Department of Education pauses collection efforts against student-loan debtors: Guaranty agencies garnish wages anyway

In response to the COVID pandemic, the Department of Education allowed student-loan debtors to skip their monthly loan payments without penalty until September 30, 2021.  That pause was recently extended to January 30, 2022. 

Thanks to the Department's forbearance, millions of college-loan borrowers are enjoying a respite from making loan payments, knowing that DOE will not charge interest and penalties during this grace period and that their wages will not be garnished due to nonpayment. 

But guess what? Loan guaranty agencies continued garnishing the wages of student-loan borrowers despite the federal moratorium.  According to the Student Borrower Protection Center, the guarantee agencies garnished $27.2 million in May 2021 and $12.9 million in June 2021.

Will student borrowers recover these lost wages? Probably. But it will probably take a long time. After all, the Department of Education didn't forgive all student loans taken out by people who were defrauded by ITT Tech until five years after the for-profit college filed for bankruptcy.

The federal student loan program has enormous problems, and some of them will be difficult to fix. But surely, the Department of Education can require the loan guarantee agencies to abide by Department policy and the law.

But apparently, the guaranty agencies think they are above the law. In 2016, Educational Credit Management was assessed punitive damages for repeatedly garnishing the wages of a bankrupt student debtor in violation of the Bankruptcy Code. 

In an earlier case, ECMC was sanctioned for violating the Bankruptcy Code by collecting on a debt discharged in bankruptcy. 

Perhaps, you might conclude, the guaranty agencies inadvertently violate the law because they don't have the financial resources they need to keep track of their legal obligations. But that conclusion would be incorrect. According to a report issued by the New Century Foundation in 2016, Educational Credit Management, a nonprofit corporation, had more than $1 billion in nonrestricted assets.

Congress has a lot to do to clean up the student-loan mess, but it might start by holding hearings to examine the practices of the guaranty agencies.  Congress might begin by asking why some of the guaranty agencies are so rich. It might also inquire into the agencies' attorney fees the agencies run up chasing distressed student-loan debtors into the bankruptcy courts. 

Finally, Congress might look into how much the guaranty agencies are paying their senior management.  More than ten years ago, Bloomberg reported that the current CEO of ECMC was making more than $1 million a year.  What do you think ECMC's current CEO makes?  My guess--somewhere in the high seven figures. 

We don't need no stinkin' pause on student-loan collections.

"If I knew then what I know now, I probably would have skipped college": Freshman enrollment is down 13 percent at 4-year schools

Freshman enrollment dropped an astonishing 13 percent last year, and overall college enrollment sank 4 percent. 

What accounts for this exodus? The COVID pandemic partly explains it. Colleges switched from classroom teaching to online instruction in the spring of 2020, which was decidedly inferior. Undoubtedly, many students have decided not to go back to college until the professors resume teaching face-to-face.

But COVID is only a partial explanation for the student-enrollment downturn.  Cost is a huge factor. It now costs about $75,000 a year (including room and board) to attend a private liberal arts college--$300,000 to get a four-year degree.

Private schools have slashed freshman tuition by more than 50 percent to lure new students through the door, and almost all first-year private-college students now get some sort of discount.  

But for most schools, that strategy has not been successful. Enrollments continue to drop.

But there is a third factor that helps explain plummeting college enrollment.  Students have figured out that a four-year college degree is no guarantee of a good job--particularly a degree in liberal arts or the social sciences.

Many employers no longer require new employees to have a college degree, including Apple, Google, IBM, and Bank of America. Young people have discovered that a vocational-school certificate may lead to a better job than a four-year degree in gender studies.

For example, CNBC carried a story about a young person who left college to enroll in a 14-week coding boot camp, "If I knew then what I know now," the former college student explained, "I probably would have skipped college."

As a guy who spent 25 years as a college professor in the higher-education gulag, I'm glad to see college enrollment declining.  Too many students ruin their lives by taking out student loans to get vacuous college degrees from institutions that don't teach students to think or solve problems. 

Colleges have hired market firms and "enrollment management" administrators to attract warm bodies back into the classroom. But young people are beginning to wise up. Small liberal arts colleges, in particular, are struggling to survive as their student enrollment shrinks.

More and more young Americans have come to realize they can have a good life without going to college. Unfortunately, some college students don't figure that out until they have destroyed their financial future by taking out too many college loans.

LSU students in a crowded classroom: Ain't we got fun!

Do you want to attend a university that has a "Boil Water Advisory" link on its website?

 Hurricane Ida slammed into New Orleans on August 30th--the sixteenth anniversary of Hurricane Katrina. Most of the city is without power, and the Big Easy's colleges and universities were forced to close. 

According to Inside Higher Education, New Orleans's Dillard University won't resume classes until September 13, when all courses will be taught virtually. Xavier University of New Orleans moved its students to Dallas and will resume classes remotely on September 7. Tulane canceled classes through September 12, and instruction will be virtual until after the conclusion of fall break.

Meanwhile, the city of New Orleans is in big trouble. Not only did the town lose power, but water and sewage services were also compromised.  The mayor has imposed a curfew to discourage looting. College students may want to get out of town, but there is a gasoline shortage.  

