Tag: student loan debt

Student Loans Forgiven?

Posted by Kevin Hanly on with 0 Comment

We have heard the facts. Over $1.5 trillion in student debt. Students are leaving school with $40,000 in student loan debt for college. Double or more if you add graduate school loans. More and more borrowers are becoming delinquent on their loans. More and more are going into default.

The media reports that millennials are putting off buying a home, getting married or having kids because of their student loan debt. I do not know whether that is a fact, but it is plausible.

We are at the beginning of a new election cycle. More than one politician has said that student loans should be forgiven, in whole or in part. Others are coming up with schemes that involve private parties subsidizing the education of students in return for future employment and undefined repayment plans. Fingers are being pointed (and rightfully so) at the Department of Education which is slow walking application for loan forgiveness under the Public Service Loan Forgiveness Program.

I would venture to say that at least some of the student loan borrowers believe (or hope) that their loans will be forgiven. Why do I say that? Many student loan borrowers tell me this. Moreover, lately my website is getting about one third of the hits that it received a half a year ago. So, some borrowers believe that a bailout is in the winds.

For the last decade, I handled many foreclosure cases. I argued, among other things, that lending institutions engaged in widespread predatory lending and other consumer law violations. For a while in New Jersey (2010-2013), we were able to convince the courts of the righteous of our arguments. Then, the tide turned. It is now very difficult to defeat a lender in a foreclosure action.

Now, there are a lot of reasons, as I see it, that the tide turned. And I will not bore you with all my theories. But, I do believe that a concept called “moral hazard” came into play. In simple terms, that means that your neighbors who were struggling to pay their mortgages were really not moved by the fact that a neighbor who is, in effect, not paying their mortgage for a 2 year foreclosure process should be let off the hook because a loan may be predatory. Or as more than one judge put it, your client took the money, he has to pay it back.

My parents told me to go to college so that I could earn a better living. Statistics indicate that college grads earn over twice as much as high school grads over a lifetime. So my parents were right.

Now, lets look at student loans. Basically, we have 3 categories of people out there- 1) people who went to college and paid for it; 2) people who did not go to college and are making about 1/2 as much as college grads; and 3) people who are going to college and have a lot of debt. Say you are in category 3. Ask yourself a question. Do you really think that people in categories 1 and 3 think it is fair that you get to dump your student loans. The people in category 1 paid their loans. The people in category 3 are going to make 1/2 what you are going to make. Moral hazard. You bet, and worse than in the foreclosure scenario. Why, because in the foreclosure scenario, the bank takes the hit. In the student loan scenario, the taxpayers take the hit. And if you think that only rich taxpayers will take the hit, I got a bridge to sell you.

Now, I cannot predict the future. Our next president may be able to forgive student debt. But, a lot of taxpayers are going to find out that they are the one’s paying off other people’s student debt in the form of higher taxes or lesser services. And they will vote accordingly in the next election.

In the next blog, I will throw out some practical ideas on how to deal with this real problem.

College Tuition: Out of Control

Posted by Kevin Hanly on with 0 Comment

A recent article in NJ Advance Media compared the tuition costs of NJCU ( the old Jersey City State), St. Peter’s University and Stevens Institute of Technology, and projected out tuition costs through 2037. The results are disturbing, to say the least.

The study deals with tuition and fees only, and assumes a 2% increase each year. The study does not include room and board which could add another $10,000 to $20,000 to the equation. For 2019, NJCU has tuition and costs of $12,386. St. Peter’s, $37,677 and Stevens, $52,598. If you add in $15,000 for room and board, we are talking over $52,000 per year to go to St. Peter’s.

But, there are projected increases. In this study, they assume 2% per year (although colleges have raised their tuition over the last 20 years more than twice the inflation rate). So, by 2037, you can expect tuition and fees to be $31,390 for NJCU, $83,740 for St. Peter’s and $107,349 for Stevens.

So, what is going to happen? Well, we see many presidential candidates saying that all student loan debt will be forgiven. But “forgiven” means that the taxpayers foot the bill. Frankly, that is not feasible. College grads earn significantly more than non-college grads over their lifetime. How can you have people earning less money subsidize people who earn more money? Also, people who sacrificed to avoid student loan debt will be subsidizing those who took the money. I may be wrong, but I do not see the American people buying into that scenario.

Something has got to give. I do not have a crystal ball, but I see a combination of initiatives that can reduce the cost of college to the student.

Administrative expenses at colleges have grown exponentially over the last 40 years. Much of that is the result of the government becoming more involved. A balance has to be found which will insure that fundamental student rights are fostered but without having a dean and staff for every group on campus. Belt tightening is in order.

529 programs have to be expanded and modified. Although 529 plans originate in the Internal Revenue Code, in practice it is a federal/state program. Each program is specific to your state. Currently, most investments in education savings plans allow earnings to grow tax free, and allow the taxpayer to withdraw up to $10,000 per year for a qualified educational expense. Given the current tuition rates, qualified withdrawals need to be increased.

Most colleges and universities (private and public) have endowments. Ivy League colleges are using some of their vast endowments to provide grants to their students whose family earns less than $100-125,000 per year. Now, very few colleges have the endowment of a Harvard or Columbia, but colleges can be required to set aside a fixed percentage of the earnings on their endowments for financial aid in the form of grants. To insure that colleges actually follow through on this initiative, failure to comply with set asides could subject the endowments to tax.

Finally, the Bankruptcy Code was modified in the late 1990’s to make student loans non-dischargeable except in cases of undue hardship. Undue hardship is very difficult to prove in court, believe me. However, before the 1978 Code, student loans were dischargeable. Under the 1978 Code, you could discharge the balance on your student loans if you made payments for 5 years. In the 1980’s, the law was amended so you had to make 7 years of payments to get a discharge. Congress should look back to the future and come up with a rational compromise to assist our students in debt so they can move on with their lives.