In honor of Teacher Appreciation Day, some thoughts on teachers and student loan debt

Teachers are some of the lowest paid professionals in the country.   According to the National Education Association, the average starting salary for the 2016-2017 school year was $38,617.  In Ohio the average starting salary was even lower at $35,249.

At the same time, a focus on credentialing within teaching has lead to many teachers having to take on more and more debt to get advanced degrees.  According to a 2014 report authored by Jason Delisle when he was at the New America Foundation the average Masters of Education student has $8,879 more in debt than MBA graduates, coming in with an average loan debt of $50,879.

Yes, there are some specialized forgiveness programs for teachers.  One program covers FFEL and Direct Loans while Perkins loans have a separate loan forgiveness program.   Some teachers may be eligible for public service loan forgiveness.

These forgiveness programs don’t fix the problem that we are expecting teachers to take on too much debt for too little pay.  That’s why I support efforts to increase teacher pay and reign in the cost of tuition.


Refinancing vs. Consolidating

“Should I refinance my loans? Should I consolidate my loans? What is the difference between the two?”

These are some of the most common questions I get whenever I talk to somebody about their student loan debt.  These terms are thrown around somewhat loosely, but they mean very specific things and it’s important to know the difference.

Refinancing is swapping out your current set of student loans with new, privately-held loans, often at a lower interest rate.  If you are refinancing federal loans into private loans, you will save on interest but you will lose federal benefits along the way.

The process is similar to refinancing a mortgage.  You have your existing loans (usually federal loans) at a certain average interest rate.  Because these are federal loans, you have the whole suite of federal benefits including deferment, forbearance, income-driven repayment options, and possibly even public service loan forgiveness.  By refinancing, you have a third party private company pay off your existing debt to the government, leaving you with a new debt owed to this third party, likely at a lower interest rate.

Unlike others in the student loan industry, I do not maintain any financial or business connections with any private refinancers.  I never recommend one private refinance company over another to my clients.  In fact, I rarely recommend private refinancing unless my client has a high risk tolerance and has a high-earning job that will allow them to pay off the loans on a short time horizon.

By contrast, consolidating your loans refers to the simplifying of all your federal loans into one or two consolidated federal loans.  You will not save on interest but you will keep your federal benefits.

Consolidation is a term of art in the world of federal student loans.  It refers to the process of simplifying all of your federal loans.  Unless you have some very old variable-rate federal loans, you will not get a lower interest rate — your new consolidated loan will merely have the weighted interest rate of all your previous loans.  But you will end up having to make only payments to a single servicer.  If you have federal student loans scattered across many companies, this can make your monthly bill-paying much easier.

Consolidation is very useful for student borrowers.  Sometimes borrowers have loans like Perkins loans that are not eligible for income-driven repayment plans.  By consolidating a Perkins loans, you make the entire loan balance eligible for the repayment plan of your choice.  Moreover, a consolidated loan is a Direct Loan, which means it is eligible for public service loan forgiveness.  This also make consolidation appealing to borrowers who have non-PSLF-eligible FFEL loans.

The one thing to be careful about is consolidating a Parent PLUS loan.  Always get advice from an expert before you consolidate a Parent PLUS loan with your other federal loans.  Consolidated loans that repay a Parent PLUS loan have a variety of limitations and you could be losing benefits on all the loans in the pool.

To summarize: refinancing is creating a new loan with a private lender.  You may save interest but you will lose federal benefits.  Consolidating is just creating a new federal loan to simplify your old federal loans.  You will not save on interest, but you can keep (and sometimes even get new) federal benefits.


Corinthian College borrowers are being graded on a curve for student loan relief

Almost 100,000 student loan borrowers — already scammed by the notorious and now-shuttered Corinthian Colleges — are now being graded on the worst curve of their life.  Under a new set of calculations implemented by Betsy Devos’ Department of Education, whether of not they get their student loans canceled depends on how their classmates have done since graduation

The math behind the new approach is opaque, but one thing is clear: it needlessly denies debt relief to borrowers based on how well their classmates did and replaces a straight-forward program put in place under the Obama Administration.

Corinthian Colleges, Inc. was the umbrella organization for a suite of for-profit schools that operated from 1995 until 2015 when they shut their doors amid mounting allegations that they falsely inflated job placement rates and misrepresented programs to potential students.

As a federally certified school, Corinthian Colleges’ students could take out federal loans.  At the height of its operations in the mid-2000s, Corinthian Colleges received more than $1.5 billion in federal student aid and had tens of thousands of enrolled students each year.

When Corinthian’s misconduct became apparent in 2015, the Department of Education allowed students to apply for cancellation of their student loans under the borrower defense program.

Between December 2015 and April 1, 2018, more than 147,000 borrower defense claims were filed.  The outgoing Obama Administration used a simple and straight forward test to assess applications.  If the borrower had enrolled in the same program, at the same location, and the same time as Corinthian had made material misrepresentations, the borrower filed an attestation with the Department and had their loans cancelled.

Approximately 25,000 of those borrowers had their claims adjudicated before the Trump Administration came into office on January 20, 2017 and the process came to a screeching halt.  When applications began to be processed again later in 2017, a new system was in place.

Devos’ Department of Education had taken the entire cohort of borrowers who applied for cancellation and got the aggregate 2014 earnings data from the Social Security Administration, comparing it to the aggregate earnings data for other students in similar programs.  If a borrower’s cohort as a whole had done fairly well, each individual Corinthian student got less of their loans cancelled than if the cohort had done badly.

For instance, the cohort of Corinthian students who enrolled in the “Electrical/Electronics Equipment Installation and Repair, General” associates degree have about 50% of the current earnings of students in similar programs at other schools.  Under the new program, each borrower — no matter their individual earnings — will get 50% of their loans forgiven.

The cohort of Corinthian students who enrolled in the “Medical Office Management / Administration” associates program have between 70-79% of the current earnings of their peers, meaning they will get 30% of their loans forgiven, but the “Business Administration and Management, General” certificate-earners will get 100% of their loans forgiven.

The new math used by the Department of Education is troubling for many reasons: why should the amount of debt relief offered to students who were reeled in by Corinthian college be tied to the success of their peers?  There could be any number of factors affecting the cohort rate, such as the age of borrowers and the particular students who applied for cancellation.   The success of one’s peers across 20 years is an exceptionally poor way to measure the impact of material misrepresentations and fraud on any one person.

A lawsuit brought by Housing and Economic Rights Advocates and the Harvard Law School’s Predatory Loan Project on behalf of the class of Corinthian College students alleges violations of administrative procedure rules in the sudden switch of programs.  There are also allegations that the new program violates constitutional Due Process rights and is arbitrary and capricious.

The class members have sought a preliminary injunction, forcing the Department of Education to go back to the old system.  The Department of Education has opposed the preliminary injunction.  The District Court in California should rule soon.  In the meantime, every day interest continues to accrue on Corinthian College loans.


Note: Many of the citations for this article are from court filings that can be found via the federal court management system, PACER.  If for some reason you would like the documents that support this post, please let me know directly.  Some of them you can find for free online through the RECAP project.  Others I am in personal possession or you can access with your own PACER account.