Millions of Older Americans Are Delinquent On Their Loans: Long-Term Repayment Plans Will Make the Problem Worse

Several decades after obtaining their college degrees, millions of older Americans are still paying on their student loans. According to the Consumer Financial Protection Bureau, the percentage of student borrowers over 60 years of age who carry student-loan debt increased by 20 percent from 2012 to 2017.

Even more alarming is the rising number of older student borrowers who are delinquent on their student loans. In all but five states, delinquency rates among older student debtors went up over the last five years.

In California, for example, more than 300,000 people age 60 or older hold $11 billion in student-loan debt, and 15 percent of these borrowers are delinquent.

Delinquency rates for older borrowers vary substantially from state to state. In Georgia, Mississippi, Oklahoma, South Carolina, and West Virginia, one out of five student-borrowers age 60 or older are delinquent on their loan payments.

As the CFPB noted, these data show that an increasing number of older Americans are still shouldering student-loan debt at an age when most of them are living on fixed incomes.  And these data do not reflect the Department of Education’s recent campaign to recruit more and more college borrowers into income-based repayment plans that can stretch out for as long as 20 and even 25 years.

During Obama’s second term in office, the Department of Education rolled out two relatively generous income-driven repayment plans (IDRs): PAYE and REPAYE.  Both plans call for participants to pay 10 percent of their adjusted gross income on their student loans for a period of 20 years.

Most commentators have viewed these initiatives as a humane way to lower struggling borrowers’ monthly payments. But for many of the people in IDRS, probably most of them, the monthly payments don’t cover accruing interest. For these people, their IDRs cause their loan balances to go up even if they make regular monthly payments.  Thus, IDR participants will enter their retirement years with thousands of dollars in unpaid student-loan debt.

The CFPB report should be alarming to everyone. Already, we are seeing student borrowers enter their sixties with increasing levels of debt; and delinquency rates are climbing.

This is a crisis right now, but as the IDR participants reach retirement age, the crisis will grow worse. Indeed, it will be a calamity as millions of people try to service their student loans while surviving on Social Security checks and small pensions.

References

Older consumers and student loan debt vary by state. Consumer Financial Protection Bureau, August 2017.

Hawaii Supreme Court strikes down a school's arbitration agreement as unconscionable: For-profit colleges take notice

The Hawai'i Supreme Court strikes down a school's arbitration agreement as unconscionable

Arbitration agreements have long been favored by the courts, which traditionally have seen arbitration as an inexpensive alternative to lengthy, costly litigation. For years, courts have routinely upheld the enforceability of arbitration agreements and they have been exceedingly reluctant to overturn an arbitrator's decision.

But in recent years, courts in some states have become increasingly willing to invalidate an arbitration agreement when it is clear that the agreement contains terms that are unfair.  Recently, the Hawai'i Supreme Court, in the case of Gabriel v. Island Pacific Academy, ruled that an arbitration agreement that blocked a teacher from suing her former employer was unconscionable.

Laura Gabriel filed suit in a Hawai'i state court, charging that Island Pacific Academy had retaliated against her for filing a sex discrimination complaint by refusing to hire her for the 2014-2015 school year. Gabriel had signed an arbitration agreement promising to settle disputes with her employer through arbitration, and Island Pacific asked the trial court to dismiss Gabriel's complaint and to force Gabriel to pursue her claims against the school through arbitration.

The trial court ruled that the arbitration agreement was enforceable except for one provision. The agreement required Gabriel to deposit one half of the estimated arbitration costs as a precondition to arbitration. This fee amounted to $10,200, which equaled one-third to one-fourth of Gabriel's annual salary.  The trial judge ruled that this provision was unconscionable and ordered Island Pacific to pay all arbitration costs when Gabriel's claims were arbitrated.

Gabriel appealed, and the Hawai'i Supreme Court reversed. The supreme court agreed with the lower court that the arbitration agreement's fee-splitting provision was unconscionable but concluded that
unconscionable terms pervaded the whole agreement and thus the agreement should be invalidated in its entirety.

In addition to the fee-splitting provision, the Hawai'i Supreme Court identified another uunfair provision. The agreement required Gabriel to pay Island Pacific's total "damages, costs, expenses and attorney's fees" if she challenged the arbitration agreement in court even if she won her lawsuit. "This provision is plainly substantively unconscionable," Hawai'i's highest court ruled, "and must be stricken as well."

After the fee-splitting provision and the cost-shifting provision were struck from the agreement, the court pointed, the agreement only contained one sentence. Therefore, it was appropriate to invalidate the whole agreement and allow Gabriel to sue the school in court.

For-profit colleges force their students to agree not to sue them as a condition of enrollment

Although the Island Pacific lawsuit did not involve a postsecondary student, it may be relevant to college students who attend for-profit colleges. Many of these students signed arbitration agreements as a condition of enrollment and then discovered that they had been defrauded.

These students might be able to get those arbitration agreements invalidated in a state court on the grounds that the agreements are unconscionable. No doubt many of these agreements have cost-shifting and fee-splitting provisions like the Island Pacific agreement.

Last year, a California appellate court invalidated an arbitration agreement forced on students attending a for-profit program on the grounds of basic unfairness. Among other things, the agreement required California students to arbitrate their claims in Indiana.

Likewise, the New Jersey Supreme Court struck down an arbitration provision in a for-profit school's student-enrollment agreement simply because the clause was printed in very small type and was phrased in such murky language that students might not know they were giving up legal rights by signing the agreement.

Congress and the Department of Education are shielding fraudulent for-profit colleges from being sued

Although state courts seem increasingly inclined to strike down arbitration agreements that disfavor vulnerable parties, Congress and the Department of Education have acted counter to this judicial impulse.

For example, the Consumer Financial Protection Bureau recently tried to stop corporate entities from using arbitration agreements to block lawsuits against them. The CFPB adopted a rule that would have barred financial services institutions from requiring their customers to sign arbitration agreements.

But Congress--acting in the interest of corporations and not consumers--passed a law overturning the CFPB rule.  In the Senate, the vote was tied at 50 to 50. Not a single Democratic senator voted for the bill and two Republican senators (Lindsay Graham of South Carolina and Louisiana's John Kennedy) voted against it. Vice President Mike Pence broke the tie by joining with Republican colleagues to trash the CFPB rule.

