Department of Education Punts on Borrower Defense to Repayment Rules. Essay by Steve Rhode

I’m still waiting to be pleasantly surprised by the Trump Department of Education (ED) under Secretary DeVos. It has not happened yet.

From the recent actions to remove critical information from consumer notices to wanting to get a single loan servicer to handle all federal loans, the current incarnation of ED seems to be moving in a direction that provides less support and help for debtors.

On October 2016, the then ED announced new regulations to go into force on July 1, 2017. “The U.S. Department of Education today announced final regulations to protect student borrowers against misleading and predatory practices by postsecondary institutions and clarify a process for loan forgiveness in cases of institutional misconduct. These final regulations further cement the Obama Administration’s strong record and steadfast commitment to protecting student loan borrowers, deterring harmful practices by institutions, safeguarding taxpayer dollars and holding institutions accountable for their actions.” – Source

The Betsy DeVos ED is delaying the implementation of the Borrower Defense to Repayment rules. The ED announced today “Postsecondary institutions of all types have raised concerns about the BDR regulations since they were published on Nov. 1, 2016. Colleges and universities are especially concerned about the excessively broad definitions of substantial misrepresentation and breach of contract, the lack of meaningful due process protections for institutions and “financial triggers” under the new rules.” – Source

So the current ED is going to start over again and says, “The Department plans to publish its Notice of Intent to Conduct Negotiated Rulemaking on BDR and GE in the Federal Register on June 16, 2017. The Department will conduct public hearings on BDR and GE on July 10, 2017, in Washington, D.C. and July 12, 2017, in Dallas, Texas.” Goodness knows how long this new process if going to take and what opportunities student loan debtors will have to actually have their loans discharged due to misrepresentation by colleges and schools who received federal student loans.

For example, the ED previously said, “Many of these claims are from borrowers who attended programs that the Department found had been publicized with misleading job placement rates.” – Source

What do you think, should schools who misrepresented the success of their programs or actual employment rates to induce students to enroll, get a free pass and eliminated from the new rules? Let me know what you think by posting your comment below.

Even under the old administration the Borrower Defense to Repayment processing was less than optimal. There are students that have been waiting years for a conclusion to their claims and the next changes will only serve to slow down the entire process of assisting harmed student loan debtors.

As an example, ED previously said they had ” received a total of approximately 82,000 claims.” And while a previous report on the status of the program said 16,000 had been processed and approved, the current ED press release says, “Nearly 16,000 borrower defense claims are currently being processed by the Department, and, as I have said all along, promises made to students under the current rule will be promises kept,” said Secretary DeVos. So where are the rest of the claims?

Steve Rhode

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

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

College of New Rochelle failed to pay federal payroll taxes for about two years: Will anyone be held accountable?

College of New Rochelle, a Catholic college located in Westchester County, New York, announced last fall that it had failed to pay federal payroll taxes for about two years and that it owed approximately $20 million in unpaid taxes. A close examination of the college's financial picture also revealed that the college owed an additional $11.2 million to other creditors.

Paying federal payroll taxes is required by federal law; and failure to do so can lead to big trouble. The Internal Revenue Service can impose fines and even jail time for wilful failure to pay those taxes.

The college released a statement in November suggesting that the college's former controller, Keith Borge, was responsible for the error. Borge retired as controller of the college in May 2016. Without identifying Borge by name, college leaders said that the financial irregularity came to light only after the controller retired at the end of the 2015-2016 academic year.

Apparently, the college's auditor did not discover this mammoth financial problem for some time, which is curious. The College of New Rochelle's auditing firm was KPMG, a highly reputable global auditing firm with an reputation for competence and integrity.

CNR's president, Judith Huntington, stepped down shortly after the college announced its financial crisis. Huntington said she relied on the controller to manage the college's financial affairs, which is reasonable. But Huntington is herself a CPA and was employed for 15 years at KPMG as a senior audit manager. She's also the director of a major bank. According to Bloomberg, Huntington served as a bank director at Signature Bank during the same time she was president of CNR. Apparently being a college president is only a part-time job.

At least one more senior administrator departed CNR after the financial scandal broke. Betty Roberts, Vice President of Finance, terminated her employment at the college sometime in late 2016. According to a news story, Roberts came to CNR after serving in a similar position at Alcorn State University, a Mississippi HBCU that was under investigation by the Mississippi state auditor's office.

Will anyone be sued over this massive scandal? I doubt it. Little can be gained by suing individuals, who do not likely have the resources to pay any judgment that might result. And anyone who gets sued for the big screw up at the College of New Rochelle will likely implicate others.

How about KPMG? Can KPMG be sued for failing to pick up CNR's massive tax liability more quickly?

Perhaps, but Huntington and KPMG undoubtedly have close ties stemming from her 15 years as a senior audit manager for the firm.  And there may be lots of good reasons why the college might demur from suing a very powerful  global firm.

