Persuasive essay

The Crisis in Credit and the Rise of Non-Credit

Meaghan L. Arena

Published online: 13 December 2012 # Springer Science+Business Media New York 2012

Abstract With institutions of higher education experiencing lower completion rates than our international counterparts and with rising student loan debt, the American higher education system is in crisis. As faculty members and administrators work to solve these growing problems in the credit-bearing side of higher education, the non-credit side is largely ignored. The benefits of non-credit programming, including employability, flexibil- ity, and lower cost to students, are so numerous and varied that many corporations have taken on the role of workforce educators themselves. To meet the needs of individuals, businesses, and state funders, institutions must increase their commitment to non-credit innovation.

Keywords Non-credit . Workforce development . Corporate universities . Non-traditional students

American higher education is experiencing a crisis. Traditional, credit-bearing, degree-granting programs are experiencing a dismal retention rate, with only 58 % of those who enroll in a four- year college or university graduating within six years (U.S. Department of Education, National Center for Education Statistics, 2012). Meanwhile, costs continue to rise (The College Board Advocacy and Policy Center 2010a). As a result, an increasing number of institutions, busi- nesses, states, and individuals look to non-credit coursework to innovate in a way that credit coursework simply cannot (California Community Colleges, Chancellor’s Office 2006; Lee 2002; Milam 2004; Van Noy et al. 2008). Enrollment growth in non-credit programs has now surpassed growth in credit-bearing programs (Van Noy and Jacobs 2009), and this trend is expected to continue into the future. In order to remain relevant and to meet student demands, institutions would be well advised to invest more resources into non-credit coursework. As the

Innov High Educ (2013) 38:369–381 DOI 10.1007/s10755-012-9249-5

Meaghan L. Arena is the Director of Program Development and Outreach at Westfield State University and holds a Bachelor of Science in Political Science from the University of Delaware and a Master of Education from Cambridge College. She is a student in Northeastern University’s Doctor of Education Program. Correspondence should be directed to [email protected].

M. L. Arena (*) 30 Garland St, Springfield, MA 01118, USA e-mail: [email protected]

demand for flexible, convenient, and cost-effective programming increases, so, too, does the need to innovate and to meet the needs of a changing society.

How can non-credit coursework help solve the crisis in credit programs? What innovations can non-credit courses or programs provide to help meet changing demands? In this article I will first describe the crisis faced by credit-bearing programs and institutions in higher education. I will then discuss the importance of non-credit coursework including a brief history of non-credit courses, the demographics they serve, various types of non-credit courses including coursework in so-called corporate universities, and the benefits of non-credit course- work. Current statistics and trends are cited throughout. Finally, the article will finish with a discussion of specific innovators in the non-credit sector, thoughts on what the future holds for non-credit education, and recommendations for practitioners in higher education.

The Crisis in Credit Programming

Recent retention studies indicate that only 50 % to 58 % of entrants into institutions of higher education will complete a degree program within six years (U.S. Department of Education—National Center for Education Statistics 2012; Weddle-West and Bingham 2010). Even more astonishingly, a meager 18 % are projected to complete a degree in just four years (Scott-Clayton 2011). Although overall degree attainment in the U.S. has remained relatively stable over the past 30 years, the rate has risen substantially in many other countries (Scott-Clayton 2011).

Further compounding the crisis, The College Board Advocacy and Policy Center released a report (2010b) showing that students from low-income families are significantly less likely to enroll in higher education in the first place. Specifically, in 2008, only 55 % of students from families in the lowest income quartile enrolled in postsecondary education while 80 % of their counterparts in the highest quartile enrolled (The College Board Advocacy and Policy Center 2010b). These figures paint a dismal picture of current trends in higher education.

Moreover, students are faced with an average yearly tuition bill ranging from $6,224 at a public institution to $33,679 at a private university (The College Board Advocacy and Policy Center 2010a). Similarly, student loan debt ranges from an average total of $18,300 among students who earned a bachelor’s degree at public institutions to $28,100 for students at private universities; and this amount is on the rise (The College Board Advocacy and Policy Center 2011). With student loan default rates reaching as high as 12.6 % in 2008 (Mullin 2010), however, the crisis in credit programming grows deeper.

Statistics are not the only demonstration of the problems facing institutions of higher education, however. In 2011, the American Association of Community Colleges (AACC) gathered information from more than 1,000 stakeholders in community college systems across the United States in response to President Obama’s 2020 College Completion Initiative. Community college presidents, faculty, staff, senior administrators, trustees and state policy makers provided input on the changing needs of students, the mission of community colleges, and opportunities and challenges facing higher education (American Association of Community Colleges 2011). The AACC noted in its report that the traditional way of viewing colleges and universities is unlikely to meet the demands of the nation in the future. Furthermore, they asserted that obtaining a degree and hoping that jobs exist in the chosen field is an outdated model of education and one that community colleges, in particular, must reexamine regularly (American Association of Community Colleges 2011).