Likewise, the Obama administration's Department of Education drafted regulations that would have prevented for-profit colleges from forcing students to sign arbitration agreements. Obama's DOE was motivated by the conviction that arbitration agreements disfavored students in favor of for-profit colleges and prevented them from banding together to file class action suits.

Unfortunately, Betsy DeVos blocked those regulations, allowing sleazy for-profits to continue forcing students to sign arbitration agreements.

In the current political climate, it does not seem likely that Congress or the Department of Education will come to the aid of students who are being ripped off by for-profit colleges.  It could be that state courts  are more sympathetic to students who were forced to waive their right to sue. Students can challenge unfair arbitration agreements in court. Unfortunately, to do so, students will need good lawyers.

References

Donna Borak and Ted Barrett.Senate kills rule that made it easier to sue banks. CNN.com, October 25, 2017.

Richard Fossey. Why students need better protection from loan fraud. Chicago Tribune, August 25, 2017.

Gabriel v. Island Pacific Academy, Inc., 400 P.3d 526 (Hawai'i 2017).

Andrew Kreighbaum. Few Solutions for Defrauded Borrowers. Inside Higher Ed, June 26, 2017.

Magno v. The College Network, Inc.. (Cal. Ct. App. 2016). Accessible at http://caselaw.findlaw.com/ca-court-of-appeal/1741812.html

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

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?

Matt Taibbi's Rolling Stone article on student debt crisis: You should read it

If you believe in social justice and basic human decency, you must read Matt Taibbi's article on the student-loan crisis that appeared this month in Rolling Stone.

Writing in the tradition of great American investigative journalism, Taibbi deconstructs "the great college loan swindle" that is destroying the lives of millions. Taibbi illustrates his theme by telling the story of two swindled student debtors: Scott Nailor and Veronica Martish.

Scott Nailor, a thirty-seven year-old school teacher, has contemplated suicide because he is chained to college loans he will never pay off. Nailor borrowed $35,000 to get a degree from the University of Southern Maine, which qualified him for a job as a school teacher.

This debt, which might seem modest to some people, was barely manageable on Nailor's salary as a school teacher, which initially paid just $18,000. He and his wife consolidated their student debt, which had grown to $50,000. Then the couple declared bankruptcy, but they did not discharge their student loans.

Today, Taibbi wrote, Nailor makes monthly payments of $471 a month on student-loan debt that has grown to $100,000.  None of his payments go to paying down the principal. "I will never be able to pay it off," Nailor told Taibbi. "My only escape from this is to die."

And Taibbi also tells the story of Veronica Martish, a 68-year-old veteran from the Vietnam War. In 1989, she borrowed $8,000 to take courses at Quinebaug Valley Community College. Due to family problems, Martish fell behind on her loan payments and entered a loan rehabilitation program. By this time, her $8,000 had grown to $27,000 due to fees and interest tacked on by one of the federal government's debt collectors.

Martish told Taibbi that she had paid a total of $63,000 on her $8,000 student loan, but has yet to pay off the principal. By the time she dies, Martish estimates her loan balance will have grown to $200,000. "Nothing ever comes off the loan," she explained. "It's all interest and fees."

These stories may seem incredible to you, but in fact they are all too common. In fact, the bankruptcy courts have chronicled similar experiences when student-loan debtors stagger into bankruptcy court. Remember Brenda Butler, who paid $15,000 on $14,000 in student loans? Twenty years after graduating from college, she owed $32,000--twice what she borrowed. A bankruptcy judge refused to wipe out her student loans. She should stay in a long-term repayment plan, the judge advised--a plan that will not end until 42 years after Butler graduated from college.

And how about Alan and Catherine Murray, the Kansas couple who borrowed $77,000 to pay for undergraduate and graduate degrees? They made $54,000 in loan payments--about 70 percent of the principle.  Yet 20 years after finishing their studies, their accumulated student-loan debt had ballooned to $311,000--more than four times what they borrowed.

Millions of people have seen their student loans grow exponentially due to fees and unpaid interest. When that happens, a debtor's only option is to sign up for an income-driven repayment plan (IDR) that can last from 20 to 25 years. But these plans generally set monthly payments so low that the payments don't reduce the principal on the debt.  College debtors on IDRs see their loan balances grow larger and larger with each passing month even when they faithfully make their loan payments.

This was the situation Scott Nailor found himself in. No wonder he contemplated suicide.

And it gets worse. When all those millions of people in IDRs make their last monthly payment, the remaining balance on their loans will be forgiven; but the IRS considers the forgiven amount to be taxable income.

Does anyone in Congress give a damn? I don't think so. And Secretary of Education Betsy DeVos, whose family has profited from the debt-collection industry, certainly doesn't give a damn.

And so America descends into an era of shocking exploitation perpetrated by colleges, the federal government, and the debt-collection industry.

I will end this reflection by quoting a paragraph from Taibbi's searing essay:

It's a multiparty affair, what shakedown artists call a "big store scheme," like in the movie The Sting: a complex deception requiring a big cast to string the mark along every step of the way. In higher education, every party you meet, from the moment you first set foot on campus, is in on the game.

Donald Trump and Betsy DeVos: the "big store" scheme

References

Butler v. Educational Credit Management Corporation, No. 14-71585, Adv. No. 14-07069 (Bankr. C.D. Ill. Jan. 27, 2016).

Murray v. Educational Credit Management Corporation, CASE NO. 14-22253, CHAPTER 7, ADV. NO. 15-6099 (Bankr. D. Kan. Dec. 8, 2016), aff'd, No. 16-2838 (D. Kan. Sept. 22, 2017).

Matt Taibbi. (2017, October). The Great College Loan Swindle. Rolling Stone.

140 people a day die from opioid overdoses, but 3,000 people a day default on their student loans

Approximately 52,000 Americans died from opioid overdoses in 2015. That's an average rate of  around 140 deaths a day. In fact, opioid overdose is now the leading cause of death for Americans under age 50.  If we continue at this rate, a half million Americans will die from drug overdoses over the next ten years--roughly nine times as many Americans as were killed in the Vietnam War.

