President Biden Is Under Pressure to Extend Pause on Student-Loan Payments. What Will That Cost?

Federal student-loan borrowers are disappointed by federal court decisions that have stopped President Biden's student-loan forgiveness scheme. Advocacy groups are arguing that Biden should extend the pause on student-loan repayments until after the legal challenges to his loan-forgiveness plan are resolved.

College borrowers are currently expected to resume monthly loan payments in January 2023. By that time, they will have been excused from paying their loans for 33 months. What will another pause cost taxpayers?

The Committee for a Responsible Federal Budget (CRFB) estimated that the current pause (33 months) will cost taxpayers $155 billion in lost interest and inflation that has eroded the value of loan balances.

The CRFB pointed out that the biggest beneficiaries of the loan repayment pause are people who took out the largest student loans--such as medical school and law school graduates. According to the CRFB, the typical person with an M.D. degree will effectively receive $68,000 in loan forgiveness due to being excused from making loan payments for 33 months. The average J.D. graduate will receive $41,500 in student-debt relief. 

People who took out smaller loans will receive smaller benefits. An associate-degree graduate will only get about $4,500 in debt relief. Thus, the pause on making student loan payments for almost three years primarily benefits people with professional degrees.

Is that fair--especially when we consider the cost of this relief will fall on taxpayers, whether or not they went to college? Should a blue-collar worker who didn't attend college be forced to subsidize student loans for high-earning doctors and lawyers?

If Biden extends the loan-payment pause beyond December (which he promised not to do), the cost to taxpayers will continue to grow.  If he extends the pause until his loan forgiveness plan is definitely ruled on by the federal courts, that pause will likely stretch out for two more years.

Shouldn't our government dispense with this nonsense about loan pauses and loan forgiveness and simply let distressed borrowers seek student-debt relief in the bankruptcy courts? 

Apparently, that solution is too goddamned simple. 

Hey, poor guy. Thanks for subsidizing my student loans!

A Student Loan Is Like a Reverse Mortgage: The Borrower Decides Whether to Pay It Back

 Tom Selleck has been hawking reverse mortgages for years. As he patiently explains in television ads, a reverse mortgage is just a loan, except the borrower decides how to pay it back. 

All true, of course. Nevertheless, reverse mortgages can have drawbacks. The biggest drawback is that homeowners can lose all the equity in their homes, leaving less money for their heirs.

Thanks to the COVID pandemic, student loans have become much like reverse mortgages. President Trump put a pause on student-loan payments in 2020, allowing millions of borrowers to skip their monthly loan payments without accruing any interest or penalties. 

President Biden extended the pause several times so borrowers could avoid making loan payments for almost three years. The latest delay lasts until the end of December.

In August, President Biden issued an executive order forgiving $10,000 in student-loan debt to everyone with a student loan balance whose income is less than $125,000.

I think the Biden Administration hoped $10,000 in student-loan forgiveness would placate college borrowers who will have to resume making their monthly loan payments in about seven weeks.

Unfortunately for President Biden, the Eighth Circuit Court of Appeals enjoined him from implementing his loan-forgiveness plan. In addition, a federal court in Texas ruled that the program is unlawful.

This setback has prompted student-debtor advocates to call for Biden to extend the loan-payment pause until the legality of his loan-forgiveness scheme is settled in the courts. As Persis Yu, a spokesperson for the Student Borrower Protection Center, explained, "Until the administration can deliver on debt cancellation, it really cannot turn on payments."

Cody Hounanian, executive director of the Student Debt Crisis Center, argues that students should not be forced to begin repaying their student loans until the student-loan program is fixed. 

To restart student loan payments with all this disruption, without borrowers being put back into a system that's stable and settled, to me, is just another obstacle that borrowers really experienced and understand more than anyone else.

The legality of Biden's student-loan forgiveness scheme won't be resolved by the federal courts for months--perhaps years. In fact, the dispute may require a ruling by the U.S. Supreme Court.

Suppose Biden succumbs to arguments that borrowers should be allowed to skip payments until the loan forgiveness litigation is concluded. In that case, millions of borrowers will likely go five years without making any payments on their student loans.

And when the payment moratorium finally ends, student debtors can sign up for a generous income-based repayment plan that will allow them to make token loan payments so small that they will never pay off their loan balances.

Thus, as I said, federal student loans will essentially become reverse mortgages. The Department of Education will lend billions of dollars to millions of Americans, and the borrowers may never be required to pay it back. 

