Cazenovia College is closing: Who cares?

 Cazenovia College is closing at the end of the spring semester. According to Inside Higher Ed, the college missed a bond payment due to financial stresses exacerbated by inflation and the COVID pandemic.

Cazenovia College is a liberal arts college located in the town of Cazenovia in upstate New York. It has about 800 students. The school was founded as a Methodist seminary almost 100 years ago.

Over the years, Cazenovia has gone through several metamorphoses and name changes. From 1904 until 1931, Cazenovia functioned as both a seminary and a secondary school.  The Methodists withdrew church sponsorship in the 1940s, and the school transitioned into a junior college. In the 1980s, the school became a four-year college and began offering graduate programs in 2019. 

In short, this plucky little college has done its best to remain relevant and to change with the times. Ultimately, however, Cazenovia couldn't make a go of it.

Cazenovia is primarily a liberal arts school. For example, the college has majors in Liberal Studies and Individual Studies.  What kind of job will a Cazenovia graduate get with a degree in those fields?

Like many obscure liberal arts schools around the United States, Cazenvovia's attendance costs can't be justified.  Tuition for this academic year is more than $36,000. Room and board are another $15,000. Who in their right mind would pay $50,000 a year to attend this tiny college with a 6-year graduation rate of only 59 percent?

But maybe the costs aren't that high.  The U.S. News & World Report points out that Cazenovia's sticker price is below the national average.  According to that source, the net price for federal loan recipients is only about $19,000. 

 That's still high.  When room, board, and living expenses are added, the total cost to attend Cazenovia for federal loan recipients is around $34,000 per academic year--34 grand to attend a college with only 800 students.

Across the United States, there are hundreds of obscure, expensive colleges struggling to survive. How have they held on for as long as they have? 

A recent study by the Government Accountability Office offers some clues. According to the GAO report, many schools are making financial aid offers to prospective students that misrepresent the actual costs. Specifically, GAO found that 41 percent of colleges in its study did not include the net price of attendance.  And half the schools reported a net price that did not include key costs.

For example, many schools include student loans and even Parent PLUS loans as "student aid," thus blurring the line between grants and loans. Unsophisticated families may not realize that the supposedly generous financial aid offer they received from an expensive private school might require them to take on burdensome levels of debt.

I'm not saying Cazenovia misrepresented the actual cost of attendance. Its financial aid offers may have been perfectly candid and totally in keeping with best practices. 

If so, it is in the minority. The GAO "estimate[d] most colleges do not provide students all of the information necessary in their financial aid offers to know how much they will need to pay for college."

Tears and Regret: More than half the people who attended a for-profit college wish they'd studied at a different institution

 "If they gave gold statuettes for tears and regrets," Ronnie Milsap sang in a classic country song, "I'd be a legend in my time."

Most of us have a few regrets, but no one should regret their college choice. Yet a recent Federal Reserve  Board report shows that many Americans wish they had studied at a different school or chosen another major.

More than half of those who attended a for-profit institution wish they'd studied at a different college. Fourteen percent of for-profit college attendees reported wishing they had received less postsecondary education or not gone to college at all.

In addition, many Americans are skeptical about the benefits of their college education.  Most older Americans (82 percent of people ages 60 and older) believe that the benefits of their college education exceed the costs. 

In contrast, many people in the traditional college-going years (ages 18-29) aren't sure that a college degree is worth the money. Among young Americans, only slightly more than half (56 percent) believe that the benefits of their education exceeded the cost. More than a third of college attendees in the 30-44 age bracket reported that the cost of their education outweighed the benefits.

The Federal Reserve report also found that a high percentage of people who majored in the humanities or social sciences regret their choice of major. Forty-eight percent of people who majored in the humanities and 46 percent of those who majored in social and behavioral sciences wish they had selected a different academic program.

For years, high school graduates were told they would never get ahead unless they obtained a college degree--and that the benefits of a college diploma far outweigh the cost.

Yet, these findings show that many Americans are unhappy about their college experience. A high percentage wish they had attended a different school or chosen another academic major. Perhaps most alarming, more than four out of ten young people think the cost of their college education exceeded the benefits.

*****

My thanks go to Dahl Shaul and Glen McGhee for calling my attention to the Recent Federal Reserve Board report.

Major Changes Now Allow You to Eliminate Federal Student Loans in Bankruptcy Essay by Steve Rhode

Are you in an income-based repayment program? Have you been repaying your federal student loans for more than ten years? Have you tried to work with your servicer on a more reasonable payment plan?

-or-

Are you in default on your federal student loans?  And have you been unemployed for at least 5 of the last ten years? Have you made at least one payment in the past on your loans?

