Loan Monitor Is Accused of Ruthless Tactics on Student Debt(nytimes.com)
nytimes.com
Loan Monitor Is Accused of Ruthless Tactics on Student Debt
http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html?hp
8 comments
Last year, the student loan system was $50 billion in the black.[1] So it's a cross-subsidy rather than a taxpayer subsidy. And that seems perfectly fine to me. My wife and I took loans for graduate school, and both came out with high-paying jobs for our trouble. I think it's totally fair for people like us to subsidize the people who pursue public service. The system helped us out, and now we're happy to help out the system.
[1] This number is likely to decrease as time goes on and more people take advantage of the loan forgiveness, but there's quite a cushion at the moment.
[1] This number is likely to decrease as time goes on and more people take advantage of the loan forgiveness, but there's quite a cushion at the moment.
That the system is in the black doesn't necessitate that program is not in fact a subsidy. If the market interest rate is 5% and the gov loans at 2%, assuming no defaults, the program will appear to be in the black while still subsidising borrowers at the expense of taxpayers. Moreover, when you say "fair for people like us to subsidize the people who pursue public service" you seem to imply that the tax is progressive when in fact is not since most people going to college are middle and upper middle class. Finally, this doesn't address the question of who is providing a public service. Are private for profit orgs not providing a public service?
It's really just a part of the compensation package. The government is choosing to pay people by cancelling their student loan rather than with cash.
So it's not a bad policy because it incentivizes working for the public service. But it is a bad policy because it effectively pays people with higher student debt more, for no good reason.
So it's not a bad policy because it incentivizes working for the public service. But it is a bad policy because it effectively pays people with higher student debt more, for no good reason.
Some teachers have a similar deal. One of my best friend's debts will be payed off after she teaches for 5 years in a low income school district.
That's great! Why not just pay her more so she can pay off her loans herself?
I know the reason: The union pay scale that pays lousy old teachers much more than young good ones is politically untouchable.
I just don't like that kind of backdoor policymaking. For one thing, it doesn't incentivize universities to offer more affordable educations, since people like your friend become price-insensitive.
I know the reason: The union pay scale that pays lousy old teachers much more than young good ones is politically untouchable.
I just don't like that kind of backdoor policymaking. For one thing, it doesn't incentivize universities to offer more affordable educations, since people like your friend become price-insensitive.
>The union pay scale that pays lousy old teachers much more than young good ones is politically untouchable.
I think that is greatly simplifying a complicated problem. There are many reasons a teacher cannot get paid more in a low income school. They may be limited by the local government entity (state or municipality) or the environment may be very difficult. It can become equally politically problematic to adjust the payscale for low income schools as it can to incentivize working there.
>For one thing, it doesn't incentivize universities to offer more affordable educations, since people like your friend become price-insensitive.
Everyone who gets a college education is price insensitive and it has everything to do with loans, but likely little to do with the public service incentive. As long as loans are available and assistance is not, universities (most of which are public) will not have incentive to offer affordable educations. It's a serious problem, but one that has more to do with a culture of "Get an education and get a great job, even if you major in philosophy" than with "Be a teacher and we'll give you a break for serving the public good."
I think that is greatly simplifying a complicated problem. There are many reasons a teacher cannot get paid more in a low income school. They may be limited by the local government entity (state or municipality) or the environment may be very difficult. It can become equally politically problematic to adjust the payscale for low income schools as it can to incentivize working there.
>For one thing, it doesn't incentivize universities to offer more affordable educations, since people like your friend become price-insensitive.
Everyone who gets a college education is price insensitive and it has everything to do with loans, but likely little to do with the public service incentive. As long as loans are available and assistance is not, universities (most of which are public) will not have incentive to offer affordable educations. It's a serious problem, but one that has more to do with a culture of "Get an education and get a great job, even if you major in philosophy" than with "Be a teacher and we'll give you a break for serving the public good."
It's not "over" simplifying the problem, though. Pay based on seniority is politically untouchable and is not correlated with the true variation of quality in the teaching profession. Lack of correlation with pay and performance is the number one problem with incentivising better talent to apply itself to teaching. The profession looks basically like a ponzi-scheme in that regard (pyramid pay). It is a bizzare that government uses this model of compensation...does anyone know why? It is all throughout the many layered beuracracies...
