Thursday, January 28, 2021

The Parent Plus Program was a policy blunder that hurts low-income and African American families: Shut It down

Our government's Parent PLUS Program is an insidious scheme to lure low-income parents into taking out student loans so their kids can go to colleges they can't afford.

 Insider Higher Ed's Kery Murakami tells the story of Ewan Johnson, whose mother owes $150,000 in Parent PLUS loans--money she borrowed so her son could get a degree from Temple University in strategic communications and political science.

As Johnson related, he comes from "a low economic background." Will his mother will ever pay off her Parent PLUS loans? I doubt it.

Johnson's mother is one of 3.6 million parents who collectively owe more than $96 billion in Parent PLUS loans. For the most part, parents aren't taking out these loans so their kids can attend elite
private schools like Harvard. 
 "Rather," as Wall Street Journal reporters Andrea Fuller and Josh Mitchell observed, "they include art schools, historically Black colleges and private colleges where parents are borrowing nearly six-figure amounts to fulfill their children's college dreams . . "

Indeed, African American parents are hurt the most by the Parent PLUS Program. The WSJ reported that 20 percent of African American parents who took out Parent PLUS program in 2003-2004 defaulted on their loans by 2015.  

Default rates for some colleges are exceptionally high. A New America study found that 30 percent of Parent PLUS borrowers at 15 institutions default within two years!

Should all this debt--nearly $100 billion--be forgiven? President Biden proposes to knock $10,000 off of every federal student loan, but it is unclear with his plan includes people with Parent PLUS loans. 

Policymakers worry that forgiving all Parent PLUS debt will unfairly benefit wealthy families who have the resources to pay back their loans.  Sandy Baum, a student-loan expert, said that forgiving all Parent PLUS debt would be "outrageous."

Hardly anyone suggests that we just eliminate this dodgy government boondoggle that exploits low-income and minority families.  

So why don't we just make one straightforward reform? Let's allow parents who wrecked their financial futures so their kids could attend the wrong college to discharge their Parent PLUS loans in bankruptcy




Wednesday, January 27, 2021

College professors are burned out by the coronavirus pandemic: Hey, join the friggin' club!

 College professors are burned out by the coronavirus epidemic. According to Liz McMillen, Executive Editor of The Chronicle of Higher Education:

Faculty members are stressed, sometimes extremely so; they're tired and anxious about a required return to campus; they say they are neglecting their research and publishing. They aren't sure that their institutions have their safety as their top priority.

In short, as the cover of The Chronicle's special issue proclaims: "The Pandemic is Dragging on. And Professors Are Burning Out."

I'm not surprised. Professor Gary Dworkin, the leading researcher on teacher burnout, has linked the phenomenon to feelings of hopelessness, meaninglessness, and isolation.

Professors have certainly been isolated during the pandemic. Almost all face-to-face learning shut down last spring, and instructors were forced to teach their classes online--whether or not they wanted to or were trained for teaching with computers. Not fun.

And many professors have good reasons for feeling hopeless. University budgets are being cut, programs slashed, instructors laid off.  Two of my colleagues at prestigious private universities had their retirement benefits slashed--not a good sign for the future.

Finally, some faculty members are probably feeling that their work is meaningless. Many universities adopted pass/fail grading policies during the pandemic, which tends to erode the rigor of teaching and learning. If students believe they will pass a course with only a minimum amount of work, most will slack off; and if a professor is required to assign 100 grades under a pass-fail policy, that professor will likely pass every student who has a pulse.

But hey, things are tough all over. Minimum-wage workers, people in the hospitality industry, small-business owners are all suffering.  Parents with small children are stressed to the max as they try to juggle their jobs with daycare. Many of these folks do not have health insurance.

Professors, after all, have paid health care and retirement benefits. If they are tenured, they have rock-solid job protection. And most of them have flexible work schedules.  I don’t think there is one tenured professor out of ten who goes to the office on Friday or shows up at work before 10 AM on a Monday morning.