But let's compare the opioid crisis to the student-loan disaster.  Last year, 1.1 million Americans defaulted on student loans; that's an average rate of 3,000 people a day.  Obviously, defaulting on a student loan is not as serious as dying from a drug overdose. Nevertheless, the consequences of student-loan default are catastrophic.

First of all, a student-loan default triggers penalties and fees that are attached to the unpaid debt, making it less likely that the debtor will ever pay off his or her student loans. Secondly, student-loan defaulters cannot take out more student loans to obtain additional education or training. Third, unlike most unsecured loans, student loans are very difficult to discharge in bankruptcy.

In short, people who default on their student loans run a good chance of becoming lifetime debtors who will never improve their economic circumstances. In other words, a student-loan default is often the equivalent of an economic death sentence.

People who attend for-profit colleges have the highest student-loan default rates. A Brookings Institution report documented that almost half of the people in  a recent cohort who borrowed money to attend a for-profit school defaulted within five years.  Another analysis reported that three out of four African Americans who attended for-profit colleges eventually default on their loans.

In my opinion, a good case can be made that the student-loan catastrophe is causing more harm than the opioid epidemic.  Around 44 million Americans have student-loan debt; that's about one American in five. College-loan indebtedness is hampering people's ability to buy homes, save for retirement, and purchase health insurance. Without question, millions of Americans would have been better off if they had never pursued postsecondary education because the indebtedness they took on degraded the quality of their lives rather than enhanced it.

And Secretary of Education Betsy DeVos has has made the student-debt crisis worse. Again and again, she has made decisions that favor the corrupt for-profit industry at the expense of struggling student loan debtors, even debtors who were defrauded by for-profit colleges.

To its credit, the Obama administration crafted regulations whereby students could apply to the Department of Education to have their student loans forgiven if they were defrauded by the college they attended. Thousands of students have applied for loan forgiveness based on fraud claims, including students who borrowed money to attend two bankrupt for-profit institutions: ITT Tech and Corinthian Colleges.

The Obama regulations were to have taken effect on July 1, 2017, but Betsy DeVos stopped the implementation of these regulations, saying she feared students would get "free money." She then appointed a panel of experts to draft new regulations, which won't be approved until next year. In fact, under the DeVos scheme, defrauded students will not be able to move forward on their claims until 2019 at the earliest.

And it appears that many students will not get complete relief from their loans even if they can prove they were defrauded.  DeVos is talking about giving partial relief based on a formula that will compare the defrauded student's earnings to the average earnings among people who participated in similar educational programs.

The cynicism of this approach is shocking. First of all, by delaying the administrative process until 2019, DeVos is giving fraud victims only three options for handling their oppressive student debt. First, they can continue making loan payments on educational experiences that are worthless to them. Second, they can enter income-based repayment plans that will set monthly payments so low that the interest on their debt will continue to accrue, making their total indebtedness grow larger. Or third, they can default on their loans, which will ruin their credit and cause their debt to grow larger from fees and penalties that the debt collectors tack on to their original debt.

DeVos's tactic is nothing more than sneaky manipulation to aid the for-profit industry, which does not want fraud claims to be examined. If Congress had a moral compass and some courage, DeVos's behavior would lead to a formal resolution calling for her resignation.

Unfortunately, Congress is as beholden to the for-profit colleges as Betsy DeVos. The for-profits have used lobbyists and strategic campaign contributions to buy Congress's silence; and at least a few of our federal representatives (Senators Olympia Snowe and Dianne Feinstein, for example) have personally profited from ties to the for-profit college industry.

And thus our elected representatives are willing to allow millions of lives to be destroyed and the integrity of higher education to be degraded rather than reform the federal student-loan program.  In sum, Congress is willing to tolerate human suffering that may exceed the harm caused by opioid addiction.

References

Maria Danilova. DeVos may only partially wipe away some student loans. Detroit News, October 28, 2017.

Josh Katz. Drug Deaths in America are Rising Faster Than Ever. New York Times, June 5, 2017.

Tamar Lewin. Questions Follow Leader of For-Profit Colleges. New York Times,May 26, 2011.

Ben Miller. New Federal Data Show a Student Loan Crisis for African American Borrowers. Center for American Progress, October 16, 2017.

Bob Samuels. The For-Profit College Bubble: Exploiting the Poor to Give to the Rich. Huffington Post, May 25, 2011.

The Wrong Move on Student Loans. New York Times, April 6, 2017.

Why Does the Department of Education Hate Student Loan Debtors Just So Much? Article by Steve Rhode

By Steve Rhode on October 25, 2017

If I was ever to get into an academic research argument on the role of government, this would be the time. Frankly I’m just getting pissed off by the apparent disregard for student loan debtors by the Trump Department of Education. And before you react that this is a Trump reaction, it’s not. This is an outrage and embarrassment of the actions taken collectively against consumers and student when it comes to student loan debt.

We the People of the United States, in Order to form a more perfect Union, establish Justice, insure domestic Tranquility, provide for the common defence, promote the general Welfare, and secure the Blessings of Liberty to ourselves and our Posterity, do ordain and establish this Constitution for the United States of America. – Source

The last administration was trying to protect students from being misled by schools to enroll them based on false promises and employment assertions. That’s been significantly halted.

The previous administration expanded the Borrower Defense to Repayment program to allow students who had been defrauded by their schools a chance to have their loans forgiven and the loans clawed back from the schools. That’s been significantly halted.

The Consumer Financial Protection Bureau (CFPB) is suing Navient over poor student loan servicing and Navient says it has no duty to provide good advice to student loan debtors. The Department of Education is not participating in that fight by backing up the CFPB and in fact has said they will stop sharing information with the CFPB.

Now we will have to see what the Department of Education does next on this. The student loan lending industry is making the argument to the Department of Education they should not be subject to state probes into their industry. The position is the federal law and should prevent states from investigating the abusive practices of the student loan industry.

Just to show you how crazy this has all become, even Texas thinks this argument is crap and Texas has typically been the business comes first state.

