Be Awake, College Students! Massive Economic Turmoil is Coming

A friend sent me a copy of the Magnificat journal's Advent Companion, a selection of daily reflections for the Advent season. Advent begins on November 27, and I read the first entry, which reflects on Matthew 24 and Christ's warning to be watchful.

During the time of Noah, Jesus instructed, people ate, drank, and married until the day the flood came and carried them all away.

"Therefore, stay awake!" Christ cautioned, and be prepared for the hour you don't expect.

As I read the Advocate Companion, I thought this passage would make an excellent advertisement for My Patriot Supply, an outfit that sells emergency food kits with a shelf life of 25 years. 

This is not a religious message. Instead, I warn that our national economy, built on financial speculation and easy money, will ultimately collapse. Perhaps it will be brought on by the cryptocurrency meltdown. If you aren't convinced, read James Howard Kunstler's recent blog essays posted on Clusterfuck Nation.

If you are a college student, this is no time to take out extravagant student loans. Higher education is under extreme duress: Since 2004, 861 colleges have closed their doors, and more than 9,000 campuses have shut down.

Stay awake, and don't take out loans to attend an obscure small college with a tuition rate of $25,000 a semester. Don't enroll in an online degree program unless you are pretty damned sure that an online college degree will lead to a good job.

Just importantly, don't be deceived by all the talk of student-loan forgiveness or by the Department of Education's pause on student-loan repayment--which will last more than three years.

A few people will get their loans forgiven under DOE's borrower defense program based on findings of fraud, and President Biden's loan forgiveness initiative may ultimately be approved by the courts. Still, the President's plan to forgive $10,000 of student debt, if it comes to fruition, will be a drop in the bucket for students paying $50,000 a year in college tuition. 

If you are pretty sure a college degree will lead to a job, by all means, go for it. People with degrees in the medical services field will probably find jobs.

But you are insane if you plan to take out $50,000 or more in student loans to get a humanities degree, a liberal arts degree, or a degree in gender studies.

You are insane if your college degree requires your parents to take out Parent Plus loans that they can't discharge in bankruptcy.

You are insane to take out a Grad PLUS loan to get a graduate degree in business, journalism, or the liberal arts.

Sometimes the Bible has some good advice. Indeed, now is an excellent time to head the biblical admonition to "Stay Awake!" and be prepared for global economic turmoil--which is coming.

 

Universities entering the gambling business while students place bets on their futures by taking out student loans

 Sports betting is legal in most states, and universities are getting in on the action. As the New York Times reported earlier this week, eight universities have already signed contracts with gaming companies.

Last year, Louisiana State University's athletic department partnered with Caesars Sportsbook, a gambling corporation. The contract gives Caesers the naming rights to the Skyline Club at Tiger Stadium and the right to advertise at the stadium, LSU"s basketball arena and the varsity baseball stadium.

Cody Worsham, LSU's associate athletic director and "chief brand officer," describes the deal as a win-win for everybody. LSU "shares a commitment to responsible, age-appropriate marketing," he said. That commitment "is integral to a sustainable and responsible partnership benefiting our entire department, university, and fan base." That sounds like bullshit to me.

Robert Mann, an LSU journalism professor, is not sure LSU's gambling partnership is a good thing: "It just feels gross and tacky for a university to be encouraging people "to engage in behavior that is addictive and very harmful," Mann said in an interview with the Times.

Indeed, LSU sent an email message encouraging recipients, including students too young to legally gamble, "to place your first bet (and earn your first bonus)."

Implicit in LSU's new revenue stream is the belief that gambling is not harmful and that students too young to place bets won't engage in sports betting.

However, that sentiment is naive, if not downright disingenuous. LSU students will see sports betting advertisements when they go to Tiger Stadium to watch a football game, and they can place sports bets on their cell phones. Does anybody believe LSU's contract with Caesars won't cause more students to gamble?

Louisiana is already lousy with gambling opportunities: riverboat casinos, land-based casinos, truck stop casinos, and the Louisiana Lottery. (The lottery also advertises at LSU). Ubiquitous gambling advertisements often portray young, prosperous, and healthy people having a ball at one of the state's many casinos.

I've strolled through the Louisiana casinos several times over the years, and almost no one looks happy and prosperous to me.  Mostly, they look old, unhealthy, and poor. Why would a young and successful person want to throw money away at a truckstop casino in Port Allen, LA?

The universities and the gaming companies seem to believe they have met their obligation to discourage addictive gambling by posting an 800 number at the bottom of their ads informing people where they can call to get help for gambling addiction. But does LSU really want its students to seek professional counseling to overcome a sports-betting addiction--a habit that LSU profits from?

