Trump Administration Rolls Back Obama Protections On Student Loans

Tyler Durden's picture

Just days after reports emerged that student loan defaults are soaring, which is undoubtedly due to some combination of, among other things, poor job prospects for the millions of snowflakes who graduate each year with their $200,000 educations in anthropology and the moral hazard created by liberal politicians constantly calling for student debts to be 'forgiven' (a.k.a. forcefully jammed down the throats of taxpayers), the Trump administration has revoked rules put in place by Obama that barred student debt collectors from charging penalty fees on past-due loans.

Originating from the Department of Justice, the "Dear Colleague" letter (full letter included at end of post) says that Obama's unilateral rules implemented in 2015 could have "benefited from public input"...but what good is being King if you can't unilaterally force new laws on the masses? Per the Washington Post:

The Education Department is ordering guarantee agencies that collect on defaulted debt to disregard a memo former President Barack Obama’s administration issued on the old bank-based federal lending program, known as the Federal Family Education Loan (FFEL) Program. That memo forbid the agencies from charging fees for up to 16 percent of the principal and accrued interest owed on the loans, if the borrower entered the government’s loan rehabilitation program within 60 days of default.

 

The Obama administration issued the memo after a circuit court of appeals asked for guidance in a case against United Student Aid Funds (USA Funds) challenging the assessment of collection costs. Bryana Bible took the company to court after being charged $4,547 in collection costs on a loan she defaulted on in 2012. Though she had signed a “rehabilitation agreement” with USA Funds to set a reduced payment schedule to resolve her debt, the company assessed the fees.

 

Education officials sided with Bible, prompting USA Funds to sue the department in 2015. Earlier this year, the company agreed to pay $23 million to settle a class-action lawsuit born out of the Bible case, though it did not admit any wrongdoing.

DeVos

 

Of course, it didn't take long for Elizabeth Warren to draft a letter to the Education Department urging them to not take away 'freebies' from America's entitled snowflakes.

On Monday, Sen. Elizabeth Warren (D-Mass.) and Rep. Suzanne Bonamici (D-Ore.) sent a letter urging the Education Department to uphold the Obama administration’s guidance on the collection fees, which they said “results in an unnecessary financial burden on vulnerable borrowers.”

 

“Congress gave borrowers in default on their federal student loans the one-time opportunity to rehabilitate their loans out of default and re-enter repayment,” the letter said. “It is inconsistent with the goal of rehabilitation to return borrowers to repayment with such large fees added.”

Of course, these new rules came just days after new data published by the U.S. Department of Education revealed that $137 billion of federal student loans were in default as of December 2016, a 14% year-over-year increase.  Key findings from the Consumer Federation of America:

Average amount owed is $30,650 per federal student loan borrower. Average amount owed per borrower continues to tick up, rising 17% since the end of 2013, when borrowers owed on average of $26,300.

 

$137 billion in default. For federal loans originated by financial institutions (FFEL) and the US Department of Education (Direct), a total of $137.4 billion in balances were in default, a 14% increase from 2015. This cumulative level of defaulted balances includes loans which defaulted in previous years. Defaulting on a federal student loan comes with severe consequences. Borrowers can face seizure of their tax refund, garnishment of their wages, and an inability to pass employment verification checks.

 

1 million Direct Loan defaults in 2016. In 2016, 1.1 million Federal Direct Loan borrowers defaulted. Federal law typically defines a federal student loan default as being 270 days past due. Borrowers defaulting for the first time slightly decreased compared to 2015, though borrowers re-defaulting slightly increased compared to 2015.

 Seems the cost of financing those spring break trips to Cancun just got a little costlier...sorry, snowflakes.

 

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shovelhead's picture

I've yet to see any proof that the IRS says "Ok, No problem, see ya." yet I've seen much proof that they consider ALL income taxable.

Ya, I know the argument, and I've also seen the case they hinge taxable income on too. Only someone with no physical assets to garnish would try a crapshoot like that in court.

I may agree with you but risking my paid for home on the whim of a tax collector or judge is not my cup of tea.

QuantumEasing's picture

Plenty of proof:

http://www.losthorizons.com/EveryWhichWayButLooseIII.htm

And yes, all income is taxable.

Income is defined very specifically in 26 USC: All monies taken in or derived while performing a public office.

Receipts from private sector earnings *are no*t taxable. Can't be, because direct taxation is illegal, and has repeatedly been cited as such by the supreme court.

Making stupid arguments like "the 16th amendment was never ratified" (Schiff) or "show me the law" (Russo), while STILL claiming to be a Federal Employee (or even worse, a "US Person") will get you flayed alive and thrown in Federal Pound-You-In-The-Ass-Prison.

And if you go to court, you pretty much deserve what you get.

The rules are important. Can't win at Monopoly if you are playing checkers.