So let's just rack this incident up as an unfortunate episode in the institutional life of the College of New Rochelle. "Least said, soonest mended," as the old saying goes.

But then there is the matter of a mysterious $5 million donation to CNR, which was made anonymously after the scandal broke. This quick cash will buy CNR some time to get its financial house back in order. What party would make a $5 million anonymous gift to a college that may not survive this huge financial crisis?

Perhaps the money is not completely a  gift. Perhaps the donation was an exchange by some interested party for a covenant not to sue. We will never know.

We can take comfort, however, in a pledge made by KPMG, which was neck deep in CNR's travails, that appears on its web site:

At KPMG, our promise of professionalism to each other, our clients and the capital markets we serve compels us to align our culture of integrity with our values, words and actions.

This is the same KPMG that was auditor for Wells Fargo when the bank created two million bogus accounts. Robert Earl Keen is right: "The road goes on forever and the party never ends."

Judith Huntington, former president of College of New Rochelle
(photo credit: College of New Rochelle)

References

Judith Huntington. Executive Profile. Bloomberg.com (last visited July 2, 2017).


Associated Press. Alcorn State President Christopher Brown Resigns Amid Investigation. Gulflive.com, December 19, 2013.

Sarah N. Lynch. Lawmakers question quality of KPMG's Wells Fargo audits. Reuters, April 25, 2017.

Vani Murthy. The consequences of wilful failure to pay payroll taxes. Journal of Accountancy, June 1, 2014.

Jonathan Ortiz. College of New Rochelle Financial Probe Finds Millions in Unpaid Taxes. Westchester, Magazine, November 2, 2016.

Colleen Wilson. $5 million boost for struggling College of New Rochelle. USA Today, December 16, 2016.

Colleen Wilson and Mark Lungariello. Another finance official out at College of New Rochelle. Lohud.com, November 22, 2016.

The consequences of willful failure to pay payroll taxes

The penalties for failing to pay over trust fund taxes can be severe and sometimes include prison time.

BY VANI MURTHY,

The consequences of willful failure to pay payroll taxes

The penalties for failing to pay over trust fund taxes can be severe and sometimes include prison time.

BY VANI MURTHY,

A Big Nothing Burger: The FBI should stop investigating Jane Sanders, Bernie's wife and former president of Burlington College

The FBI is investigating Jane Sanders, former president of Burlington College and wife of Senator and former presidential candidate Bernie Sanders.

The heart of the matter, as I understand it, is this: Jane allegedly submitted a loan application on behalf of Burlington College that falsely represented that the College had secured millions of dollars in pledged financial donations. The college obtained the loan but the pledged donations did not materialize. The college then closed in 2016 under a mountain of debt.

This is a big NOTHING BURGER, and the FBI should shut this investigation down.

Let's assume for a moment that the allegation is true and that Jane falsely represented that the college had financial pledges and that the the college obtained a large loan based on that misrepresentation. That would be reprehensible but no more reprehensible than the millions of people who filled out so-called liars loans during the real estate bubble that burst in 2008.

We all remember that episode, accurately dramatized in the movie The Big Short. People were applying for loans to buy homes without proper documentation of their income and assets. Those homes were wildly overvalued; but real estate brokers, real estate appraisers, and the banks all colluded to make sure the loans were approved Corporate financiers then packaged the loans into asset backed securities (ABS), which were peddled to unwary investors, including pension funds. The ratings agencies glibly certified that the ABS were investment grade when in fact they were junk.

And then the real estate market collapsed in a flood of foreclosures, and the American economy nearly collapsed.

Did anyone go to jail for that huge speculative bubble? No, no one went to jail.

Even if we put Jane's conduct in the worst possible light (which I am not inclined to do), she did nothing that wasn't done by millions of Americans, including a lot of fat cats in the global financial industry.  If we aren't going to put the ratings-agency executives, the real estate brokers, and the fat cats from Goldman Sachs in jail, then let's leave Jane Sanders alone.

Apart from whether Jane filed a fraudulent loan application, there is a suggestion that she was an incompetent president of Burlington College and that the college closed last year due at least in part to her poor leadership. But that allegation is bogus as well.

Dozens of small private colleges have closed in the past three or four years, and dozens more are on the brink of closure. Even if Jane Sanders had sterling administrative and financial skills, it is doubtful she could have saved that little college. After all, Burlington only had a couple of hundred students.

Her detractors have collected negative assessments from disgruntled former Burlington faculty members, but let's face it. Colleges all over the country are on the brink of extinction, and the professors generally do nothing but moan, gripe and criticize.

I repeat, this is a big nothing burger. The FBI and the conservative media should get off Jane's back.

In the interest of full disclosure, I admit I was once a big fan of Bernie Sanders. I voted for him, and I was disappointed when he wasn't named the Democratic nominee for President.

But I am over Bernie. In my opinion, he was cheated out of the Democratic nomination by Hillary Clinton, John Podesta, Debbie Wasserman Schultz and a gaggle of disreputable journalists. Remember when columnist Froma Harrop called Bernie a racist in an op ed essay? Bernie Sanders, who was arrested in a civil rights demonstration when Hillary was checking footnotes at Yale Law School. What an outrageous accusation!

