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Stephen Burd: All Related Content

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Getting Rid of the Student Loan Repo Man

August 29, 2012

Over the past 25 years, federal officials have put in place a punitive student loan collection system that is designed to stop “deadbeat” borrowers from ripping off the government by failing to repay their debt.

Among other things, policymakers have made it virtually impossible for student loan borrowers to discharge their debt in bankruptcy, and have removed any statute of limitations on the collection of these loans – allowing the government to unleash an army of student loan collection companies to pursue these borrowers to the grave. They have also empowered the government to garnishee the wages of defaulters without a court order, and seize tax refunds and other federal benefits, such as Social Security payments from elderly and disabled borrowers.

It is certainly unacceptable for students to take out federal loans without having any intention of paying them back. The reality, however, is that many, if not most, people who default on their federal loans do not choose to do because they want a “free ride.” They do so because they simply don’t have the money to make their payments.

Yet, as I wrote in a Washington Monthly article entitled “Getting Rid of the College Loan Repo Man,” our system for collecting on defaulted federal student loans does not recognize that distinction. Borrowers who deliberately skip out on their loans and those who are too financially distressed to repay them are subject to the same harsh treatment.

Stephen Burd: Fire the Student Loan Debt Collection Companies

August 27, 2012

Washington, DC — More and more student loan borrowers are falling behind on their payments, putting them in danger of getting caught up in the brutal gears of the government's student loan collection system, according to reporting by Stephen Burd, senior policy analyst in the New America Foundation's Education Policy Program.

Answering the Critics of "Pay as You Earn" Plans

  • By
  • Stephen Burd,
  • New America Foundation
August 27, 2012 |

Tying the repayment of student loans to a borrower’s income is hardly a new idea. Conservative economist Milton Friedman proposed the basic concept in 1955, and so-called income-contingent loans (ICLs), or “pay as you earn,” plans have been championed by many liberals since. This has also given critics plenty of time to come up with well-worn criticisms that are certain to come up again if this proposal gets legs. Here are some of the arguments, followed by our responses:

Getting Rid of the College Loan Repo Man

  • By
  • Stephen Burd,
  • New America Foundation
August 23, 2012 |

Gregory McNeil, 49, is living out his days at a veterans home in Grand Rapids, Michigan. His room is so cramped he can barely fit his twin bed, dresser, and the computer desk he had to sneak in because it was against regulations. His only income comes from the Social Security disability payments he began receiving last year after undergoing quadruple-bypass heart surgery. These payments go directly to the veterans home, which then gives him $100a month for his expenses.

New Senate Bill Seeks to Crack Down on One of For-Profit Colleges’ Worst Abuses

August 7, 2012

Sen. Tom Harkin (D-IA) and two other Senate Democrats introduced legislation last week to stop one of the most egregious practices of the for-profit higher education industry: enrolling students in programs that lack the specialized accreditation needed for students to get jobs in their fields of study.

The important bill would strip federal financial aid, as well as veteran and military benefits, from any college programs that leave students in the lurch because they don’t have the necessary programmatic accreditation. “Taxpayers have no place funding programs that hurt students more than they help,” said Sen. Jeff Merkley of Oregon, who joined Maryland Senator Barbara Mikulski and Harkin in sponsoring the measure.

The legislation, the “Protecting Students from Worthless Degrees Act,” comes on the heels of the release of a Senate Health, Education, Labor and Pensions (HELP) Committee report detailing the findings from a two-year investigation that Senator Harkin, the panel’s chairman, led of the for-profit higher education industry. During the course of the inquiry, committee staff learned of a number of students who felt they had been deceived about the value of their degrees.

Why the Harkin Report on For-Profit Colleges Really Matters

July 31, 2012

The U.S. Senate Committee on Health, Education, Labor and Pensions released a final report on Monday detailing its findings from a two-year investigation that its chairman, Sen. Tom Harkin (D-IA), has led of the for-profit higher education industry. The report is voluminous, and we are still digging through it. But for the moment, it’s important to acknowledge the report’s true significance: it puts thousands of pages of internal company documents into the permanent record, providing crucial evidence that fraud and abuse have run rampant throughout the sector, and especially at some of the country's largest for-profit college companies.