Student borrowers can skip their monthly loan payments- maybe for a long time.

A Federal Court in Texas Blocks Biden's Student-Loan Forgiveness Plan. It May Be Years Before Student Debtors Know Whether the Plan is Legal

 President Joe Biden made a campaign pledge to forgive $10,000 in federal student loans. In August 2022, Biden announced that he would fulfill that pledge and offer $10,000 in student-loan forgiveness to anyone whose income is less than $125,000. People who received Pell grants while in college are eligible for $20,000 in student-debt relief.

Biden's Department of Education immediately began accepting applications for loan forgiveness. As of mid-November, 26 million college borrowers had filled out online applications.

Critics said that Biden was giving a benefit to people who don't need it. People who took out student loans to get a college diploma or a professional degree may very well be able to repay the debt. Critics also said that Biden is requiring blue-collar taxpayers who did not go to college to absorb the cost of loan forgiveness that benefited people who did go to college.

 Earlier this week, the Eighth Circuit Court of Appeals blocked Biden's program from being implemented nationwide.

Last week, in Brown v. Department of Education, Federal Judge Mark Pittman issued an important opinion on a challenge to Biden's student-loan forgiveness plan. Judge Pittman ruled that Biden's executive action was "unlawful" and vacated the entire program.

The Department of Education speedily appealed Judge Pittman's ruling to the Fifth Circuit Court of Appeals. The Fifth Circuit is generally considered a conservative or moderate court, and I think it is likely that the court will uphold Judge Pittman.

Other cases will be filed in the coming months, and other judges may rule differently from Judge Pittman. If so, the legality of President Biden's $400 billion giveaway will go to the Supreme Court.

I predict President Biden's ill-considered bonanza will ultimately go down in flames like a World War II fighter plane in a vintage war movie. 

Why?

First,  DOE's primary argument appears to be that no one can challenge Biden's giveaway because no one was injured by it--it's just free money. 

But that's absurd. The Congressional Budget Office calculates that the program will cost $400 billion, and a Wharton School analysis predicts it will cost about a trillion bucks. The consequences to American taxpayers are enormous.

As Judge Pittman observed:

[N]o one can plausibly deny that it is one of the largest delegations of legislative power to the executive branch or one of the largest exercises of legislative power without congressional authority in the history of the United States.

 Second, even Representative Nancy Pelosi, Speaker of the House, flatly said that President Biden does not have the legal authority to forgive a portion of student debt owed by more than 30 million people.  

People think that the President of the United States has the power for debt forgiveness. . . He does not. He can postpone, he can delay, but he does not have that power. That has to be [accomplished through] an act of Congress. 

Finally, the plaintiffs argued that DOE launched its giveaway in violation of the Administrative Procedure Act because it failed to comply with the notice-and-comment period that the APA required. That's an excellent argument. 

Betsy DeVos, President Trump's Education Secretary, lost dozens of lawsuits because DeVos's DOE tinkered with the federal student loan program without complying with the APA.  Many of those court decisions will be precedents in support of the plaintiffs challenging Biden's precipitous actions.

The federal student loan program is a trainwreck, and millions of Americans deserve relief from college loans they can never repay. But any relief program should be fair and motivated by sound public policy--not reckless handouts to cater to a political constituency.

Congress would take a giant step toward reforming the student loan program if it took just two words out of the Bankruptcy Code. Those two words are "undue hardship."

Honest but unfortunate college borrowers who are insolvent should have their student loans discharged through bankruptcy like any other nonsecured debt.  

Apparently, that simple and fair solution is too difficult for our politicians in Washington to grasp. Thus (with apologies to Eugene O'Neill), Biden's student-loan forgiveness fiasco begins a long day's journey into the dark night of protracted litigation in the federal courts. 

St. James School of Medicine settles with the FTC: Should Foreign Medical Schools Participate in the Federal Student Loan Program?

 Last spring, the Federal Trade Commission settled its case against St. James School of Medicine, a foreign medical school operating from two Caribbean campuses.

According to the FTC, the school lied to students "about their chances of success--both in passing a medical school standardized test, and in matching with a residency program after graduating."

The FTC accused St. James of falsely representing that its pass rate for an important medical licensing exam was 93 percent when in fact it was only 35 percent. In addition, the agency said that the school falsely claimed that its residency placement rate was similar to other medical schools and that its placement rate was 20 percent lower than advertised.

