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.

Waiting for Your Borrower Defense Claim to be Processed? You’re Not Alone.

Tens of thousands of borrowers have submitted so-called “borrower defense” claims to the Department of Education, alleging that their loans should be discharged because of misconduct by their schools.  The theory is that if your school mislead you, or was acting fraudulently, you shouldn’t have to pay the loans you took out to go to those schools.  Sounds sensible, right?  The problem is that many of these defense claims are just sitting there and aren’t being processed, all the while student borrowers end up at the whims of their servicer.   If you have been waiting for years for your borrower defense claim to be processed, know that you’re not alone.

In this post I’ll give some background on the situation and provide an update on some pending litigation to try to address these issues.   In my next post on the topic, I’ll go further into depth on what we do know about how the Department of Education is handling these claims.

To understand the big picture, we need to go back to 2015 when the closing of Corinthian Colleges and exposure of misconduct by other for-profit schools lead to a sky-rocketing number of these borrower defense applications.  (The Department of Education states that in the in the twenty years prior to Corinthian’s closing, they received a mere five borrower defense applications.  Since 2015, they have received over fifty thousand.).

As this explosion in the number of borrower defense claims happened, the Department of Education was simultaneously engaging in a rule-making process that was supposed to lay out the parameters for how these claims would be processed.  After pain-staking negotiation, the rules were finalized and set to go into effect in July 2017.  However, the DeVos Department of Education delayed the effective date of these rules, citing pending litigation.  Many people felt that this was instead an effort to get a second bite at the apple or, at the very least, shield for-profit universities from stricter Obama-era rules.

The Department of Education has now restarted the rule-making process.  Meanwhile, it  is sitting on the majority of the borrower defense applications it received.

The Department of Education’s version is that they have been improving the borrower defense process and that they have been steadily processing applications, particularly those associated with Corinthian College.  Again, I’ll go into further detail on this in my next post.

Nevertheless, tens of thousands of applications are still sitting there.  Lawyers at the New York Legal Assistance Group and the Harvard Predatory Loan Project initiated a lawsuit against the Department of Education, alleging that the Department was neglecting it duty to process these applications.  (Full disclosure that I briefly worked with these lawyers during law school).  The lawsuit is brought on behalf of two borrowers who attended Sanford-Brown institute.  Both borrowers have had borrower defense applications pending for 3 years.  In the meantime they have been subject to the collection whims of their servicers while interest continues to accumulate on the loans.  The lawsuit alleges that Sanford-Brown violated New York law by misleading its students.

The Department of Education has moved to dismiss the lawsuit, alleging that it has sovereign immunity and that the borrowers have not exhausted their administrative remedies.  The Department has also requested that the lawsuit be moved to arbitration.

I follow this lawsuit as part of my docket monitoring service for industry professionals.  If you wish for additional updates on this case, please contact my office.




Eligible Veterans Should Get Automatic Student Loan Discharges. Instead, They’ll Just Get a Notice.

Thousands of veterans should be eligible to have their student loans completely discharged with no tax liability — if only they knew about the program and applied.

For years, two government agencies — the VA and the Department of Education — have had the power to identify these individuals.  The VA had the list of veterans who either had a service-connected disability that is 100% disabling, or were totally disabled based on an individual unemployability rating.  Meanwhile, the Department of Education had the list of Americans who had taken out federal student loans through the National Student Loan Data System (NSLDS).

Cross-matching these lists would identify veterans who would be granted a Total and Permanent Disability Discharge if only they applied.  Efforts in 2016 to produce a similar list of individuals receiving social security disability who had student loans identified more than one hundred thousand such people.

Seems like a no-brainer that should have happened years ago, right?  Well, in a press release, the VA and the Department of Education finally announced that they would be teaming up to find these veterans and let them know about the benefits they are entitled to.

However, currently the plan is just to notify these borrowers.  In my experience, merely notifying borrowers will not be enough.  For a variety of reasons, the information may slip through the cracks or the veteran may not have the resources to follow up on it.

A bipartisan group of senators have recently advocated for an automatic discharge that would require no follow-up by the borrower.  This proposal is particularly compelling now that the 2018 tax bill eliminated the tax on disabled borrowers who had their forgiven student loan debt.

With this loophole gone, there is no downside to automatically discharging student loan debt for disabled veterans — except that the Department of Education will not get the marginal amount of money that these veterans continue to pay while they remain unaware they could have the loans discharged.

The announcement by the Department of Education and the VA is a step in the right direction, but it does not go far enough.


Why Paying Your Student Loans Will Look Different in 2019

The federal government has put out a call for bids to radically overhaul the student loan servicing program in 2019 with the goal of creating a unified website to pay and administer all federal student loans.   Sounds great, right?  The question is whether they can pull it off.

Even though the Federal government owns most of the federal student loans issues since 2010, any student loan borrower knows they have to go to their servicer — Nelnet, Great Lakes, Navient, etc. — to actually pay their loans.

This web of servicers can cause numerous problems.  For instance, some servicers offer different amenities even though all loans should be handled in the same way.  Great Lakes makes it easy to apply extra payments towards principal through their web platform, whereas other servicers may require a follow-up phone call.

Moreover, if you’ve been trying to get Public Service Loan Forgiveness, you know that your loans will be transferred to FedLoan Servicing, no matter what servicer you started out with.  FedLoan Servicing is the most difficult servicer to work with.  One major issue I see is that the transfer of student loans to FedLoans kicks the borrower out of their repayment plan, capitalizing interest and causing numerous headaches.