As for all that neglected research and publishing that Editor McMillen mentioned, I'm not buying it. 

First of all, a lot of stuff gets published that is totally worthless except as a stepping stone to tenure. We could save thousands of trees if the professors published less--especially the professors in education and the soft-science fields.

In any event, I'm not convinced that the pandemic has slowed down productive research that much.  Admittedly, some researchers must do their work in laboratories or the field. The coronavirus probably impedes their progress.

But what prevents a professor from going to work on the book that's perpetually described as "in progress"? After all, a lot of profs are teaching at home in their pajamas. Maybe there's a little time for writing during the day instead of watching The View. Whoopi's not going to help you write that bestseller.

In short, esteemed scholars, stop your whining. 

Despite what you might think from reading The Chronicle of Higher Education’s special issue on professor burnout—it’s not all about you.




Monday, January 25, 2021

Neal v. Navient Solutions: A simple student-loan dispute ends up in 12 years of litigation

 Trey Neal took out a private student loan with JP Morgan Chase Bank in 2008.  Neal and Chase signed a promissory note agreeing that interest on the loan would be governed by Ohio law. 

Later, Neal concluded that he was being charged interest at a higher rate than Ohio allowed.  So he sued Chase for damages.

Mr. Neal ran into two problems in getting this dispute resolved. First, he had difficulty determining the proper party to sue.

Chase sold Neal's loan to Jamestown Funding Trust, which assumed Chase's interest in the loan. Jamestown is "related" to Navient Credit Finance, an affiliate of Navient Solutions. Navient Solutions then became Neal's loan servicer. Apparently, Neal was uncertain about who owned the loan because he dropped Chase from the lawsuit and added four Navient entities as defendants to his suit.

Neal's lawsuit had a second problem: he had agreed to arbitrate any dispute over his student loan rather than litigate.

The Navient entities asked a federal court to order Neal to arbitrate his claim under Neal's credit agreement with Chase. A federal district court rejected Navient's request, concluding Navient did not have the legal right to enforce the arbitration clause.

But Navient appealed that decision to the Eighth Circuit Court of Appeals, which reversed the lower court's decision.  The appellate court ruled that Navient did have the right to compel arbitration under Ohio law. So Neal must submit his interest-rate complaint to an arbitrator, and Neal will probably be required to pay half the arbitrator's fees to get the matter resolved. 

A couple of points. First, Neal's complaint about the interest he was charged on his loan is a simple dispute, but it wound up before a federal appellate court that did not rule until 12 years after Neal took out his loan.

Second, Neal's private student loan became ensnared in a web of entities: 1) Chase Bank, 2) Jamestown Funding Trust, 3) Navient Solutions, 4) Navient Corporation, and 5) Navient Credit Finance Corporation, and Navient Private Loan Trust. No wonder Neal had trouble figuring out whom he was dealing with.

So Mr. Neal must submit his complaint to arbitration. 

One thing seems sure. Whether Mr. Neal wins or loses, his transaction costs will likely be far greater than the sum of money at stake. 

Thus, Neal v. Navient Solution teaches us all this message: Don't mess with the student-loan industry because it won't be worth your while.

References

Neal v. Navient Solutions, LLC, 978 F.3d 572 (8th Cir. 2020).



Sunday, January 24, 2021

The Public Service Loan Forgiveness Program is a bureaucratic nightmare, and litigation hasn't helped

In 2007, Congress enacted the Public Service Loan Forgiveness program to give student-loan debt relief to people who took on burdensome student loans and went to work in relatively low-paying public service jobs: first responders, medical professionals, school teachers, etc.

Under the terms of the PSLF program, individuals employed in qualified public service jobs who made 120 loan payments in an approved income-based repayment plan would have the balance of their debt forgiven. Furthermore, the forgiven debt would not be considered taxable income.

Pretty straightforward, right?  

To administer this program, the U.S. Department of Education appointed Fedloan Servicing to determine if PSLF applicants worked for qualified public service employers. Fedloan Servicing then became the loan servicer for those individuals. 