My wife taught at an inner city school for 5+ years. Pay was competitive and they paid for her masters. Her school loans were just forgiven (around 5k) for doing this. It was a net win for us vs teaching st a suburban school.
She loved it and it worked out great for us, but the education system is a disaster and I am glad she isnt teaching anymore.
She loved it and it worked out great for us, but the education system is a disaster and I am glad she isnt teaching anymore.
> The agency charged with monitoring such bankruptcy declarations, a nonprofit with an exclusive government agreement
I used to associate nonprofits with humanitarian works, almost like charities, but it's pretty obvious lately that in many cases they're just for-profit systems that have found loopholes to exploit.
A prime example of this: the NFL is a nonprofit.
I used to associate nonprofits with humanitarian works, almost like charities, but it's pretty obvious lately that in many cases they're just for-profit systems that have found loopholes to exploit.
A prime example of this: the NFL is a nonprofit.
> I used to associate nonprofits with humanitarian works, almost like charities
That's, loosely, what 501(c)(3)s are.
> A prime example of this: the NFL is a nonprofit.
The NFL is a 501(c)(6), which is different than a 501(c)(3) -- 501(c)(6)s are basically associations of (generally, for-profit) business entities.
That's, loosely, what 501(c)(3)s are.
> A prime example of this: the NFL is a nonprofit.
The NFL is a 501(c)(6), which is different than a 501(c)(3) -- 501(c)(6)s are basically associations of (generally, for-profit) business entities.
Hang around Cambridgeport where Harvard is expanding and ask them how they feel about non-profits.
This "non-profits are good!" vibe is why these companies set themselves up that way. Instead of profits going to shareholders, they just go to the executives.
This "non-profits are good!" vibe is why these companies set themselves up that way. Instead of profits going to shareholders, they just go to the executives.
While I agree that the NFL is certainly not a charity, I'm not sure that the NFL's nonprofit status is necessarily indicative of the league exploiting loopholes. I have always been led to believe that all league profits are shared among the league's for-profit teams who pay the appropriate taxes.
Can you explain how the NFL is a prime example of a nonprofit exploiting loopholes?
Can you explain how the NFL is a prime example of a nonprofit exploiting loopholes?
The 1961 Sports Broadcasting Act was the first piece of gift-wrapped legislation, granting the leagues legal permission to conduct television-broadcast negotiations in a way that otherwise would have been price collusion. Then, in 1966, Congress enacted Public Law 89‑800, which broadened the limited antitrust exemptions of the 1961 law.
But in general, the teams make tons of money and have close zero profits. They use variations of "hollywood" accounting. Which might help explain the cognitive dissonance of profitless monopolies =D.
https://en.wikipedia.org/wiki/Sports_Broadcasting_Act_of_196...
https://en.wikipedia.org/wiki/Hollywood_accounting
But in general, the teams make tons of money and have close zero profits. They use variations of "hollywood" accounting. Which might help explain the cognitive dissonance of profitless monopolies =D.
https://en.wikipedia.org/wiki/Sports_Broadcasting_Act_of_196...
https://en.wikipedia.org/wiki/Hollywood_accounting
I would consider the Sports Broadcasting Act and the following legislation that expressly permitted the AFL/NFL merger to be, as you imply, well-known gifts from Congress to American professional sports leagues and the NFL in particular.
Those are hardly loopholes, however, since the legislation worked exactly as Congress intended as far as I can tell.
Your allegations of "Hollywood" accounting seem more consistent with loophole exploitation, but I would like more concrete evidence other than the alleged dearth of team profits.
Those are hardly loopholes, however, since the legislation worked exactly as Congress intended as far as I can tell.
Your allegations of "Hollywood" accounting seem more consistent with loophole exploitation, but I would like more concrete evidence other than the alleged dearth of team profits.
Anyone with firsthand access to NFL, MLB, Premier League Soccer(and other pro sports) financial info will attest to the lack of book earnings. see for eg
http://www.wallstreetoasis.com/blog/the-money-leagues-part-2...
http://www.wallstreetoasis.com/blog/the-money-leagues-part-2...
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not-for-profit and tax-exempt are different things.
