Parent PLUS loans: African American families are being exploited by HBCUs

Rachel Fishman wrote a report for New America titled "The Wealth Gap PLUS Debt: How Federal Loans Exacerbate Inequality for Black Families."   But a better titled would have been this: "The Parent PLUS student-loan program screws African American families."

Parent PLUS is a federal student loan program that allows parents to take out student loans for their children's postsecondary education. Parents can borrow up to the student's total cost of attending the college of their choice--there is no dollar cap on the amount that parents can borrow.

Originally, the Parent PLUS program had very low eligibility criteria, and the Department of Education was making loans to parents who had a history of bad debts. DOE tightened the criteria in 2011, which raised an outcry from HBCUs (Historically Black Colleges and Universities).

HBCUs favor Parent PLUS loans because DOE does not report default rates on these loans and does not penalizes colleges for high Parent PLUS default rates.  As Fishman explained, "Parent PLUS loans are not included in CDR [cohort default rate] calculations, rendering them a no-strings-attached revenue source for colleges and universities" (P. 9). Indeed, for many colleges, "Parent PLUS loans are like grants; they get money from the federal government and the parent is on the hook to repay."

In response to strenuous protests from HBCUs, the Obama administration backed off on its efforts to make borrowing standards more rigorous, and the amount of money parents borrow under the program has increased.  According to Fishman, the percent of Parent PLUS borrowers with debt over $50,000 increased from 3 percent in 2000 to 13 percent in 2014 (p. 19).

Basically, the Department of Education is toadying to the HBCUs by loaning money recklessly to African American families that probably can't pay it back. In fact, Fishman reported that one third of African American parents taking out PLUS loans had incomes so low they were able to make zero estimated family contributions (EFC) to their children's college costs.

As Fishman points out, Parent PLUS loans adds to  a family's total debt for putting a child through college. Black families with zero EFC accumulate an average of $33,721 in "intergenerational indebtedness," which includes an average of $11,000 in PLUS loans in addition to the amount borrowed by the students themselves.

Fishman's report adds to a growing body of evidence showing that African Americans are getting screwed by the federal student loan program. Ben Miller, writing for the Center for American Progress (as reported by Fishman) "found that 12 years after entering college, the median Black borrower owed more than the original amount borrowed."  And default rates for African American college graduates is almost triple the rate for white graduates: 25 percent for black graduates and only 9 percent for white graduates.

A Brookings Institution report also calculates high default rates for black student borrowers. Judith Scott's Brookings report estimates that 70 percent of African American borrowers in the  2003-2004 cohort will ultimately default.

And the student-loan default rate for African Americans who drop out of for-profit schools without graduating is catastrophic.  Three out of four black students who borrow money to attend a for-profit institution and drop out before graduating default on their student loans.

But who gives a damn if the federal student loan program screws African American students and their families? HBCUs like the Parent PLUS program, because the Parent PLUS default rate doesn't penalize the colleges.  Parent PLUS money is essentially "free money" to a HBCU although one third of African American families who take out these loans show zero ability to repay.

References

Rachel Fishman. The Wealth Gap PLUS. How Federal Loans Exacerbate Inequality of Black Families. New America.org, May 2018.

Andrew Kreighbaum. How Parent Plus Worsens the Racial Wealth Gap. Inside Higher Ed, May 15, 2018.

CFPB to Shift Focus From Protecting Student Loan Debtors to Something Else. Essay by Steve Rhode

By Steve Rhode on May 10, 2018

Recently the Trump administration has tried to change the law so individual states would not be able to enforce ;laws covering student loan debt collectors.

The new head of the Consumer Financial Protection Bureau (CFPB), Mick Mulvaney, has just released the updated agenda for the CFPB.

According to the new agenda, the CFPB would drop its efforts to push forward regulations of student loan collectors and scrap “student loan servicing” from its focus.

Mulvaney has also indicated the CFPB will retreat from doing anything regarding student loans in general.

“This defangs the watchdog and instead turns the office into a lapdog for the industry,” said Chris Peterson, a former top CFPB official who is now director of financial services at the Consumer Federation of America.

The unit which has been the tip of the spear on these CFPB student loan efforts to protect debtors has been informed they will be reorganized into the CFPB Office of Financial Education. Now there is a department title which just screams no enforcement.

“This is a very significant change in the mission of the student office,” said Christopher Peterson, a law professor at the University of Utah and former enforcement attorney at the CFPB.