Still pretty straightforward.

Apparently, however, policymakers underestimated the cost of PSLF.  First of all, student borrowers who enrolled in the program had higher debt levels than other borrowers, which Congress probably did not anticipate. 

As Jason Delisle pointed out in a Brookings paper, PSLF actually allows many people to get graduate degrees for free.  College graduates who already have student debt can borrow more money for graduate school without increasing their monthly loan payments. 

Additionally, Congress unintentionally increased the cost of PSLF when it rolled out the GRAD Plus program, allowing individuals to borrow the full cost of attending graduate school, no matter how high that cost might be. Law school graduates, for example, borrow an average of $100,000 to get their JD degrees.  

Thus, PSLF and GRAD Plus acted together to create a perverse incentive for people to go to graduate school and borrow the maximum amount possible. 

At some point, during the last years of the Obama administration, the  Department of Education realized that the cost of the PSLF program would be enormous. As Delisle described the program, PSLF had become a "bonanza" for graduate students and needed to be scaled back.

The Department of Education, realizing belatedly that PSLF was a giant money pit, adopted regulations to limit the number of people who are eligible for PSLF relief. 

Thus, in the first year of processing PSLF relief applications, DOE approved only about 1 percent of the claims even though the vast majority of claimants had been certified by Fedloan Servicing as working in approved public service jobs.

The American Bar Association sued DOE on behalf of itself and four of its employees, claiming that DOE had applied its PSLF rules arbitrarily and capriciously in violation of the Administrative Procedure Act.

In a 2019 decision, Judge Timothy Kelly ruled in favor of three of the four ABA employees, finding that DOE had, in fact, acted arbitrarily and capriciously.

Congrees, dimly aware that something had gone wrong with the PSLF program, approved $350 million specifically to benefit PSLF applicants. But this legislation did not straighten out the mess that the PSLF program had become.

In July 2019, the American Federation of Teachers filed suit on behalf of five teachers who had been denied PSLF relief. AFT and the teachers charged DOE with acting arbitrarily and capriciously n violation of the Administrative Procedure Act and in violation of the teachers' constitutional right to due process. 

In June 2020, Judge Dabney Friedrich issued an opinion in the AFT lawsuit.  Judge Friedrich ruled that the individual teachers had not stated a valid claim for violation of the Administrative Procedure Act. But the judge ruled that the teachers had stated a claim for breach of due process, and he allowed that claim to go forward.

Did these two lawsuits straighten out the PSLF program? No, they did not.  In June 2020, about the time of Judge Friedrich's decision in the AFT case, the state of California sued DOE, also claiming that DeVos's bureaucracy had screwed up the PSLF program. That litigation is ongoing.

To summarize, PSLF is a fiasco. Congress's $350 million cash infusion did not fix it, DOE's regulations did not fix it, and litigation in the federal courts didn't straighten it out. 

Betsy DeVos's DOE wanted to scrap the program, and Delisle recommended that the program be shut down and "letting a standalone IBR program do what PSLF [was] meant to accomplish."

Politically, however, the PSLF program may be impossible to repair.  Almost four years after the first program participants were scheduled to get debt relief, few have received it. Thus, a program intended to assist Americans working in public service jobs has turned into a bureaucratic nightmare.



References

American Bar Association v. U.S. Department of Education, 370 F. Supp. 1 (D.D.C. 2019).

Stacy Cowley. 28,000 Public Servants Sought Student Loan Forgiveness. 96 Got ItNew York Times, September 27, 2018.

Stacy Cowley. Student Loan Forgiveness Program Approval Letters May Be InvalidNew York Times, March 30, 2017. 

 Jason Delisle. The coming Public Service Loan Forgiveness BonanzaBrookings Institution Report, Vol 2(2), September 22, 2016.

Richard Fossey & Tara Twomey, American Bar Association v. U.S. Department of Education: Federal Judge Rules That DOE Acted Capriciously in Denying Public Service Loan Forgiveness  to Three Public Service Lawyers, 366 Education Law Reporter 596 (August 8, 2019). 

