Senator Elizabeth Warren can survive Cherokee-Gate if she focuses on student-loan crisis

To my surprise, Senator Elizabeth Warren officially announced she is running for President, her head "bloodied but unbowed" by the scandal about her ethnic heritage, which I will call Cherokee-Gate.

Warren is a U.S. Senator from Massachusetts, which is remarkably tolerant of screw ups. Senator Ted Kennedy's political career survived Chappaquiddick (although Mary Jo Kopechne did not). Congressman Barney Frank continued serving in Congress after he admitted hiring a male prostitute as a personal aide. Representative Gerry Studds was elected to Congress six more times after he was censored by the House of Representatives for having a sexual relationship with a 17-year old page (the vote was 420 to 3). In fact, Studds' constituents on Martha's Vineyard gave him a standing ovation after his sex scandal broke.

So Liz came take comfort from the fact that Massachusetts probably doesn't give a damn whether she advanced her career by calling herself an American Indian. The Bay State likes to send moral reprobates to Washington DC.

But playing footsie with one's race to get ahead in the Ivy League won't play well in the Rust Belt, where the children of unemployed steel workers lack the temerity to call themselves Chippewas in order to get a college scholarship.

Thus, if Warren's presidential bid is to have legs, she needs to develop a substantive campaign platform to distract potential voters--and she needs to do it fast. How about focusing on the student-loan crisis?

Senator Kamala Harris stole a march on Warren when she came out for free college, so Liz has got to think of something sexier regarding the student-loan fiasco.  Here are some suggestions, which I hope she will embrace:

1) Legislation barring the federal government from garnishing Social Security checks of elderly student-loan defaulters, a proposal that Senator Warren and Senator Claire McCaskill proposed a few years ago.  That's a no-brainer, in my view.

2) Amending federal law to stop the IRS from treating forgiven student-loans as taxable income. Who could argue against that?

3) Capping accrued interest, penalties and refinancing fees on student loans to no more than 50 percent of the original amount borrowed. Currently, we see college borrowers whose student-loan balances have ballooned to three or four times the original loan amount. Surely that' a reasonable proposal.

4) Revising the Bankruptcy Code to allow distressed student-loan debtors to discharge their student loans in bankruptcy like any other unsecured consumer debt. Or if that lift is too heavy, at least let borrowers discharge their private student loans in bankruptcy.

5) Allowing parents to discharge their Parent Plus loans in bankruptcy if they run into financial trouble and can't pay off the loans they took out for their children's college education.

I admit I hold a grudge against Senator Warren for her Cherokee scam. After all, I grew up in Anadarko, Oklahoma; and it never occurred to me to call myself a a Nadarko Indian. Just like Liz, I've got a law degree; and Liz's eyes are bluer than mine.  If I'd played my cards right, I too might have become a Harvard law professor.  I might have been Harvard Law School's first cisgendered person of color!

But all will be forgiven as far as I'm concerned if Senator Warren will only endorse some of the proposals I've listed. And if she would do that, I think she might do very well in the Iowa caucuses.

Kinney v. National Collegiate Master Student Loan Trust: Iowa bankruptcy judge discharges student loans that a man cosigned for his niece

Anthony Kinney, a 52-year-old working guy with a modest job in the plastic industry, co-signed three student loans for his niece. His niece defaulted, and National Collegiate Master Student Trust I (probably an investment fund) began efforts to collect on two of the loans from Kinney.

Kinney filed for bankruptcy to discharge the loans, and he made two arguments. First, he argued that the Bankruptcy Code's "undue hardship" rule didn't apply to him because he only cosigned the loans and received no benefit from them. Second, Kinney maintained that paying back his niece's loans would be an undue hardship.

Bankruptcy Judge Thad Collins declined to rule on Kinney's first argument, but he agreed with Kinney that repaying the loans would be an undue hardship. In ruling for Kinney, Judge Collins interpreted "undue hardship" under the "totality of circumstances" standard, which is the standard used in the Eighth Circuit.

Judge Collins noted that Kinney made about $37,000 a year and was never likely to make more than $40,000. Moreover, Kinney had no financial resources other than his job, and his 401K retirement account only contained about $3,000.

Judge Collins also examined Kinney's living expenses, which he found to be reasonable and necessary. Kinney's resources were adequate to maintain a modest living standard, the Judge determined, but not enough to maintain a minimal standard of living if forced to pay his niece's student loans, which were accruing interest at  more than 12 percent. In addition, Kinney was living with an aunt and uncle while he went through bankruptcy, but this was a short-term solution to his housing needs. Kinney's future housing costs were definitely headed upward.