“Joining a bipartisan coalition of 25 states, Attorney General Ken Paxton today called on U.S. Secretary of Education Betsy DeVos to reject a campaign by student loan servicers and debt collectors to dismantle state oversight of the student loan industry. In recent years, Texas and other states investigated and prosecuted a number of student loan industry abuses, winning settlements in the tens of millions of dollars for vulnerable student borrowers.

In a letter to Secretary DeVos, Attorney General Paxton and his counterparts point out that the student loan industry continues to lobby the U.S. Department of Education for more control and autonomy at a time when it is still in urgent need of reform.” – Source

If the Department of Education was doing anything to hold schools and lenders accountable for the massive levels of student loan debt issued with fraud and serviced with incompetence then maybe all of these events would not matter, because they would not happen or be allowed to continue.

But I’ve got an old expression for you: If it looks like a duck, swims like a duck, and quacks like a duck, then it probably is a duck.

*******

This article appeared on the Personal Finance Syndication Network web site and also on The Get Out of Debt Guy site. Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve here.

Like a Galapagos tortoise, Education Department ponders debt relief for students victimized by the for-profit colleges

Corinthian Colleges filed for bankruptcy in 2015, and ITT Tech went bankrupt a year later. Together, the two for-profit college companies left more than half a million students and former students in the lurch. Thousands of these victims filed so-called borrower-defense claims with the Department of Education, asking DOE to forgive their student loans on the grounds that they were defrauded.

The Obama administration approved regulations for processing these claims, but Betsy DeVos put them on hold. She was concerned, she said, that the Obama rules might give undeserving students "free money."

Now DOE has approved a panel of 17 experts to overhaul the Obama regulations. According to a story in Inside Higher Ed, the DeVos Department anticipates the new rules won't go into effect until 2019. Under that timetable, defrauded borrowers won't even have an avenue of relief until four years after Corinthian filed for bankruptcy.

Meanwhile, hundreds of thousands of student borrowers who attended one of the Corinthian schools, ITT Tech, and dozens of other dodgy for-profit colleges will be making monthly loan payments for worthless education experiences. Hundreds of thousands of others will put their loans into deferment, which will relieve them from making loan payments but will cause their loan balances to go up due to accruing interest. And thousands more will simply default, which will allow the federal government's sleazy loan collectors to slap on penalties and fees to their loan balances.

But DeVos doesn't give a damn about the carnage wreaked by the corrupt for-profit college industry. In fact, she is doing everything she can to prop it up.

And so, Betsy DeVos, Amway heiress and for-profit co-conspirator, lumbers along like a Galapagos tortoise, oblivious to the misery experienced by millions of student debtors--who are now defaulting at the rate of 3,000 a day.

The DeVos Education Department ponders student-loan debt relief.

References

Danielle Douglas-Gabriel. Former ITT Tech students fight for some money in the company's bankruptcy case. Los Angeles Times, January 3, 2016.

Andrew Kreighbaum. Education Dept. Borrower-Defense Negotiators. Inside Higher Ed, October 26, 2017.

Shahien Nasiripour. Corinthian Colleges files for bankruptcy. Huffington Post, May 5, 2015.

The Wrong Move on Student Loans. New York Times, April 6, 2017.

Department of Education forgives student-loan debt owed by a wounded veteran, but the IRS sends him a tax bill for $62,000

At age 40, Will Milzarski, an attorney, took leave from his state government job to return to the U.S. Army. After completing officer training, he served two tours of duty in Afghanistan. where he led more than 200 combat missions.

On his last day in combat, Milzarski was wounded in the face, which left him with a traumatic brain injury, hearing loss, and post-traumatic stress disorder.  He was later determined to be totally disabled.

Milzarski returned to civilian life with $223,000 in student-loan debt, most of it acquired to obtain a law degree from Thomas M. Cooley School of Law. In accordance with its policy, the Department of Education forgave all of that debt due to Milzarski's disability status.

But then this wounded veteran received a surprise. The IRS considers forgiven debt to be taxable income, and thus it sent Milzarski a tax bill for $62,000.

Milzarski summarized his experience well. "One part of our government says, 'We recognized your service, we recognize your inability to work," Milzarski said. "The other branch says 'Give us your blood.' Well, the U.S. Army already took a lot of my blood."

Nearly 400,000 disabled Americans have student-loan debt, and this obscure tax provision impacts nearly all of them. Although they are entitled to have their student loans forgiven due to their disability status, this forgiveness comes with a tax bill.

And disabled student-loan debtors are not the only people affected by the IRS forgiven-loans rule. More than 5 million student-loan debtors are in long-term, income-driven repayment plans (IDRs), and most of them are making monthly payments so low that they are not repaying the accumulated interest.

Under the terms of all IDRs (there are several varieties), college borrowers who successfully complete their 20- or 25-year repayment plans are entitled to have any remaining debt forgiven. But IDR participants, like retired Lieutenant Milzarski, will get a tax bill for the forgiven debt.

Obviously, this state of affairs is insane. President Obama recommended a repeal of the IRS rule when he was in office, but nothing  came of his suggestion.

Surely a bill to repeal the IRS forgiven-debt rule would receive bipartisan support in Congress. Who could decently oppose a repeal? In fact, President Trump can probably reverse the rule that is persecuting Mr. Milzarski simply by signing an executive order.

I predict, however, that  that nothing will be done about this problem--either legislatively or by executive action. Washington DC is in so much partisan turmoil that almost nothing positive is getting done. Under current tax law, millions of student borrowers in income-driven repayment plans will have huge tax bills waiting for them when they complete their repayment obligations and have their remaining student-loan debt forgiven.

And unlike retired Lieutenant Milzarski, who is in his forties, most IDR participants will be in their sixties or seventies when their tax bills arrive in the mail. And if they can't pay their taxes, that will not be the government's problem. The IRS will simply garnish their Social Security checks.

Retired Lieutenant Will Milzarski (photo credit Matthew Dae Smith/Lansing State Journal via AP

References

Associated Press. Wounded Michigan vet gets student loan debt forgiven, but now IRS wants $62,000. Chicago Tribune, October 20, 2017.

Jillian Berman. Why Obama is forgiving the student loans of almost 400,000 people. Marketwatch.com, April 13, 2016.