Traditional degree programs also often lack appeal for minority students who view the costs associated with degree completion as too great (Pope and Fermin 2003). In addition to

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tuition, room and board, and textbook expenses, minority students may face indirect expenses associated with college attendance as well. For example, enrolling in higher education may mean the student cannot work full-time, thus reducing the overall family income and resulting in a financial hardship to the family (Pope and Fermin 2003). Pope and Fermin (2003) also contended that minority students perceive a relatively low benefit from higher education in terms of future employability and wages and are thus less likely to enroll in traditional programming. Instead, these students are more likely to attend government supported, short-term job training not associated with an institution of higher education (Pope and Fermin 2003). These programs, according to Grubb et al. (2002) have had little effect on long-term employment rates because they are not closely connected with future educational opportunities. Many traditional degree programs are failing a large segment of the population.

Additionally, the foremost factor influencing students to enroll in higher education is the promise of achieving a personal career goal or obtaining a job after degree attainment (Pope and Fermin 2003). Yet aligning college missions with this desire is not easily accomplished. While many institutions, like Alverno College, have successfully melded the traditional academic experience with assessment and ability-based outcomes (Wagner 2009), other institutions struggle to integrate professional skills and career-specific expertise into the curricula (Williams 2007). Indeed, as Waks (2002) pointed out, established institutions often resist change even when the external environment has made the need for change obvious. As a result, traditional programs may persist with little regard to the career needs of students or the nation.

Literature exists on the hesitation of degree-granting programs to stray from a purely academic model of higher education (Lustig 2005; Natale and Doran 2012; Yoshimura 2008). For example, Natale and Doran (2012) noted that under-enrolled classes are typically cancelled and contended that this type of consumer-driven decision-making results in an emphasis on efficiency and creates bureaucracy for institutions and their faculty while shifting the focus away from the academic experience (Natale and Doran 2012). Similarly, Lustig (2005) argued that, when colleges are influenced by the business community and begin incorporating desired workforce skills into the academic curriculum, an undue pres- sure on the substance of teaching is placed on the faculty, blurring the line between academia and vocationalism.

It should be noted, however, that, despite the claims of some critics of higher education, institutions have indeed evolved over time, producing flexible program delivery systems and improving student services in an effort to support student success. In the past decade alone, colleges and universities have expanded online course enrollments some 15.7 % (Allen and Seaman 2010), thereby increasing access to those in need of flexibility because of work, family, and other time commitments. Similarly, many institutions have implemented summer bridge programming, which is understood as coursework offered prior to the freshmen year to provide at-risk students with coursework designed to help them transition to their first semester as a college student (Garcia and Paz 2009; McCurrie 2009; Strayhorn 2011). These and other such initiatives demonstrate institutional commitment to the evolving needs of modern students.

Despite innovations and evolution, an identity crisis in American colleges and universi- ties still looms. Yoshimura (2008) posited that higher education must be maintained as a public good and asserted that the corporatization of higher education must be viewed as a threat and “present danger” (p. 304). This corporatization, according to Natale and Doran (2012), means that students seek degrees in order to obtain jobs and skills, rather than the experience of the education itself. Lustig (2005) lamented the loss of the traditional

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academic experience in favor of career-specific skills as well and commented that liberal education is becoming nothing more than “an ornament” (p. 18). While these views are certainly not those of all or even most faculty members in higher education, many institu- tions understandably hesitate to expand non-credit course offerings and workforce develop- ment initiatives because of the stigma that comes along with education as a means to an economic end (Naude 2011). Whereas traditional degree programs are viewed as education for the betterment of society, non-credit and workforce education is viewed by some as informal learning that erodes the foundation of academic thought (Naude 2011). These issues present a challenge to the expansion of non-credit and to the reputation of the institution. Therefore, as colleges struggle with their identity and some resist changing to meet the needs of students and businesses, the current crisis in higher education deepens.

The Rise of Non-Credit Education

Meanwhile, the potential of non-credit education remains largely untapped. Non-credit instruction can mean different things, ranging from recreational courses to developmental pre-college courses (Van Noy et al. 2008). For the purposes of this article, non-credit education will include workforce development courses and other types of training that do not result in the awarding of credits and that are not part of a degree-granting program although an institution may award certificates and other non-credit credentials for this work. Courses taken for personal enrichment are also considered non-credit coursework. This standard is typical among institutions and researchers focusing on non-credit education (California Community Colleges, Chancellor’s Office 2006; Cantor 2000; Fouts and Mallory 2010; Frentzos 2005; Kortesoja 2009; Lee 2002; Van Noy et al. 2008; Waks 2002).