Judge Collins concluded his brief opinion by observing that Kinney was "in a very precarious financial situation," with no savings and minimal retirement funds. Having found that Kinney had no capacity to make loan payments, the Judge ruled that "requiring [Kinney] to repay either of the two loans . . . would result in undue hardship."

Judge Collins ended his opinion with a brief comment about the fact that Kinney was a cosigner of his niece's student loans. Although Kinney's cosigner status was legally insignificant to the Judge's undue hardship determination, Judge Collins found it relevant that Kinney received no educational benefit from his niece's student loans. In the Judge Collins' opinion, the lack of educational benefit weighed against Kinney's creditor.

Why is the Kinney case important? Two reasons:

First, the case illustrates the terrible consequences that people can face when they cosign a relative's student loans. The original lender probably didn't care whether Kinney's niece could pay back her loans because it knew that Kinney was also on the hook.

Second, Judge Collin's succinct decision went to the heart of the matter concerning student-loan debt. It was quite clear that Kinney would never be able to pay back his niece's student loans, which were accruing interest at 12 percent and which had nearly doubled in size since she originally borrowed the money.

Isn't ability to repay a student loan the only reasonable consideration when an overwhelmed student-loan debtor files for bankruptcy? And when it is clear that a college-loan borrower cannot repay his or her student loans, why not give that borrower the fresh start the bankruptcy courts were established to provide?

Thank God for bankruptcy judges like Judge Thad Collins. We need more judges like him.

Don't cosign a student loan!

References

Kinney v. National Collegiate Master Student Loan Trust I, 593 B.R. 618 (Bankr. N.D. Iowa 20180.

The great national shakedown: Student loans are dragging down both young and old

According to New York Times writer David Leonhardt, the Millennial generation is being "fleeced" by an economic system that favors the old over the young. For Millennials, Leonhardt points out, incomes are stagnant, and the wealth gap between Baby Boomers and younger Americans is growing.

"Given these trends," Leonhardt writes, "you'd think the government would be trying to help the young." But it is not doing that, Leonhardt argues. Instead government policy is making it harder for younger Americans to climb the economic ladder.

The biggest example of this myopic governmental policy, according to Leonhardt, is higher education. "Over the past decade, states have cut college funding by an average of 16 percent per student," Leonhardt writes, forcing students to borrow more and more money.

Of course Leonhardt is right. Burdensome student loans are making it more and more difficult for young Americans to buy homes and start families. Literally millions of Americans are not able to service their student-loan obligations and are being forced into long-term income-based repayment plans that can stretch out for two decades or even longer.

But we should be careful about characterizing the student-debt crisis as an outcome of inter-generational injustice because in fact Americans of all ages are being dragged down economically by student-loan debt. As a zerohedge.com writer observed recently:

Though millennials catch the most flack for taking out hundreds of thousands of dollars in student loans to pay for worthless college degrees that do little to improve their financial prospects in the "real world," for older Americans who take out loans to finance their education later in life, the repercussions can be ten times worse.

On average, the writer reported, student borrowers in their 60s owed almost $34,000 in student loans in 2017, up 44 percent in just seven years. About 200,000 people age 50 or older are having Social Security checks or other government payments garnished due to student-loan defaults. Total student-loan indebtedness by people in their 60s and older more than doubled in just seven years--from $33 billion in 2010 to $86 billion in 2017.

Most elderly college-loan borrowers accumulated debt to finance their own postsecondary studies but thousands of parents took out Parent Plus loans to finance their children's college education. According to Josh Mitchell of the Wall Street Journal, 330,00 Americans, representing 11 percent of Parent Plus borrowers, had gone at least a year without making a payment on their Parent Plus loans as of September 2015.

Insolvent older Americans have filed bankruptcy to discharge their massive student-loan debt, but the Department of Education and its contracted debt collectors almost always oppose bankruptcy relief. In a Kansas bankruptcy action, Educational Credit Management Corporation (ECMC) fought bankruptcy relief for Vicky Jo Metz, a 59-year-old woman who had borrowed about $17,000 to attend community college in the early 1990s and had seen her total debt quadruple in size due to accruing interest.

Put Ms. Metz in an income-based repayment plan (IDR), ECMC demanded. But a Kansas bankruptcy court disagreed.  If Metz entered into a 25-year IDR plan, the court observed, she would be 84 years old before her repayment obligations came to an end. Moreover, her debt would continue to grow even if she faithfully made her monthly loan payments for a quarter of a century. The judge sensibly forgave all the accumulated interest on Ms. Metz's debt, requiring her only to pay back the principal.

