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Student Debt Cancellations Begin: Government To "Forgive" $3.6 Billion After Corinthian Closure
In late April, we asked if for-profit college closures would represent the next multi-billion dollar taxpayer-funded bailout. While the country’s $1.3 trillion student debt bubble represents a very real risk to taxpayers over time, for-profit institutions pose a more immediate threat.
From a ‘big picture perspective, the push for student loan forgiveness and “debt-free” higher education is certainly kicking into high gear, with the likes of Elizabeth Warren and Bernie Sanders pushing ideas such as a tax on stock transactions to fund college education in America. Meanwhile, The White House is exploring more “efficient” ways for students to discharge debt in bankruptcy and the “cancel all student debt” calls have begun in earnest. That said, any kind of sweeping overhaul will likely take years to implement, but in the mean time, IBR repayment programs allow students whose post-graduation disposable income isn’t deemed sufficient, to simply pay nothing on the way to total debt forgiveness in 25 years. Clearly, many borrowers will, at some point in their lives, make enough to pay something each month, but the point is that the government is now actively promoting the fact that the full principal needn’t be repaid and this, in turn, has led to the proliferation of IBR plans and rising default risk for student loan-backed ABS.
So that’s the long-term outlook, and as we’ve said repeatedly, this likely won’t end well for taxpayers. But there’s a more immediate threat and it comes from for-profit college closures.
To recap, the for-profit sector has been under intense government scrutiny for years due to, among other things, deceptive recruiting strategies and fabricated data on post-graduation job placement rates. These institutions rely heavily on federal student loans for their very existence, even as many are publicly traded and pay their CEOs millions. In addition, tuition rates at for-profit colleges are, on average, double the rates charged by large public universities, a fact which explains why nearly 90% of students at for-profit schools have taken out loans to pay for their education.
As we discussed a few months back, the delinquency and default problem that hangs over the student debt bubble is far worse for loans extended to students that attend for-profit colleges than for those who attend or have attended public institutions (note the discrepancy in share of enrollment versus share of defualts):
This, along with poor graduation rates and allegations of deceptive marketing practices, has led to increased government scrutiny of the for-profit sector, scrutiny which ultimately caused Corinthian Colleges to wind down operations last year amid allegations it falsified job placement rates.
The company — which is publicly traded — received nearly $1.5 billion per year in financial aid funding from the government, meaning the US taxpayer was subsidizing federal loans to students who very well may have been getting a subpar education and were thus even more likely to get behind on their loans and eventually default.
Corinthian was able to sell off many of its campuses in November and although the writing has been on the wall for quite sometime, the company closed its remaining physical campus in late April without notice to students or faculty.
As we noted when the doors were shut, for-profit students won’t have a particularly easy time transferring their credits (meaning they would have to start over at another school if they wanted to complete their degrees), and so will likely seek to take advantage of their 'right' to have their debt discharged. Fast forward to late May and sure enough, the government was scrambling to figure out what to do after Secretary of Education Arne Duncan received a group request from 78,000 students requesting loan forgiveness.
At the time, Reuters said that because the government had never used its authority to cancel student debt on a large scale, the Department of Education was "unsure how it would work," to which we responded as follows:
Well Department of Education, allow us to tell you how the debt “relief” will work. You will end up being forced to write it off because you closed down the school.
And while your decision to shutter the college was likely the right move given the for-profit industry’s reputation for absurdly predatory recruiting practices, you have no one to blame but yourself for allowing these institutions to live off of billions in federal loans for years (while their CEOs pulled in millions in compensation), when you likely knew that in the end, they would have to be closed down once Congress got wind of how they went about luring students.
Sure enough, The Department of Education now says it will forgive federal student loans made to Corinthian students who can prove they were victims of fraud. The potential cost to taxpayers: nearly $4 billion. And that is for just one for-profit school. AP has more:
The federal government will erase much of the debt of students who attended the now-defunct Corinthian Colleges, officials announced Monday, as part of a new plan that could cost taxpayers as much as $3.6 billion.