“America is facing an ongoing student debt crisis, with outstanding student debt surpassing $1.5 trillion and over 8 million borrowers in default on their student loans. Closing the office for students is like shuttering the fire department in the middle of a three-alarm fire,” Alexis Goldstein, the senior policy analyst at Americans for Financial Reform, said.

I don’t get it. All actions that have been taken by the Department of Education and now the new modified CFPB have the net effect of restricting supervision of student loan collectors, limit state authority to protect citizens from student loan collection abuse, reduce debt elimination from federal student loan fraud by schools, and give easier access to student loan money by for-profit schools.

You don’t need to read the tea leaves here to see what is going on, you just need to look at the billboard.

I don’t care what your political stripes are. With all these changes any student with any student loan debt should expect to be less protected from collector misinformation, bad advice, and poor servicing.

If you don’t believe me, just go ahead and file a complaint against your student loan servicer and see how much protection you get. Your new friend will be the word NONE.

Steve's essay was originally posted on The Get Out of Debt Guy web 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. 

Baby Boomers are stealing from the Millennials: Stocks and bonds for grandma and grandpa; perpetual debt for their grandchildren

Baby Boomers are stealing from the Millennials. People in their 60s and 70s are retiring comfortably in sunny Florida or taking luxury river cruises down the Danube. Meanwhile, their grandchildren are struggling with massive student-loan debt they will never pay off.

As John Rubino put it, "we baby boomers have rigged the system in our favor at the expense of pretty much everyone else," forcing younger generations to take out student loans to get their college degrees. "[S]tudent loans--barely necessary when most boomers graduated 40 years ago--have become a life-defining problem for our kids and grandkids."

Rubino is right. The people who run this country--judges, legislators, college presidents, and the captains of industry--got their college degrees for a modest sum; and most graduated with little or no student debt. But their grandchildren will take out massive student loans to get their postsecondary credentials, and many will remain indebted for decades.

According to a Brookings Institution report, most student borrowers with large loan balances are not defaulting on their loans; they just aren't paying them back. Millions have their loans in deferment, allowing them to skip their loan payments without being put into default.  Six million are now enrolled in some type of income-based repayment plan (IBR) that allows them to make smaller loan payments but keeps them indebted for 20 or 25 years.

Millions more are simply defaulting on their loans--which means their credit is shot and their loan balances have shot upward due to default penalties and accrued interest on their unpaid debt. According to the New York Times, college borrowers defaulted at the rate of 3,000 a day in 2016.

Rubino sees only one solution to this mess:"massive devaluation" of our currency to allow student debtors to pay off their loans with cheaper money. But that won't work unless Millennials' salaries rise high enough so that current debt loads are no longer burdensome. And there is no sign this is happening.

Total outstanding student-loan indebtedness is now about $1.5 trillion, or $1.6 trillion if you include private student-loan debt. About half of this amount will never be paid back. We really only have two options. We can forgive billions of dollars in uncollectable student-loan debt or we can continue to allow millions of Americans to slip out of the middle class--dragged down by their student loans and unable to buy homes or save for their retirement.

References

Adam Looney & Constantine Yannelis. Most students with large loan balances aren't defaulting. They just aren't reducing their debt. Brookings Institution, February 16, 2018.

Josh Mitchell. The Rise of the Jumbo Student Loan. Wall Street Journal, February 16, 2018.

John Rubino. Loan Shark Nation: Forcing Our Kids To Choose Between Student Loans And Everything Else.

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

College borrowers who see their student-loan debt triple will never pay off their loans: The tragic story of Rick Tallini

Pope Francis once said that a life prison sentence is essentially a death sentence, and of course he is right.

Something similar can be said about college borrowers who see their debt load double, triple, or even quadruple. They've received a life sentence of indebtedness, and a death sentence to any dreams they may have about retiring or purchasing a home.

Here's an example of what I'm talking about. Rick Tallini borrowed $55,000 to go to law school back in the 1990s.  Had he gotten a good job immediately after graduating, he would have been fine. But Tallini didn't find that good job, and so he put his loans in deferment for extended periods of time, while interest accrued at 8 or 9 percent.

Around ten years after he graduated (according to a CNBC story), Tallini's loans went into default, and his student-loan creditor tacked on additional fees. By the time Tallini consolidated his loans, he owed $150,000--nearly three times what he borrowed. Apparently, his debt continued to grow due to accruing interest, and now he owes $330,000--six times what he borrowed!