We should be careful about framing the student-loan crisis as a burden that falls mainly on the young. People of all ages are burdened by staggering levels of student-loan debt.  And it is the elderly who most merit relief.

Our government could implement some modest reforms to help relieve the suffering of older student-loan debtors. For example, Senators Elizabeth Warren and Clair McCaskill supported legislation to stop the garnishment of Social Security checks due to student-loan default.  And the Department of Education could stop opposing bankruptcy relief for older student-loan debtors like Ms. Metz.

As for me, I will support any candidate for the presidency who endorses substantive relief for the millions of Americans of all ages who have been fleeced by the federal student-loan program. In my view, free college in the future, which Senator Kamala Harris proposes, does not go nearly far enough toward reforming the federal student loan program--now totally out of control.

Kamala Harris, presidential candidate, promises cost-free college for most Americans. What will she do for millions of student debtors who are suffering right now?

Senator Kamala Harris (D. Cal.) is running for President, and she promises a free college education for most Americans if she gets elected.

How will that work? Back in 2017, Senator Harris and Senator Bernie Sanders (D-Vt) introduced legislation for free college, and here are the details:

• Attendance at a public institution will be free for families making $125,000 or less, which Harris claims will benefit about 80 percent of all Americans.

• The federal student-loan program will remain in place, but interest rates on loans will be slashed to less than 2 percent.

• Students from low-income families can attend private colleges and universities that serve "underrepresented minority communities" (she probably means HBCUs) at reduced tuition rates.

• The Harris-Sanders plan will also help students "afford books, housing, and transportation, and other fees." 

Free college! It's like bourbon flowing out of the office water cooler. Who could oppose that?

But here's the big problem with the Harris-Sanders proposal. Their plan would leave the current student-loan program in place.

The federal student-loan program is a colossal disaster, as Secretary of Education Betsy DeVos admitted last November; and it needs to be radically reformed.

Secretary DeVos said only 1 out of 4 student borrowers are paying down principal and interest on their loans, and 43 percent of outstanding federal loans are "in distress." The Harris-Sanders plan won't do anything to relieve the suffering of millions of Americans who are being crushed by student loans except cut interest rates.

In any event, Senator Harris's free college plan is never going to happen. It simply is not possible for the federal government to finance free college education to millions of Americans while we have $1.56 trillion in accumulated student loan debt--at least half of which will never be repaid.

However, there are specific things that Congress and our President can do to relieve the suffering of distressed student-loan borrowers, and I will support any presidential candidate who promises to "treat the wounded."

Two things need to be done:

1) Congress must eliminate the "undue hardship" language from the Bankruptcy Code so that overburdened college debtors can discharge their student loans in the bankruptcy courts.

2) The for-profit-college industry must be shut down.

Kamala Harris says she is "for the people." And in fact, she aggressively prosecuted Corinthian Colleges, a predatory for-profit college racket, when she was California's attorney general.  Her office obtained a billion dollar judgment against Corinthian, which filed for bankruptcy and shut down.

Very impressive!

Nevertheless, as a presidential candidate, Harris must continue to attack the sleazy for-profit industry. And she should endorse bankruptcy relief for millions of honest Americans who have been victimized by student loans.

Right now, Harris's higher education platform is nothing more than "Free beer tomorrow." Let's see if she proposes substantive reforms for the federal student-loan program and a serious crackdown on the for-profits.

Why is the Department of Education Sugar Coating Student Loans? Essay by Steve Rhode

By Steve Rhode (Originally posted at Get Out of Debt Guy on January 21, 2019)

I’d love to take credit for this observation but a reader sent me an email and said, “My granddaughter got this email. The Department of Education is marketing their product by saying “maximize the financial aid you may receive.” Nowhere in here does it use the word “loan.” Just the DOE looking for prey among uninformed young almost adults.”

The reader has a very good point.

The term “financial aid” certainly can have a different meaning than “student loan.”

For example, the Department of education also talks about free education benefits as financial aid. This includes educational awards, training vouchers, scholarships, military service aid, etc.

The government website says, “The U.S. Department of Education awards more than $120 billion a year in grants, work-study funds, and low-interest loans to more than 13 million students. Federal student aid covers such expenses as tuition and fees, room and board, books and supplies, and transportation. Aid also can help pay for other related expenses, such as a computer and dependent care. Thousands of schools across the country participate in the federal student aid programs; ask the schools you’re interested in whether they do!” – Source

And while the marketing hype from the government does say student loans, it also says low-interest which is also a bit of a sugar coat on reality.

