cash.

And although no one wants to admit it, at least half of the outstanding student-loan debt--totally $1.4 trillion--will never be paid back. The Department of Education is hiding the true default rate by putting borrowers into economic hardship deferments, forbearance programs, or long-term income-driven repayment plans. But the reality is this: most of the people in these shell-game programs will never repay their loans.

One might think that all this federal cash is adequate to sustain America's colleges and universities, but they are continually searching for more money. Nationwide, tuition rates have gone up nearly every year for the past 25 years. Tuition costs for graduate programs have reached insane levels because the federal government put no limit on the amount a student can borrow to get an MBA or law degree.

And where has all this student loan money gone? As Gordon observed, "it has been dispersed into oversized professor salaries, oversized lecture auditoriums, and oversized sports complexes."

Most of us would feel better about the runaway cost of higher education if our universities and colleges were providing real value for students' tuition dollars--if a college degree or graduate degree led to a good job and a better life.

But average wages in real terms have gone down over the past 30 years. Although the higher education industry repeatedly points out that the wage differential between high school graduates and college graduates is increasing, most of this growing gap is explained by declining wages for non-college graduates.

Of course, higher education's defenders like to point out the intrinsic value of a university degree--a better appreciation for culture, an enhanced ability for civic involvement, greater tolerance for people with opposing points of view.  The late John Kenneth Gailbraith, some old white guy from Harvard, expressed the intrinsic value of education as follows:

Education is, most of all, for the enlargement and the enjoyment of life. It is education that opens the window for the individual on the pleasures of language, literature, art, music, the diversities and idiosyncrasies of the world scene. The well-educated over the years and centuries have never doubted their superior reward; it  greater educational opportunity that makes general and widespread this reward.

But this is bullshit. It was bullshit when Galbraith wrote it, and it is overripe bullshit today. Our colleges and universities--our elite universities in particular--have become cesspools of racial and sexual-identity politics, Brownshirt-style intolerance for diverse political ideas, and Orwellian breeding grounds for groupthink.

In short, over a period of less than 50 years, our nation has constructed a higher education system that forces millions of Americans to take out student loans they cannot pay back in return for overpriced educational experiences that do not lead to better jobs or to better lives.

References

MN Gordon. Meet the Three-headed Debt Monster That's Going to Ravage Our Economy. Acting-Man.com. Republished at  zerohedge.com, June 10, 2017.

If Trump Will Let CFPB Survive Their Work Will Protect Small Business Loans and Student Loans--essay by Steve Rhode

I can’t imagine a measure of the the amount of effort that has been invested into making sure the Consumer Financial Protection Bureau is wiped off the face of the earth.

Big business and companies wanting consumers to have less power in the financial world are not excited about the CFPB that has been fighting hard to protect consumers from scams and schemes to rip them off.

In the coming years, if the CFPB survives, they are planning on targeting mortgage loan servicing, student loan servicing, and small business lending to make sure consumers are not getting to get screwed by these entities.

Some people want government out of our lives at nearly all costs. But for all those who politically want the CFPB to go away there is one simple issue that should change your mind. Let’s be honest. big business has more money to fight back against consumers and people just do have the resources to make much of a difference when they get screwed over by their financial company.

Sure, there have been some hit and miss victories by the lone consumer but for the most part, the deep pockets win.

Take private student loans for example. Consumers could discharge a lot of private student loan debt in bankruptcy or invalidate it. But people don’t have the resources to wage these battles and fight back against the lenders. So guess what, lives are ruined.

The CFPB represents at least one entity that works hard to fight for consumers. It creates leverage against deceptive and abusive financial practices that take advantage of consumers. But in this atmosphere of America First – Consumers Last, the Trump Administration wants the CFPB to go away. According to USA Today, “the Department of Justice argued in an amicus brief that the structure of the Consumer Financial Protection Bureau (CFPB), the watchdog created after the financial crisis during the Obama administration, is unconstitutional.” Even the federal government wants consumer protections to vanish.

Wanting to make the CFPB go away from defending consumers does not make the underlying problems go away or increase the defense of people just like you when you get scammed and ripped off.

