Urban Institute: Thirty percent of student debtors are enrolled in Income-driven repayment plans

The federal student-loan program is in crisis, but it is hard to figure just how big the problem is.

The Department of Education annually reports the percentage of student borrowers who default three years after beginning repayment. That figure--about 10 percent in recent years--is concerning but not alarming.

Non-governmental studies (Pew Foundation and Brookings Institution) have found that the 5-year default rate for recent cohorts is double the 3-year rate: about 25 percent.  In other words, 1 out 4 student-loan debtors default on their loans within five years of beginning repayment.  Now that is alarming.

But the situation is a lot more dire than that.  A recent report from the Urban Institute (authored by Kristin Blagg, Laurie Goodman, and Kelia Washington) noted that 8 million student-loan debtors are in income-driven repayment plans (IDRs).  According to this report, that amounts to about 30 percent of all college borrowers.

That's really scary because almost no one among those IDR participants is paying down the principal on his or her debt.  Instead, just about all of these 8 million people are making very small monthly payments based on their income--not the amount that they borrowed.

It is always dicey to compare one student-loan analysis to another because we are always measuring apples and oranges. Some of the people counted as 5-year defaulters in one study may be the same people identified as IDR payers in another. (And the Brookings and Pew studies examined cohorts, not the entire student-debtor population.)

Nevertheless, it is clear that when the 5-year defaulters and the IDR participants are considered together, about half of all student-loan borrowers are not paying off their loans.  In my opinion, that's a meltdown.

You may love Senator Bernie Sanders and Senator Elizabeth Warren or you may hate them, but both deserve credit for putting a serious proposal on the table to address the student-loan crisis.  Forgiving all student debt (Bernie's plan) or $50,000 of a borrower's debt (Elizabeth Warren's plan) are reasonable ideas.

One thing seems clear (at least to me): The student-loan program is out of control and it is kicking millions of people out of the middle class. The program hinders overburdened debtors from buying homes, having children, getting married, and saving for retirement.

And who benefits? Our corpulent, incompetently run colleges and universities whose leaders say the universities need more federal money.

Greedy colleges: "Feed me, Seymour!"

I fell asleep during the Impeachment movie. Did I miss anything?

Like millions of Americans, I watched Impeachment, The Movie. Unfortunately, I fell asleep near the end, and when I woke up, I couldn't figure out what the hell was going on.

In my own defense, Impeachment was a very long movie--more than three years, almost as long as Once Upon a Time In Hollywood.  I got up to go to the bathroom during the Mueller investigation, and I never got back on track.

And of course, when a movie is three years long, you gotta have some popcorn. I was smart enough to buy the Value Tub--the one that gives you unlimited refills. It was expensive--$250 plus tax, but I got 127 refills, so it was a pretty good deal.

But the popcorn breaks added to my confusion. I missed parts of the movie when I was making all those trips to the concession counter.

So fill me in. I thought the Mueller investigation concluded that Trump was not guilty of colluding with the Russians, but later in the movie, Hillary Clinton said that he was.

And then Trump was accused of making an illegal phone call to the president of Ukraine. And that had something to do with Joe Biden, Hunter Biden and all the rest of Biden's children. But that was never explained.

But here's the part that really befuddled me.  The impeachment trial in the Senate was triggered by an anonymous whistleblower whose name was never revealed.  And Representative Adam Schiff, the chief prosecutor, claimed he had never met the guy.  Huh? To me, that part of the movie just wasn't believable.

Obviously, the director of the movie, Nancy Pelosi (who played herself in the film), should have cut a lot of the scenes. In my opinion, the movie could have been cut down to about a year and a half.

And there were casting errors.  The guy who played Robert Mueller was obviously miscast. He was supposed to be this bulldog investigator with ironclad integrity, but he came off as some sleepy old guy who was trying to find the remote on his television.

I tell you this--I am not going to watch that movie again. I'm too old to watch three-year movies.

But I'm pumped about the sequel, which comes out next summer--Impeachment: The Empire Strikes Back! This one is about the expulsion of Adam Schiff from the House of Representatives, and Joaquin Phoenix plays Shiff wearing Joker makeup.

