Students Crushed by $1.56 Trillion Debt with No Help from Betsy DeVos

Over two years into the Trump administration, no steps have been taken to stem the constantly rising tide of student loan debt, which now stands at $1.56 trillion, up from $1.16 trillion just four years ago. The question is, how big a threat does
Education Secretary Betsy DeVos

the default rate on that debt pose for the national debt, already at $22 trillion, and American taxpayers who would ultimately foot the bill?

The Department of Education issues a report each year showing the default rate three years after a “cohort” enters the repayment stream. Its most recent report, for the class of 2014, says that by 2017, 10.8% were in default. A serious number in dollars, but tolerable, one might reason.

But the department’s method of reporting raises a host of questions. First, only those who haven’t paid in 360 days are in that default percentage — an entire year before they are counted as a problem! That means an untold further percentage have begun not paying but haven’t yet hit the 360-day mark — a nascent problem kept hidden.

Additionally, about 20% of the 44.7 million Americans with student loan debt are in suspense. Temporarily out of work, or hit with an unexpected medical expense, or beset with an unaffordable monthly repayment relative to income, they have applied for and been placed in “deferment” or “forbearance” status, which suspends their having to pay for up to three years. They are not counted as being in default, but their status portends likely default for some of them. The Government Accountability Office (not the Education Department, take note) discovered that colleges have been hiring counselors who encourage non-payers to enroll in forbearance so they would not be considered in default.

The truer picture calls for s deeper look. A study at credible.com paints a grimmer picture. They show default rates for former students 12 years out as follows, sorted by education level reached. Those with:

Bachelor’s degree: 7.9%

Associate’s degree: 21.9%

Undergraduate certificate: 44.3%

No degree: 44.5%

A Brookings Institution analysis from early last year, based on Department of Education (DoE) data, looked at borrowers from 12 and 20 years ago and found that defaults don't plateau; they continue to rise all along. Brookings estimates that a staggering 40% of borrowers may default on their student loans by 2023.

The government student loan program that the Trump administration inherited was designed for disaster. The policy of issuing loans of virtually any amount to any youth to go to any school was a narcotic that seduced colleges — public and private alike — to raise tuition year after year at a rate far faster than inflation in order to capture more of the money.

And it led large corporations, private equity firms, and even hedge funds to chase after the huge pool of government money that flowed virtually unchecked. At peak, private capital had created some 2,000 for-profit colleges, some no more than storefronts. Little emphasis was paid to academics. Their marketing departments, whose job it was to talk prospective students into taking out government loans to pay to their colleges, often outstripped the size of the faculty.

The Obama administration began a crackdown. When they had difficulty getting performance data from the Corinthian College system that was required for accreditation, a 21-day hold on any further loans going to that system caused a cash crisis. So dependent on government-issued student loan money was Corinthian that 90% of their revenue vanished. It had falsified grades, attendance, and job-placement statistics to get that money. At least one of its schools had paid temp agencies to hire graduates for a couple of days so they could be counted as employed. The Obama government told Corinthian to sell assets and liquidate the 120 schools that it operated.

The big ITT chain of for-profit colleges got the same treatment. Some 35,000 students at 137 campuses had to look elsewhere when the Obama administration said federal loans could not be used to pay for its classes. ITT’s deceptive marketing practices, its steering students into taking out ill-afforded loans to pay to the colleges, its poor educational quality had been under scrutiny by federal regulators and state prosecutors for years. It had already paid a $725,000 settlement to California as far back as 2005 when whistle-blowers reported that the company was inflating grades so that students could qualify for state money. We’ve covered the for-profit college industry extensively, starting as far back as 2012, in articles found here, here and here.

Students defrauded by such schools became eligible for refund and cancellation of the remainder of their debt. That was proper because it was the government of prior administrations and Obama’s which had said through accreditation that these were valid educational institutions. The accreditation process was so corrupt that, as the Wall Street Journal reported at the time, “The six agencies that approve more than 1,500 four-year colleges have in the past 15 years revoked accreditation for, wait for it, 18”.

But now we have Betsy DeVos running Trump’s DoE, someone who favors for-profit schools over public, in fact never attended a public school, is known for her support for school voucher programs and charter schools and, having married into one of the nation’s wealthiest families, has been an investor in for-profit college corporations to cash in on the student loan tsunami.

Her department has come under fire over a number of controversies. She has reduced to three a team of lawyers and investigators set up in the final months of the Obama administration to probe abuses at for-profit colleges. Some of her top hires have been brought into the DoE from the large for-profit colleges. Those investigators had been looking at DeVry Education Group, but that slowed slowed to a halt when DeVos brought in a former DeVry dean. A federal district court found the DoE in violation of the Privacy Act for sharing student borrower information with the Social Security Administration to obtain their income data. But the bigger story is how her department has been handling students cheated by the for-profits, and has been cheating on its own by subverting a key pledge to students:

Denying Defrauded Students. In its last year in office, Barack Obama’s administration approved the erasure of $450 million of college debt for some 30,000 students who were cheated by schools that didn’t deliver on their marketing claims and instead served up worthless teaching. And Obama put in place a rule referred to as “borrower defense” to govern forgiveness of debt going forward. The new rule was supposed to take effect in July 2017, and would wipe out such debt automatically for students at failed schools without their even having to apply.