-or-

Do you struggle to make monthly student loan payments after covering other expenses?  Are you 65 or older? Have you responded to letters or calls from your servicer about your past-due balance?

For as long as we’ve had bankruptcy laws, people in the circumstances like the above could generally access the Bankruptcy Code’s promise of a “fresh start.” The “fresh start” was intended to ensure that honest but unfortunate debtors in dire financial situations were not doomed to spend their lives in poverty. They could file for bankruptcy protection, discharge their outstanding debts, and start fresh on a new lifeExcept for student debtors. In 1978, Congress removed “student loans” from the list of dischargeable debts—unless the debtor proved that requiring repayment after bankruptcy would impose an “undue hardship.”  To prove “undue hardship,” debtors generally had to prove three things: (1) the debtor cannot presently maintain a minimal standard of living if required to repay the student loan, (2) circumstances exist that indicate the debtor’s financial situation is likely to persist into the future for a significant portion of the loan repayment period, and (3) the debtor has made good faith efforts in the past to repay the student loan.

These highly subjective elements made it very difficult to prevail in litigation.  And even where debtors did prevail at trial, they could expect years of appeals to follow, often resulting in a reversal of the trial court’s decision.  For those and other reasons, only 0.1% of debtors even attempt to discharge their loans. And that is largely because of the cost associated. Most bankruptcy lawyers charge anywhere from $30,000-50,000 to handle a student loan discharge case.

But thanks to the new guidance by the Departments of Education and Justice, debtors with circumstances like the above (and many others) can finally discharge their federal student loans in bankruptcy. Going forward, the Department will not oppose discharge, and will stipulate to the facts supporting discharge, provided the debtor demonstrates he or she meets certain criteria:

FIRST REQUIREMENT

The debtor’s current financial situation. If the debtor’s monthly income minus necessary expenses do not leave enough money left over to make the monthly payment on the debt. Perhaps most importantly, this will be based on the “Standard” repayment plan—not an income-based repayment plan. The Standard Plan is ten years, meaning, take the balance of your loan, divide it by 120, and if the monthly payment exceeds your income after necessary expenses (food, clothing, health insurance, etc.), you likely meet the standard.

SECOND REQUIREMENT

The debtor’s financial future. This is usually the most challenging part of the test since it relies on accurately predicting the future.  But going forward, the government will stipulate to discharge wherever the debtor is (i) over 65; (ii) did not obtain a degree; (iii) is suffering from some disability or chronic injury that makes employment difficult; (iv) has been unemployed for at least 5 of the last ten years; or (v) has been in repayment for more than 10 years.

THIRD REQUIREMENT

Whether the debtor has made a “good faith” effort at repayment. The government will now stipulate to discharge provided the debtor has made one payment in the past, applied for forbearance, or attempted to work with their servicer on an affordable payment plan. So long as you have not buried your hand in the sand, you can likely meet this prong.

An important caveat here is that the government will only stipulate to these facts. Even where one or more of these circumstances are present, the Bankruptcy Court will still need to concur with the government and issue an order discharging the debt. But there is an enormous difference between those two things regarding time and cost.

Takes Less Time

First, rather than taking five or six years (the average length of time required to litigate a trial and handle any appeals), this can now be accomplished in a matter of months.

Second, and perhaps more importantly, the cost can be dramatically reduced if it can be done in months instead of years. If lawyers are no longer required to spend ~100 or more hours litigating your case and appeals, they won’t need to charge $30,0000 or $50,0000.  Instead, lawyers could do this economically for a few thousand dollars.

Some of this probably sounds complicated.  Other parts of it probably sound too good to be true. And implementing this guidance may not be as consistent or predictable as we might like.  But this is the first time the government has opened the door to discharge federal student loans in bankruptcy in more than 40 years.

That is a huge deal and long overdue.

 *****

This essay was originally posted on November 23, 2022, on the  Get Out of Debt Guy website. 

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.

An Iowa bankruptcy court building

The Supreme Court will soon rule on legality of Biden's Student-Loan Forgiveness Plan

 Forty million student debtors are waiting anxiously for President Biden's loan forgiveness plan to kick in. Biden wants to knock off $10,000 from everyone's student loans who makes less than $125,000 a year. That won't mean much to people whose loans are in six figures, but it will mean a great deal to people with modest loan balances. 

Unfortunately for all those millions of college borrowers, the Eighth Circuit Court of Appeals halted Biden's plan.

President Biden appealed to the Supreme Court, and yesterday the Court agreed to consider his appeal. We should have a Supreme Court decision by early summer of next year.

I predict that the Supreme Court will strike down Biden's loan-forgiveness scheme as an unconstitutional usurpation of Congressional authority. If that happens, the President and Congress will be under heavy pressure to provide some sort of loan relief that isn't illegal.

