Republican Renegade Emulates Warren’s Student Loan Cancellation, but it’s Still Problematic
Today we have a commentary by Student Loan Justice Organization Founder Alan Collinge with support from an Angry Bear editor.
Alan:
A key Republican Education Department official and Trump Appointee, A. Wayne Johnson, recently resigned his position at the Department and later made a radical call for student loan cancellation. Johnson noted the lending system was “fundamentally broken” and called for loan cancellation for all loan holders up to $50,000. He also called for a tax credit of the same amount for those who have already repaid their loans. Interestingly, Johnson’s plan sounds very similar- and even more generous- than what presidential candidate Elizabeth Warren is proposing.
The proposal is strong stuff coming from a Republican and his comments could indicate the problem is far worse than the Department of Education has said publicly on student loans. He noted that he came to this conclusion after having a “firsthand look” at defaults, which we already know are running at about 40% for 2004 borrowers, who had borrowed a third of what is being borrowed currently. One can only wonder how bad the internal projections are for more recent students.
Johnson is to be applauded for calling out this big-government lending monstrosity, and even, perhaps, for his call to get the government out of the lending business altogether. In the absence of both bankruptcy protections and statutes of limitations, the Department of Education has become one of the largest lenders on earth and a viciously predatory one at that. In his commentary, Johnson is correct in pointing out the various forgiveness programs run by the Department are failing badly.
Editor Comment:
Dependent upon which manner of accounting is used, student loans can be considered to be profitable or unprofitable. Using the Federal Credit Reform Act (FCRA) accounting methodology, student loans are profitable. Regardless, student loans have no escape unless one dies or becomes disabled. Student Loan Bankruptcy was effectively thwarted by Senator Joe Biden’s efforts since the nineties. If in default, the government will garnish wages, Social Security, and whatever else they can in order to get back their funds.
Others such as Jason Delisle of New America advocate using the Fair Market Value methodology of accounting to assess the risk of default for student loans. Delisle claims the interest rate of a student loan should be set at 12% as there is risk and yearly losses with making low interest rate student loans that do not cover risk of default which is not assessed in the beginning.
Disputing Jason Delisle’s commentary; Malcolm Harris pointed out on Twitter, it’s worth noting that the CBO’s fair-value accounting analysis finds no subsidy for PLUS loans and unsubsidized Stafford loans, but a big one for subsidized Stafford loans, where rates are rising. Overall, there’s a negative subsidy – profit. That’s a way the government could be making a profit even under other accounting specifications, though obviously skeptics like Delisle dispute that.
Outside of student loans, a student could walk into a car dealership, purchase a $30,000+ automobile, which is about the cost of an education, have little down payment and maybe a second signature, and both people could still escape through declaring bankruptcy. This is something major businesses and people such as President Trump have been doing for decades without having wages and benefits garnished for a lifetime.
Alan:
Some of the $50+ billion the Department books in profit every year is being used to fund unrelated social programs. In 1965, President Lyndon B. Johnson declared that these loans would be “free of interest.” The former should not be the case and the later has not happened.
However previously, there were problems with Warren’s plan of student loan relief and these have not gone away under Johnson’s current proposal.
For example: while it is clear that the default rate is screaming upwards and this is crushing many borrowers, many are doing fine, and there is no particularly good reason to cancel their debt. Conversely, there are many borrowers who owe far more than $50,000, who have seen their debt explode with penalties, fees, and interest, such that writing them down by $50,000 really wouldn’t make much of a dent. So this “one-size-fits-all” approach makes little sense. And at an estimated $925 billion, it’s expensive.
Editor Comment:
What is clear to me is people complaining “what about.” Those who paid their loans have little idea of what has been happening in the student loan industry which is profit driven. There are any number of stories being told of hucksters signing up students into for profit schools which sadly go bankrupt or steer students into course curriculums which will not lead to employment in a job to which they were trained. The system protects the servicer and the loan originator until that loan is paid off.
Does it make sense for people to be entrapped in a loan which can not be paid off thereby keeping them as an economic burden rather than a productive, taxpaying member of society? What about-isms and false equivalencies offers no solution other than indenture.
Alan:
Also, any cancellation program would be administered by the Department of Education, which has a well-documented history of bungling such programs, as Johnson rightly points out. For example, of the roughly 40,000 people who thought they were getting cancellation this year through the Public Service Loan Forgiveness Program, fewer than 100 (less than 1%) actually will. Similarly, a whopping 57% of people in the Income Based Repayment Program (IBR) were disqualified for administrative reasons. So the borrowers are cruelly left owing far more than had they never tried!
The Department of Education cannot be trusted to administer yet another loan cancellation program. As they have done before, they will surely find ways to disqualify the vast majority of borrowers so that the agency captures the wealth rather than those who it was intended.
Editor Comment:
The Department of Education has always been troublesome in administering programs impacting students. The public service program has been haphazardly run and has left many who have paid back loans over ten years in service to the nation without forgiveness of part or the rest of their loan. The current Secretary of Education is a ditz who did not understand the training leading to gainful employment rule was for both nonprofit and for-profit schools and not just about for-profits as she claimed. I too would look for someone else to administer programs given the circumstance.
Alan:
A more efficient solution to this problem is simply returning standard bankruptcy protections to these loans. The Founders called for uniform bankruptcy laws ahead of the power to raise an army, and declare war, and this lending system proves their wisdom. Borrowers must have bankruptcy on their side in order for the lending system to be fair. It is only with this threat that the lenders will act with a modicum of good faith.