St. James agreed to pay $1.2 million to more than a thousand students, including $850,000 in refunds to approximately 1,300 students and $350,000 in canceled debt.

Is this a big deal? No. Dividing $850,000 among 1,376 beneficiaries means that each student will get a measly 620 bucks.  That's a drop in the bucket compared to the medical school's tuition price.

Are the good folks at St. James sorry about allegedly misrepresenting important facts to its students? I don't think so. 

A spokesperson for the school issued a public statement saying:

We have chosen to settle with the FTC over its allegations that disclosures on our website and in Delta’s loan agreements were insufficient. While we strongly disagree with the FTC’s approach to this matter, we did not want a lengthy legal process to distract from our mission of providing a quality medical education at an affordable cost.

Moreover, St. James "stoutly dispute[d]" the FTC's accusation that it misrepresented pass rates on the licensing exam, saying:

Our marketing materials accurately stated a 94% USMLE Step 1 pass rate. This figure represented the 2019 first-time pass rate for SJSM-Anguilla students who cleared the NBME requirement, which is consistent with how other medical schools track and report their USMLE pass rate.

In short, the FTC's dispute is a tempest in a teapot, leaving two important questions unanswered. First, why is the federal government loaning students money to attend foreign medical schools? Doesn't the United States have enough medical schools operating inside the country?

And second, who owns St. James's parent corporation, Human Resources Development Services, Inc?

My guess is that private equity funds own big pieces of St. James School of Medicine and that most people in those funds don't give a damn about medical education. 

Cabrini University Cuts its Provost Position: For Whom the Bell Tolls

 Cabrini University, a small Catholic school near Philadelphia, is eliminating its Provost position as part of a plan to cut costs and balance its budget. It will also eliminate two associate provost positions and shrink the number of department chairs from 18 to eight. 

"We continue to lose money every year," Helen Drinan, Cabrini's interim president, explained. "That is no longer tenable."

According to an Inside Higher Ed article, student enrollment at Cabrini has dropped by 36 percent over the past five years.  It currently faces a $5 million shortfall in its $45 million budget.

This is Cabrini's second major shakeup in less than two years. In 2021, the university reduced its workforce by 13 percent and eliminated majors in Black studies, religious studies, gender and body studies, philosophy, and nutrition.

Cabrini is among dozens of small, private liberal arts colleges that are losing enrollment and in danger of closing. Nationwide, undergraduate enrollment has dropped by almost ten percent since the COVID pandemic began. 

Flagship universities have not suffered much. In fact, enrollment at large public schools has remained steady. Small, private colleges, however, are struggling to survive.  Students are no longer willing to take out student loans to attend an obscure institution, especially one cutting its programs. 

Moreover, liberal arts programs, which are the small schools' specialty, have fallen out of fashion. What kind of a job can a Cabrini graduate expect to get with a degree in philosophy or religious studies?

In some ways, small colleges are like condemned prisoners who file appeal after appeal to postpone their execution date. Liberal arts schools have eliminated academic programs, started new programs, slashed tuition, and hired public relations firms in the hope that they can entice more students to enroll. In the end, however, many small private colleges will close or merge with other institutions.

In fact, several small liberal arts schools would have closed already were it not for the infusion of federal student-loan money and COVID relief funds. Federal money has kept small private colleges on life support, but it hasn't made them financially viable.

As I have said before, I feel sorry for the small liberal arts schools, which performed a noble service during the last century by expanding opportunities for young people to get a college education.

But the era of the small private college is over. Students are no longer willing to pay more than $30,000 a year in tuition and fees to attend an obscure and often under-resourced private school.

To put it bluntly, a young person would be nuts to take out student loans to get a liberal arts degree from a struggling private college.  And their parents would be nuts to take out Parent PLUS loans to help finance their child's education from a school that might close before they paid off their loans.

Cabrini University

Cheer Up! A Liberal Arts Degree May Enitle You to Work on a Cruise Ship

I recently returned from a river cruise down the Rhône River in France. Most of the cruise-ship workers hailed from eastern and central Europe--Bulgaria, Romania, the Balkan states, etc.

I had many opportunities to watch the crew members at work, and I was impressed by their efficiency, courtesy, and professional demeanor. The ones I talked with spoke English well, and I concluded that most had the skills to work in professional jobs instead of waiting tables and cleaning passenger cabins on a cruise ship.