Corinthian Colleges was one of the largest for-profit schools when it nearly collapsed last year and became a symbol of fraud in the world of higher education and student loans. According to investigators, Corinthian schools charged exorbitant fees, lied about job prospects for its graduates and, in some cases, encouraged students to lie about their circumstances to get more federal aid.
In a plan orchestrated by the Department of Education, some of the Corinthian schools closed while others were sold before the chain filed for bankruptcy this spring. The biggest question has been what should happen to the debt incurred by students whose schools were sold. The law already provides for debt relief for students of schools that close, so long as they apply within 120 days.
The latest plan expands debt relief to students who attended a now-closed school as far back as a year ago. And it streamlines the process for students whose schools were sold but believe they were victims of fraud.
"We will make this process as easy as possible for them, including by considering claims in groups wherever possible, and hold institutions accountable," Education Secretary Arne Duncan said in a statement.
As an example, the department said it has already found that many programs at a California subsidiary of Corinthian Colleges, known as Heald College, were "misrepresented" to students. So any student enrolled in that school between 2010 and 2015 would likely qualify for relief.
The amount of debt relief could be staggering. Officials estimate that some 40,000 borrowers at the Heald College alone took on more than $540 million in loans that potentially qualify for debt relief.
But the final amount could climb significantly when looking across all Corinthian Schools, which include Everest and WyoTech. In all, the department estimates that about $3.6 billion in federal loans was given to Corinthian students.
This precedent set by this decision is precisely what we warned about nearly two months ago. In essence, this means that if the government continues to crack down on for-profit schools, the ensuing debt cancellations will run into the tens, if not hundreds of billions.
WSJ has more on the fallout:
Officials said that under the emerging plan, the government will consider forgiving any loans made directly by the government—those held by the majority of the 43 million Americans with student debt—so long as the borrower can document a school persuaded him or her to take out the loan under conditions that would violate state laws.
The Education Department plans to use a provision of a decades-old federal law that allows borrowers to have loans discharged if they can prove their schools broke a state law—such as by using false advertising or other deception—to lure them to apply and borrow funds.
Federal officials acknowledged the potentially high cost of the policy. In the case of Corinthian alone, the Education Department said 350,000 Americans who owe roughly $3.5 billion in loans could be eligible for forgiveness. In all, Americans owe more than $1.2 trillion in outstanding student debt.
Federal officials declined to disclose the potential total amount of loans that could be eligible for forgiveness.
Under Secretary of Education Ted Mitchell said the agency realized the move could invite applications from across higher education, whether from community college students or law-school graduates. The agency said it would hire a “special master” to figure out many of the details, including what standards the department should use to determine whether a school had violated state law. The department also would likely hire additional personnel to handle the applications.
Mr. Duncan, the education secretary, said Corinthian won’t be the last company to come under close government scrutiny. “There may be more,” he said.
Various arms of the federal government have become more aggressive in pursuing for-profit schools for misrepresentations. Ashworth College, an online college based in Norcross, Ga., agreed late last month to settle Federal Trade Commission allegations that the school misrepresented how well it prepared students for certain vocational licenses and whether students could transfer credits from Ashworth to other schools.
Meanwhile, the Securities and Exchange Commission announced in May that it had brought fraud charges against ITT Educational Services Inc. and two of its top executives, alleging they misled investors about the financial prospects of some internal student-loan programs.
We'll close with what we said last month when we last discussed the idea of debt discharge for Corinthian students because, frankly, our assessment proved extremely prescient.
The real question now is whether continued pressure on for-profit colleges will result in further closures and more petitions from hundreds of thousands of students with hundreds of billions of loans they now know can be legally discharged. Note that we have not used the term "canceled", because as we like to remind readers, liabilities are never "canceled", they are simply written off by the person for whom they are an asset.
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someone will pay for this. YOu can't "forgive" the work
Governments have no money. They just forced americans and future generations to collectively take another up the ass for the team.
