Monday, March 15, 2021
All Sales Final! No Refunds! Students lose lawsuit for tuition reimbursement against four Rhode Island universities that closed their campuses during COVID pandemic
Friday, March 12, 2021
A little good news: COVID Relief Act includes tax relief for student debtors whose loans are forgiven
A little good news. The COVID relief bill that Congress passed a few days ago includes modest tax relief for student debtors whose college loans are forgiven.
Senators Bob Mendez and Elizabeth Warren introduced the Student Loan Tax Relief Act in the U.S. Senate as a provision of the $1.9 trillion COVID relief legislation.
Thanks to the passage of the Mendez-Warren bill, student debtors who complete income-driven repayment plans (IDRs) and have their college loans forgiven will not get a tax bill.
In most circumstances, the Internal Revenue Service considers a forgiven debt to be taxable income. Until the Mendez-Warren bill became law, this was a problem for student debtors in IDRs.
Indeed, most college-loan debtors in IDRs will have substantial loan balances when they finish making monthly payments under a 25-year IDR because their payments weren't large enough to cover accruing interest.
The U.S. Department forgives the remaining student-loan debt for individuals who complete IDRs, but the IRS has treated the forgiven debt as taxable income. Under the terms of the Mendez-Warren bill, that forgiven debt is no longer taxable.
This is a good development, but the Student Loan Tax Relief Act offers is only a modest reform.
First of all, the IRS does not tax forgiven debt if the debtor is insolvent when the debt is forgiven. Since most student debtors who complete 25-year IDRs will be insolvent, their forgiven debt would not have been taxable even before the Mendez-Warren bill became law.
Second, for reasons I do not understand, the tax-relief measure expires on January 1, 2026. After that date, forgiven debt will again be treated as income by the IRS.
Third, as the National Consumer Law Center reported earlier this month, only 32 people who completed IDRs have had their loan forgiven. If this low IDR-completion rate continues, the Mendez-Warren measure will impact very few people.
In short, the Mendez-Warren legislation is a welcome development but is no reason for student debtors to start popping the champagne corks. Save the champagne for the day Congress repeals the undue-hardship language in the Bankruptcy Code and allows distressed student debtors to discharge their student loans in bankruptcy.
|Don't pop the champagne corks over the Student Loan Tax Relief Act.|
Tuesday, March 9, 2021
You can't get there from here: Millions of student borrowers are in Income-driven repayment plans but only 32 got debt relief
Everyone knows the story about the hapless motorist who gets lost in rural Maine. When he finds a farmer and asks for directions, the farmer says, "You can't get there from here."
The U.S. Department of Education must be staffed by Maine farmers. DOE has made it almost impossible for student-loan debtors to benefit from DOE's income-based repayment plans (IDRs). When it comes to getting debt relief from an IDR, DOE's position seems to be: You can't get there from here.
DOE and its loan servicers are responsible for administering the federal student-loan program, including its various income-based repayment plans. These IDRs allow borrowers to make payments on their student loans based on their income--with low-income borrowers making payments as low as zero.
As the National Consumer Law Center (NCLC) reported this month, more than 8 million people are enrolled in IDRs. Two million student debtors have been in an IDR for at least 20 years.
Yet only 32 people--that's right, 32--have had their student loans canceled through an IDR.
NCLC blames private student-loan servicers for this dismal state of affairs. NCLC accuses the servicers of giving inaccurate or inadequate information to student borrowers and steering borrowers away from IDRs toward options that don't lead to eventual loan cancellation.
And there is another problem. According to NCLC, nearly 6 out of 10 people in IDRs lose their eligibility because they fail to recertify their income annually.
NCLC recommends canceling all student debt that has been in repayment for 20 years--whether or not a borrower was signed up in an IDR. I agree.
After all, student debtors who have not paid off their college loans after 20 years will probably never pay them off. In fact, interest accruing on their debt will have built up over time so that their total outstanding debt will likely have doubled or tripled.