Bankruptcy is also a far less expensive solution. While there would be an unavoidable spike in filings initially, bankruptcy scholar Robert Lawless estimated that in the “steady-state,” annual discharges would come to less than $3 Billion per year. Even if it turned out to be double or triple this rate, that is still far less than the proposal in question. Not to mention, no tax hikes would be required. This could be achieved by simply repealing the one line of federal code that exempts student loans.
There is legislation in Congress that would achieve this: HR. 2648, a bipartisan bill, and its Senate companion, S. 1414. Alternatively, President Trump could simply direct the Department of Education to stop opposing student loan borrowers in court. Either way, we would get a much more efficient and well suited outcome.
And the Founders? They would agree with returning bankruptcy capability for student loans.
Alan Collinge is Founder of StudentLoanJustice.Org, and author of The Student Loan Scam (Beacon Press)
Angry Bear: Thank you Alan . . .
Run75441 (Bill H)
College should be banned unless one is 25 or older and actually need it.
Or we could retain the current IBR system of 10% of wages above the poverty level for a term certain (20 – 25 years), with any amount written off after that time period, with no income tax consequences.
SB:
Welcome to Angry Bear. First time commenters always go to moderation to weed out spam, spammers and advertising. Either I or Alan will answer you later. I am kind of busy right now.
SB:
I did ask Alan to comment to your comment.
“College should be banned unless one is 25 or older and actually need it.”
Why? By the time I was 25, I was nearly done with a PhD in genetics. Such a ban would simply have meant that I’d go to some other country to get my PhD. How would that sort of flight of American intellectual capital make America competitive?
StudentLoanBorrower: As I say above, the Department of Education simply cannot be trusted to run any forgiveness program fairly, however one might fine-tune the terms. In the absence of bankruptcy protections and statutes of limitations, the fiscal incentives are terminally perversed against the borrowers.
That notwithstanding, your suggestion still is problematic.
First: LBJ promised that federal loans would be “free of interest” in 1965. I see no good reason for the government to insist on making profits on these loans. Even President Trump has echoed this sentiment, surprisingly.
Second: These repayment programs, even if run in good faith, do nothing to control the price of college, which all can agree is far, far too high.
Whatever the future of higher education funding might look like, it will only improve, and can only be fair in the presence (at a minimum) of the standard bankruptcy protections that all other loans have.
DeVos is not just a ditz, she is a liar and a thief.
” The Official: Secretary of Education Betsy DeVos
What Is Still Happening: When Betsy DeVos was first selected to be Donald Trump’s secretary of education, there were two main criticisms of her appointment. First, the scion of a wealthy Michigan family, wife of the heir to the Amway fortune, and yacht collector was considered deeply unqualified—her main credential was her standing as a megadonor to Republican causes and as an advocate for charter schools and voucher programs. The second critique was that, as a longtime campaigner for privatizing the American public education system, she would place corporate and religious interests ahead of those of schoolchildren.
Regarding DeVos’ lack of qualifications, it’s certainly not ideal for the United States to have an education secretary who never worked at or attended a public school; never had any personal experience with student loans; could not answer basic questions about federal law; has called public schools a “dead end” and said that government “sucks”; has described her work on education issues as an effort to “advance God’s Kingdom”; and has cited grizzly bear attacks as a reason for there to be guns in public schools. However, it’s really on the second issue—her transparent allegiance to corporate interests—that DeVos has proven more dangerous to the Department of Education and students across the country.
Indeed, last week a federal judge took the incredibly rare step of holding DeVos in contempt for violating a court order that demanded her department stop enforcing loan collections against students who were defrauded by the now-defunct for-profit institution Corinthian College.
While the Corinthian case is the most dramatic instance of DeVos’ loyalty to corporations trumping her responsibilities to students and taxpayers, it is not her only scandal since entering office. Previous potential misconduct includes the following:
• DeVos failed to file her ethics disclosure prior to her Senate confirmation hearings. When it was filed, that ethics disclosure showed that she had stakes in the for-profit education world from which she would be required to divest. As of last year, she also still hadn’t disclosed the assets in two of her three family trusts.
• DeVos claimed during her confirmation hearing that being listed as vice president of her mother’s charitable foundation, which donated millions to an anti-LGBTQ hate group, was a “clerical error.” According to tax records, though, DeVos served on that board for 17 years. (DeVos has since revoked Obama-era protections for transgender students, and her department has greatly diminished the number of claims of anti-LBTQ discrimination it investigates.)
• As the first Cabinet secretary in U.S. history to require around-the-clock protection from the U.S. Marshals Service, DeVos has reportedly cost taxpayers tens of millions of dollars. While it’s unclear why the unprecedented level of public security might be necessary, the detail was issued just days after DeVos was confronted by a small number of protesters and hecklers outside of a Washington public school. As NBC News reported last November, the cost of DeVos’ security detail up to that point could have “paid for 1,968 Pell Grants for low-income college students for the [2018-2019] school year or 268 new elementary teachers in Kansas.”
• DeVos selected the former dean of the for-profit DeVry University, which recently paid a $100 million settlement to students it had defrauded, to head the Department of Education unit that investigates student aid fraud. That team investigating fraud among for-profit colleges was ultimately hollowed out, according to the New York Times.
• DeVos appointed Candice Jackson to a top job in the Department of Education’s Office of Civil Rights. Jackson said that 90 percent of college Title IX sexual assault allegations “fall into the category of ‘we were both drunk,’ ‘we broke up, and six months later I found myself under a Title IX investigation because she just decided that our last sleeping together was not quite right.’ ”
https://slate.com/news-and-politics/2019/10/still-happening-trump-corruption-betsy-devos.html