This is a major development, as it will make it extremely difficult for the industry and its Congressional champions to continue to deny that abuses have occurred at their schools that have caused – as Senator Harkin said at a press conference yesterday -- “lasting harm to the students they enroll.”

Over the last decade, both publicly-traded and private-equity owned for-profit higher education companies have come under scrutiny from federal and state regulators, and have faced numerous lawsuits by former employees, students, and shareholders over allegations that they engaged in misleading recruitment and admissions tactics to inflate their enrollment numbers. Many of these companies have been accused of routinely recruiting and enrolling unqualified student and sticking them with huge amounts of debt for training from which these individuals were unlikely to benefit.

Yet, time and again, these actions have ended in settlements, in which the companies agree to pay a fine but do not admit to any wrongdoing. What’s more, as part of the terms of these agreements, evidence of abuses that has been unearthed is put under seal, hidden permanently from public view. (For examples, see here, here, here, and here.)

As a result, the companies involved get off scot-free, no matter how airtight the cases are against them. Sure, they have to pay a fine, but this is a small price for these extremely lucrative corporations to pay to maintain their innocence.

The settlements have not only given cover to the individual companies but to the for-profit higher education sector as a whole. The fact that nobody has been found guilty of anything has allowed the industry, as well as its backers on Capitol Hill and Wall Street, to remain in denial about the extent of the abuses that have occurred and the damage that has been done. Instead, these settlements have, in recent years, made it many times easier for for-profit college leaders and lobbyists to portray themselves as innocent victims of a partisan witch hunt, as they have fought efforts by the Obama administration and Senate Democrats to rein in the industry’s very worst players and practices.

And that’s why the new Senate report is so important -- it puts into the official record mountains of evidence, drawn from internal company records, backing up its findings. Lawmakers can still willfully choose to ignore the evidence. But they can no longer say, with a straight face, that it doesn't exist.

Corinthian Colleges Shows Why Gainful Employment Rules Are Too Weak

July 10, 2012

Career college lobbyists may come to rue the day that the U.S. District Court for the District of Columbia struck down the Obama administration’s Gainful Employment (GE) regulations. Because judging by the GE data that the U.S. Department of Education released late last month, the rules actually make even the worst performing for-profit higher education corporations look pretty good.

Take Corinthian Colleges, for example. The company had 44 programs that failed the Education Department’s Gainful Employment tests -- the most of any chain of for-profit schools. Yet, Corinthian College officials were able to boast to shareholders about the company’s performance. “93% of the Company’s programs comply with GE regulations for the time period measured,” the company reported to investors. “During this same period, the programs accounted for 95% of our graduates.”

This is not just good spin. It’s entirely accurate under the rules that the Education Department put in place last year. Responding to a massive lobbying campaign from the for-profit higher education industry, the administration watered down their proposed regulations to such an extent that only programs that flunk all three of the Department’s low-bar Gainful Employment tests are considered to be out of compliance. That means that only programs at which fewer than 35 percent of former students are repaying their loans and where the typical graduates have annual student loan payments that exceed 12 percent of their total earnings and 30 percent of their discretionary income would have eventually been in jeopardy of losing access to federal financial aid.

So at first glance, Corinthian Colleges doesn’t look so bad – 93 percent is an A-minus after all. But a deeper dig into the GE data provides a much more alarming picture of how the company’s students fare.

The Wall Street investment firm BMO Capital Markets conducted such an analysis and found that on the whole, Corinthian Colleges flunked two of the Education Department’s tests: the repayment rate and the debt-to-discretionary-income ratio. Only about one-quarter of the corporation’s former students who entered repayment in the 2007 and 2008 fiscal years have made payments on their federal loans -- a fact that is not surprising given that its typical graduate’s annual loan payment accounts for over a third of his or her discretionary income. In comparison, Devry University had a loan repayment rate of about 42 percent and a debt-to-discretionary income ratio of 11 percent.