Another reform--less sweeping than loan forgiveness--would at least prevent a majority of borrowers from getting kicked out of their IDRs. DOE could stop requiring IDR participants to certify their income on an annual basis. Instead, DOE should simply assign that job to the Internal Revenue Service.
Over the past few months, the federal government has issued millions of coronavirus relief checks to Americans based on the recipients' income. This was a relatively easy task because the Internal Revenue Service knows every American's income based on tax returns.
Since the feds know everyone's annual income, DOE doesn't need to ask 8 million IDR participants to certify their income every year. Eliminating that unnecessary requirement would prevent more than half the people in IDRs from getting kicked out of their repayment plans.
But maybe that simple reform is too easy. Perhaps DOE and the student-loan processers don't care whether IDR programs operate as Congress intended.
When only 32 people get their student loans forgiven under IDR programs intended to give debt relief, something is terribly wrong. Surely the U.S. Department of Education is capable of managing its IDR programs better than a Maine farmer.
|You can't get there from here.|
Sunday, March 7, 2021
As reported in Inside Higher Ed, Becker College is on the brink of closure. Located in Worchester, Massachusetts (no garden spot), Becker's enrollments have drifted downward in recent years, and it now enrolls only about 1,500 students.
The Massachusetts Department of Higher Education says the school's financial situation is uncertain, and Becker and the Department are working on a "contingency closure" plan. A local newspaper says Becker "is unlikely to survive another academic year."
Thus, for students who invest four years of their lives studying at Becker College, a bachelor’s degree could cost $200,000.
Unfortunately, it takes longer than four years for most Becker students to get their bachelor’s degree. CollegeSimply reports that only 14 percent of Becker students earn their bachelor’s degree within four years, and only 27 percent graduate within six years. (Other sources cite a higher graduation rate, and Becker's website says its graduation rate is above the national average.)
Of course, most Becker students get some kind of financial assistance that can cut costs considerably. But few people will graduate from Becker College without taking out student loans. According to CollegeSimply, 83 percent of Becker students have federal student-loan debt when they graduate.
And what kind of job awaits a Becker College graduate?
Today, small private colleges are sliding down a path toward oblivion. Hundreds of these schools dot the American landscape, especially in New England and the mid-Atlantic states.
Many are losing students, and some are closing. Atlantic Union College, located only a few miles from Becker College, shut down in 2018. Incredibly, the Massachusetts Department of Higher Education maintains a list of more than sixty closed colleges and schools in the Bay State.
The COVID pandemic hit these colleges especially hard—accelerating enrollment declines. Federal money has propped some of them up—at least temporarily. Becker College received nearly $5 million in coronavirus aid.
To an unsophisticated young person, a small private college like Becker may look attractive. In contrast to the public mega-universities, which may enroll 50,000 students or more, the small private schools feel friendlier. Their ancient buildings--Romanesque, Greek revival, or Victorian architecture--their leafy lawns and small, intimate classroom setting are appealing to young people searching for wisdom and guidance that will help them plan their lives.
But these colleges can be dangerous places to study. First of all, they are quite expensive. Tuition prices vary from school to school, but they typically charge about $50,000 per year in tuition, fees, room, and board. Most students from low-income or middle-class families will be forced to take out student loans to cover those costs.
Second, a degree from a small, private college may not lead to a good job. CollegeSimply reports that a Becker College graduate’s average salary after ten years is only $46,600. That is not a very attractive salary for a person burdened by oppressive student-loan debt.
I sympathize with these small, struggling private colleges. Some have noble histories dating back to the early nineteenth century or even earlier. Becker College, for example, traces its roots to 1784.
And many of these schools have made commendable efforts to remain relevant. Becker Colege offers a variety of job-oriented degree programs: nursing, criminal justice, veterinary technology, and forensic science. Becker's game design program is nationally recognized. According to the Princeton Review, the program ranks number 2 in the world.