Tax-exempt entities are also not-for-profit but not all non-profit entities are tax-exempt (Political parties, professional organizations, the NFL,...).
Tax-exempt entities are also not-for-profit but not all non-profit entities are tax-exempt (Political parties, professional organizations, the NFL,...).
If they are a non-profit they should file a Form 990 with the IRS, which is a publicly available document. So, it might be enlightening to read the 990, which details how much money comes in, how it is spent, how the top officers are compensated, etc.
You can read them here: http://www.guidestar.org/
...if you pay $125, which is ironic given the conversation.
Looks like they enacted a paywall...
Check this instead: http://foundationcenter.org/findfunders/990finder/
Check this instead: http://foundationcenter.org/findfunders/990finder/
I've learned that the big thing that makes something a non-profit (aside from legality) is they have to disburse their profits. The NYSE was a non-profit until they found legal way to sell themselves. (This is rare - it's actually difficult for non-profits to sell themselves. That's one downside)
To put this fully in perspective, for a time Visa and Mastercard were non-profits.
"Professor Cole added that if it were easy to discharge student loans in bankruptcy, lenders would simply not lend money to students without clear assets or prospects. 'We need a standard like that to be able to allow students who can’t afford an education to be able to borrow,' he said."
Cole is right, and 'undue hardship' is highly subjective. However, as it stands only "hundreds try" to discharge their student loan debt through bankruptcy, and unknown how many succeed.
Undue hardship sounds like something we should be managing towards an overall level of 0.1% not 0.0% as they are now. I think the problem is that you can't achieve that on a case-by-case basis. Anything but impossible standards would blow past 0.1% in a heartbeat. I think you would need some sort of quota / ranking system and current law doesn't allow that.
What the story didn't talk [enough] about is how the income-based plans actually work. It sounds like there's an incredible amount of work that goes into calculating those plans (counting number of meals at McDonalds?). I don't know why that would be necessary. I assume you would just target a percentage of adjusted gross income. The whole point of the loan is to increase AGI so if AGI is systemically too low to repay the loans, the problem is with the economy or the educational system, not the individual.
Cole is right, and 'undue hardship' is highly subjective. However, as it stands only "hundreds try" to discharge their student loan debt through bankruptcy, and unknown how many succeed.
Undue hardship sounds like something we should be managing towards an overall level of 0.1% not 0.0% as they are now. I think the problem is that you can't achieve that on a case-by-case basis. Anything but impossible standards would blow past 0.1% in a heartbeat. I think you would need some sort of quota / ranking system and current law doesn't allow that.
What the story didn't talk [enough] about is how the income-based plans actually work. It sounds like there's an incredible amount of work that goes into calculating those plans (counting number of meals at McDonalds?). I don't know why that would be necessary. I assume you would just target a percentage of adjusted gross income. The whole point of the loan is to increase AGI so if AGI is systemically too low to repay the loans, the problem is with the economy or the educational system, not the individual.
> It sounds like there's an incredible amount of work that goes into calculating those plans
It is a simple calculation. 15% of Discretionary Income. DI is calculated as AGI minus 150% of the federal poverty line. For instance, if someone is single and makes $35k per year, their monthly payment is capped at: (35-11.5×1.5)×.15/12 -> $222 per month.
What is complicated is when people say they can't make the income based repayments because of a hardship. That is when all the counting meals and extra bedrooms happens.
It is a simple calculation. 15% of Discretionary Income. DI is calculated as AGI minus 150% of the federal poverty line. For instance, if someone is single and makes $35k per year, their monthly payment is capped at: (35-11.5×1.5)×.15/12 -> $222 per month.
What is complicated is when people say they can't make the income based repayments because of a hardship. That is when all the counting meals and extra bedrooms happens.
It's not magic. It's very close to just 10% of (AGI - some multiple of federal poverty line), applied either to an individual or a couple.
>>> When Ms. Hann took the issue to a New Hampshire court, the judge sanctioned Educational Credit, citing the lawyers’ “violation of the Bankruptcy Code’s discharge injunction.”