While the interest rates are in the 5% to 7.6% range there is no warning that you will be easily eligible to borrow more than you may be able to afford to repay.

For once maybe I’m not blaming the Department of Education for poor rules and horrible service. This issue about talking factually about money for higher education permeates all of society from schools to parents to high school counselors.

I wonder if student loans were portrayed accurately instead of sweet frosted “financial aid” if the very people blamed for taking out excessive loans, the 18-year-olds, would get a real jolt?

Consider this. Instead of talking about access to financial aid, prospective students received a cigarette package like warning notice.

WARNING: This product may cause life long debt and keep you from saving for retirement or buying a house.

At the very least, what if borrowing money for college had a window sticker on it like when you purchase a car.

We want the borrower to be held responsible for taking out the loan so let’s give the borrowers the facts.

Fact 1: This is a loan. You will have to repay this loan with interest. The repayment cost of this loan will be more than the amount you borrow. It may be substantially more.

Fact 2: If you don’t finish school or obtain your degree you will still have to repay this loan.

Fact 3: The degree program you are enrolling in typically results in a salary of $X. This may be insufficient to be able to afford to repay the amount of money you are borrowing. Your chosen school has an X% graduation rate for this degree program.

Fact 4: Your obligation to repay your student loans may result in the reduced ability to save for retirement, purchase a home, or live on your own.

Fact 5: Failure to repay your federal student loans may result in a garnishment of your wages, forfeiture of any tax refund, and the garnishment of future Social Security payments.

The terms parents and schools use when freshman are headed to college don’t accurately reflect the financial reality of borrowing for education. If we want to blame borrowers then let’s give them the facts and not sugar coat it before they leap.

******

I highly recommend Mr. Rhode's blog site, getoutofdebtguy.org--a robust ongoing commentary on consumer debt issues.

Student-loan defaulters can lose their professional licenses in some states: America's 21st century equivalent of debtors' prisons

Americans may think the days of debtors’ prisons are over--those dark, dank jails where English magistrates tossed delinquent debtors in the 18th century. Read Charles Dickens' Pickwick Papers or Patrick O'Brian's Reverse of the Medal if you want the details.

But 21st century America is pretty damn close to 18th century England. Our government doesn't throw student-loan defaulters in debtors’ prison; but in 19 states, government agencies can seize professional licenses held by people who default on their student loans. According to the New York Times, lawyers, nurses, barbers, real estate agents, and psychologists have all had their licenses suspended or revoked because they defaulted on their college loans.

Millions of Americans have been beguiled by the promise of a bright future if only they get a college education. Perhaps they saw a for-profit college's advertisement on the subway--an advertisement depicting happy and prosperous individuals who got good jobs because they got a college degree.

And so they enroll. But they have to to take out student loans to pay for tuition and fees, and semester after semester their debt grows larger. And when they graduate (or drop out in discouragement) they often don't find good jobs.

Then, when these hapless student debtors are unable to make their monthly loan payments, the government's student-loan servicers cheerfully allow borrowers to defer their payment obligations while interest continues to accrue.

At some point, borrowers realize that they owe twice what they borrowed--even three times or four times what they borrowed. At that point their student loans are impossible to repay.

Then, when these unfortunate debtors default on their college loans, a cascade of misery showers down on them. The federal government garnishes their pay checks, seizes their income-tax refunds, and (for the elderly) even gobbles up a portion of their Social Security checks.

And--on top of all this--some states even seize defaulters' professional licenses, making it impossible for them to earn a living!

What have we become as a nation that we allow our most vulnerable young Americans (and some older Americans) to be scammed by the old canard that postsecondary education is the ticket to the middle class?

Let's see if one or two of the so-called progressives who seek the presidency will put license-suspension on their campaign agenda. Surely there is enough good will in Congress to pass federal legislation that prohibits the states from seizing people's professional licenses simply because they can't pay back their student loans.

And if Congress can't get that done, let's stop referring to our country as the Land of the Free and Home of the Brave. Because in fact, our nation treats student-loan debtors much like England treated delinquent debtors in the 18th century.

References

Jessica Silver-Greenberg, Stacy Cowley and Natalie Kitroeff. When Unpaid Student Loan bills Mean You Can No Longer Work. New York Times, November 17, 2017.

Steven Brint says American higher education Is doing great!: Pardon me Professor Brint, but what planet do you live on?

 Steven Brint, a professor at UC Riverside, wrote an essay for Chronicle of Higher Education titled "Is This Higher Education's Golden Age?" Brint didn't answer this question directly, but his article argues that American higher education is doing great.