But the future of the small, private college is bleak. Young people should carefully consider the costs and benefits of attending an expensive private school compared to a public university.
They should also weigh the possibility that the private college of their choice may shut its doors in the not-to-distance future--perhaps before they pay off their student loans.
|Expensive private colleges: Think before you take the plunge.|
Tuesday, March 2, 2021
House version of COVID relief bill modifies 90/10 rule for for-profit colleges. Critics say the change may cause some for-profits to close
The House of Representatives passed a $1.9 trillion relief bill a few days ago, and the legislation is now before the Senate. House Democrats inserted a provision that would modify an obscure statute that requires for-profit colleges to obtain at least 10 percent of their revenues from non-federal student aid.
The purpose of the 90/10 rule is to require for-profit colleges to obtain at least a small part of their income from non-federal sources. As a recent paper by the Veterans Education Project noted:
The rationale for the [90/10] policy is that a worthwhile educational provider should be able to attract other sources of revenue beyond federal grants and loans, and that students should be willing to put some of their own money toward their education (i.e., “skin in the game”).
Or as Representative Bobby Scott (D-Virginia) put it, the rule requires for-profit institutions to “show some semblance of attraction to people.”
Under current law, GI Bill benefits--federal student aid for veterans--are not counted as federal student aid under the 90-10 rule. Thus, for-profits can get 90 percent of their revenue from federal student aid and get additional federal money from veterans' benefits without violating the 90/10 rule.
The House version of the COVID relief bill would change the way the 90/10 rule is calculated by including veterans benefits as federal student aid. The Wall Street Journal criticized the measure, pointing out the rule change would cause 87 for-profit schools to fall out of compliance with federal regulations and perhaps close.
I disagree with the Wall Street Journal. For-profit colleges have a long and well-documented history of providing overly-expensive, often substandard services to students. As the Brookings Institute reported recently, for-profit schools enroll only 10 percent of postsecondary students but account for half of all student loan defaults.
Moreover, on average, for-profits are four times more expensive than community colleges, and black and Latino students are overrepresented in this low-performing education sector. Indeed, some research suggests that a for-profit college education may be no better than no college education at all.
Tightening the 90/10 rule is a modest reform. All it will do is require for-profits to find more non-federal operating funds than they are required to have now.
If the Senate includes the modified rule in its version of the COVID legislation, some for-profits may indeed close. We should not mourn their loss.
|Rep. Bobby Scott (D. Virginia)|
Monday, February 22, 2021
Top Democrats, led by Senators Chuck Schumer and Elizabeth Warren, are calling on President Joe Biden to forgive student-loan debt up to $50,000 per person.
According to the plan's proponents, $50,000 in debt relief would wipe out all college-loan debt for 36 million Americans. That would be an impressive achievement.
Moreover, forgiving $50,000 in student debt would particularly benefit women and people of color, who take on more debt on average than men and non-minority students. Under one interpretation of the proposal, parents who took out Parent Plus loans might also get relief.
Without a doubt, student-loan forgiveness on this scale would be expensive. The federal government would be writing off $1 trillion in student debt. But, as then Education Secretary Betsy Devos admitted more than two years ago, only one out of four federal-loan borrowers are "paying down both principal and interest" on the loans. Writing all this debt off in one fell swoop would merely recognize reality.
Some policy experts argue that writing off all student debt--about $1.7 trillion--would be good for the American economy. In a 2018 report, researchers at the Levy Economics Institute of Bard College wrote that wholesale student-loan forgiveness would boost the Gross National Product by $86 billion to $108 billion a year over ten years. Released from their student loans, millions of Americans would see an immediate increase in their disposable income, permitting them to buy homes, save for retirement, purchase consumer goods, and start families.
So what's my take on the Schumer-Warren proposal? I think any action that gives meaningful relief to millions of struggling college borrowers is a good thing. So if the choice is between the Schumer-Warren plan and no plan, I support the Schumer-Warren initiative.
But wiping $1 trillion of student debt off the government's books is no panacea for the student-loan crisis.