I'm wondering what the penalty was from getting sanctioned by the Judge. In some states, you can your license revoked by the state bar association. I thought it was odd they didn't mention what penalty the attorneys received as a result of the sanction
I'm wondering what the penalty was from getting sanctioned by the Judge. In some states, you can your license revoked by the state bar association. I thought it was odd they didn't mention what penalty the attorneys received as a result of the sanction
It should be noted that Professor Cole is a direct beneficiary of the aggressive student loan collection practices. This story reads like something out of a "Tale of Two Cities". I wonder if the ending will be similar.
For what it's worth, you're right but not for the reason you expect. Marcus Cole is well known for having grown up in a Pittsburgh housing project (Terrace Village) and having absolutely zero parental support for his college education. He is the type of person who would be the first to be denied a loan if it were possible to do so.
He's also fond of pointing out that medical students started this problem when a number of them declared bankruptcy right as they graduated med school and just before entering lucrative fields.
Source (among others) last page of: http://www.judiciary.senate.gov/pdf/12-3-20ColeTestimony.pdf
He's also fond of pointing out that medical students started this problem when a number of them declared bankruptcy right as they graduated med school and just before entering lucrative fields.
Source (among others) last page of: http://www.judiciary.senate.gov/pdf/12-3-20ColeTestimony.pdf
He's currently paid a salary from his university, so yes he and his employer are very benefiting from the federal student loan programs and subsidies.
I don't see how the fact he grew up Pittsburgh and received forms of government assistance is relevant. Good for him but the income of his employer is heavily subsidized by student loans.
I don't see how the fact he grew up Pittsburgh and received forms of government assistance is relevant. Good for him but the income of his employer is heavily subsidized by student loans.
I have a lot of sympathy for the individuals involved. One question... Does an insurance market exist for student loan paybacks? If not, perhaps it's time.
If the market doesn't exist (or can't exist) and we have sympathy for people who can't pay their loans back then we have to accept higher interest rates in returns. By having such strict laws on paying loans back, people with poor credit ratings through no fault of their own can get student loans.
Of course it would be great if people didn't need to go so far in debt to pay for school, but that's another story.
If the market doesn't exist (or can't exist) and we have sympathy for people who can't pay their loans back then we have to accept higher interest rates in returns. By having such strict laws on paying loans back, people with poor credit ratings through no fault of their own can get student loans.
Of course it would be great if people didn't need to go so far in debt to pay for school, but that's another story.
I read about an even more radical proposal: make the schools themselves back the loans. If Univeristy X graduates can't get jobs that allow them to pay back their loans, University X is on the hook.
Harvard can afford to let disadvantaged students in for free, but many middle and lower tier schools would become averse to admitting/financing poor or otherwise "risky" students under such a scheme.
I'd be surprised if you couldn't get some kind of disability insurance on a student loan. It's certainly commonly available for mortgage loans. But can't say I've looked into it.
Notice the common theme: people's financial lives get derailed by medical expenses. Yet another argument for healthcare reform.
In New Zealand (as in many other countries) we have a very reasonable system whereby you repay student loans as a small percentage of your income after graduation, taken out of your paychecks until they are fully repaid. If you're unemployed, you don't have to be making repayments. This means no one is under undue strain month to month and seems like a much more humane approach.
In New Zealand (as in many other countries) we have a very reasonable system whereby you repay student loans as a small percentage of your income after graduation, taken out of your paychecks until they are fully repaid. If you're unemployed, you don't have to be making repayments. This means no one is under undue strain month to month and seems like a much more humane approach.
Typical tug-the-heartstrings piece, find a couple of cases where people who seem to legitimately deserve a "hardship" exception had trouble getting it, and make it sound like that's the norm.
I suspect that the norm is that most people who are delinquent on their student loans are just simply not paying them.
Professor Cole added that if it were easy to discharge student loans in bankruptcy, lenders would simply not lend money to students without clear assets or prospects.
Now there's an idea! </sarcasm>
I suspect that the norm is that most people who are delinquent on their student loans are just simply not paying them.
Professor Cole added that if it were easy to discharge student loans in bankruptcy, lenders would simply not lend money to students without clear assets or prospects.
Now there's an idea! </sarcasm>
It's not hard to imagine a whole bunch of "desirable" activities that could be incentivized in this way. I am somewhat uncomfortable with that.
[1] http://studentaid.ed.gov/repay-loans/forgiveness-cancellatio...