Obviously, New Orleans universities are doing what they have to do in the wake of a catastrophic hurricane.  No one can blame them for canceling classes and for switching to online instruction when they reopen.

But think about Hurricane Ida from the perspective of a New Orleans college student.  The cost of attending Tulane University (including room, board, and fees) is almost $75,000 per year. Students won't want to lay out that kind of bread to take online classes.

Hurricane Ida is a reminder that students need to think about their safety and security in the cities where their universities are located. New Orleans can be dangerous during hurricane season, and NOLA has experienced recurring problems with its water supply.

In fact, Tulane has a "Boil Water Advisory" posted on its website--not for Ida but for any municipal water advisory. Tulane advises students not to drink tap water, and not make ice or brush their teeth with it during a Boil Water Advisory. 

If you are trying to decide where to go to college, do you really want to pay $75,000 a year to live in a city where you may not be able to brush your teeth with tap water?

And New Orleans is not the only city having to deal with environmental crises. Lake Tahoe Community College pushed back the start date for its fall semester classes due to wildfires in the area.

Some experts believe climate warming is responsible for wildfires in the West and increasingly ferocious hurricanes on the Gulf Coast. I think they may be right.

So, young people deciding where to go to college need to consider more than the reputation of the university's football team or its ranking as a party school. They need to think about wildfires and hurricanes.

Never co-sign a student loan. I repeat: Never co-sign a student loan.

 Joss recently wrote Stever Rhode (the Get Out of Debt Guy) and asked for advice about a student loan her father took out to help finance her college education. Joss co-signed the loan but understood that her father would pay the loan back. He didn't.

Josh didn't know her father was not paying down the loan until it showed up on her credit report. Unfortunately, although Josh's dad bailed on his commitment, Joss is responsible for paying back the loan.

Remember that venerable old saying: Never lend money to a friend because you will lose them both.  

This same advice applies to co-signing student loans. Just don't do it, because it is an excellent way to break up a family.

Banks that issue private student loans almost always require the student to find a co-signer--and that co-signer is usually Mom, Dad, Gramps, or Grandma.

It may seem like a good idea at the time--one for all and all for one. But if the student doesn't pay back the loan, the bank is coming after Mama, Pop, Granny, or Old Granddad.

Conversely, as in Joss's case, if Pop takes out a student loan to help pay Junior's way through college and Junor co-signs the loan, Junior will be personally on the hook if Pop skips town.

How do people find themselves in the situation of being asked to co-sign a student loan? I think, in most cases, the student maxes out on federal student loans and needs more money to continue going to college.  

The student takes out a private student loan and gets Mom or Dad to cosign. Or Mom and Dad take out a private loan, and junior cosigns. 

This is never a good idea. In fact, if Junior needs to take out private loans to attend college, Junior should go to Plan B.   Junior should either drop out of school, go to work, and save enough money to return, or Junior should transfer to a cheaper college.

If there is an exception to this advice, it does not now occur to me.

Hell, no! I'm not co-signing your student loans.

LSU uses COVID money to clear student debt: "What a good boy am I!"

 Louisiana State University announced this week that it will use $7 million in COVID relief money to clear debts that students owe the university. About 4,000 students will benefit.

That's wonderful!

But before we stand up and cheer, let's recognize that LSU is not spending $7 million to help students pay off their federal student loans. LSU is using COVID relief money to clear debts that students owe LSU--including outstanding balances on tuition, fees, and debt owed LSU for housing, meal plans, and parking.

Much of that debt is probably uncollectible. Students who dropped out of LSU in mid-semester may have left owing unpaid balances on meal plans, dorm rent, and parking tickets. But how can the university collect on that debt unless it sues the former student in court?

Do you think a student who dropped out of LSU in April 2020 and went back to his home in Dry Prong, Louisiana, is going to pay the university the 200 bucks he owes for parking violations? I would guess not.

By clearing that debt with federal money, LSU is simply paying itself.  All that is well and good, but should LSU and the other universities that adopt this strategy pat themselves on the back?  

LSU describes its actions as student-centered, but it is really acting in its own self-interest. Students who leave LSU owing unpaid bills can't get their transcripts and can be barred from registering for more classes. By paying off student debts with federal money, LSU enables former students to re-enroll.

I would be more impressed with universities following LSU's path if even one elite college president would speak out about the student loan crisis.  Approximately 45 million Americans owe $1.7 trillion in federal loans, and a high percentage can't pay those loans back.

I haven't heard a single college president call for bankruptcy reform to allow distressed college borrowers to shed their oppressive student loans in bankruptcy. I haven't heard one college CEO speak out about abuses in the for-profit college sector. And no college leader will admit that tuition costs are too high. 

No, universities are taking their cue from Little Jack Horner. They use fed money to pay themselves and say, "What a good boy am I!"

Online teaching sucks: Don't pay $50,000 a year to take classes in your pajamas

 American universities are in a tight spot. When the coronavirus pandemic hit in March 2020, almost all of them closed their campuses and switched to online instruction.