I can't wait to see it, and I understand it's only about two months long.

Joaquin Phoenix playing Adam Schiff in Impeachment: The Empire Strikes Back

This essay is also posted at my blog site on American culture: Saints of Flyover Country, flyoversaints.org.

"Deserves got nothin' to do with it": Is Elizabeth Warren's student-loan forgiveness plan fair to people who played by the rules?

An Iowa man challenged Senator Elizabeth Warren about her student-loan forgiveness plan during a campaign event in Grimes, Iowa.

"I just wanted to ask one question," the man said to Warren. "My daughter is getting out of school. I've saved all my money. She doesn't have any student loans. Am I going to get my money back?" he said.

"Of course not, Warren replied.

"So you're going to pay for people who didn't save any money and those of us who did the right thing get screwed," the man said.

"No, you're not going to get screwed," Warren lamely responded.

I get the Iowa guy's point. It seems unfair to grant wholesale student-loan forgiveness to millions of people, while parents who made severe financial sacrifices to pay for their children's college education get no relief.

But let's face it. About half of all student loans are not being paid back anyway. That's right--about half.

More than a quarter of all student-loan borrowers default on their student loans within five years. Another 20 percent or so are in income-based repayment plans that are structured so that the borrowers never pay off their loans. And then there are millions of people who have their loans in forbearance or deferment, while interest piles upon the principal of their debt. 

In a way, Senator Warren's student-loan forgiveness plan is like President Jimmy Carter's decision to grant amnesty to the young men who fled to Canada to escape the draft during the Vietnam War. Critics said it was unfair for draft dodgers to suffer no penalties while millions of Americans went into the Army and more than than 50,000 Americans died in the jungles of Vietnam.

Unfortunately, huge moral quagmires have no clear-cut solutions. The Vietnam War was an enormous national tragedy, a senseless and immoral affair. Or so I believe.

Likewise, the student-loan crisis is a moral crisis. Forty-five million people are carrying student-loan debt that totals $1.6 trillion and millions of these people got little or no financial benefit from their college experience.  

The for-profit colleges raked in enormous wads of federal cash and dished out overpriced and often worthless college degrees. The law schools and business schools jacked up the prices of their professional programs simply to suck up more federal money, and a lot of that money went toward bloated salaries for college administrators.

There is no perfectly fair solution to this crisis.  As a nation, we simply must grant relief to suffering college-loan debtors.  And Senator Warren's plan is a reasonable proposal for doing that.

Personally, I would prefer for Congress to amend the Bankruptcy Code and allow insolvent debtors to discharge their student loans through bankruptcy.  That would be fairer to people like Senator Warren's critic in Grimes, Iowa.

But the student-loan catastrophe has got to be addressed head-on.  Senator Warren's plan and Senator Sanders' plan are pretty good solutions.  In my opinion, bankruptcy relief is a better solution. 

Any plan will benefit some people who do not deserve student-debt relief. But as Clint Eastwood's character said in the movie The Unforgiven, "Deserves got nothin' to do with it." 

Let's move forward to clean up the student-loan program before it totally destroys the integrity of higher education--not to mention America's middle class.

"Deserves got nothin' to do with it." 

Low-income students can't afford to work their way through college anymore

Low-income students can't work their way through college anymore. That's the conclusion drawn by the Education Trust in a recently released report authored by Andrew Nichols, Marshall Anthony, Jr., and Oliver Schak.

"Students from low-income backgrounds should be able to attend college without shouldering a debt burden or having to work so many hours that they jeopardize their chances of completing a degree," the report stated on its first page. "But that's just not possible today."

Duh--I think everyone knows that.

Not so long ago, things were different. I did not come from an affluent family but I obtained my bachelor's degree without borrowing any money, and I worked my way through the University of Texas School of Law--a nationally ranked law school--without taking on any debt. When I was in law school, I had a part-time job working as a law clerk at the Texas Attorney General's Office that paid $330 a month. And I also had a work-study job proctoring exams at the law school.