Here's his evidence:

Lotsa money! Brint boasts that the demand for postsecondary education has remained steady in spite of rising tuition, which is true. Families are still willing to pay college tuition at nosebleed levels, at least at the elite colleges.  The most prestigious colleges continue packing in the suckers. A quarter million dollars for an Ivy League degree? Hey, no problem!

And, as Brint points out, the federal government is still higher education's sugar daddy. Brint notes that the feds shovel  $65 billion a year in Pell grants, work study, and tax benefits; and a lot of that money eventually winds up in college coffers.  Federal research money amounts to about $30 billion a year, Brint says; and the Department of Education pumps out  another $100 billion a year in student loans. And there's no sign the government will ever shut off the money spigot. So that's good news from Professor Brint's perspective.

More degrees! Brint also celebrates the rising number of college degrees. In 1970, American colleges produced 840,000 college graduates. In 2015, 1.9 million people received bachelor's degrees. Over that same time period, American higher education tripled its annual production of master's degrees and more than doubled the number of doctorates. In fact, in 2015, American universities dispensed more than three quarters of a million doctoral degrees.

That's certainly good news for the universities, their deans, and their professors. But graduate degrees have become insanely expensive, and it is now clear that a lot of people who got law degrees or MBA degrees from second-and third-tier universities were throwing their money away--not to mention the people who got master's degrees in the fine arts.

More professors! The United States is employing more college teachers than ever before, and Professor Brint thinks that's good news. In 2005, the nation employed 1.3 million postsecondary teachers. By 2015, the number had grown to 1.9 million--an increase of 300,000 professors and instructors in just ten years.

More research! And all those professors are doing more and more research. As Brint reports: "[T]he Web of Science indexed 12,000 journals, 160,000 conference proceedings in more than 250 disciplines, and reached a total count of 90 million records and more than a billion citations."

Professor Brint is the director of the Colleges & Universities 2000 Project at his home university and the author of a book about higher education. So we should presume, I suppose, that he knows what he's talking about.

But in fact, Brint's article is nonsense. Sure, higher education is doing great from the perspectives of the insiders: tenured professors and over-paid administrators. As Brint points out, the professors managed to eke out annual raises even during the recession of 2008 when millions of Americans lost their homes in foreclosure and millions more saw their retirement accounts deflate. Unlike most Americans, college professors enjoy lifetime employment, defined-benefit pensions, and gold-plated health insurance. Yes, for the professors, life is indeed beautiful.

But are we supposed to cheer because the Web of Science lists 12,000 journals and contains 90 million research documents? Have you read the titles of some of those articles and conference presentations?

I'm sorry, Professor Brint, but your insouciant boast about the value of research reminds me of that scene in the movie Out of Africa where Meryl Streep's character tries to convince a Kikuyu chief to allow the children in his village to be taught how to read.  The chief is skeptical. "The British know how to read," he pointed out, "and what good has it done them?"

The education research community has produced thousands of books, articles and scholarly presentations over the past 30 years on education topics. Are American kids better educated?

And the law schools turn out literally thousands of law-review articles every year. Do we have more justice?

I would like Professor Brint to think a moment about higher education's students--a constituency he said precious little about in his essay. Almost 45 million Americans owe on student loans. According to the Federal Reserve Bank, as of this month, total outstanding student-loan indebtedness has reached $1.56 trillion.

Secretary of Education Betsy DeVos gave a speech last November in which she reported that only 1 out of four student debtors (24 percent) are making payments on both principal and interest on their loans.  In fact, she acknowledged, 43 percent of all outstanding student loans are "distressed."

Although academia is a pleasant place for Professor Brint,the federal student-loan program is a train wreck. Millions of people have their loans in deferment, which means they aren't making loan payments while interest accrues on their loan balances. Another 7.4 million are in income-based repayment programs and are making monthly payments so small that their loans are negatively amortizing.

And the disastrous student-loan program is pulling down the small, nonprofit liberal arts colleges, especially in New England the Mid-Atlantic states and the upper Midwest. Legal education has been corrupted by the flow of student-loan money, with bottom-tier law schools turning out lawyers who can't find jobs.

And then there is the for-profit college industry, rife with corruption, fraud, and cronyism. Professor Brint said nothing about that problem.

So is higher education in a Golden Age, Professor Brint? I don't think so.

I close by noting that Professor Brint is a sociology professor. I was once told that sociology is nothing more than the painful enumeration of the obvious. But after reading Brint's essay, I would modify that observation. In fact, sociology is the painful enumeration of the oblivious.

Professor Steven Brint
Universities are stronger than ever?