Wheres my refund on my loans?
RIPS
And again, poof it's gone
And Again nobody goes to jail
And again the govt washes it's hands
And Again there will be no reform
Perfect
FSA FSA FSA in the USSA!
Sorry, but this is kinda a non-story. AT LEAST half of that trillion dollar plus student loan debt is going to be written off eventually, and that amount grows each and every day. 4 billion dollars isn't shit. And, as I like to remind everyone to put things into perspective, the bernank was conjuring that amount out of thin air about every day and a half for quite a while. This little debt write off is but the tip of the iceberg.
Remember to pay your taxes serf, this shit isn't "free" in every meaning of the word....
I would not call it a non story. When debt is taken by fools, it cannot be considered an asset by the creditor. Certainly blows a hole in Krugman theory that high debt loads don’t matter because debt is one person’s asset and another’s liability thus making it a zero sum game.
Unfortunately, all the non-producer voters who put Obozo in office - twice...
And all the same non-producer voters who will vote for Hitlery next year...
Don't have a lot of "skin in the game" and don't give a shit when it comes to paying taxes like us "producers" who work full-time every day...
Actually, they're laughing at us. And in their hilarity, they're being joined by all the other non-producers our Gov't is letting stream across our southern border.
Until the EMP, oops, wrong article.
The problem is much deeper. The schools were for profit and it seems everyone agrees they lied and committed fraud upon their students. The executives made hundreds of millions if not billions of dollars, and were allowed to file corporate bankruptcy while keeping the loot. The government never should have underwritten these loans in the first place, and there should be criminal prosecutions if there was fraud by the school management. The students also share fault for taking out loans for crappy schools, but I would say of all the players they were the least culpable. The money should be clawed back from the school's management, not covered by taxpayers.
Prison, not petty fines. Same goes for Wall Street and DC.
Sounds like the housing buble - rinse and repeat
Government owns higher ed. They aren't going to let private for-profit companies muscle in for a quick buck. Don't expect this to be the start of broader student loan forgiveness. The government needs it's debt slaves like everyone else does.
The important phrase here was:
Is that ever going to happen? Everyone wrings their hands and shakes their fists, and in the end (pun intended), the students will get double penetrated. First by the school and then by whomever is carrying the loan papers.
Its my (taxpayer idiot) money and I do not forgive them!!!
"Governments have no money."
This is the first time i disagree with you.
Your money/wealth is a .gov asset bitches! Wake up!
Technically, the banksters have no money either.
Liberty is a demand. Tyranny is submission..
These student loans are un-secured.
I'm sure when the un-employed student with a diploma from a useless for profit post secondary education goes bankrupt they have nothing to their name and a worthless piece of paper.
The sad thing is that they could even get a loan for some of the universities/colleges. I've read articles claiming a lot of these for profit schools fill out all the student loan application forms for the students and mis-represent a lot of the facts. They then get the dumb suckers to sign for a crap loan to go to a crap school.
The only winners are these schools who charge through the ass for tuition and leave the students/government bakced loans to be taken on by the end users.
So you want your debt to go away? Assume the position.
You mean standing in the voting booth?
More like bending over.
standing in voting booth
bending over
same thing
sooo now ..exactly which colleges and which "students" do we taxpayers get to pay for?
In addition to the college tuitions we have already paid in our families?
and how about all those poor saps that spent all that time working their asses off to pay off their loans? are they going to get their money back? this whole system is a fucking joke, it punishes those who work hard and rewards the failures
This whole system is a fucking joke.
You can say that again.
Okay,
" this whole system is a fucking joke."
Moral hazard. Again. Sad.
Hillary to take credit for the forgiveness in 3,2,1....
<< and how about all those poor saps that spent all that time working their asses off to pay off their loans? >>
Like me! I regret working overtime and taking a 2nd job....phuk this !