Lauren Hirsch & Annie Nova. California sues Education Secretary DeVos, saying she has failed to implement student loan forgiveness program. CNBC News (June 3, 2020).

Weingarten v. DeVos, 468 F. Supp. 3d 322 (D.D.C 2020).

Jordan Weissmann. Betsy DeVos Wants to Kill a Major Student Loan Forgiveness ProgramSlate, May 17, 2017.

U.S. Government Accountability Office. Federal Student Loans: Education Could Do More to Help Ensure Borrowers Are Aware of Repayment and Forgiveness Options. GAO-15-663 (August 2016). 








Wednesday, January 20, 2021

Immigrant obtains medical degree, can't find MD job. Bankruptcy judge discharges $400,000 in student-loan debt

Seth Koeut was born in Cambodia and came to the United States as a child. Like many immigrants, he applied himself energetically to obtain a better life. He graduated 6th in his high school class and went on to earn two bachelor's degrees from Duke University.

Mr. Koeut then went to medical school and received an MD from Ponce School of Medicine in Puerto Rico. Somewhere along the way, he learned to speak English, Cambodian, Spanish, French, and Italian.

Although he passed his Medical Board exams, Koeut could not obtain a residency, which is a prerequisite to obtaining a medical license. After applying for residencies for five years, he gave up hope of becoming a licensed physician in the United States.

Over the years, Koeut held various jobs, including sales clerk at Banana Republic, a dishwasher at a Mexican restaurant, and parking lot signaler.

Finally, Koeut filed for bankruptcy and asked Bankruptcy Juge Margaret Mann to discharge his student-loan debt, which totaled $440,000. A vocational evaluation expert assessed Koeut's job prospects and said Koeut would need additional training to meet his employment potential.

The U.S. Department of Education (DOE) opposed Koeut's application for a student-loan discharge and argued that he should be put in a long-term, income-based repayment plan (IBR). DOE also said Koeut failed to reach his employment potential because of a lack of initiative.

But Judge Mann disagreed. "A medical school graduate who works as a parking attendant and dishwasher cannot be described as lazy," she observed. She approved of Koeut's decision not to sign up for an IBR, which he rejected "because he could not carry the burden of his student debt without harming his opportunities for advancement."

In the end, Judge Mann discharged almost all of Koeut's student debt, finding that his current income and expenses did not permit him to maintain a minimum standard of living--even without making loan payments.

The Koeut case may be a sign that the bankruptcy judges are weary of DOE's incessant demands to put distressed student-loan debtors into IBRs. And perhaps they have grown tired of DOE's insistence that every bankrupt debtor's financial distress is entirely the debtor's fault.

Indeed, one cannot read Judge Mann's opinion without concluding that Seth Koeut had done everything possible to improve his standard of living and had handled his massive student-loan debt in good faith. Let us hope for more bankruptcy court decisions like Koeut v. U.S. Department of Education.


References

Koeut v. U.S. Department of Education, 622 B.R. 72 (Bankr. S.D. Cal. 2020).




Sunday, January 17, 2021

Surprise! Betsy DeVos's Department of Education rejects Grand Canyon University's application for non-profit status

 Even a blind acorn finds a pig occasionally, and Betsy DeVos's Department of Education finally found a piggy: Grand Canyon University (GCU), which operated as a for-profit institution until 2018.

Last year, DOE rejected GCU's application for non-profit status. This surprised most people because Betsy DeVos is famous for coddling the for-profit college industry.

Not surprisingly, Grand Canyon is suing DOE to overturn the ruling. That's what for-profit colleges do when they don't get their way.

Why did DOE reject Grand Canyon's bid for non-profit status? After all, the university's accreditor and the IRS gave their approval. 

DOE said its decision was based in part on the fact that Grand Canyon University still maintains close financial ties with Grand Canyon Education (GCE), a publicly-traded for-profit corporation. (GCU stock is currently worth about $89 a share.) 