The CFPB has been fighting back to protect consumers by filing suit against Navient for not providing advice to help consumers. Navients response is they don’t have to provide good advice, just collect on loans. And Navient even knew they were peddling loans that were not affordable when they pushed them on students.

So let’s let the CFPB fight back to protect people with student loan issues and small business loans. The only thing you have to lose is a better financial future and more protections for those you love.
Steve Rhode

Get Out of Debt Guy – Twitter, G+, Facebook

If you have a credit or debt question you’d like to ask, just click here and ask away.
This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

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I am in total agreement with Mr. Rhode regarding the value of the Consumer Financial Protection Bureau. The the Trump administration should  support the CFPB its mission, including the protection of student borrowers from unscrupulous for-profit college and ruthless student-loan debt collectors.

Richard Fossey

Snapshot of the student loan crisis from a recent New York Federal Reserve Bank report: Surprise, surprise! Debt levels Are rising

Researchers at the New York Federal Reserve Bank issued a press release on April 3 that reported on household borrowing and student debt.  Here are some excerpts from that press release. I have highlighted particularly interesting passages:

Student Loan Update 

Aggregate student loan balances have continued to increase and stood at about $1.3 trillion at the end of 2016, an increase of about 170 percent from 2006. Aggregate student debt is increasing because more students are taking out loans, the loans are for larger amounts, and the speed with which borrowers repay their debts has slowed down. New debt originations continue to increase: 2015 graduates with student loans left school with about $34,000, up from only $20,000 just ten years before. 

While about 36 percent of student debt holders owed less than $10,000, and 65 percent owed less than $25,000, only about 5 percent of student debt holders owed more than $100,000 in debt in 2016. Yet these big-balance borrowers account for nearly 30 percent of the total balances outstanding, so their outcomes and repayment success have a disproportionate influence on the overall picture.

Student loan default and delinquency rates appear to have leveled off, albeit at a relatively high level. Defaults peaked in 2012, and have stabilized since 2013; the 2009-11 cohorts saw the highest default rates, with some improvement among more recent cohorts.

We have noted in the past that delinquency and default rates are lower among higher-balance borrowers; however, the default rates among higher-balance borrowers have worsened notably in recent years. Further, payment progress is slower among those who borrowed more. Ten years later, over 70 percent of the original balance has been repaid among those who had borrowed less than $5,000 when they left college in 2006, compared to a reduction of only 25 percent among students who borrowed more than $100,000.

Higher balances, increasing participation in student loan programs, and slower repayment are pushing up aggregate student loan balances. Although defaults are improving, the pay down progress of recent cohorts continues to decline.

The Fed researchers also commented on the relationship between student-loan indebtedness and homeownership:

Homeownership 

The final portion of the press briefing was on educational attainment, student loans, and homeownership, using education records from the National Student Clearinghouse that were newly matched with credit records from the Consumer Credit Panel. These findings are presented in greater detail in a separate post. New analysis shows that college education is associated with markedly higher homeownership rates regardless of debt status, which increases at each additional level of college attainment. However, having student loans dampens homeownership rates at every level of education, and higher debt balances are associated with even lower homeownership rates.

Takeaways from the Fed researchers' findings

In essence, the Federal Reserve Bank researchers are telling us this:

Loan balances are going up, more people are taking out student loans, and repayment rates are slowing, particularly for borrowers with high loan balances. I imagine a lot of these slow paying borrowers are in the Public Service Loan Forgiveness (PSLF) program or an income-driven (IDR) plan.  

The vast majority of people making payments under  PSLF and IDR are not making payments large enough to pay down their loan balances. And, as the Fed researchers noted, among people who borrowed $100,000 or more, only 25 percent were able to pay off their student loans within 10 years.

Regarding student loans and home buying, the Fed researchers had this to say: Homeownership increases with people's education level, but student loans hamper the ability of people to buy a house, regardless of income level.

References

Rajashri Chakrabarti, Andrew Haughwout, Donghoon Lee, Joelle Scally, & Wilbert van der Klaauw. At the N.Y. Fed: Press Briefing on Household Borrowing with Close-Up on Student Debt. April 3, 2017.