First, there is the issue of fundamental fairness. Millions of Americans made enormous sacrifices to get through college with no debt--often working at part-time jobs to make ends meet. Millions more lived frugally in the years after graduation to pay off their student loans.
Somehow it seems unjust to reward people that borrowed to attend college when so many people worked extra hard to avoid debt or to pay it off quickly.
Second, for our government to wipe out a trillion dollars in college loans is an implicit admission that the college experience is not worth what the universities are charging. President Biden should not forgive a trillion dollars in student debt without insisting that the universities reform their operations.
What reforms are most urgent. In my view, colleges should stop grinding out expensive and often worthless graduate degrees. When Congress passed the GRAD Plus Act, it allowed people to borrow the entire cost of graduated education, no matter what the price. As we might have expected, universities raised the price of their graduate degrees. They ginned out new programs: MBAs, Master's degrees in public administration, graduate degrees in gender and ethnic studies, and so on.
Second, we need to close down the Parent PLUS program, which has driven millions of moms and pops to the verge of poverty by taking out loans for their children's education that they can't discharge in bankruptcy.
In my view, it would be wiser to loosen the restrictions on bankruptcy relief for overburdened student debtors. People who took out student loans and obtained good jobs with their college degrees should pay back their loans. People whose lives were ruined by student debt could get a fresh start in the bankruptcy courts.
Surely all Americans can agree that postsecondary education should improve the quality of people's lives. College degrees that leave people with no job and massive student debt should not be subsidized by the federal government.
|Let's forgive $1 trillion in student debt: The rubes will love us for it!|
Sunday, February 7, 2021
Real estate in my little corner of Flyover Country is "on a hot streak." In Baton Rouge, housing sales rose 12 percent last year, and prices shot up by 7 percent.
Everywhere, Baton Rouge builders are scrambling to meet the demand for new houses, new condos, new apartments. Thousands of apartment buildings are under construction in the Mississippi River floodplain, where land is relatively cheap; and new subdivisions of starter homes are springing up like dandelions.
Everyone is jumping into the housing market. And why not? Interest rates on a 30-year loan are below 3 percent! You'd be crazy not to buy a new home or snap up some rental housing as an investment.
But wait a minute. Louisiana actually lost population last year. So who is going to buy the new starter homes down by the River levee? Who is going to rent all those new apartments?
And when we take a closer look at the real estate boom in my hometown, it begins to look a little less rosy. In the zip codes that border the Mississippi River, home prices actually went down.
If we take a deep breath and search for reality, we see that real estate across the U.S. is in a bubble--very much like the bubble that led to the home-mortgage crisis in 2008-2009. Artificially low interest rates have juiced home sales in some parts of the country, but real estate languishes in the nation's urban centers.
Houston, for example, has a magnificent skyline, but a lot of skyscrapers have empty space. Houston's office-vacancy rate was 24 percent last year. According to Bloomberg, business tenants vacated a net 3.2 million square feet of Houston properties in 2020. Meanwhile, 3.1 million square feet of "new top-tier space [is] set to be completed over the next 18 months."
Downtown Houston has thousands of townhomes and condominiums occupied by people who work in Houston's office towers. But people are working at home these days. Many businesses have concluded that they don't need to cram their employees into skyscrapers. Folks can work from home.
And if you work from home, you don't need to live in a crowded city. You don't need to pay sky-high property taxes. You don't need to send your kids to crummy schools. Suddenly, the suburbs are looking better and better. Maybe it wouldn't be so bad living next door to Ozzie and Harriet.
Housing prices are up because interest rates are at a historic low. But interest rates won't remain low forever. Builders are constructing cookie-cutter housing projects at a dizzying pace, but it is not clear who will live in these new homes.
Now is not the time to speculate in real estate. Now is a good time to stop thinking of your home as an investment and begin thinking about it as shelter for your family.
|Ozzie and Harriet's home: Did Ricky mow the lawn?|