
Loan Monitor Is Accused of Ruthless Tactics on Student Debt - 001sky
http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html?hp
======
twoodfin
Now that undergraduate loans are exclusively financed by the Federal
government, they've become a powerful policy lever: Want to greatly reduce
your liability of $50,000 after four years of undergraduate education? Work in
"public service" for ten years, making repayments at income-based levels and
the rest of your debt is assumed by the taxpayer.[1]

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...](http://studentaid.ed.gov/repay-loans/forgiveness-
cancellation/charts/public-service)

~~~
rayiner
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.

~~~
anothermar
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?

------
Zikes
> 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.

~~~
halter73
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?

~~~
001sky
_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/Sports_Broadcasting_Act_of_1961)

[https://en.wikipedia.org/wiki/Hollywood_accounting](https://en.wikipedia.org/wiki/Hollywood_accounting)

~~~
halter73
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.

~~~
001sky
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-accounting-for-sports)

------
zaroth
"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.

~~~
jcampbell1
> 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.

------
at-fates-hands
>>> 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

------
greendata
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.

~~~
slapshot
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](http://www.judiciary.senate.gov/pdf/12-3-20ColeTestimony.pdf)

~~~
greendata
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.

------
mathattack
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.

~~~
phren0logy
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.

~~~
twoodfin
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.

------
loomio
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.

------
ams6110
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>