Judith Putnam. Student debt forgiven, but wounded vet gets $62,000 tax bill. USA Today, October 20, 2017.

Michael Stratford. Feds May Forgive Loans of Up to 387,000 Borrowers. Inside Higher Ed, April 13, 2016.

For-profit colleges are exploiting African Americans. But you already knew that.

The National Center for Education Statistics issued a report in early October on long-term, student-loan repayment patterns, and two independent analyses highlighted the loan repayment patterns for African Americans.  Almost half of all black students who entered postsecondary education in 2003-2004 (49 percent) had defaulted on at least one of their student loans within 12 years.

Think about this statistic for a moment.

The consequences of defaulting on a student loan are catastrophic: a ruined credit rating and a ballooning loan balance due to penalties, collection fees, and accelerating interest.  Individuals who default on their student loans will be crippled in their ability to buy a home, marry, have children, or save for retirement.  And bankruptcy relief, although not impossible, is very rare for student-loan debtors. In short, most people who default on their student loans will be burdened by their debt for the rest of their lives.

Who would construct a student-aid system that ruins the lives of half the African Americans who participate in it?

And the story gets worse.  Three out of four black students who took out student loans to attend a for-profit college and then dropped out defaulted within 12 years. In essence, African Americans who borrow to enroll in a for-profit institution and don't finish their programs are playing Russian roulette with their financial futures--Russian roulette with three bullets in a four-shot revolver.

As an Inside Higher Ed article noted, the Department of Education "has not collected much data on student debt that can be broken out by the race or ethnic background of borrowers." Why not? Because DOE does not want the public to know that African American are getting ripped off by the higher education industry--and the for-profits, in particular.

The historically black colleges and universities (HBCUs) benefit from the status quo, the for-profit industry benefits from the status quo, and Congress benefits from the status quo because our legislators take campaign contributions from entities that depend on federal student-aid dollars--including the private equity funds that own some of the for-profit colleges.

Will these recent reports, which highlight racial exploitation in higher education, bring about change? I seriously doubt it. Everyone who is profiting from the federal student-aid program is playing a short game. The insiders want to make as much money as they can before higher education collapses--and collapse is fast approaching.

Russian roulette with four bullets

References

Paul Fain. Half of black student loan borrowers default, new federal data show. Inside Higher Ed, October 17, 2017.

Robert Kelchen, New Data on Long-Term Student Loan Default Rates. October 6, 2017.

Ben Miller. New Federal Data Show a Student Loan Crisis for African American Borrowers. Center for American Progress, October 16, 2017.

Harvey Weinstein, the Napa-Sonoma Wildfires, and California's Travel Ban: Greetings from Flyover Country

Awhile back I wrote about California's legislative travel ban, which bars state-funded travel to states that passed so-called unprogessive legislation. Eight states are now on that list, including Texas and North Carolina.

At the time I wrote, I considered California's travel ban to be arrogant, self-righteous, and gratuitous. But that was before the Harvey Weinstein scandal and the Napa-Sonoma wildfires. Now I consider the travel ban to be pathetic.

People who live in flyover country have grown accustomed to being reprimanded by the California entertainment elites--all those beautiful people who are so cool and sensitive. We've endured public scoldings from the California legislature, which passed a law that bars state-funded travel to eight of California's sister states.

And now we find that Hollywood, the capital of coolness, has been enabling a sexual predator and accused rapist for decades. Everyone in the movie business knew Harvey Weinstein was preying on vulnerable women. His own company knew; in fact Harvey's employment contract contained a clause obligating Weinstein to reimburse his employer for future sexual abuse lawsuits (he had already settled with eight accusers) and to pay escalating penalties for future sexual assault complaints.

And then came the Napa-Sonoma wildfires, which have killed at least 40 people and scorched 350 square miles of the California wine country. Firefighters are pouring in from all over the United States to help fight these fires--including firefighters from North Carolina, which is under California's travel ban.

Do you think the California legislature will bar North Carolina fire crews from tackling the blaze in the Napa Valley? No, of course not. California's politicians want all the help the state can get to put out the deadliest wildfire in California history--even help from insensitive North Carolinians.

Do you think Hollywood will ask the folks in flyover country to boycott all the  movies associated with Harvey Weinstein? No. The movie industry depends on the rubes to buy movie tickets and $10 popcorn. Puh-leeze buy a ticket to see all the movies Harvey Weinstein and his cronies vomited into American culture.

Do you think any of Hollywood's supercilious, pompous asses will apologize to middle America for all the judgmental lectures they delivered while they covered up the Weinstein scandal? No, I don't think so.

But it is not my purpose to scold Hollywood or California politicians now that the Golden State's hypocrisy has been exposed. I don't wish to descend to the level of Alex Baldwin.

No, I wish to evoke the spirit of Woody Guthrie, the great folk singer and Dust Bowl refugee who migrated to California during the Great Depression, back in the days when California state troopers turned Okies away at the state border.

"This land is your land," Guthrie sang. "this land is my land.

From the California to the New York island

From the Redwood Forest

To the Gulf Stream watersThis land was made for you and me.

So this is my message to California:

We, the people of flyover country, grieve for you as you battle the Napa-Sonoma wildfires, and fire crews from all over America will come to help. We'll even continue watching the retched movies that Hollywood grinds out ever year.

But here's the thing: This land is not just your land. It's our land. It was a land made for all of us. So let's all be a little more tolerant toward one another.

Louisiana State University: $30 water bottles, an official personal-injury law firm, and a student's death from alcohol poisoning

I live a couple of blocks from Louisiana State University, and I occasionally visit the campus book store. Or I should say I visit the Barnes & Noble book store that operates on the LSU campus.

As I walked in a few days ago, I noticed a large stack of plastic water bottles, all bearing the LSU logo. How much does such a water bottle cost, I asked myself? I discovered there are two versions. The basic plastic water bottle is priced at $25 and the premium bottle costs 27 bucks.  Actually, the premium bottle costs almost $30 because the buyer also pays a 10 percent sales tax.

Thirty dollars for a plastic water bottle!