I could get a bachelor's degree and a law degree without taking out loans because tuition was low and public universities were subsidized by the states. My law school tuition was only $1,000 a year, and the law school gave me a scholarship that covered my tuition costs for a year. 

But today, tuition at UT School of Law is $36,000 a year--36 times what I paid. And total costs for an in-state law student (living expenses, etc.) is about $57,000.  Few people can pay those costs out-of-pocket; and no part-time student job can make a dent in the total cost of a law-school education at the University of Texas--more than $170,000!

So what's the solution? According to Education Trust, the solution is more federal money. "Federal policymakers should at least double the federal Pell Grant and index it to inflation, which would help eliminate the affordability gap." (The underlined words appear in the Education Trust's report.)

But it is federal student-aid money that has fueled the run-up in the cost of higher education. Pumping more federal money into colleges and education will not make a college education more affordable because the colleges will have no incentive to keep their costs down.

Education Trust also calls for the states to "reinvest" in the public universities--returning state subsidies to the level they were when I went to college and law school.

But let's face it; that's not going to happen. The states will not increase their higher-education subsidies to the levels of 30 years ago.

Education Trust has been described as a "college access advocacy organization," and I'm sure that is true. Nevertheless, Education Trust's call for more federal money exactly aligns with the stance of the college industry, which is now totally addicted to infusions of federal cash. And Education Trust's argument for larger state subsidies aligns with the interests of the college industry as well.

Why not rethink the way higher education is funded?

First, the federal government should put a limit on the amount of federal money that can be borrowed to attend college. As I have said, easy federal money has made it possible for colleges to increase tuition and to invest in frills--luxury student housing, extravagant amenities like "lazy river" water features, and insane spending for athletics.

Second, our federal lawmakers should recognize that millions of Americans are suffering under heavy student-debt loads. Instead of pushing distressed college borrowers into 25-year repayment plans, Congress should pass legislation that would allow worthy debtors to shed their student loans in the bankruptcy courts.

Third, we need to shut down the for-profit college industry, which is riddled with corruption and overpriced programs that leave too many graduates with worthless degrees and unmanageable debt.

There is no simple solution to the student-loan crisis: 45 million student-loan debtors owing a total of $1.6 trillion.  But we must get costs down, we must close the for-profit colleges, and we must ease the burden of oppressive student-loan debt.

Certainly, the solution to this massive problem is not to pump more state and federal money into the nation's bloated and inefficient colleges and universities.

Image credit: The Education Trust

Trump Administration is "woke" to the student-loan crisis: What can it do in 2020?

Love 'em or hate 'em, student-loan debtors owe a debt of gratitude to Bernie Sanders and Elizabeth Warren for putting the student-loan crisis on the front burner of national politics. Liz proposes to forgive the first $50,000 of student debt if she is elected President. Bernie says--what the hell--let's forgive it all.  That's $1.6 trillion!

Meanwhile, as the Democrats offer to help college borrowers, Trump’s Department of Education (DOE), led by Education Secretary Betsy DeVos, is doing everything it can to alienate a very large constituency--45 million student-loan debtors.  

But last month, the Trumpers became "woke" to the student-loan catastrophe.  As reported by the Wall Street Journal's Josh Mitchell and Andrew Restuccia, the Trump administration is considering some relief options, including allowing borrowers to shed their student-loan debt in bankruptcy.

According to the WSJ, the Trump administration is mulling a policy adjustment whereby DOE "would essentially decline to contest borrowers’ requests before [bankruptcy] judges to have their student loans canceled.” The beauty of this proposal is Trump could make this adjustment without congressional approval.

Better than that, Trump could claim that he is only following the policy announced by the Obama administration in 2015 when DOE's Lynn Mahaffie said in a letter that DOE would not oppose bankruptcy relief for student borrowers if it did not make economic sense to do so.

Of course, DOE never followed that policy. Instead, it has allowed Educational Credit Management Corporation to oppose virtually every student debtor’s petition to shed student-loan debt in the bankruptcy courts.  And this has been DOE’s practice under both the Obama and the Trump administration.