After the way the Democratic Party treated him, Bernie should have quit the Democrats and started a third political party. I am hugely disappointed to see him working collegially with the people who treated him so disgracefully during the 2016 primary season.

Nevertheless, Jane does not deserve to have aspersions cast against her based on a loan application that might have been puffed up a bit.  The FBI and Fox News should leave her the hell alone.

Leave Jane the hell alone!

References

Alan Dershowitz. Dershowitz: Why the Sanders FBI bank loan investigation is dangerous territory. Fox News, June 28, 2017.

Froma Harrop. Bernie Sanders and Racism Lite. Seattle Times, May 19, 2016.

Eli Watkins, Elizabeth Landers, and Will Cadigan. Bernie Sanders says reported investigation into his wife stems from 'pathetic attack. CNN, June 28, 2017.

Another Attorney General Jumps on Department of Education: Essay by Steve Rhode

North Carolina Attorney General Josh Stein has joined to voices of others from around the country who are disappointed the Department of Education has decided to delay the July 1, 2017 regulations that would have helped to protect students with federal student loans from fraudulent schools and colleges. See this.

Stein said, “Education is one of the best reasons I can think of to borrow money. But unfortunately, there are some in our world who take advantage of those who are vulnerable – and that includes student borrowers. As North Carolina’s Attorney General, protecting people, including students is my top priority.”

“That is why I find this news deeply troubling. The rules, which were to take effect on July 1, would protect student borrowers – delaying them is misguided and irresponsible.”

“These delayed rules were hard-fought and sound consumer protection measures born out of the problems that other attorneys general and I have seen plague student borrowers time and time again.”

The delayed protections include: 

• Prohibiting schools from forcing students to pursue complaints in arbitration rather than in court; 
• Prohibiting schools from requiring students to waive participation in class action lawsuits; and 
• Providing automatic relief and group relief for defrauded federal student loan borrowers in certain circumstances, including following legal actions by state attorneys general. 

Delaying the rules is a win for for-profit schools that provide a poor result and a loss for student loan debtors who have their futures financially damaged.

Steve Rhode

Steve Rhode

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


This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

About Steve Rhode

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. 

Bethune-Cookman University reports $17.8 million operating loss as administrators' salaries go up

Bethune-Cookman University, a Florida HBCU, reported an operating loss of $17.8 million in its most recent tax return. That's a 12-fold increase over the previous year, when it reported a budget deficit of only $1.5 million.  Fitch Ratings downgraded the school's bond rating for the second time in six months. B-CU's bond rating now hovers just above junk status.

Should B-CU tighten its belt and cut expenses to deal with this crisis? Hell no!

According to the Daytona Beach News-Journal, salaries jumped from $41.5 million to $49.2 million in just one year.

Here are the details, quoted verbatim from the Daytona Beach News-Journal article:

• Salaries at the school jumped nearly $8 million, from $41.5 million to $49.2 million, accounting for a large chunk of the increased expenses.

• The school's top leadership took away a combined $2.69 million in compensation--an average of $207,000 for each of the 13 [executive] employees. The previous year, its leadership took in $1.4 million, an average of $175,000 for only eight top executives.

• While his base pay was lowered, [President Edison] Jackson received a raise of $40,000 when additional compensation was factored in, giving him a total salary of nearly $410,000.

• Fifty employees were paid at least $100,000, up from only eight in the previous year.

And there's more. B-CU borrowed $7 million from its endowment funds, about 13 percent of the total. Five million dollars of that amount was to pay--you guessed it--administrative expenses. Meanwhile, its investments suffered a 11 percent loss, even though the stock market was going up.

In short, it appears that B-CU's senior administrators are giving themselves raises while the school's budget deficit spirals out of control.

You may remember that Bethune-Cookman made the news recently when many of its students turned their backs on Secretary of Education Betsy DeVos and booed her when she spoke at the university's spring graduation exercise.

Isn't it remarkable how college students turn their anger on external parties instead of examining the competence of their own institution's leadership? Most of Bethune-Cookman's students have taken out student loans to finance their studies at a university that apparently does not know how to manage its own financial affairs. B-CU's students booed the wrong person at last spring's graduation exercises. They should have been booing President Edison Jackson.

References

Erica L Green. Bethune-Cookman Graduates Greet Betsy DeVos with Turned Backs. New York Times, May 10, 2017.

Scott Jaschick. Large, Growing Losses at Bethune-Cookman. Inside Higher Ed, June 26, 2017.

Seth Robbins. Tax documents show B-CU losses mounting to $17.88 million. Daytona Beach News-Journal, June 24, 2017.

Valerie Straus. Booing students at Betsy DeVos's commencement speech told to shut up or get diplomas sent in mail. Washington Post, May 10, 2017.

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.