But the for-profit school industry challenged it; the DeVos education department has devoted its energies to fighting in court to reduce the amount of relief granted to some student categories; and shortly before the July start date, Secretary DeVos suspended the rule, announcing her intention to re-write it.

It took a lawsuit to break the logjam. It had cost students more than another year of waiting until a federal judge in October last year turned away an industry-requested injunction and took the DoE to task as “arbitrary and capricious” for its stalling. During the two years of the Trump administration the number of former students waiting for restitution had been allowed to double to 158,000, such as those who had attended ITT and Corinthian. The DeVos Education Department approved only 16,155 in all of 2017 and 2018, and not a single application in the entire second half of 2018, according to department data — nothing even following the judge’s ruling. Ignoring a court rulings to desist, the department has even turned borrowers over to the Treasury Department to have their tax refunds garnished to offset debts that have piled up while their claims are pending,

In the interim, yet another college chain has collapsed. DeVos not only favors for-profit schools but has long supported Christian schools and conservative Christian causes. She has kept that bias quiet during her tenure as secretary — the official word is that “Mrs. DeVos believes in the legal doctrine of the separation of church and state” — but in 2001 to a group focused on advancing Christian faith through philanthropy, she said, “Our desire is to confront the culture in ways that will continue to advance God’s kingdom”.

This goes a long way to explain why her Education Department approved a Christian nonprofit with no experience in higher education buying a troubled chain of for-profit colleges. Affiliated with a Pentecostal megachurch in Los Angeles, Dream Center bought a cluster of schools and within less than a year the agglomeration collapsed, stranding 26,000 students who were pursuing associate degrees in such fields as dental hygiene and doctoral programs in law and psychology. The corporation was accused by the court-appointed receiver of having used tuition money not for the students' education but to try to keep the lights on.

The education department under President George W. Bush devised an imaginative plan in 2007 to encourage students to go into lower-paying public service careers. Go into teaching or government service or work for non-profit organizations, then make 120 on-time payments — that’s 10 years — of a designated percentage of your income and the federal government will absolve you from paying whatever remains of your student loan obligation. Called the Public Service Loan Forgiveness Program, it has become a quagmire.

As of May 1st of this year, Forbes reported that 99% of applicants had been rejected. Admittedly, the requirements are complicated: one has to have the right kind of loan, done the right kind of work, and there’s the question of who has been meticulously keeping track of 120 months of payments. Nonetheless, that 99% of the 58,000 applications so far processed were turned away says that the education department is doing its utmost to betray the government’s pledge.

The Consumer Financial Protection Bureau has received complaints about FedLoan Servicing, the contractor the DoE chose to manage the program. The complaints say that FedLoan has botched paperwork and processed payments incorrectly, the worst sort of snafu, leading as it does to demands that those in the program prove 10 years of monthly payments, an ordeal that can take years to unravel, person by person. FedLoan tells suppliants that their cases will take a year to sort out.

Championed by Senators Tim Kaine of Virginia and Sheldon Whitehouse of Rhode Island, both Democrats, the 2018 budget provided $700 million to untangle a morass in which those who had spent 10 years in public service were told they had enrolled in the wrong repayment program, for example, or had not known they must fill out a formal loan forgiveness application and were therefore disqualified, or all the while had been paying less money into the wrong payment plan than they should have paid under the correct plan. The intent of the budget funding was to assist those who had acted in good faith and worked years in the public sector, who had spent years in the belief that the United States government would honor its commitment, but under Betsy DeVos — who calls this “free money” — the Education Department seems under orders to stiff them with a thicket of rules.

Moving slowly through Congress is an upgrade to the Hugh Education Act (HEA), first enacted in 1965 and not updated since 2008. A top priority for the White House is limiting the amount graduate students and parents may borrow from the government. (A 2017 House Republican plan had proposed annual lending caps of $28,500 and $12,500 respectively). Democrats are averse to caps as favoring upper classes while shutting out low income students who will not be able to come up with the unfunded difference.

The Trump administration is taking aim at colleges that don’t provide the type of education that earns enough for graduates to pay back their loans. The most no-nonsense proposal from the White House would make a college partly liable for a former student’s debt when default results from inability to find gainful employment. While an appealing way to throw a scare into those schools that deliver a worthless education, the idea will likely be defeated by its need for case-by-case appraisal and settlement. How, for example, to conclude that a college owes for a graduate who doesn’t bother to find work? To what extent is a college liable, if at all, for a student who drops out and defaults?

The White House also backs combining the multiple income-driven repayment plans into a single plan that would cap payments at 12.5% of a borrower’s income. It would also offer loan forgiveness to all undergraduate borrowers after 15 years of payments. These changes make sense. It is yet to be seen whether they are just ideas or whether the White House is pressing them forcibly on the HEA drafters. And whether anything will be done to cause the DeVos-run Education Department to end cheating America’s students.