All President Trump needs to do to grant significant relief to college debtors is tell ECMC to fire its battalions of lawyers and file formal non-opposition documents when worthy student debtors seek to discharge their student loans in bankruptcy.

Undoubtedly, a few unscrupulous people would try to use the bankruptcy courts to shed debt they have the means to repay and which they should repay. But filing a fraudulent bankruptcy claim is a federal crime, and the bankruptcy judges know how to sniff out deceitful claims.

If Trump were to follow through with this proposal, we will need a lot more bankruptcy judges because millions of people would be entitled to bankruptcy relief.  Where will we get the money?  Let’s take the cash that DOE is funneling to ECMC and its lawyers and use it to hire some judges. 

Pretty simple really.  

"What do you say, Betsy? Let's tell ECMC to piss up a rope."

Two Homeless People Were Shot While Sleeping in Their Blankets Under a Baton Rouge Overpass: What Can We Do to Alleviate the Homelessness Crisis?

Last month, two homeless people were shot to death while sleeping in their blankets under a Baton Rouge overpass. Christiana Fowler, age 53, and 43-year-old Gregory Corcoran Jr. were found dead near a roadway not far from the Bishop Ott Homeless Shelter.

Violent death has become almost routine in most American cities. In 2019, Baton Rouge experienced 83 murders, and the toll in many US cities is much higher.

But for me at least, the deaths of Fowler and Corcoran were especially poignant. As Advocate news writer Jacqueline Derobertis reported, both victims had people in their lives who loved and cared about them. Ms. Fowler had a daughter and an ex-husband who had offered to get her hotel room on the night she died just to get her off the streets. Mr. Corcoran left four children under the age of 18.

The Advocate published photos of Fowler and Corcoran, which powerfully attested to the fact that neither one had always been homeless. Fowler appears radiant with a smiling face and a confident gaze. Corcoran's photo shows him wearing a coat and tie, serenely looking at the camera.

Homelessness is an urgent problem in America. Thousands of Americans live on the streets or in tent jungles.  According to some reports, almost half of America's homeless are in California, but who knows the truth of the matter? Almost every American city has a significant homeless population.

The experts say homelessness is linked to mental illness, joblessness, and drug abuse. Indeed, Fowler suffered from drug addiction, and Corcoran had been thrown out of work. But to better understand the nation's current homelessness crisis, we might learn something from studying the last great period of homelessness in America--the Great Depression.

That era was powerfully depicted in John Ford's great movie, The Grapes of Wrath. Based on John Steinbeck's Pulitzer Prize-winning book of the same name, the movie tells the story of the Joads, a family of Oklahoma tenant farmers who were forced off their farm by a heartless landowner.

The Joads were fictional, but more than a million homeless people flocked to California during the 1930s, where they hoped to find jobs and a better life. Thanks to World War II, most of the Okies were able to regroup. Many found work in the defense and construction industries. Others settled in California's Central Valley and became truck farmers. The great Merle Haggard, who penned the song Okie from Muskogee, was the son of Okie parents.

The homelessness crisis of the Thirties differs from today's homelessness epidemic. Many of the homeless people of the 1930s survived as intact families. The Joad family, for example, was made up of four generations. And the Okies of the Thirties had job skills. Most had been smalltime farmers, who knew something about construction, agriculture, and mechanics.

It should not take another war to solve America’s homelessness crisis. Our communities have the resources to alleviate this human tragedy. Expanding mental health services will help, along with more treatment options for drug addiction. But all of us have a personal responsibility to nurture young people to develop job skills, to become self-reliant, and to be resilient. 

And we should recognize our fellow citizens who help unfortunate people get back on their feet. Ivy Alford, my father-in-law, has cooked meals for homeless men at the Bishop Ott Homeless Shelter for more than 25 years. Over the years, Ivy and his family have cooked more than 5,000 meals for the homeless.

Ms. Fowler and Mr. Corcoran had family members who reached out to them. Had there been more time, both might have lifted themselves out of homelessness. Tragically, they were murdered.  Let’s hope their death underscores the urgency of the homelessness crisis in Baton Rouge.