LSU students must be on their guard when they see their university pushing sports betting. Gambling is not suitable for anyone, especially young college students. In fact, every time an LSU undergraduate sees an LSU gambling enticement, they should remind themselves that their university is not their friend.

Another Half Assed Attempt to Fix Federal Student Loans With Bankruptcy: Essay by Steve Rhode

The Department of Education just released a guidance document to the Department of Justice on what they feel should be done to allow people to discharge federal student loans, partially or entirely.

While I applaud the efforts by the Department of Education, it seems like we’ve watched this movie before.

 This guidance is just that, an opinion letter, not law. If a Republican administration gets back into office, don’t be surprised to see this guidance revised or eliminated altogether.

By the time this guidance, if taken seriously, filters through the courts, I forecast things will change again. I have zero confidence this document can be relied upon in the future.

The better approach would be to have Congress change the Bankruptcy Code and eliminate the hurdles. My reading of the “Guidance for Department Attorneys Regarding Student Loans in Bankruptcy Litigation” is that it attempts to massage the law, not fix it.

The guidance says, “A debtor’s student loan be discharged if three conditions are satisfied: (1) the debtor presently lacks an ability to repay the loan; (2) the debtor’s inability to pay the loan is likely to persist in the future; and (3) the debtor has acted in good faith in the past in attempting to repay the loan.”

But here is where it gets fast and loose. “Department attorneys should stipulate to facts necessary to demonstrate undue hardship and recommend discharge where the debtor provides information in the Attestation (or otherwise during the adversary proceeding) that satisfies the elements of the analysis below. Some debtors have been deterred from seeking discharge of student loans in bankruptcy due to the historically low probability of success and due to the mistaken belief that student loans are ineligible for discharge. Other student loan borrowers have been dissuaded from seeking relief due to the cost and intrusiveness entailed in pursuing an adversary proceeding.”

So it appears the intention is to make it easier to get a discharge by relaxing the current requirements.

 For example, to help make one of the hurdles easier, the guidance says, “A presumption that a debtor’s inability to repay debt will persist is to be applied in certain circumstances, including: (1) the debtor is age 65 or older; (2) the debtor has a disability or chronic injury impacting their income potential; (3) the debtor has been unemployed for at least five of the last ten years; (4) the debtor has failed to obtain the degree for which the loan was procured; and (5) the loan has been in payment status other than ‘in-school’ for at least ten years.”

If we follow the guidance, anyone over 65 or someone who failed to obtain the degree for which the loan was procured should check off the future circumstances box.

But that’s not even the real loosey-goosey bit.

The section of what is an appropriate good faith attempt to repay student loans for consideration for a bankruptcy discharge includes the following factors.

“Where the debtor has taken at least one of the following steps and in the absence of countervailing circumstances as discussed below, the steps demonstrate good faith. We would normally expect the Department attorney to be able to determine the presence of any countervailing circumstances based on the information contained in the Attestation and provided by Education or that is publicly available.

Evidence of good faith: The following steps are evidence of good faith:

· making a payment;

· applying for a deferment or forbearance (other than in-school or grace period
deferments);

· applying for an IDRP plan;

· applying for a federal consolidation loan;

· responding to outreach from a servicer or collector;

· engaging meaningfully with Education or their loan servicer, regarding payment options, forbearance and deferment options, or loan consolidation; or

· engaging meaningfully with a third party they believed would assist them in managing their student loan debt.

Unless I’m reading this wrong, all someone now has to do to make the good faith part of the discharge test is make a payment, apply for a forbearance, apply for an Income-Driven Repayment Plan, consolidate their loans, or respond to a collector.

But here is my favorite, “engaging meaningfully with a third party they believed would assist them in managing their student loan debt.”

If we believe what that says than any discussion with anyone, from a credit counselor, my debt coach friend Damon Day, or just about anyone breathing, would meet that standard. Even a bankruptcy attorney could possibly check that box.

How about this nugget buried in the guidance, “Issues concerning employment, income, and expenses are case-specific and may be highly dependent on a debtor’s family, community, and individual circumstances. Debtors may provide an explanation of those circumstances, and the Department attorney should weigh the explanation in consultation with Education.”

So as long as it passes the sniff test, anything goes.

Bankruptcy attorneys should prepare to get busier than a one-arm wallpaper hanger.

While this solution may be bullshit, it’s the best bullshit we’ve got at the moment to deal with a fair legal discharge and fresh start for people buried in federal student loans.

And for anyone saying the debtors have to suck it up, let me remind you that the government gave out all this money with no qualifications other than a pulse.

 *****

This essay was originally posted on November 18th on Get Out of Debt Guy.

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.

