Monday, October 4, 2021

"Only pay for what you need": College students are paying for products or services they don't need

 Perhaps the most inane car insurance commercial ever aired is one by Liberty Mutual: "Only pay for what you need." 

Apparently, Liberty Mutual wants auto drivers to believe that it is the only insurance company that allows customers to buy car insurance tailored to their needs.  But doesn't every insurer do that?

Nevertheless, the slogan makes sense. No one should be forced to purchase services they don't need.  

But college students pay for things they don't want or need every time they pay their tuition bills.  That's a significant reason why tuition has gone up more than the rate of inflation for the past 25 years.

Let's take Louisiana State University, for example. A full-time undergraduate student will pay about $4,000 in tuition to attend LSU this fall. But  LSU also tacks on various required fees that bring the total cost to almost $6000. In other words, LSU's fees represent about a third of a student's total bill. 

LSU's website lists 41 separate fees that the university charges students in addition to tuition. Of course, some of these fees only apply to graduate students.  Law students and veterinary students pay fees that don't apply to undergraduates. And some of the fees are optional.

Nevertheless, required fees amount to a considerable chunk of change. All LSU's full-time undergraduates must pay a "Student Excellence Fee" and an "Academic Excellence Fee" that total $1,500 a semester.

The days are over when college tuition basically covered the cost of academic programs and a modest administrative staff. Today, universities are as large as midsize American cities.  Major universities pay a lot of money for campus police forces, medical facilities, mental health services, diversity officers, and platoons of attorneys who handle everything from sexual assault complaints to intellectual property deals.

And the students are paying for all of this--mostly with federal student loans. Surely there is a better--and cheaper--way for America to run its colleges and universities. 







Thursday, September 16, 2021

Nystrand v. Kingdom of Sweden: Another underemployed lawyer seeks bankruptcy relief

A common saying when I was young (in the last century) was the old adage that lawyers are people who wish to make a lot of money but are risk-averse. 

That observation certainly rang true when I went to law school in the 1970s. I graduated from the University of Texas School of Law with a class of 500 students, and nearly all of us found decent jobs as lawyers.

Even better, my classmates and I finished law school with little or no debt. Tuition was only $500 a semester. Working part-time as a law clerk for the Texas Attorney General's Office, I avoided student loans. I started my legal career debt-free, and  I quickly found a good job practicing law.

But law school tuition has shot up dramatically since the days I went to law school. Tuition at UT's School of Law is now $36,000 for in-state students--36 times what I paid. 

And the job market for lawyers is terrible. Many people now leave law school with enormous debt and little prospect of finding employment in their field.

And this brings me to the case of Nystrand v. Kingdom of Sweden, filed last spring in a Tallahassee bankruptcy court. 

Anneli Nystrand, a Swedish immigrant, graduated from the University of Miami School of Law in 1995. In my opinion, she did everything right. 

Nystrand attended a respectable law school and paid off her student loans, although it took her 15 years. She passed the Florida bar exam and landed a job with the Florida Department of Banking and Finance, probably a pretty good gig.

Unfortunately, as the years rolled by, Ms. Nystrand's financial situation deteriorated.  In 2013-2014, approximately 18 years after graduating from law school, she was on the job market. Although she applied for more than 200 attorney positions, she did not get a single interview.

In 2016-2017, she found a law job that paid only $39,000 a year. In 2017-2018, she worked for a law firm and made $50,000 a year.

In 2019--more than 20 years after graduating from law school-- Ms. Nystrand began accepting court-assigned cases for a flat fee. If she took a juvenile delinquency client, for example, she only received $377, which is less than the hourly rate of a corporate lawyer in a top-flight firm. 

Her total income for 2019 was only $20,000. In 2020, Nystrand did a little better, earning $46,000 before deducting expenses.

In April of this year, Ms. Nystrand filed an adversary complaint in a Florida bankruptcy court against the Kingdom of Sweden, seeking to discharge student loans owed to that Scandanavian country.

I have no idea what that is about. Nystrand's complaint does not state the amount of the debt or how it was incurred.  

Nevertheless, I am on Ms. Nystrand's side. I hope she is successful in clearing her debt to Sweden.  

Anneli Nystrand is one among hundreds of thousands of underemployed or unemployed attorneys who left law school with enormous debt. Now they are trying to build their careers in a soft job market--particularly for lawyers who attended second- or third-tier law schools. 

Florida has 11 law schools--far too many. Ms. Nystrand is forced to compete in a job market for attorneys saturated with people looking for work. 

All these unemployed or underemployed lawyers deserve reasonable access to bankruptcy courts. Senators Durbin and Cornyn's bill would allow distressed student-loan debtors to get bankruptcy relief ten years after their student loans become due.

If that bill becomes law, people like Anneli Nyastrand would immediately benefit.

But one more thing needs to be done. The American Bar Association, which allegedly regulates legal education, needs to get off its ass and close down some law schools. 

References

Nystrand v. Kingdom of Sweden, Case No. 21-400006-KKS (Bankr. N.D. Fla. Apr. 16, 2021 (adversary complaint).








 

Tuesday, September 7, 2021

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.





Monday, September 6, 2021

"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!






Wednesday, September 1, 2021

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.













Friday, August 27, 2021

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.




Wednesday, August 25, 2021

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!"