The campus bookstore also has a coffee bar that sells Starbucks coffee for about four bucks a pop. Incidentally, the coffee bar is not owned by Starbucks so you can't use your Starbucks gift card there to buy your Starbucks coffee.

But that's OK because most students have debit cards, which they whip out to pay for everything. And how are students paying for $30 water bottles and four-buck exotic coffee? With student loans, of course.

But the expensive items at the Barnes & Noble bookstore are small beer. LSU recently completed a $85 million leisure project that includes a a 645-foot "lazy river" water feature shaped in the letters LSU.

Mercilessly ridiculed for constructing this monstrosity, LSU officials solemnly defended the project. "I will put it up against any other collegiate recreational facility in the country when we are done because we will be the benchmark for the next level,"Laurie Braden,  LSU's recreation director, said in 2015. I have no idea what that means.

LSU's world-class spa is conveniently located near LSU's fraternity houses, but the frat boys apparently are not visiting it enough. Nine members of Phi Delta Theta were indicted this week on charges of hazing after Maxwell Gruver, a freshman from Georgia, died of "acute alcohol intoxication" while at a drinking party.

Hazing is a crime in Louisiana, but the frat boys' lawyers insist that the drinking incident was not hazing. As a matter of fact, a fraternity member lured Gruver to the drinking site by directing him to report for "Bible study." And perhaps that is the proper description of an incident that left Gruver's system pickled with five times the legal amount of alcohol in his system.

In any event, what's the big deal? According to experts, Gruver "probably slipped out of consciousness and died without pain . . ., as if under anesthesia." And no one was charged with murder because, hey, college boys will be college boys.

Mr. Gruver's death will soon be forgotten.  All that matters at LSU is football. LSU's stadium was expanded to seat 103,000 fans, including the high rollers who sit in air-conditioned executive suites and drink premium liquor while the plebeians sweat it out in the cheap seats.

Everyone wants to be associated with the LSU Tigers. In fact, the Tigers have an official personal-injury law firm by the name of Dudley DeBosier. What does it mean to be the LSU Tigers' official injury law firm? Dudley DeBosier explains it to us on its web site:

"Being the Official Injury lawyers of LSU Athletics means more to us than just a simple sponsorship," the firm assures us:

It means hot boudin, jambalaya, fried catfish, and more gumbo than you can eat. It’s thousands of smiling faces walking in between stately oaks and broad magnolias on a Saturday morning. It’s the sound of Tiger Stadium as you cheer on your team with 100,000 of your closest friends. It’s the traditions, tailgates, and everything else we love about Louisiana.

 Got it. So if I get maimed on Interstate 10 by an 18-wheeler, I'm going to hire Dudley DeBosier to sue the trucking company because--well, Dudley DeBosier is LSU's official injury law firm.

Meanwhile, LSU is tearing down an old dorm and constructing new, more luxurious student housing. Some LSU officials feel that the students should live in at least as much splendor as Mike the Tiger--LSU's mascot, who resides in a "habitat" that looks like Club Med.

LSU officials say they are only providing all these amenities because this is what today's students demand. And indeed, the student body voted to pay for the lazy river with student fees.  From the students' perspective, I suppose, the cost of going to college is immaterial. After all, everything is paid for with student loans; and if the costs go up, Uncle Sam and Wells Fargo are always there to loan students more money.

Maxwell Gruver probably "died without pain" from alcohol poisoning

Meanwhile, Mike the Tiger has his own private swimming pool.

References


Rebekah Allen, Grace Toohey, and Emma Discher. 10 booked in LSU fraternity hazing death case. The (Baton Rouge) Advocate, October 12, 2017, p. 1.

Alla Shaheed. LSU's 'lazy river' leisure project rolls on, despite school's budge woes. Fox News, May 17, 2015.

Lela Skene. LSU fraternity pledge Maxwell Gruver's 'off the charts' blood-alcohol level shocks experts. The (Baton Rouge) Advocate, October 11, 2017.

Bloomberg reports that student-loan delinquencies have ticked upward: Another sign of growing misery among student debtors

Shahien Nasiripour, writing for Bloomberg.com, wrote an article last month about rising student-loan delinquency rates. As of June 30th, 18.8 percent of student borrowers were at least one month late on their loan payments.  That's about 3.3 million college borrowers.

The Department of Education's June report showed a slight uptick from the delinquency rate one year earlier, when 18.6 percent of student debtors were a month late on their loan payments.

What does this mean?

Yelena Shulyatyeva, a senior economist for Bloomberg Intelligence, professed to be mystified. "There's no fundamental reason for that to be happening," Shulyatyeva said.

James Kvaal, who was President Obama's Deputy Director of White House Domestic Policy, also seemed stumped by rising delinquency rates. "That the trend has stalled," Kvaal said, "is not yet a warning sign, but it is a question mark."

Nasiripour, who has done some fine reporting on the student loan crisis, summarized why this development is puzzling to many policy experts. "After all," she wrote, "the U.S. economy has improved since June of last year, with lower unemployment, higher household incomes and increased wealth, federal data show." Moreover, Nasiripour pointed out "Consumers are more confident about the economy, and their own personal finances, too, according to Bloomberg Consumer Comfort data."

But rising delinquency rates are just one more sign that the student loan program is in meltdown. Let's tick off some more disaster indicators:

• Last year, 1.1 million Americans defaulted on their student loans at an average rate of 3,000 defaults a day.

• A recent report released by the National Center for Education Statics revealed that almost 6 people in ten who first enrolled for postsecondary education in 1995-96 had not paid off their student loans 20 years later.

• As reported by the Wall Street Journal, more than half the students at a thousand colleges and schools had not reduced their student-loan debt by one penny seven years into repayment.

• According to a 2016 report from the Government Accounting Office, half the people who entered income-driven repayment plans to lower their monthly loan payments were removed from their IDRs for failing to recertify their income.

• A Brookings Institution report noted that more than one out of four people (28 percent) in a recent cohort of student borrowers defaulted on their loans within five years of beginning repayment. The default rate among students who attended for-profit colleges was 47 percent.

Congress, the Department of Education, and the higher education industry refuse to face reality. I suppose all the people who should be addressing this crisis are hoping they will be retired and playing golf in Florida when the student-loan program collapses.