" This whole sytem is a fucking joke! "
~ Famous 21st Century ZH Philosopher
fuck, what about the poor saps who were smart enough to research their school who are equally unemployed? Theyre more deserving than these idiots (though nobody 'deserves' a bailout). This is a bailout straight to the pockets of the weakest and dumbest members of the young population.
True, but that segment of the population is also the dumbest and therefore most likely to spend their new disposable income of mindless consumption, which is exactly what our owners want. Free of that debt, they will now have the ability to run up new credit card debt and help keep the Ponzi alive a little longer.
Hillary will promise to forgive their debts once elected.
Eventually, everybody will stop paying. Then we can finally get this thing over with and start fresh.
fingers crossed...
it's exactly like those immigrants that were foolish enough to come here legally, pay thousands for lawyers, pay their taxes, and wait a decade for citizenship. they're pissed. which makes me wonder if, politically, student loan forgiveness is really in the cards. you can argue we don't have the money, but really, what's another trillion on top of the other $100T? that won't stop a politician. but the millions of grads that bothered to pay off their debt will be insane with rage, and likely demand a refund. and that we really don't have the money for.
Or enlisted in the Army (peacetime), maxed the educational benefits, got out, worked part time while getting a degree. Can I get 4 years of my life back?
The potential cost to taxpayers: nearly $4 billion
What a crock of crapola...
The student's promissory note (with ONE signature - not even close to being a contract) was shuttled to the Federal Reserve Window and DEBT was created - NOT money, USD, or cash.
DEBT - plain old simple DEBT
So the Taxpayer's should tell the FED to go pound sand...
meh, it's just jew confetti, it won't be worth shit in a few years and the pensioned praetorian guard standing on the ramparts will turn their guns 180 degrees.
I'm looking forward to the day those criminals with badges protecting criminals in suits realize their pension is gone too.
That will be a fun day.
Besides not having learned anything from a BS "school" the lesson here is... getting ripped off by shysters is ok becasue the government will make it alright?
This sounds like one of Krugman's ideas. Next on the list is the war on Mars.
Why weren't car loans forgiven when GM went BK?
When was Goldman Sachs selling bundled student loans?
They must have.
"When was Goldman Sachs selling bundled student loans?"
http://www.structuredfinancenews.com/news/consumer_abs/sofi-ups-protecti...
Heh-heh-heh! The vampire-squid's way ahead of you!
Did anyone ask how do the students that paid their own money feel about this? They don't get anything out of the deal, but they're still jobless!
I bet they're rethinking voting for "hope and change"
A new definition of "sucker" is he, who lives within his/her means and does not borrow money.
And there's a sucker born every minute.
Obama girl was soooooooooooo cute!
"did anyone ask how do the students that paid their own money feel about this? They don't get anything out of the deal, but they're still jobless!"
ahh, getting their first taste how the state actually operates. No soup for you bitchez!
Is the ONLY case where for profit is worse than a public, govertnemt run system?
I must be missing something.
If those dumb bastards had just stuck with making soft, rich leather for Chrysler Cordobas, this mess would never have happened in the first place!
LOL!!! For those who do not know what is being referred to on that post it is this.
https://www.youtube.com/watch?v=vIL3fbGbU2o
Thanks for that one NB.:-)
That's Corintian leather.
Who decides who's debt is forgiven? Everyone who is making student debt payments should stop immediately. Fascism bitchez, if you are white, you pay, for everyone else shit's free.
White non-tribal pays.
Moral hazard is real motherfucker once everyone figures out there are no "rules"...
This is truly a dilemma. I just recently found out I will be paid more on State disability when I take a medical leave of absence for surgery than my take home pay. Simply unbelievable. I see some other fertile minds have been turning in regards to this fact.
Miffed
Too late for mine. She just paid off her 50k on her own a few weeks ago. I guess I should have told her, welcome to our world and enjoy manning the oars.
Miffed
Well then there is no need to pay any unsecured loan now is there???
Bankruptcy lawyers need to get rested, avoid alcohol and drugs, because you are about to get P A I D..................
First calls already coming in.