As I have argued repeatedly, Congress should revise the Bankruptcy Code to allow honest debtors to discharge their student loans in bankruptcy. This simple action would do more than anything else to grant loan relief to deserving college borrowers without allowing unworthy student debtors to get a free ride.

If this is too much of a heavy lift for Congress, it could enact more modest reforms. Here are my suggestions:

1) Congress should forbid the Department of Education from garnishing the Social Security checks of elderly borrowers who defaulted on their student loans. 

2) Congress should shut down the for-profit college industry. There is no reason for private investors and hedge funds to profit from young people striving to get their college degrees.

3) We should end the Parent PLUS program, which has impoverished hundreds of thousands of low-income families who took out federal loans so their children could attend college.

4) Congress also needs to reform the Grad PLUS loan program, which currently has no cap on the amount of money students can borrow to attend graduate school.  It is ridiculous for people to borrow $100,000 or more to get a master's degree in journalism.

Will any of these reforms see the light of day? Doubtful. Universities, student-loan servicers, and the banks are all happy with the status quo. As someone remarked after the fall of France during World War II: "Reform was possible only through catastrophe."

Sadly, it will probably take the catastrophic collapse of the American economy before our politicians will do what needs to be done to clean up the calamitous student-loan program.

Reform is not possible without a calamity.

December is the Cruelist Month: Watch Out, Student Debtors

 T.S. Eliot was wrong: December is the cruelest month, not April.  

We think of December as a time for rest after a toilsome and anxious year--a time to prepare for Christmas and reconnect with our loved ones.

Yet, December can bring a lot of nasty surprises--shocking us when our hearts are mellow and our guard is down.

For example, the Japanese attacked Pearl Harbor on December 7, 1941. 

The Germans launched the Battle of the Bulge in December 1944.

George Washington's ragtag army sneaked across the Delaware River and surprised the Hessians on Christmas Eve, 1776.

Poor Napoleon was shocked when he reached Moscow in December of 1812. He thought he had beaten the Russians, but he was wrong. By the time he got his army back to France, he had lost 90 percent of his soldiers. 

So here are my predictions for the month ahead: Americans will receive two rude shocks.

First, the United States is prosecuting a hot war by proxy in Ukraine. Americans believe that the plucky Ukrainians are beating the crap out of Russia.

I don't think so. The Russians are masters of winter warfare and still have a few tricks up their sleeves. Vladimir Putin will remind America there is a price to pay for mucking around in eastern European politics. 

Second, the crypto craze will blow up next month, and everybody who bought crypto coins will be wiped out. You will be surprised to learn the names of famous people who got duped.

These two bombshell events will rock the American economy and make us all poorer.

If you are a college student, this is the December to be on your guard. Now is a terrible time to take out student loans to pay for your studies. This might be a good time for you to take a gap year, get a job, and start thinking seriously about what you will do to make a living. 

If you're majoring in liberal arts, now is an excellent time to consider changing majors. You may love literature, but you will need more than a bachelor's degree in English to get a job.

My advice: select a vocationally oriented major and read Henry James on your own time.

Surprising the Hessians during the holiday season

Fair or Not, the Biden Administration Owns the Student Loan Catastrophe

 I grew up in a small Oklahoma town before the era of the big box stores. If my family wanted to buy a small appliance, a birthday present, or a wedding gift, we went to the town's family-owned gift shop.

This little shop sold items that would make good gifts for a wedding shower--glassware, casserole bowls, and kitchen stuff. It also sold toys and sports equipment.

Wandering through the gift shop as I child, I remember seeing mysterious little signs posted in the glassware section that said this: 

Lovely to look at,

Delightful to hold.

If you break it,

We mark it sold.

What did that mean? I asked myself.

One day my six-year-old brother and I were in the little store shopping for Christmas presents.  Without warning, my brother grabbed a football in the sporting goods section and kicked it into the glassware aisle.

That's when I knew what the sign meant because my mother had to pay for the damage.

President Biden is in a situation somewhat like my mother's. Someone kicked a metaphorical football into the federal student-loan program, and he has to pay for the damage.

I feel sorry for the President. He did not break the student-loan program. Other parties bear most of the blame. 

First, Congress revised the Bankruptcy Code several times to make it almost impossible for student borrowers to discharge their loans in bankruptcy. 

Next, President Obama's Department of Education introduced PAYE and REPAYE, extremely generous income-based repayment plans that allowed borrowers to stretch out their payments for as long as a quarter of a century. Borrowers in those plans were allowed to make loan payments so small that they would never pay off their loans.