And collapse it will. In the meantime, millions of student-loan debtors are buried under a mountain of debt.

I believe the federal bankruptcy courts are slowly awakening to this crisis and that they are increasingly willing to rule compassionately toward distressed student debtors who seek bankruptcy relief.  The Murray decision out of Kansas, which was affirmed on appeal last month, is a heartening sign.

The Murrays were fortunate enough to have been represented by an able attorney, and they also received assistance in the form of an amicus brief filed by the National Consumer Law Center and the National Association of Consumer Bankruptcy Attorneys.

Unfortunately, few insolvent student debtors are able to find attorneys to take their cases. If American lawyers understood the student-loan crisis for what it is--a human rights issue, they might take up some of these cases as volunteers, much as the civil rights lawyers did in the 1960s, when attorneys from across the United States came South at the risk of their lives to represent civil rights activists.

I am convinced that the solution to the student-loan catastrophe lies with the federal bankruptcy courts. Congress does not have the collective courage to address this problem legislatively, and the higher education industry--like a cocaine addict--survives from day to day on regular infusions of federal student-aid money.

American colleges, like drug addicts, survive from day to day on regular infusions of federal student-aid money.

References

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

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).

Shahien Nasiripour. More Americans Are Falling Behind on Student Loans, and Nobody Quite Knows Why. Bloomberg.com, September 28, 2017.

The Wrong Move on Student Loans. New York Times, April 6, 2017.

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.

Jennie H. Woo, Alexander H. Bentz, Stephen Lew, Erin Dunlop Velez, Nichole Smith, RTI International,  (2017, October). Repayment  of Student Loans as of 2015 Among 1995-96 and 2003-04 First-Time Beginning Students. First Look (NCES 2018-410). U.S. Department of Education. Washington DC; National Center for Education Statistics. [Sean A Simone, Project Officer]

Alan and Catherine Murray discharged more than $200,000 in student loans in a Kansas bankruptcy court and their victory was affirmed on appeal: Good news for middle-income college borrowers

In a previous essay, I wrote about Alan and Catherine Murray, a married couple in their late forties who defeated Educational Credit Management Corporation in a Kansas bankruptcy court.  ECMC appealed, and the Murrays prevailed again--a victory that has important implications for middle-income student-loan debtors.

The Murrays took out student loans in the 1990s to obtain undergraduate degrees and master's degrees. Their total indebtedness was $77,000, which they consolidated in 1996 at an interest rate of 9 percent.

Over the years, the Murrays paid $54,000 toward paying off these loans--70 percent of the amount they borrowed. But they obtained economic hardship deferments during periods of financial stress, which allowed them to skip some loan payments.  And they entered into an income-based repayment plan to lower their monthly payments to a manageable level.

Although the Murrays handled their student loans in good faith, interest on their debt continued to accrue; and they made no progress toward paying off their debt. In fact, when they filed for bankruptcy in 2014, their loan balance had ballooned to $311,000--four times what they borrowed!

Judge Dale L. Somers, a Kansas bankruptcy judge, gave the Murrays a partial bankruptcy charge. It was clear, Judge Somers ruled, that the Murrays could not pay off their total student-loan indebtedness and maintain a minimal standard of living. And it was also clear that their financial situation was not likely to change. Finally, Judge Somers concluded, the Murrays had handled their student loans in good faith--an essential requirement for discharging student loans in bankruptcy.

On the other hand, Judge Somers determined, the Murrays could pay off the original amount they borrowed ($77,000) and still maintain a minimal standard of living. Thus, Judge Somers discharged the accumulated interest on the Murrays' debt, but required them to pay back the original amount they borrowed.

ECMC, the Murrays' ruthless creditor, appealed Judge Somers' decision. ECMC argued, as it always does, that the Murrays should be put in a long-term income-based repayment plan (IBR) that would last from 20 or 25 years.

But U.S. District Court Judge Carlos Murguia, sitting as an appellate court for the appeal, affirmed Judge Somers' decision. "The court agrees with Judge Somers' findings and conclusions that [the Murrays] made a good faith effort to repay their loans," Judge Murguia wrote.

Significantly, Judge Murguia, ruling in the capacity of an appellate judge, explicitly rejected ECMC's argument that the Murrays should be placed in an IBR and that none of the Murrays' $311,000 debt should be forgiven.

"The court disagrees," Judge Murguia wrote. "Under the circumstances of this case, debtors' payments under an IBR plan are insufficient even to stop the accrual of additional interest, and such payments directly contravene the purpose of bankruptcy."  Judge Murguia noted that Judge Somers had not discharged all of the Murrays' indebtedness--only the accumulated interest. "He discharged that portion--the interest--that had become an undue hardship on debtors, denying them a fresh start."

ECMC v. Murray is an important case for two reasons: First, this is one of the few student-loan bankruptcy court decisions that have granted relief to middle-income student borrowers. The Murrays' combined income was about $95,000.

Second, the key ruling by both Judge Somers and Judge Murguia was their finding that the interest on the original debt would constitute an undue hardship for the Murrays if they were forced to pay it back. Furthermore, this would be true even if the Murrays were placed in an IBR because the monthly payments under such a repayment plan were insufficient to stop the accrual of interest.

There are hundreds of thousands of people in circumstances very similar to the Murrays. Their loan balances have doubled, tripled or even quadrupled due to accumulating interest. People in this situation will never pay off their total indebtedness. But most of these people, like the Murrays, can pay off the amount they originally borrowed if only the accumulated interest were wiped out.

Let us hope student loan debtors situated like the Murrays will learn about ECMC v. Murray and find the courage to file bankruptcy and seek a discharge of their student loans--or at least the accumulated interest.  After all, it is the accumulated interest, penalties and fees that have put millions of student borrowers in a hopeless situation. The Murray decision offers a fair and reasonable solution for these people and gives them a fresh start. A fresh start, after all, is the core reason that  bankruptcy courts exist.


References

Murray v. Educational Credit Management Corporation (Bankr. D. Kan. 2016), aff'd, No. 16-2838 (D. Kan. Sept. 22, 2017).

Why won't Congress do a few things to ease the student debt crisis like stop the government from garnishing Social Security checks of elderly student-loan defaulters?