Will Tallini ever pay off this debt?  Of course not. The federal government sentenced him to a lifetime of indebtedness--an economic death sentence. Although the CNBC story did not say, Tallini probably does not own his own home, and he probably has inadequate savings toward his retirement.

Mr. Tallini, who is 61 years old, really has only two options: He can file for bankruptcy and attempt to discharge his debt in an adversary proceeding. If he goes that route, he could be in litigation for years because the U.S. Department of Education and its proxy debt collectors will overwhelm him with their teams of heartless attorneys.  And he might not prevail.

Alternatively, Tallini can sign up for a long-term income-based repayment plan that can last 20 or 25 years.  He could be dead before his repayment obligations are met. And if he is fortunate to still be above ground when his income-based repayment plan terminates, the IRS will send him a bill for the forgiven amount of his loan because the IRS considers forgiven debt to be income.

In my view, Mr. Tallini's case demonstrates irrefutably that America is no longer a just society and our colleges and universities are no longer working for the public good. Higher education (including legal education) is a racket financed by student loans owed by people like Rick Tallini, who went to law school more than 20 yeas ago hoping to build a good and satisfying life.

And look at what he got instead. Crushing debt he will never pay off.

Rick Tallini owes $330,000 in student debt. Photo credit: CNBC

References

Annnie Nova. He had $55,000 in student loans, now he owes $330,000 . . . Here's how it happened. CNBC.com, May 6, 2018.

Annie Nova. These are the ways student loans stop people from buying houses. CNBCcom. March 31, 2018.

Mount Ida College closes down: Knowing when to fold 'em

General George Washington fought a brilliant campaign in the Delaware Valley during the winter of 1776-1777, but he knew when to fold his cards. He won a stunning victory at the battle of Trenton, where he caught the Hessians with their pants down on the day after Christmas.  But a week later, Washington and his army found themselves facing General Cornwallis' elite British forces arrayed against him across Assunpink Creek. Night was falling; and Washington knew his army would be annihilated if it didn't hit the road before dawn.

What to do?

Washington didn't stick around for a battle. His army sneaked away under cover of darkness, leaving campfires burning and a small rear guard to deceive the British into thinking the Continentals were going to fight it out the next morning.

Mount Ida College, like George Washington, knows when to slip away. Following Washington's example, it gave every indication that it would be open for business for the 2018-2019 school year. The college admitted a new freshman class; it even offered scholarships to attract more students.

Then, seemingly out of the blue, Mount Ida announced it was shutting down.  It had been quietly negotiating with the University of Massachusetts at Amherst, which agreed to buy Mount Ida's 72-acre campus for $70 million. It also revealed that it had agreements in place with nearby colleges to take Mount Ida's transfer students.

Did Mount Ida behave reprehensibly? I don't think so. I'm sure Mount Ida's governing board knew it had to act in secrecy in order to make a clean getaway.

Understandably, students, parents, and Mount Ida professors are angry.  "Why are you preying on our children, luring them to come to Mount Ida with nonexistant money?" a mother of an incoming freshman asked.

Professor Fernando Reimers, a Harvard professor and member of the state board of higher education, also judged Mount Ida harshly. "It seems to me that this is not only an example of system failure," Reimers fulminated self-righteously.  "[T]his is an example of serious leadership failure."

But what does Professor Reimers know about running a small liberal arts college? Not much, I'll warrant.

Mount Ida is the latest name on a growing casualty list of small colleges that are calling it quits.  These little boutique schools just can't make it in an age of soaring tuition and an ever more burdensome regulatory environment.

We shouldn't condemn Mount Ida's governing board for the way it announced the school's closure. There is no painless way to shut down a college. It may have acted deceptively by pretending it was going to be operating for another year, but Mount Ida was simply stoking its campfires, much like Washington did on the banks of Assunpink Creek, sneaking away as best it could in the face of overwhelming forces.

As the immortal Kenny Rogers put it, you have to know when to hold 'em, know when to fold 'em, know when to walk away, and know when to run. In the next few years, we will see a lot of small colleges shut down. Parents who don't want to run the risk that their children's college will shut down precipitously, should send their kids to a public university.

George Washington knew when to fold 'em.

Fail State, Alexander Shebanow's Documentary about For-Profit Colleges, is an excellent movie. Go see it.