Christiana Fowler and Gregory Corcoran Jr.: Homeless
Photo credit: Baton Rouge Advocate

Little v. U.S. Department of Education: Should middle-aged people take out student loans to attend college?

Walter Lee Little and Linda Leticia Little, a married couple, are 58 years old. About thirteen years ago, they both took out student loans to take courses at various community colleges; but they never obtained degrees. They filed for bankruptcy in 2017 and applied to have their student-loan debt forgiven.

Like many student-loan debtors, they dived into the world of bankruptcy law without an attorney. The U.S. Department of Education was represented by a lawyer from the U.S. Attorney's Office.

The Littles filed an adversary action to obtain student-loan debt relief, but their case never went to trial. In June 2019, the Department of Education (DOE) filed a motion for summary judgment against the Littles, and Bankruptcy Judge Robert L. Jones granted DOE's motion in October.

In ruling against the Littles, Judge Jones applied the three-part Brunner test to determine whether the Littles met the Bankruptcy Code's "undue hardship" standard.  Regarding part one, Judge Jones said there was a factual dispute regarding whether the Littles could maintain a minimal standard of living if they were forced to repay their student loans.

Regarding Brunner's other two tests, Judge Jones flatly ruled against the Littles. The Judge ruled that the Littles could not show that "additional circumstances" would persist for "a significant portion of the repayment period of the loans . . ." (p. 859, quoting Brunner). Remarkably, Judge Jones said the Littles must show "a certainty of hopelessness" about their financial future, a standard that some other courts have rejected. 

The Littles argued that they were in their late 50s and nearing retirement. And they also pointed out that Mr. Little suffered from a variety of medical conditions and was disabled.

Judge Jones was entirely unsympathetic. "Mr. Little says that he suffers from a variety of medical conditions," the Judge observed, but those conditions "do not prevent Mr. Little from collecting disability payments or pension payments" (p. 860).

Regarding Mrs. Little's age and health prospects, Judge Jones said that "Mrs. Little was older when she went back to school and knew she would have to make payments in her later years" (p. 862).

In sum, Judge Jones ruled,  "The Littles chose to go to school later in life; the repayment of debts will thus last into their later years. Age... does not prevent the Littles from collecting pension payments; instead, their monthly income should increase upon turning 65" (p. 861).

As to Brunner's good faith test, Judge Jones ruled against the Littles as well. The Judge emphasized that the Jones had not made a single payment on their student loans

My sympathies are entirely with the Littles.  Judge Jones' decision partly rested on the fact that the Littles will receive pensions when they turn 65 based on their employment with ATT.  But those pensions are quite small. Mr. Little will receive about $850 a month and Mrs. Little anticipates getting $700 a month.  Judge Jones also noted that Mr. Little is entitled to receive a $900 disability check.

But these three sources of income together only amount to a gross income of $2450 per month--barely enough to live on.  It is completely unreasonable to expect the Littles to make student-loan payments during their retirement years to pay for educational experiences that apparently did not benefit them financially.

Would the Littles have a better case had they made some student-loan payments? Perhaps. But the Littlesstruggled financially for a variety of reasons that were beyond their control. They submitted documentation that they had been on food stamps for a time and had significant medical expenses (p. 857).

Judge Jones fortified his decision with citations to many legal opinions, but his opinion failed to note how much the Littles had borrowed to attend college or the interest rate on their loans. Nor was it clear from Judge Jones' opinion how long the Littles' loans were in forbearance or deferment, periods when they had no legal obligation to make student-loan payments.

In my opinion, the Department of Education considers Mr. and Mrs. Little to be collateral damage from an out-of-control student loan program that shovels federal money to colleges and universities without regard to the quality of their programs.

Judge Jones' Little decision shows that it is risky for middle-aged people to take out student loans to attend college. Moreover, although Judge Jones may not realize it, his decision in Little v. U.S. Department of Education undermined the ability of Mr. and Mrs. Little to live securely and in dignity when they reach their retirement years.

References

Little v. U.S. Department of Education, 607 B.R. 853 (Bankr. N.D. Tex. 2019).