Stop paying the loans hide the shit, fuck them...
Jesus-Tittyfucking-Christ....
Why am I working so fucking hard and for so fucking long???
Stupid. Idiot. Moron. Retard. Fool. Or Sucker.
A: look at your avatar.
If you went there you weren't going to amount to anything anyway.
Free money!!!!!!!!.... Oh wait ......that's my money.....and yours and yours........and yours...
FSA FORWARD!
But the IRS considers debt forgiveness to be income. So getting out from under $100,000 in student loans gets them owing what, $33,000 in income taxes? And due April 15, 2016. Have fun, kids!
Do they make the checks out to Jack Lew, Janet Yellen or Netanyahooooo.
On April 16, 2016 a bill will be proposed to reestablish debtor prisons, since the war on drugs will fail to keep the private prison corporations as busy.
Or take a mandatory FEMA vacation...
Kinda feels like that point that summer when those tiny Bear Stearns hedge funds failed...
"You never let a serious crisis go to waste. And what I mean by that it's an opportunity to do things you think you could not do before."
-Rahm E
Dear Mr. Yellin,
Can we just fast forward to the insta-collapse please? The non-radioactive type... thanks in advance.
If you'd like to hear an incisive take on the issue from a recent university graduate, ask a taxi driver or a waiter.
free shit for everyone.
WHat a fucking day.
hard working guys are fucked. They are working hard every day, but someone get free money for education.
Who needed a comedy when you have USA?
Why wont Hillary float the idea of debt forgiveness for everybody if it gains her the whitehouse?
Red flags should have been raised when graduating students were given a piece of "fine corinthian leather",instead of a diploma..
Only 997 Billion more to go. We are going to need some more white out.
I am not an American but don't worry my view is that WE all share an equal/proportionate amount of hopelessness across societal boundaries.
One question i would like to ask my American colleagues is :-
In the event of a Tax-payer Bailout are Proper Financial Accounts made available to Tax-payers? In particular a precise account of expenditures (how much, to who/whom/what and why), including ANY resultant fees, commisions or disbursements for work undertaken in the process of executing the bailout.
are Proper Financial Accounts made available to Tax-payers?...
My limited experience in discovering various expenditures made by the government regarding taxes collected usually involve tables describing in the broadest of terms the departments that received proceeds, the smoke gets thicker the further one digs and it's next to impossible to find any totals that aren't written to round off amounts to the nearest "000,000.00"
I suspect if citizens were to submit such accounts, Lois Lerner would likely not consider them "proper".
All them Bank fines are going straight to the folks who've been screwed with the balance back into lowering the deficit. s/c
I suspect the IRS KEEP A GOOD RECORD OF THE FEES TO LAWYERS ( companies ) , holder was bagman for Barry so who now?
Commissions to various banks for heroics in underwriting public purse losses, including Auditors etc
Various Select Committee disbursements
Others
Hey, I want my mortgage cancel too!
Hey, I want my mortgage cancel too!
Somethings Fuckey. What's the catch, government doesn't forgive debts so easily.
catch is - they print more money and inflate dollars or take money from others.
The cycle is complete! Total free money ala us tax payers. Hmm, i wonder what all that money from student loans was spent on... cocaine and hookers.
January of '16 Pharmacy technicians in Louisiana have to graduate from a federally approved pharmacy technician program (15-18) months instead of on the job training and self study programs to pass the test. All this for around $12 an hour or less and you can bet your ass there will be student debt to repay at the end of the course. Absolutely insanity the way they force people into their debt slavery.
I'm officially changing the name of this country to....FRANCE, the Socialist State of France
USA - united slaves of America.
The internet has made all forms of public education obsolete.
Print
I made the big mistakes of paying off my school loans, car loans, and mortgage.
If this whole fiasco doesn't create some MAJOR moral hazards, I don't know what will.
If the banksters printed it, you don't owe them, but it is they that owe you.
Liberty is a demand. Tyranny is submission..