Canary Paint's picture

For a quick cocaine-like boost to the economy, just forgive all student loans.

Folks will be out there spending like there is no tomorrow. Then, all the phone operators of the companies that exist for nothing other than collecting on those loans can go sell cars.

LasVegasDave's picture

Time to change your tampon mosley

tmosley's picture

Why are you wasting everyone's time with your utterly worthless non-arguments?

QuantumEasing's picture

This.

And it was Cuntlery's husband that made them un-dischargable.

Rather surprised that there are this many Clintoon supporters thinking this was a good idea.

A hint: your "tax dollars" don't go to subsidizing these loans. So spare the whining.

shovelhead's picture

Where do they go? On the tab, maybe, but to the schools that clean up, that cash is very real.

Get the govt. out of the loansharking business and I don't care if they're dischargable or not. The contracting parties can fight that out.

QuantumEasing's picture

They go directly into the pockets of the Federal Reserve Board of Governors and the IMF.

Revenues.

Internal (Applicable ONLY to the Government)
Revenue (Defined as Profits generated)
Service (Similar to the Postal Service, a non-governmental or extra-governmental entity)

Similar to the liquor revenuers of the Prohibition Era. It wasn't the alcohol that was the problem. It was the lost profits from the evaded excise tax. Capone was a Cat's Paw for Anheiser Busch, and they threw him under the bus when his use was expended. Nailed him for failure to pay federal excise on all the liquor.

But I digress. Federal Income Revenues:

They are dividend payments and interest. The Reagan administration (Grace Commission) exposed that not a penny of Federal Income Tax goes toward anything else but directly paying the FRB and the IMF:

http://truthintaxation.us/?tax_inform=whereTaxesGo

Valid contracts require two signatories.

Adhesion contracts are fraud.

Davy Crockett's picture

Trump must overturn Bush's proclamation that student debt can not be discharged in bankruptcy.

You're being downvoted by people who do not understand that Bush's prohibition of student debt bankruptcy is the entire reason that college is so expensive now.

You would think that ZH readers would understand that if you allow banks to lend money at zero risk, they're going to lend it hand over fist to anybody with a pulse.   And you would think that ZH readers would understand that if huge quantities of easy money flood into a system, then price inflation will result.  

The entire reason that college is unaffordable is because of Bush's law that made these loans zero risk and caused the easy money that is being vomited onto these kids as banks seek zero-risk interest income, and colleges hike their prices to the sky, because there is no amount of money that the kids cannot get a loan to pay.

This is not difficult to understand.  Too bad more than half of the ZH readers do not seem smart enough to grasp it.  

What is the most frightening aspect of this, is that the easy money has inflated the prices to such an extent that now it's impossible to go to college without getting a loan.  This reinforces a cycle that really will turn this country into a nation of surfs indebted their entire lives to the bankers.

kizell's picture

Exactly.   After scanning through the posts on this topic, it's obvious that there are very few investors on ZH and even fewer intelligent people

shovelhead's picture

You really think nobody 'gets' it? Discharge ain't the problem.

Govt. footing the bill IS. Private parties can contract to do whatever they want.

kizell's picture

Yes and no.  It's true that government involvement in industry raises costs to consumers, but in the case of student loans, the inability to discharge them by bankruptcy is a violation of free market principles of shared risk.  And without risk, it doesn't matter if the government is or is not involved.  The lenders will still make loans readily available to anyone with a pulse.

QuantumEasing's picture

Davey, again, it was Clintoon, not Bush.

Small detail, since the O'Bushtons are all in cahoots.

CJgipper's picture

I paid mine.  Pay your own.  I owe you nothing.

tmosley's picture

Then stop paying taxes. If you don't do that, then you are just a chattering slave, mad because some other slave isn't being whipped hard enough.

tmosley's picture

I bet you think you have made a major point there. You haven't. You are just another deluded boomer who thinks there is/was some sort of difference between Clinton, Bush, and Obama.

QuantumEasing's picture

Terry Pratchett referred to this as "crab bucket."

Lots of Crab Bucket in this thread.

Max Cynical's picture

@tmosley, I don't know why you were downvoted.

These loans should only be made by the private sector with NO government guarantee and subject to normal BK laws. It's the BK laws that force lenders to stop making bad loans. And the truth is that most lenders would never make these loans without someone else (i.e. taxpayers) on the hook. If these were the rules, there would be a fraction of the money available for student loans and the cost of education would be drastically reduced.

I would go a step further and require student loan lenders to keep and service these loans for a minimum period before they can be sliced and diced and foisted on "investors".

