A Mouthpiece for Lenders

 “Unfortunately, under your leadership, the Bureau has abandoned the very consumers it is tasked by Congress with protecting… “Instead, you have used the Bureau to serve the wishes of the most powerful financial companies in America.” From the letter of resignation of student loan ombudsman, Seth Frotman, for the Consumer Financial Protection Bureau

In 2005, because of what was then-perceived as a flagrant abuse of bankruptcy laws, Congress passed an amendment to our bankruptcy code making it exceptionally difficult, almost impossible for most, for those who took out loans to finance their higher education to cancel such debts in bankruptcy. That change gave rise to an accelerated business sector: for-profit post-secondary schools (trade and tech training schools and colleges and universities designed to make money as their primary mission). Dozens and dozens of “new for-profit schools” were built to capitalize on this massive change in our credit laws.

Knowing that enrolling students could be enticed into taking on significant student debts that could not be avoided in bankruptcy – especially if the job expectations could be “amplified” – was the cornerstone of that effort. “Student loans have seen almost 157% cumulative growth over the last 11 years. In contrast, auto loan debt has grown 52% while mortgage and credit card debt actually fell about 1%, according to a Bloomberg Global Data analysis of federal and private loans.” Los Angeles Times, October 21^st.

The hype and marketing, the false statistics, combined with insidious and quite predatory recruiting efforts gave rise to a dramatic trend of fraudulent enticement to students who really could not afford the burden of those loans. Students also cannot afford the legal costs of challenging those fraudulent claims, often quite flagrant, and even when the U.S. Department of Education forced some of the most egregious for-profit institutions to close, where the students didn’t even receive the mediocre training they paid for, lenders clamored for loan repayment.

The Obama administration, through the Department of Education and the Consumer Financial Protection Bureau, created a program to relieve students of such debt when related to one of these failed institutions. Under Trump-Education Secretary Betsy DeVos, the government pressed to unravel and reduce the level of debt relief accorded to such defrauded students, although courts have consistently ruled against such efforts.

High profile closures – like ITT Technical Institute and Corinthian Colleges who thrived on federally-backed student loans – were the poster-companies for such misdirection. But make no mistake, these closures are a drop in the bucket when you consider that there are now about 3,500 such for-profit post-secondary educational/training schools and colleges in the United States. The abundance of federally-backed non-dischargeable student loans also fueled a level of tuition increases across the board… private and public, non-profit and for-profit. Tuition soared above the increases in the cost of living within every other segment of the economy.

For young adults, seeking to better their live, the consequences of a world where average student debt hovers above $39 thousand can be dire. See my The New Americans: Young, Stressed and Almost Broke August 31^st blog, for example. The Trump administration has pretty much abandoned any pretense of consumer protection, and students mired in debt have become sacrificial lambs. The November 2^nd FastCompany.com embellishes:

“Frotman charged that the once-independent watchdog organization [Consumer Financial Protection Bureau – CFPB] had become a partisan arm of the administration, curbing oversight of lenders. In his letter, he accused the agency of suppressing a report that revealed evidence that several giant banks were ‘saddling [students] with legally dubious account fees.’ Student loan debt was getting out of control, and the one government agency tasked with helping the borrowers was no longer doing so.

“In the 10 years since the financial crash, student loan debt has increased to unprecedented heights. Currently, tens of millions of Americans owe a total sum in excess of $1.5 trillion. This situation was created by an increase in for-profit institutions, overall increasing tuition, as well as an influx of predatory lenders. And the current CFPB, which was originally tasked with advocating for citizens at the heart of this crisis, is increasingly seen as a mouthpiece for lenders…

“‘Cash flow is the main issue most students face,’ [says Charlie Javice, who built an online platform, Frank, to help students figure out every financial aid program they could possibly be eligible for]. Loan disbursement, she explains, happens twice a semester for students. Often, they receive the money after they were supposed to throw down cash for hefty cost items like textbooks. ‘To show you how dire the problem is,’ she says, ‘one-third of students are applying for [high-interest] payday loans.’”

Loans, rife with confusing documents, invoices and accounting statements, are sold and then resold in the commercial debt exchange markets… each transaction pushing the loan farther and farther away from the original educational purpose. Students are literally left out to dry with strangers who have no real nexus to the underlying reason for the loan.

For students struggling to pay bills in a market that may provide better jobs for those with experience but offer gig and other lower-paying jobs to all-but-the-most skilled/educated applicants, the pay levels are forcing almost a third of young adults to live with their parents. The balance tipped four years ago: “In 2014, for the first time in more than 130 years, adults ages 18 to 34 were slightly more likely to be living in their parents’ home than they were to be living with a spouse or partner in their own household.” May 24, 2014 Pew Research Center study. Trump’s unemployment numbers blithefully skip over these frightening undertones.

“One of the only allies on the side of debt-laden students and fighting against current trends in loan policy are lawyers. One New York-based group–the For-Profit Schools Project, which is an arm of the New York Legal Assistance Group (NYLAG)–advocates and provides legal services for generally low-income New Yorkers being targeted by predatory players in the student loan game. For-profit colleges are notorious for targeting low-income students, roping them into unaffordable tuitions, high-interest loans, and practically useless degrees. Many other nonprofit legal services groups, both national and local, have stepped into the breach to help thousands of students saddled with crushing debt…

“For-profit colleges have been around for decades, and their predatory nature is not necessarily a new problem. In fact, one of NYLAG’s co-directors has been fighting these businesses in the courtroom for years. But in recent years, the challenges have been magnified. ‘The last few years,’ says [Jessica Ranucci, an attorney at NYLAG], ‘we’ve gotten more involved; much more of our litigation is focused on for-profit schools.’” But for most students struggling with student debt, they live in a world of harassing debt-collectors and a dearth of the promised jobs that would have allowed them to earn enough to start their lives with hope and dignity.

I’m Peter Dekom, and unless we are willing to continue to betray our children, we seriously need a ground-up restructuring of the entire United States’ system of funding higher education.