Funny how “Just Us” manage to avoid civil asset forfeiture in cases like this.
No, they aren't 'forgiving' loans, they are having their faces rubbed in the reality, like a puppy and his mess.
If they wanted to avoid this, they shouldn't have gotten involved in the whole loan-thing to begin with. They COULD have left the stupid creditors to stew in their own juices...
Little purple lipped fuck in the white castle - anything to destroy Ameica and garner votes ofr his scumbag of a party
the loans would never be paid back anyway and are backed by the gov to what is the issue here. we have $1.6tril in bad student debt...
The government should be soaked with this debt. Forgive the loans and just tack it on to the national debt.
Lenders....winner! High paid faculty/administrators.....winner! Student debtors.....winner! Working slob....loser!! Again!!
One debt ponzi after another. S&L bust, dot com bust, housing/mortgage bust, student loan bust, car loan bust next. Winners will vary, but the loser remains the same. Without a complete system (gov., banking/monetary, legal, tax) reboot, NOTHING will change.
From the WTF! ROFL department... a great example of a cross between FUBAR propaganda and thought crime. No wonder many graduates are considered worthless in the real world.
http://popehat.com/2015/05/31/leaked-northwestern-university-email-state...
The so called "higher education" system really needs an enema.
$4 billion = (1.25) nuclear subamarines. Chump change.
" Gonna pay my electric bill, gonna pay my mortgage, he gave us a phone gonna do more! "...
Another bailout for banksters and few cronies as a reward for complacence and support for the regime such as military or System Enforcement Agencies (SEA) originating students or with those political connections just like so called mortgage "relief" scam form cronies.
The rest will be debt-enslaved for the rest of their shorten lives not knowing that all of this "education" was a roost, a joke, a ponzi scheme preying on their dreams.
Honest look at true purpose of the educational system I found at:
https://contrarianopinion.wordpress.com/2015/03/19/education-blessings-o...
Apparently this administration only helps those who impress them by being as lawless as they are or even more so.
Kinda like Leia with her thermonuclear device to Jabba the Hutt. Think of Obama as Jabba and Leia as your average banker or crooked lobbyist.
https://www.youtube.com/watch?v=TRh5wPCq1DA
Apparently this administration only helps those who impress them by being as lawless as they are or even more so.
Kinda like Leia with her thermonuclear device to Jabba the Hutt. Think of Obama as Jabba and Leia as your average banker or crooked lobbyist.
https://www.youtube.com/watch?v=TRh5wPCq1DA
What's with this cost to the "tax payer"? Since when has the American "tax payer" paid completely for US government expenditure? It is the retards (foreign and domestic) holding the US treasury debt that pay for such expenditures.
Fedgov will offer loan amnesty to only those who paid for "worthless" degrees. Theoretically there might be tons more students who eventually find out that their degee is worthless. However if you major in Black Lesbians Suffering Because Of Global Warming Studies, your degree is golden.
Many of these for-profit schools are controlled by organnized crime. Mobsters are not the forgiving type.
Aren't all schools, 'For Profit'?
cancel all mortgages.... fool that i am i borrowed to pay for my kids education.... should have sent them to corinthian....
where's MY free shit....damn
Forgive all active student loans, don't bail out or reimburse the lenders who gave out the loans, abolish the FAFSA program.
The federal government started this, they need to take ownership and blame......and a sword to the gut.
America’s student-loan debt grows $3,055 every second - Introducing the national student loan debt clock http://www.marketwatch.com/story/every-second-americans-get-buried-under...
Looks like the camel's nose is officially under the tent.
I was talking to a rather arrogant 30-something dick of a doctor a couple of months ago. He was boasting that he wasn't worried about his student loan debt of ~$350K because "They're going to forgive it all, anyway..." When I pointed out that the taxpayer was going to be on the hook if that happened, he looked at me incredulously and said "The taxpayers should be *grateful* I'm here to improve their lives..."
It took a great deal of self-control not to punch him in the throat as hard as humanly possible.