Latest Student Loan Debacle Is Ultimate Example of Trump's Campaign Con
By Matt Taibbi, Rolling Stone
13 December 17
The president ran against debt predators, drug makers and big banks once
elected, he immediately got in bed with all of them
Last October, just about a week after the release of the infamous Access
Hollywood "pussy" tape, Donald Trump gave a surprising speech in Columbus,
Ohio.
While the entire Republican Party was running sideways away from his
cratering campaign, Trump was scrambling to find a way back in the race. One
of his strategies and I remember watching this on the trail was to tack
back to the populist themes he'd used to great effect in the Republican
primaries.
In Columbus, with Hillary Clinton running away with the election, Trump
unveiled what even The Washington Post described as a "pretty radical
student debt plan." The basic idea was income-based repayment capped at 12.5
percent, then total loan forgiveness after 15 years of payments.
"Students should not be asked to pay more on the debt than they can afford,"
Trump said. "And the debt should not be an albatross around their necks for
the rest of their lives."
Trump hasn't gone back on that proposal, not exactly, anyway. The 12.5
percent-times-15-years concept was indeed part of a plan he submitted this
past summer, at least for undergraduates.
But that same plan proposed a wipeout of five other existing income-based
repayment plans, and grad students would be pushed into a harsher program
requiring payments for 30 years.
Moving forward, Trump and the Republican Party have all but buried the
campaign-trail "fairly radical" plan under a series of other student-bashing
decisions.
On Monday, Fortune reported that Department of Education head Betsy DeVos is
seeking to end a program to cancel the debt of students defrauded by ripoff
diploma-mill universities.
This came just as the inspector general of the Department of Education
issued a blistering report showing that DeVos had already essentially
stopped processing such claims under the existing program.
The IG report shows that the Trump administration has received 25,991 such
claims since Inauguration Day, and approved exactly none of them.
None of this is a surprise. After all, Donald Trump himself ran one of the
more notorious higher-education scams, settling a lawsuit for $25 million
last year. And DeVos has spent much of her tenure walking back Obama-era
initiatives to rein in diploma-mill scams.
The latest DeVos move comes in sync with a nasty piece of legislation
introduced by House Republicans this month. Billed as a measure to
"simplify" the student loan system, HR 4508, a.k.a. the PROSPER Act, would
repeal and prevent the re-adoption of the "Borrower Defense" program that
DeVos has already stalled.
"The student loan 'swamp' wrote HR 4508," says Alan Collinge of
StudentLoanJustice.Org. "Killing the Borrower Defense Rules was high on
their wish list. This bill is their Christmas tree."
The PROSPER Act also contains one of the all-time revolting instances of a
fine-print legislative atrocity. Way down on page 250, in section 452 of the
bill, you'll find this line:
"(C) In no event may the borrower recover amounts previously collected by
the Secretary later than 3 years after the misconduct or breach of contract
on behalf of the institution takes place that gives rise to the borrower to
assert a defense to repayment of the loan."
In other words, under the Republican plan, there's no relief if the
application comes three years after the "misconduct" which is usually a
promise of future employment or exposure to dummied-up job stats that you
receive in the form of a slimy pitch in the admissions process.
But many students will spend two years (or more) in school before they
realize they've been had. So a three-year statute of limitations is
essentially a license to steal.
Another monstrosity buried in the bill is in section 422. Titled "LOAN
REHABILITATION," the line simply says that loans may now be rehabilitated
"two times" instead of once.
Rehabilitation is a practice complained about by many of the former students
I spoke with for a recent Rolling Stone piece on the subject. For a lot of
borrowers, going into "rehabilitation" is the beginning of a long nightmare.
I interviewed one who nearly committed suicide after entering
"rehabilitation."
As Collinge explains, rehabilitation "is where a defaulted loan is recycled
into a new, much larger loan, and the agents making this happen get a
whopping commission of up to 16 percent."
Rehabilitation is usually the first step of borrowers falling into a cycle
where they're eventually only paying interest and never touching the
principal. The new Republican bill will allow borrowers to double down on
such dilemmas.
The PROSPER Act would also exacerbate another major problem with the federal
student lending system, by raising caps on borrowing.
Students who are dependent on their parents could increase their borrowing
by $8,000 under the new plan. "Independent" students would be allowed to
borrow $3,000 more, while graduate and medical school students would be
allowed to borrow between $10,000-$12,000 more.
This sounds like it's a good thing increased aid to students. But rising
amounts of available credit would more or less instantly inflate tuition
costs, making the gains for students questionable.
The combination of making college a near-mandatory prerequisite for all but
the most menial work, combined with with a) continually rising levels of
student credit and b) the impossibility of discharging the debt, has led to
an explosion of tuition costs over the years. Tuition has been outpacing
inflation by nearly double the rate for some time.
Under the current system, each successive generation of students enters the
already strained workforce saddled with more and more debt, and facing more
competition.
The winners are the colleges and universities, who get to charge outlandish
prices without having to be accountable to normal market forces.
This leads to a sort of Picture of Dorian Gray situation with unpaid student
debt. Because the growing mountain of delinquent payments is obscured in the
government guarantee, the catastrophe is hidden away in a kind of
macroeconomic attic, mostly undetected by the general population.
Even Goldman Sachs described the $1.3 trillion in outstanding student loan
debt as a "bubble" in a research paper earlier this month. But, as the bank
cheerily reminded readers, this particular bubble doesn't pose a systemic
threat, because most of the debt is fully guaranteed by the U.S. government.
The bank noted that an astonishing 10 percent of all student borrowers are
currently at least 90 days behind on their debt, compared to just 1.2
percent of mortgage holders. It's the highest delinquency rate among any
form of consumer credit.
Hilariously, while Goldman was coolly describing this growing catastrophe,
and saying it saw little reason to invest in most forms of student lending,
it still recommended that refis of "super-prime" private graduate loans
might be "worth a look."
Always a silver lining to every disaster!
In any case, all of this represents the ultimate perfect storm of bad
incentives. Schools get to keep raising tuition, kids are still basically
forced to go to college, and the trillion-dollar lump of pain waiting to be
released onto the world sits mainly on the shoulders of the taxpayer, and/or
ex-students struggling in a tighter workplace.
There is a bill that would fix all of this, HR 2366, the Discharge Student
Loans In Bankruptcy Act. Introduced by Maryland Democrat John Delaney and
New York Republican John Katko, it would repeal the single line of federal
code that makes it impossible to discharge student loans in bankruptcy, like
any other form of debt.
Maybe this will get passed someday. But somehow, that feels too obvious
"No, that's just what they'll be expecting us to do!" as Congress might put
it.
As a candidate, Donald Trump repeatedly took advantage of genuine
frustrations among voters, over everything from high drug prices to exported
jobs to predatory Goldman bankers to non-dischargeable student debt.
It's lost among the popular accounts of what happened in 2016, but he mined
this territory quite a lot on the trail. This was particularly true in the
heat of the primary race, and during his most desperate moments in his
scandal-plagued October.
Then he got elected and surrounded himself with so many Goldman bankers that
even that even Lloyd Blankfein was embarrassed, nominated an Eli Lilly
executive to run the Health and Human Services department, and put
for-profit education creeps in charge of the DOE, who are now working with
congressional Republicans to ram through this nonsense.
All politicians tack populist pre-election, then cover their promises with
bureaucratic sand once elected. Trump just does it more blatantly and
offensively than the rest. The man is tacky even when it comes to political
clichés.
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