Result? Students filed hundreds of lawsuits against the colleges, claiming--rightly in my opinion--that online teaching is inferior to face-to-face instruction and wasn't what they paid for. In many of these cases, students were paying tuition priced north of $25,000 a semester, yet they could not personally interact with a single professor.

Now, as the 2021 fall semester approaches, colleges must decide what to do.  Basically, they have three choices:

First, they can continue with online instruction, hoping that students will consent to another year of taking courses on their home computers.

Second, colleges can reopen their campuses but require students to wear masks and maintain social distancing. But such a policy imposes onerous burdens on students, which many of them probably won't accept.

Third, colleges and universities can reopen their campuses for face-to-face learning while insisting that all students get the COVID vaccine.

In my opinion, most colleges have no real choice--they've got to get professors and students back in the classroom under more or less normal conditions, and they've got to require everyone in the campus community--students, instructors, and staff-- to get vaccinated. 

If colleges continue teaching in an online format, they will experience significant losses in enrollment.  Why? Because online learning sucks, and everyone knows it.

 A recent report by the Brookings Institution confirmed what everybody already knew: "Online coursework generally yields worse student performance than in-person course work." Moreover, the Brookings researchers reported, "The negative effects of online course-taking are particularly pronounced for less academically prepared students and for students pursuing bachelor's degrees."

College bureaucrats may worry about getting sued if they make professors and students get vaccinated.  But the Seventh Circuit, in a decision issued in early August, ruled that Indiana University can require its students to be vaccinated as a condition of enrollment.

So--the bottom line is this--universities have the legal authority to require students to get vaccinated against COVID and refuse admission to students who won't get their shots.

And that's what they had better do. Because students and their parents won't put up with another year of online instruction that costs 25 grand a semester.

College professors: They're alive! They're alive!

References

Klaassen v. Trs. of Indiana Univ., No. 21-2326, 2021 WL 3281209 (7th Cir. Aug. 2. 2021).

Insanity 101: Medical Doctor with $650,000 in Student Debt Will Pay $80 a Month Under Income-Based Repayment Plan

Tamara Parvizi, age 51, sought to discharge $653,743 in student-loan debt in a Massachusetts bankruptcy court. That's a lot of debt--just shy of two-thirds of a million dollars. 

For 15 years, Parvizi took out student loans to pursue several degrees, and she became fluent in at least four languages. Nevertheless, Parvizi never made a single payment on her student debt other than offsets to her income tax refunds--which totaled less than $4,000 (Parvizi v. U.S Department of Education, slip opinion, p. 4).

Parvizi obtained a bachelor's degree from Clark University in 1990. In 1991, she enrolled in medical school at the University of Rochester but dropped out in 1995 without getting a degree.

Later, Parvizi enrolled at the University of Massachusetts, where she received a master's degree in public health.

In 2006, Parvizi made a second attempt to become a medical doctor. She enrolled at St. George's University School of Medicine, located on the Caribbean island of Grenada.  This time, she completed the program and graduated with a medical degree in 2012.

After obtaining her M.D. degree, Parvizi began a psychiatric residency at the University of Vermont, which she did not complete. She left the residency program in 2013 after being put on a remediation plan (p. 2).

At the time of her adversary proceeding, Parvizi owed $478,000 in unpaid principal on her student loans plus $175,000 in interest. Her annual income was less than $29,000.

The Department of Education opposed Parvezi's request for bankruptcy relief. DOE argued that Parvezi was qualified for REPAYE, an income-based repayment program that would only require her to pay $80 a month over 25 years (based on her current income).

But Parvizi was unwilling to sign up for REPAYE, testifying that she had "suffered enough." She placed most of the blame for her financial predicament on personnel at the University of Vermont. "[W]hy should I pay for the mistakes of a residency program director whose behavior cost me my life, my pursuit of happiness," she asked (p. 4).

Based on Parvizi's eligibility for the REPAYE plan, Judge Elizabeth Katz denied Parvizi's request to discharge her student loans. However, the judge ruled that she would discharge any student-loan debt Parvizi might owe after completing a REPAYE plan.

Who would quarrel with Judge Katz's decision? It is hard to sympathize with a woman who ran up almost half a million dollars in student debt to get a master's degree and a medical degree and who never made a single voluntary payment on her student loans.

On the other hand, I have great sympathy for Dr. Tamara, who undoubtedly did her best to get an education and build a satisfying career. And she may well have been right when she argued that her financial predicament was mainly due to people who made unfair decisions while in her residency program.

Nevertheless, Tamara Parvizi's case demonstrates the insanity of the federal student loan program. Why is the federal government loaning money to a person who left one medical school program without a degree and then pursued another program at a medical school outside the United States?

And what is the point of requiring Dr. Parvizi to pay $80 a month for 25 years while interest on her student loans continues to accrue--probably at a rate of at least $30,000 a year?

This is crazy. And who benefits from all the money the federal government loaned Tamara Parvizi? I suspect the primary beneficiaries are the people who own a private medical school in the Caribbean.

References

Parvizi v. U.S. Department of Education, Adversary Proceeding No. 19-3003 (Bankr. D. Mass. May 13, 2021).

St. George's University School of Medicine: A "Second-Chance Med School"