The idea of merging together the platforms of all servicers under the umbrella of a single government website is certainly appealing.  But as with any technological endeavor from the federal government (looking at you,, actually pulling it off will be quite a feat.

As highlighted by the Center for American Progress, which has been doing excellent reporting on this issue, it’s unclear whether the new system will improve accountability for the servicers or whether it will merely be a new, unified branding on top of the same old problems.  Additionally, the Office of Federal Student Aid (FSA), which would be administering the new platform, has already said that it may need to bring on additional expertise to coordinate and manage the program.

Everything is in the early stages at this point and it will be interesting to see what happens as the bidding process goes forward.  Clearly FSA and the Department of Education can see that the system needs an overhaul.  The question is whether the cure will be worse than the disease.


The Definitive Yale/Harvard/Stanford LRAP Comparison

I had the immense privilege of going to Stanford Law School.  When I began to be known among my friend group as knowledgable on student loans, I started to get requests for student loan consultations from other SLS alums as well as our peers at Harvard Law School and Yale Law School.  This has given me an on-the-ground insight into the three schools’ LRAP programs, which are an immense draw for students thinking of pursing a public interest career.

Understanding the different LRAP programs is fairly daunting for many admitted students and there is a lot of information to sort through.  This post aims to compare the most important issues that I see arise for alumni based on the current program implemented at each school (at Yale, for instance, the program may differ depending on your graduation year).  If you have other concerns about the LRAP programs, please let me know and I will supplement this post as best I can.

Of course, anybody in the position of choosing between these programs is already quite lucky.  Each one of these is substantially more generous than any other LRAP program out there.  As we get into the weeds, please keep in mind that I know having to compare these programs is a problem for only a few lucky people.

Eligible Employment

To enroll in LRAP at each school you must have full-time qualifying employment.  Qualifying jobs differ across the schools

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Stanford excludes academic jobs such as LRW positions from LRAP, whereas Yale and Harvard do not.  Clinical positions should qualify under all three plans.

Award amount

How much you will get under an LRAP program is a function of (1) your eligible loans; (2) the payment plan the school calculates for your eligible loans; and (3) your expected contribution.  We tackle each of these in turn.

(1) Eligible Loans

Generally speaking the three programs cover the following loans:

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(2) Payment Plan

How much money you get through LRAP depends on how much the school thinks you should have to pay every month.  Each school calculates this monthly payment amount a little bit differently.

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Because Harvard always bases its award on the plan you are actually enrolled in, if you are in a plan with a lower monthly amount than the 10-year standard, your award will decrease accordingly.  This can hurt alums who have to make a substantial contribution on their own.

Yale makes up its own numbers.  It artificially calculates a non-existent 15-year fixed repayment plan and gives you an award based on that monthly amount for the first 5 years.  In the second 5 years of the 10-year LRAP program, it calculates a 5-year repayment plan to pay off your remaining balance.  In other words, Yale’s award will most likely be quite a bit lower than either Harvard’s or Stanford’s for the first 5 years.

(3) Expected contribution

Once your school has calculated your expected monthly payment, the school then calculates how much it expects you to contribute.  Each school expects you to contribute a particular amount based on a percentage of your adjusted or gross income.  Here are the calculation tables according to each school’s program handbook:

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Which looks a little bit like this side-by-side:

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Harvard starts out expecting a much higher contribution.  Yale and Stanford start neck-and-neck, but then Yale’s program expects marginally less at higher income levels.

Your actual LRAP award will be the total expected amount minus your personal contribution.

Compensation for Tax Liability in the Private Sector 

One issue I see come up often is the effect of employment at a private-sector employer.  Alumni who do not work for a 501(c)(3) or the government will be taxed on the LRAP income their receive.  Stanford and Harvard try to offset this tax liability by increasing the award.  Yale does not.

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Transition between jobs

Luckily each program gives alums some grace period when transitioning between jobs. Harvard’s program is slightly less generous on this front, but all three programs offer some cushion.

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Clerkship Loans 

Many HLS/SLS/YLS students hoping to take advantage of LRAP programs may take 1-2 years to clerk and then hope to transition to public interest employment.  Harvard and Stanford prohibit using LRAP money to cover loans if a student is going to private-sector (i.e. firm) employment afterwards.  However, both will offer loans to students that will then be forgiven if the student goes from the clerkship to eligible public interest employment.

YLS alums can use their LRAP for clerkships, but the LRAP money is not actually forgiven.  Instead, that money is yet another loan that is added to the borrowers accumulated debt.  After the clerkship, if a YLS alum enters qualifying employment, the clerkship loan will be included in the debts to be paid off over the course of participation in the program.

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Spousal Income 

Last but not least, spousal income.  Stanford and Harvard have a straight forward approach.  They take greater of (a) his or her individual income; or (b) half the joint income.

Yale, on the other hand, will consider the joint income of the borrowers minus the spouse’s own education loan debt payments and minus $40,000.  This can hit borrowers whose spouses have higher incomes particularly hard.  (However, if both spouses are enrolled in LRAP, Yale consider’s half the joint income).


While I may be biased, I think the bottom line is that SLS has the best LRAP plan.

Harvard’s program expects a relatively high contribution early on and has less flexibility on repayment plans.

While Yale has an immense amount of employment flexibility, it does not provide the additional tax benefit to private-sector employees that SLS and HLS students get.  Additionally, Yale’s clerkship program and 15-year/5-year amortization schedule, clerkship loan program, and treatment of spousal income is not as generous as Stanford’s and hits young alumni particularly hard.