Then Betsy DeVos, President Trump's Education Secretary, administered the loan program so heartlessly that borrowers who were defrauded by their schools could not get their loans forgiven. In addition, DeVos made it almost impossible for people to avail themselves of the Public Service Loan Forgiveness program.

Thus, when Biden stepped into the presidency, he was confronted with a student-loan scheme that had run amuck. More than 40 million Americans are student-loan debtors, along with several million parents who took out Parent PLUS loans.  Total indebtedness is now around $1,7 trillion, and most of it won't be paid back.

President Biden attempted to provide student borrowers with a bit of relief by forgiving $10,000 in student debt for every borrower making less than $125,000 (and $20,000 in forgiveness to people who got Pell grants while in school).

That's not working out so well. The federal courts have blocked the President from implementing his loan forgiveness scheme.  He has responded by extending the pause on student-loan payments until August 2023 (unless the Supreme Court rules on the plan's legality before the end of June).  

Experts estimate that this loan-payment moratorium could cost taxpayers more than $200 billion. 

So--like my mother, who paid for a lot of broken glass in an Oklahoma gift shop, President Biden now owns this shit show.

So far, Biden's DOE has tinkered a bit with the program. For example, the Department granted generous relief to students who claimed they were defrauded by their college, and it is trying to clean up the Public Service Loan Forgiveness program.

But, there is only one reasonable thing to do to address the student-debt crisis. Biden needs to put the heat on Congress to amend the Bankruptcy Code to allow millions of distressed debtors to discharge their debt in a bankruptcy court.

Tragically, I don't think the President will do that. Instead, he has chosen to preside over the student-debt crisis, which he now owns.

President Biden's Never Ending Pause On Student-Loan Payments: Hey, It's Just Monopoly Money

 When I was a kid, my childhood friends and I often played Monopoly on those long summer days when time stood still in southwestern Oklahoma.  

Sometimes our games lasted for two or three days. If a kid went broke by landing on Park Place, the player with the biggest bankroll would provide an interest-free loan to keep the game going.

Why not?  It was only Monopoly money. 

Now, the United States is playing a grown-up version of Monopoly. Beginning in 2020, the Department of Education allowed student-loan borrowers to skip their monthly payments due to the COVID pandemic. 

The original pause ended in September 2020 but has been extended eight times.  

In the meantime, President Biden launched his student-loan forgiveness plan to give millions of student debtors $10,000 a piece in student-loan forgiveness.

Biden's plan was challenged in the courts, and the President used this ongoing litigation as an excuse to continue the pause on student-loan payments. 

"It isn't fair to ask tens of millions of borrowers eligible for relief to resume their student debt payments while the courts consider the lawsuit," the President said.

Thus the moratorium on student-loan payments will extend until August 2023 unless the Supreme Court rules on his loan-forgiveness plan by the end of June.

Due to the payment pause, it seems likely that 40 million student debtors will go more than three years without making a single loan payment. During this moratorium, student loans do not accrue interest, and DOE does not assess penalties for non-payment. 

Even better, borrowers in DOE's various income-based repayment programs can count the time their loan payments are paused toward their fixed-term payment obligations. For example, an individual in DOE's ten-year Public Service Loan Forgiveness program (PSLF) who skips loan payments for three years will only be required to make income-based payments for seven years. Sweet!

How much is the loan-payment pause costing taxpayers? According to the Wall Street Journal, the government will have lost $155 billion in uncollected interest by next month. By extending the break until August 2023, the delay will cost taxpayers an additional $40 billion.

So what? It's only Monopoly money. If the federal government runs out of cash, it can always print or borrow more.

Ultimately, I predict, the U.S. Supreme Court will declare President Biden's student-loan forgiveness program unlawful.  The Bident administration asked the Supreme Court to fast-track the case, but I don't think the Court will agree. It will probably be 2024 before the litigation is resolved.

As the loan-forgiveness litigation winds its weary way through the federal courts, Biden will certainly keep extending the loan-payment pause--probably to the end of his administration.

There will likely be two dire consequences if 40 million Americans are allowed skip making student-loan payments for four years.

First, student borrowers will conclude that they will never have to pay back their loans and will be damned angry if the government forces them to resume writing loan-payment checks after four years.

Second, after allowing student debtors to skip making loan payments for several years, DOE  won't be able to get the student-loan program back on track.  It will become like a car that sits idle in a barn all winter.  When spring arrives, the car won't start.

Meanwhile, colleges and universities continue raising their tuition prices, and students are taking out more federal loans.

To quote from an old adage, if something can't last forever, it won't. DOE's Rube-Goldbergian student-loan program will eventually collapse--perhaps sooner than anyone thinks.

Hey, it's only Monopoly money.