DOE and DOJ Issue Guidelines for Dealing with Student Debtors in Bankruptcy: Blah, Blah, Blah

 On November 17, the U.S. Department of Education and the Department of Justice issued a 15-page document titled "Guidelines For Department Attorneys Regarding Student Loan Bankruptcy Litigation."

According to the memo, these guidelines aim "to enhance consistency and equity in the handling of [student-loan] bankruptcy cases."

These guidelines are bullshit and won't do anything to change the way DOE and its collection agencies respond to student debtors who file for bankruptcy relief. 

Why do I think these guidelines are bullshit? Three reasons:

First, the policies are not signed. Nor do they appear on government letterhead. It's not clear who's responsible for drafting this murky document. I don't think anyone wants to be associated with it.  That's a bad sign.

Second, DOE didn't honor the guidelines it issued in 2015, so it probably won't follow the new guidelines. Instead, I predict that DOE will continue to oppose almost all student-loan bankruptcies.

Here's a little background information. In July 2015, Deputy Assistant Secretary Lynn Mahaffie released a letter advising DOE lawyers and debt collectors not to oppose bankruptcy if it didn't make economic sense to do so.

That letter had zero effect on DOE's policy to oppose bankruptcy relief for nearly every student debtor.

For example, in Abney v. U.S. Department of Education, which was decided after Mahaffie's letter was issued, DOE opposed a bankruptcy discharge for a man living on less than $1200 a month and who rode a bicycle to work because he couldn't afford a car.  This poor guy was making child-support payments that almost equaled his take-home pay and had lost his home to foreclosure. In fact, this man's situation was so desperate that he lived in the cab of one of his employer's trucks for a time. And DOE demanded that he be put on a 25-year repayment plan!

To this day, DOE fights bankruptcy relief for almost every student borrower, no matter how desperate the circumstances. And Mahaffie's letter has apparently been withdrawn because the link to that letter is no longer operable.

Third, the new guidelines allow DOE lawyers to agree to the partial discharge of student loans in bankruptcy but only "[w]here appropriate and permissible under governing case law."

Although the guidelines cited some case law about partial discharges, they didn't mention four recent bankruptcy decisions in which judges issued partial releases over DOE's (or its debt collectors') opposition.

In Murray v. Educational Credit Management Corporation (ECMC), Kansas Bankruptcy Judge Dale Somers approved a partial discharge of student debt owed by Alan and Catherine Murray. ECMC, DOE's contracted debt collector, opposed the ruling and appealed.  Acting as an appellate judge, a federal district court upheld Judge Somers' decision.

Later, Kansas Bankruptcy Judge Robert Nugent approved a partial discharge of student loans owed by Vicky Metz over ECMC's objection. ECMC appealed this ruling, just as it had appealed in the Murray case. ECMC lost again when Judge Nugent's opinion was upheld on appeal.

Despite losing two partial student-loan discharge cases in  Kansas, ECMC opposed a partial discharge a third time in the same jurisdiction. In ECMC v. Goodvin, ECM lost again, appealed again, and lost the third appeal.

Did DOE and ECMC get the message about partial student-loan discharges in Kansas? No. In Loyle v. DOE and ECMC, decided just nine months ago, the Department and ECMC  opposed a partial student-loan discharge sought by Paris and Katherine Loyle. For the fourth time in the same jurisdiction, ECMC and DOE lost their case.

If DOE and DOJ are serious about approving partial discharges, why didn't the Guidelines cite these four important cases? I'll tell you why. DOE and DOJ don't really want student debtors to get relief in the bankruptcy courts--even partial relief.

I encourage you to download and print these new guidelines. You can put this gobbledygook on your bedside table if you have trouble sleeping.

Better yet, keep the Guidelines in your bathroom. We have a paper shortage; you can always use this disingenuous blather for toilet paper.

References

Lynn Mahaffie. Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings, July 7, 2015, GEN 15-13.  

In re Murray, 563 B.R. 52 (Bankr. D. Kan. 2016); aff'd sub nom,  Educational Credit Management Corporation v. Murray, No. 16-2838, 2017 WL 4222980 (D. Kan. Sept. 22, 2017).  

In re Metz, 589 B.R. 750 (Bankr. D. Kan. 2018), aff'd, Educational Credit Management Corporation v. Metz, Case No. 18-1281-JWB (D. Kan. May 2, 2019).

Educational Credit Management Corporation v. Goodwin, Case No. 20-cv-1247-JWL, 2021 WL 1026801 (D. Kan, March 17, 2021)

Loyle v. U.S. Department of Education and ECMC, Case No. 19-10065 Adv. No. 20-50732021 WL 1026801 (Bankr. D. Kan. Feb. 24, 2022).

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.