However, I don't think it's a good idea to encourage these borrowers to default. They made a committment and this is an important life lesson.

effendi's picture

Student loans taken out before the rules were changed to deny the option of bankruptcy can morally be defaulted on. Same with some of the more recent loans that were misrepresented or written in incomprehensable jargon and small print. HOWEVER, if an adult willingly commits to a student loan with an unvoidable contract written in plain English then they knew the risk that they were taking and they should not be able to default. Perhaps all new student loans should come with a bold type red letter warning setting out that the loan is payable with interest and penalties and must be paid OR ELSE!

tmosley's picture

>Morally

Morality has nothing to do with this. This is a matter of law, specifically equal protection under the law. Lots of boomers all too happy to stiff their creditors when their businesses went bankrupt over the last 50 years, but when kids wind up with an overwhelming debt burden in a situation where the jobs they were promised never materialize, well, THEY have to pay it back OR ELSE.

shovelhead's picture

Feel the same about a contractor you paid in full for a new roof and he strips it and never returns?

Uh oh, here comes the rain.

tmosley's picture

How stupid would you have to be to pay a contractor in full before he starts a job?

About as stupid as you would have to be to give $200K to every idiot with a pulse in a collapsing economy.

A fool and their money are soon parted.

QuantumEasing's picture

The salient point (and the really fun part once the "debtors" realize it) is the "Grantor" was paid the moment the "loan document" was signed. Value exchanged for value. Loan company got a signature (only thing of value here), and exchanged FRNs that did not exist until the signature was executed.

They put up nothing, and received a valuable debt instrument for no counterparty risk. The money did not exist before it was created by the signer.

The signer created a debt instrument (just like any other FRN) in the total amount of the "loan."

It was then immediately entered as an ASSET on the books of the Loan Shark. Odd, if the "loan company" had "loaned" money, it should have shown as a liability.

Hypothecated, it then generates two to three times the face value of the note.

The "debtor" is the Grantor. "Creditor" is the debtor.

The ones being told they are in debt are "on the hook" for having created the money to fund their own education. The "Loan Company" put up nothing, and rakes in three times the face value of the note. This is fraud. Undeniable.

Once this is realized by the average "student debtor," there won't be a lamp post to spare. Nor should there be.

givenoquarter's picture

Maybe having some consequences for one's actions is a lesson that most of these idiots should learn early and often? The world abounds with degreed idiots. Let's not assume that those loan dollars were not spent on frivolous nonsense in order to extend their high school behaviors another 5 or 6 years. 

Debt is slavery to be sure, but if you willingly give the slavemasters title to your future production and put the collar on yourself... Too fucking bad. 

tmosley's picture

Bankruptcy is a consequence. Bad credit is a consequence.

Slavery is an invitation to inter-generational violence the likes of which you probably can't imagine.

t0mmyBerg's picture

Trump must overturn Bush's proclamation that student debt can not be discharged in bankruptcy.

This so obvious as to be tautological.  Why any moron could down vote it is beyond me.  Some people are just plain stupid I guess.  A fresh start is the very essence of the American experiment.  At one point the existence of the frontier served this purpose.  Those who would default could try their luck out West where life was hard.  If you want to default on debt today you get a fresh start.  You get a hit to your credit.  Over time it goes away.  If the stigma is not what it once was, well so what?  That is societies problem.  But to disallow discharge is idiocy and is also is a form of slavery.  How very medieval.   If you dont agree?  Fuck off and die

kizell's picture

Well stated.  Not allowing bankruptcy in student loans is very anti free market.   Remember when ZH used to write a lot about price discovery?  They don't talk about it much anymore but it's an important function of a free market economy.  ZH seems to be hinting at the idea that students are snowflakes and don't take responsibility, yet they have never once to my knowledge pointed out that unfair lending practices to students discourages proper price discovery, leading to an overvalued and distorted education market (just like housing).

chiquita's picture

Any contract that you can't get out of is de facto slavery.

 

As with all contracts, the student loan contract is entirely VOLUNTARY.  Rather than calling it de facto slavery, you should be calling it "voluntary slavery" because the terms are well known, well documented and highly publicized.  Anyone entering into one of these loans knows fully upon signing that it can't be discharged before payment in full.  Whatever fantasies about future income upon completing the sought degree might be, there are plenty of reality stories that exist in contradiction.  Pure desire to get a college degree and the need for financial help to do so should make any potential student/family look at all options well in advance of signing their lives away on a student loan, especially if the degree being pursued is not one that can yield sufficient funding to pay off said loan or the job market for these degrees is poor.  There are a lot of other options to either going to college or getting funding than what is being called "de facto slavery".  I have little sympathy for those who buy what they can't pay for on credit and get in trouble (debt slaves) and this, with all the publicity about it in the last decade, is no different.  Anyone piling into the student loan program for at least the last five years have just been a bunch of lemmings.

crossroaddemon's picture

Or they're very smart. Suck off the system for 4-8 years, party and grab pussy... then go on IBR, keep your expenses and reportable income low enough to STAY on IBR, and fuck the man. It's actually not the stupidest thing in the world.