A few nights ago, I watched Fail State, Alexander Shebanow's documentary movie about the seedy for-profit college industry.  Director Shebanow did a masterful job of explaining how for-profit colleges have used deceptive recruiting techniques, strategic campaign contributions, and congressional lobbyists to rip off vulnerable Americans: minorities, the poor, and first generation college students. Over the years, the for-profits have sucked up billions of dollars in federal student-aid money while offering shoddy education programs that left their students with enormous student-loan debt and no work skills.

Shebanow's movie has two broad themes. First, the director shows the for-profit college industry for what it is: a quasi-criminal enterprise that undermines the integrity of higher education. Second, Shebanow's story showcases community colleges as the proper institutions for offering inexpensive but useful postsecondary training.

The student-loan crisis is a long, sad saga of corruption and deceit, and no 90-minute movie can cover the whole story. Nevertheless, I wish Fail State had touched on some of the reforms that could offer student-loan victims relief from crushing debt.

About 20 million people are burdened by student loans they can't pay back. This number includes students who attended for-profit colleges, private nonprofit schools, and state universities.  The Federal Reserve Bank of New York has documented that this huge level of indebtedness is undermining the national economy. In my view, the only sensible thing to do is open up the bankruptcy courts to theses sufferers and give them an opportunity for a fresh start, freed from debs they cannot pay.

Moreover, although Shebanow's indictment of the for-profit colleges is damning and irrefutable, I wish the movie had more clearly stated that this industry needs to be completely shut down. Trying to clean up this gangster industry by enacting tougher regulations will be about as effective as trying evangelize a crocodile.

In a sense, Fail State is much like The Big Short, the star-studded movie about the subprime mortgage meltdown. Both stories are sagas about greed, corruption, and governmental indifference. Shebanow directed a fine movie, and everyone thinking about enrolling at a for-profit college should be required to see it before signing on the dotted line.

References

Zachary Bleemer, et al. Echoes of Rising Tuition in Students' Borrowing, Educational Attainment, and Homeownership in Post-Recession America. Federal Reserve Bank of New York Staff Report No. 820, July 2017.

Professor Randa Jarrar, who rejoiced at the death of Barbara Bush, boasts she can't be fired

Randa Jarrar, a tenured English professor at Fresno State University, made the news this week for her tasteless tweet about the death of Barbara Bush. This is what Jarrar said:

Barbara Bush was a generous and smart and amazing racist who, along with her husband, raised a war criminal. F*** outta here with your nice words. 

PSA: either you are against these pieces of shit and their genocidal ways or you're part of the problem. that's actually how simple this is. I'm happy the witch is dead. can't wait for the rest of her family to fall to their demise the way 1.5 million iraqis have. byyyeeeeeeee.

All the hate I'm getting ALMOST made me forget how happy I am that George W Bush is probably really sad right now.

Jarrar has been roundly excoriated  by conservative pundits for her crude remarks about a great American, but she is unrepentant. Here is Jarrar's response to her critics: 

sweetie i work as a tenured professor. I make 100K a year doing that. i will never be fired. i will always have people wanting to hear what i have to say. even you are one of them!

Perhaps enough has been said about Jarrar's boorish behavior, but as a tenured professor myself, I would like to add a few reflections.

First, Randa Jarrar exemplifies all that is wrong with higher education today. A tenured professor--an English professor, for God's sake--apparently saw the death of Barbara Bush as an opportunity to spew sneering profanity into the twittersphere.  There was a time when university professors were expected to be models of civility and decency. The very idea that an English professor at a public university  would cruelly mock a recently deceased First Lady even before Mrs. Bush was buried should shock us all.

Secondly, Jarrar's taunting retort to her critics presents a strong argument against tenure. Tenure's defenders say it is necessary to preserve academic freedom, but Jarrar seems to think that tenure is nothing more than a license to behave boorishly. "[I] will never be fired," she boasted; and people will always want "want to hear what [I] have to say." Really?

Isn't it outrageous that Randa Jarrar has a tenured position at a California university, which comes with excellent health insurance and a good pension? Meanwhile millions of Americans have student loans up to their eyeballs--loans taken out to take classes from buffoons like Professor Jarrar.

But this is the saddest thing of all about the Jarrar affair: Professor Jarrar is probably right. She will never be fired.

Professor Randa Jarrar: "i will never be fired"

References

Leah Barkoukis. Fresno State Has Some News For Bush-Bashing Professor Who Thinks She Can't Be Fired. Townhall.com, April 19, 2018.