Meanwhile, the average earnings for recent Corinthian College graduates is just $20,741, according to BMO’s analysis. That’s the lowest of all of the publicly traded for-profit college companies. Graduates of Devry, in contrast, had an average income of $36,517.

The dismal numbers were driven mostly by Corinthian’s Everest College brand, which primarily trains students for jobs in the healthcare industry. BMO found that only about one-fifth of the schools’ former students have made payments on their debt, meaning that about four-fifths have not paid it down by even one dollar. Again, this is not surprising considering that their annual loan payments account for a whopping 44 percent of their discretionary income.

As Higher Ed Watch has reported in the past, a high proportion of Everest College students take out private institutional loans on top of their federal debt. This is particularly worrisome since the average income of its recent graduates is only $19,629, according to BMO’s analysis. No wonder the company projects that more than half of these private loan dollars will end up in default.

Crunching the data further, I found that an incredible 95 percent of Everest College’s 297 eligible programs flunked at least one of the minimal Gainful Employment tests. [A company’s programs were included in the calculations if all of the required data was submitted on time, and they enrolled at least 30 students.] Of these programs, 254 had repayment rates of less than 35 percent, BMO reported.

The Gainful Employment regulations are supposed to expose those for-profit college programs that are putting students in harm’s way, buried in debt and without the training they need to get jobs that will help repay their loans. But the final rules are so weak that they may have instead given even the industry’s worse players cover.

This is a lesson that Obama administration officials should keep in mind as they revise the regulations. Although the federal judge’s decision was a blow to the Department, it now has the opportunity to craft better regulations -- one that won’t allow Corinthian’s shockingly poor performance get a passing grade.

MEDIA AVAILABILITY: Education Experts on 'Gainful Employment' Data

June 26, 2012

Today, the U.S. Department of Education released long-awaited data showing that 193 programs at 93 for-profit colleges failed to meet even the most minimal standards in preparing students for "gainful employment." The information on the average debt-to-income ratios and student loan repayment rates of students who recently attended for-profit colleges and other career training programs shines a spotlight on those schools are potentially putting their students in harm's way, by overloading them with debt they may never be able to repay.

Feds: For-profits could lose federal student aid | Associated Press

June 26, 2012

"These aren't the strictest standards to live up to," said Stephen Burd, a senior policy analyst at the New America Foundation...

Original article

An Unsettling Settlement in Class Action Lawsuit Challenging Sallie Mae's Subprime Lending Practices

June 19, 2012

Did Sallie Mae officials engage in an elaborate scheme to hide the rapidly deteriorating state of the company’s private student loan portfolio from Wall Street at a time when they were trying to complete a buy-out deal that would have brought them great riches? Were they systematically pushing subprime private loan borrowers at for-profit colleges into forbearance to mask the amount of risk they were taking on by making such high-cost loans to this vulnerable group of borrowers?

Unfortunately, we’ll probably never know the answers to these questions, which are at the center of a class action lawsuit that a group of investors have brought against the company (click here for part 1 of the suit and here for part 2). That’s because a federal district court judge in Manhattan – William H. Pauley of the Federal District Court in Southern New York – has preliminarily approved a $35 million settlement agreement between the parties that would not require Sallie Mae to admit to any wrongdoing. A final ruling on the settlement is expected in August.

While the shareholders will make out well from this deal, the real victims of Sallie Mae’s apparent scheme – the low-income and working-class students who never should have been steered to these risky loans in the first place – will not even get the satisfaction of seeing this case get its day in court. Sallie Mae will essentially get off scot-free ($35 million is hardly even a wrist slap for a company that holds nearly $140 billion of federally guaranteed student loans), many of these borrowers will be stuck with this debt hanging over them for the rest of their lives.

At a time when there is so much concern about a potential student debt bubble, the allegations made in this lawsuit should be getting more attention. With that in mind, I am re-posting a piece I wrote for Higher Ed Watch in October 2010 that lays out the investors’ case and shows why it is so regrettable that the questions posed at the top of this post may never be answered.

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