QuantumEasing's picture

Voluntary is not the issue.

The issue is that they are not valid contracts.

A valid contract must have two signatories.

Adhesion contracts are void ab inito.

FreshOutaSumfinForNufin's picture

Slavery didn't really go away in the 1800s, just "involuntary servitude." If a contract was signed then the servitude IS voluntary and couldn't be considered slavery by any REASONABLE person.  People want to do the deed and live the high life but not pay the  bill or consequences.  Lack of responsibility from top to bottom is the problem with this society, not the solution.  Personally, no one owes me anything for nothing.  That's why I'm still paying my student loans. 

Because I choose not to be a professional victim, I'm a Victor.  One cannot be both.  

QuantumEasing's picture

Correct.

The Congress had no power to "free" the slaves, only make everyone equal.

So they did. Equally slaves.

But that is beside the point. Contract law is very specific in terms of what is and is not a valid contract.

"Loan documents" are not contracts, they are negotiable instruments.

No different from an FRN. The signer created something of value that did not exist prior to the signature, and because they are ignorant, are told that THEY OWE, rather than the ones they exchanged it with.

It is a straight exchange for value: The signer gets the immediate cash to fund their Education, the receiver ("Loan Company") gets a negotiable instrument to hypothecate to their heart's content.

The "Loan Company" did not put up any assets. They had NO skin in the game. That the "Gov" is underwriting the performance of their financial products is the problem. They can either put up the initial capital, and enter it as a liability (while countersigning a contract for an actual loan), or they can FOAD.

I blame the Education system.

7towers's picture

It was Clinton that enacted the law that students can't discharge these loans in bankruptcy.. Good old Willie..

Chris Dakota's picture

The colleges are criminal for selling those worthless degrees.

Chuck Walla's picture

Au contraire, Mon Frere. Those degrees are very valuable to the institution and the professors, admin, et al. that sell them. 

mc888's picture

 

Really? What's the offer to buy one back?

 

 

Chris Dakota's picture

Trump calls himself a "Mason" on live TV.

whoa, this is not good.

https://www.youtube.com/watch?v=2zRECg3YESo

mc888's picture

Hm, I don't think they do buybacks on their degrees either.

 

anticultist's picture

 

in the day we had to investigate "marketable" degrees to study something employable that paid the bills.

It was one, me, on the freshman dorm floor that actually graduated.

Tremendous attrition of faces not returning for the 2nd year.

I guess the snowflakes "evolved", its their religion anyway they came from monkeys

 

 

 

cbxer55's picture

Yes sir. wouldn't throw her out of bed for eatin crackers. ;-)

s2man's picture

"And, as an aside, that woman next to Trump is a hottie for her age".

What the what?

shovelhead's picture

Setting the bar so low you can't limbo under it.

fleur de lis's picture

Agree 100%.

The schools need some skin in the game.

If they are offering degrees in dead end courses they should be obliged to place the students within a stated period of time or refund the money.

When they refund enough money they will cut out dead end departments or at least cull them.

Supply and demand.

They have all been scamming the system like all the other fast talkers. 

And they might want to consider getting rid of the snowflakes who torch cars and destroy property and businesses when they are upset about a speaker on campus.

That alone would cut down on the dead end courses.

 

 

shovelhead's picture

Caveat Emptor. Buying expensive items requires due diligence on the part of the purchaser, particularly when the item can't be refunded.

Schools should be liable for selling misrepresented goods like anyone else. It may not provide a remedy, but it sure would be amusing to watch.

Max Cynical's picture

"And, as an aside, that woman next to Trump is a hottie for her age."

And rich..."Richard DeVos was listed by Forbes in 2016 as having a net worth of $5.1 billion, making him America's 88th wealthiest individual."

Jack's Raging Bile Duct's picture

Young people are told from the moment they enter school, that a college degree is not merely the best way to a good income--but the only way. Furthermore, it is declared tantamount to guarantee. That's a lie of course, but one they are conditioned to accept for 18 years. Then again, it is extraordinary rare that you'll be able to attain a position clearing 50k annually without one.

End the Fed.

LauraB's picture

I agree with getting the government out of the loan business (college and housing). If the job that the student willl likely obtain after graduation will not pay for the degree, then the banks would not give the loan in the absence of the government guarantees. But, we also have to put responsibility on these students and their families to determine what the job market is like in the field the student wishes to enter, how much the typical starting salary is for a position in that field, and to run a cost benefit analysis to determine whether or not pursuing the degree is a right choice for them economically. We have to stop absolving borrowers of their responsibility for deciding to taking out these loans (whether they be for education or housing).

swamp's picture

Especially if they're illegal aliens