James Howard Kunstler posted a blog last week in which he challenged Congressional Democrats to introduce legislation to counteract the effect of Citizens United v. Federal Election Commission, 558 U.S. 310 (2010). In that case, you may recall, the Supreme Court ruled that corporations can give as much money as they like to political campaigns. 

All sensible people agree that Citizens United triggered a new level of corruption in national politics as corporations pump millions of dollars into Congressional campaign coffers in order to protect their venal interests.

President Obama complained publicly about Citizens United while he was in office.  But he didn't do anything about it, even though he could have ameliorated its effect through legislation when the Democrats controlled the Senate and the House of Representatives.

Democrats can still put a Citizens United override on their legislative agenda as Kunstler challenged them to do:

That’s your assignment Chuck Schumer, Nancy Pelosi, and the rest of the Democratic Party leadership. Get serious. Show a little initiative. Do something useful. Draw up some legislation. Get behind something real that might make a difference in this decrepitating country. Or get out of the way and let a new party do the job.

And of course there are plenty of other things the Democrats can do to promote fairness and justice in our society. As Gretchen Morgenson pointed out in a New York Times article last year, hedge fund managers get a special tax break allowing them to pay lower taxes on their income than most Americans.  That's right: a hedge fund manager is taxed at a lower rate than a New York school teacher.  President Obama could have closed that loophole in the tax law by executive action, but he didn't.

And then there's corporal punishment in the schools. Researchers are unanimous that beating children with boards is not good for them, and the United Nations has identified corporal punishment as a human rights abuse.

In the waning days of the Obama administration, Secretary of Education John King, Jr. condemned corporal punishment in an open letter to the nation's school leaders. But why didn't King speak up sooner? Corporal punishment in schools is a wrong that Obama's Department of Education could have stopped with an administrative regulation. Why didn't it? 

And then there's the student-loan program, which has brought suffering to millions.  According to the Government Accountability Office, the Department of Education garnished the Social Security checks of 173,000  student-loan defaulters in 2015, a practice that Senator Elizabeth Warren bitterly condemned. The amount the government collects each year is a pittance--about one eighth the amount Hillary Clinton spent during the 2016 election season. And most of the money the Feds collect goes to paying interest and penalties without reducing the debtors' loan balances at all.

Senator Warren and Claire McCaskill filed a bill to stop the garnishment of student debtors' Social Security checks, but the measure never made it out of committee. Why won't Senator Schumer and Representative Pelosi get behind that bill? Who could decently oppose it?

In fact, there are numerous noncontroversial things our Congressional representatives could do to ease widespread suffering among the nation's poorest Americans. But  our Congressional representatives are not doing these things. 

Why? Two reasons.

 First, they don't want to do noncontroversial good things because that would mean sharing the credit with their political enemies.

And second, Nancy Pelosi, Chuck Schumer, John McCain, Mitch McConnell and all our other bozo representatives don't work for us. They work for the lobbyists, their campaign contributors, and the global financial institutions; and that keeps them pretty busy.

References

Secretary of Education John B. King, Jr. Letter to Governors and State School Officers, November 22, 2016.

James Howard Kunstler. Homework Assignment. Clusterfuck Nation, September 29, 2017.

Gretchen Morgenson. Ending Tax Break for Ultrawealthy May Not Take Act of Congress. New York Times, May 6, 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).

Long-term student-loan repayment rates are shockingly low: A new report from the National Center for Education Statistics

Last month, the Department of Education released its latest report on three-year default rates for the 2014 cohort of student borrowers. DOE reported a three-year default rate of 11.5 percent, up slightly from the Department's 2016 report.

A student-loan default rate of 11.5 percent doesn't seem so bad. After all, nearly 90 percent of the 2014 cohort are not in default.

But wait a minute. Instead of looking at default rates, let's look at repayment rates. How  many people are paying off their loans?

It's not a pretty picture. A few days ago, the National Center for Education Statistics produced a report on student-loan repayment rates; and the NCES's findings are alarming. The report is packed with incomprehensible, technical jargon and far too many tables and appendices, but if you dig around in the report,  you get to the heart of the matter.

Among borrowers who were first-time students in 1995-1996 (more than 20 years ago), less than half had paid off their loans by 2015. According to NCES, only 41.3 percent of the students in this cohort had paid off their loans 20 years after first entering postsecondary education.

What is the status of the other 59 percent? About 31 percent were still making payments in 2015, 13.8 percent had their loans in deferment, and 13.7 percent were in default.

In the 2003-2004 cohort of borrowers, only 23.5 percent had paid off their loans 12 years after beginning their studies. Three quarters of borrowers in this cohort were still making payments, had loans in deferment, or were in default.

As we would expect, student borrowers who obtained bachelor's degrees or higher had the best repayment rates. Nevertheless, in the 1995-96 cohort, only half of these people had paid off their student loans twenty years after they first enrolled in college.

The bottom line is this.  By giving out deferments and encouraging student debtors to enter long-term repayment plans, the Department of Education has kept its official student-loan default rates artificially low. But the fact remains that almost 60 percent of a cohort borrowers who took out student loans in the mid-nineties had not paid off their loans 20 years later.

And remember, people in the repayment phase who aren't paying down their loans or who are making token payments are seeing their loan balances grow larger with each passing month. An individual who hasn't paid back his or her student loans after 20 years is probably never going to pay them back because the loan balance is out of control.

That should scare Betsy DeVos and her minions at DOE. But she is focused on propping up the for-profit college industry and not the appalling data that show that a majority of college borrowers cannot pay off their student loans even when given 20 years to do so.

Presiding over a looming disaster

References

Andrew Kreighbaum. Post-Recession Borrowers Struggle to Repay Loans. Inside Higher Ed, October 5, 2017.

Jennie H. Woo, Alexander H. Bentz, Stephen Lew, Erin Dunlop Velez, Nichole Smith, RTI International,  (2017, October). Repayment  of Student Loans as of 2015 Among 1995-96 and 2003-04 First-Time Beginning Students. First Look (NCES 2018-410). U.S. Department of Education. Washington DC; National Center for Education Statistics. [Sean A Simone, Project Officer]