Why, I asked myself, were so many crew members from eastern Europe? And why were they stuck in such menial jobs? After all, working on a cruise ship might be described as living in a floating purgatory--long hours, low pay, and cramped living conditions.

The answers are obvious, of course. Most cruise-ship workers have limited economic opportunities. Few have college degrees, community ties, or family connections that could help them get better jobs.  Their primary qualifications are their language skills and willingness to work under challenging conditions.

If you are an American college student squandering your youth in a liberal arts program at a mediocre college, you should think about these European cruise ship workers. 

What skills will you bring to the workplace after you obtain your bachelor's diploma? Will you have learned how to work under stress, meet deadlines, and communicate well?  Will that degree in medieval literature help you get a professional job that pays well enough to buy a home, raise a family, and save for retirement?

If not, your career prospects will be like many hardworking eastern Europeans--not very good. In fact, you may be worse off than the young Romanians and Bulgarians busing tables on cruise ships.

At least the eastern Europeans have a strong work ethic and an ability to work cheerfully for long hours. You may not have picked up those skills at the frat house, the student rec center, or the bullshit sessions that masquerade as academic courses in the liberal arts.

And the eastern Europeans will have one more advantage if you compete with them for low-skill jobs. They won't be burdened by student loans.

Life as a cruise ship worker.

Biden's Student-Loan Forgiveness Application Lacks Adequate Fraud Protection: But Does That Really Matter?

Honoring a campaign promise, President Biden will forgive $10,000 in personal student-loan debt owed by about 40 million college borrowers. The only people ineligible for this bonanza will be single persons who make more than $125,000 a year or married people making more than $250,000.

Biden's Department of Education released its loan-forgiveness application a few days ago, which is incredibly simple. Applicants must state their annual income to determine eligibility, and most will not be required to verify their income with tax returns or other supporting documents.

Critics say Biden's distribution plan lacks adequate protections against fraud. People who make $129,000 a year may falsely claim they make less than $125,000 in order to receive $10,000 in debt relief.

Although President Biden's loan forgiveness scheme has plenty of flaws, I'm in favor of it. Millions of Americans took out modest student loans to enroll in college and then dropped out without getting any benefit from their educational experience. Wiping out $10,000 in student-loan debt (or $20,000 for Pell Grant recipients) will free many borrowers from all their student debt. I'm okay with that.

Moreover, I'm not too concerned about fraud. The only student borrowers who might scam the program are single individuals making over $125,000 or married couples making over $250,000. 

These high-income individuals are not likely to fraudulently mispresent their income to get a paltry ten grand in student-loan forgiveness. In any event, the Biden administration promises to ask about 5 million loan-forgiveness applicants to verify their income--targeting people with six-figure salaries.

Let's face it. The feds don't really care if student borrowers pay back their loans. The Department of Education paused student-loan payments for nearly three years.  The suckers who made their monthly student-loan payments anyway are eligible for a refund.

About nine million people are enrolled in income-based repayment plans (IBRPs), allowing them to make modest loan payments so low they don't even cover accruing interest.  Virtually all those people will never pay back their student loans.

And as generous as the present IBRPs are, the Biden administration is working on an even more munificent IBRP program that will require monthly loan payments so low that the Brookings Institution estimates DOE will only get back about 50 percent of the money it loans.

So here's where we are. About 40 million people owe a total of $1.7 trillion in student loans, and many of these borrowers will never pay off their debt. As Steve Rhode wrote in a recent essay, the sensible thing for Congress to do is to revise the Bankruptcy Code so that honest but unfortunate debtors can discharge their student loans in bankruptcy.

But apparently, that suggestion makes too much friggin' sense. 

Thus we see people like Tamara Parvizi, who owes $650,000 in student-loan debt, which she can't pay back and can't discharge in bankruptcy. When she went to bankruptcy court, DOE insisted that she be put in an IBRP. A federal bankruptcy judge agreed.  Under this IBRP, Ms. Parvizi will pay $80 monthly for twenty-five years.

The only relief Ms. Parvizi will get is $10,000 in loan forgiveness on almost two-thirds of a million dollars in student debt.

 In essence, our government behaves like an alcoholic who runs up a tab drinking Jack Daniel's at his neighborhood tavern.  Every so often, the drunk comes in and pays off his tab, but he keeps drinking. 

That's nuts, and everybody knows it.

Just put it on my tab.