Although GCE sold its university assets to Gazelle University (which operates as Grand Canyon University), GCE still has financial ties to the university from which it profits. 

As DOE explained in an 18-page letter, Grand Canyon's new non-profit owner signed a Master Service Agreement (MSA) with GCE whereby the for-profit entity gets a majority of the revenue from university operations. Specifically:

Despite GCE only taking on the responsibilities of 48% of the operating costs, 60% of the gross adjusted revenue will be paid to GCE under the MSA.  When payments on the Senior Secured Note are included in the analysis, GCE will be receiving approximately 95% of Gazelle's revenue.

DOE also pointed out "that most of [Grand Canyon University's] key management personnel work for GCE, not Gazelle/GCU . . ." Thus, DOE concluded, "as a practical matter, Gazelle is not the entity actually operating the Institution . . . ."

Now you may be asking yourself why Grand Canyon Education, a publicly-traded Delaware corporation, went to the trouble of constructing a deal that would make Grand Canyon University a non-profit.

Undoubtedly, GCE was motivated partly by the desire to make Grand Canyon University seem less venal.  As a non-profit institution, it can claim to be more like traditional non-profit private universities like Harvard, Yale, and Stanford.

And there are regulatory advantages as well. DOE has regulations for the for-profit college industry that don't apply to traditional non-profit universities.

Bud DOE said no, and that was the right decision. A publicly-traded corporation should not be allowed to profit from a university that calls itself a nonprofit while shoveling its revenues to stockholders who are primarily interested in making money.



 


Friday, January 15, 2021

Teaching wild hogs to dance: Brookings says for-profit college system is broken and thinks it know how to fix it

 The Brookings Institution published a report this week calling attention to the for-profit college system's enormous abuses. "For-profit colleges have a long history of engaging in manipulative behavior to preserve the flow of [federal money] to their schools while providing their students with a poor education," authorsAirel Gelrud Shiro and Richard Reeves wrote.

In this report (and in an earlier paper released last November), Brookings researchers ticked off a litany of problems in the for-profit college industry:

  • The for-profits only enroll 10 percent of postsecondary students, "but they account for half of all student-loan defaults."
  • For profit-schools are about four times more expensive than community colleges.
  • Black and Latino are overrepresented in this expensive college sector. Although they make up less than a third of all college students, "they represent nearly half of all who attend for-profit colleges."
  • Black students who take out student loans to attend a for-profit have very high default rates. "Almost 60 percent of Black students who took on student debt to attend a for-profit school in 2004 defaulted on their loans by 2016 . . ."
  • Research suggests a for-profit college education may be no better than no college at all. "Students may even incur net losses from for-profit attendance when debt is factored in."
OK, I'm convinced--the for-profit colleges are bad boys.  In fact, I was convinced back in  2012, when Senator Tom Harkin's committee released a scathing report on the for-profit college industry. 

But what are we going to do about it? 

Brookings researchers recommend more effective federal regulations. For example, Brookings wants to reinstate the "gainful employment" rule that the Obama administration introduced. Colleges whose students don't reach a certain debt-to-employment ratio would lose federal funds. And it wants a more transparent "College Scoreboard" for reporting the for-profits' student outcomes. 

But let's face facts.  Trying to reform the for-profit college industry is like trying to teach wild hogs to dance.  It ain't happening.

Postsecondary education should be inexpensive, and it should lead to good jobs.  Under that standard of measurement, the for-profits have failed.

So why doesn't Congress just shut them down?

Or failing that, why doesn't Congress at least allow the naive people who took out student loans to attend overpriced for-profit colleges and didn't benefit to discharge their student loans in bankruptcy?

How could anyone object to such a simple avenue of relief for the countless victims of the for-profit college scandal?

References

U.S. Senate Committee on Health, Education, Labor and Pensions. For-Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. 112 Congress, 2d Session, July 30, 2012. 

Let's do the "Gainful Employment" dance!