Non-credit education as a concept is not new. Over a century ago, it was used as a strategy to increase vocational skills for high school drop-outs (Grubb et al. 2002). More recently, international competition for economic growth has produced the demand for lifelong learning in the form of non-credit workforce education, particularly in countries like Korea, which favors a knowledge-based society (Grubb et al. 2002). Most recently, prepar- ing a low-income population for economically viable jobs has become the focus of many municipalities (Jacobs 2001).

Corporate Universities

Another type of non-credit coursework congruent with the accepted definition is that of corporate education. According to Cantor (2000), corporate education and corporate training institutes are developed by individual businesses to meet their specific needs. Introduced in the 1960s (Waks 2002), corporate universities, a term coined by corporations themselves, began offering specific training to their own employees. By the 1980s more than 400 businesses had developed these so-named universities in which to train their employees (Cantor 2000).

Waks (2002) described corporate universities as “knowledge managers” (p. 279), which provide updated information and knowledge specific to their industry. McDonald’s Hamburger University, an original and often mocked corporate university not accredited as an institution of higher education, provides specific managerial training to employees with leadership potential, despite its laughable name (Waks 2002). Other notable corporate training programs have spread throughout the United States, Asia, and Europe and include

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the self-designated Motorola University, Toyota University, and Marriott University (Waks 2002).

Although traditional institutions of higher education have not accepted corporate univer- sities as legitimate educators of the populace, due in large part to their lack of accreditation and legitimacy as a true university, the ability of corporate universities to respond to rapidly changing industries has caused them to remain popular (Waks 2002). Indeed, Motorola University now offers more than 10,000 courses to its 90,000 employees; and more and more businesses are creating their own so-called universities, including companies such as Hilton, the BBC, IBM, Rolls-Royce, Sears, and even the British National Health Service (Waks 2002). K. Tucky (personal communication, March 14, 2012), Vice President of Internal Marketing for MGM Resorts, recently noted that MGM’s Mirage University, serves its 66,000 employees in a way that traditional universities cannot.

Benefits of Non-Credit Coursework

The benefits of non-credit education, whether corporate or higher education based, cannot be denied. Fouts and Mallory (2010) asserted that economic development occurs when gov- ernment, industry, and higher education work together to solve complex problems in local economies. They recognized that non-credit programming has the potential to foster signif- icant economic growth through partnership with local businesses (Fouts and Mallory 2010). Similarly, Dougherty (2003) contended that employee training and workforce development are integral to the local and national economy. Unfortunately, employees in certain indus- tries, like the non-manufacturing sector and smaller corporations, are currently receiving less non-credit training than is required for their success and for economic growth (Dougherty 2003).

Furthermore, non-credit education also provides benefits to individual businesses which seek employees with particular skills. According to Culkin and Mallick (2011), businesses seek employees who will add value to their organization. Such employees typically bring soft skills difficult to learn in a traditional, academic environment, like the ability to seize opportunities, work in teams, work flexibly, think strategically, and take risks in a complex and ever-changing business environment (Culkin and Mallick 2011). The development of these soft skills is, therefore, crucial to success in the business sector.

Similarly, Hughes et al. (2002) argued that the combination of schools and businesses in initiatives like internships is successful in producing students with skills necessary for success in business. Increasingly, businesses aim to hire employees with career-specific skills and the ability to adapt to a changing business landscape (Lustig 2005). During their Listening Tour, the American Association of Community Colleges (2011) noted the need for community colleges to engage in more partnerships with businesses in the community in order to provide a more skilled workforce and to provide students with knowledge necessary for immediate employability. Grubb et al. (2002) also pointed out that businesses in North Carolina specifically stated their preference for “skills, not credentials” (p. 9) in the hiring process.

Beyond the benefits to economic development and businesses, however, non-credit education has other uses as well. Although non-credit programming is not the focus of most traditional institutions of higher education, institutions can nonetheless experience enormous benefits by increasing non-credit programs. Van Noy et al. (2008) argued that non-credit programming is often the center of innovation at colleges due to its flexibility and adapt- ability. This innovation often inspires new credit programming, marketing campaigns, and

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institutional donors (Van Noy et al. 2008). Furthermore, non-credit divisions are often where potential credit-bearing courses are piloted, allowing an institution the benefit of perfecting the class content and structure before vetting it through academic departments (Van Noy et al. 2008). Similarly, the California Community College system provides non-credit courses as a “bridge” into traditional academic programs for students for whom English is a second language (California Community Colleges, Chancellor’s Office 2006).

Additionally, some institutions of higher education have recently noticed the trend of non-credit students eventually enrolling in credit-bearing coursework (California Community Colleges, Chancellor’s Office, 2006; Grubb et al. 2002). One college in Florida noted that 20 % of new students in degree programs originated in its non-credit unit (Grubb et al. 2002). Institutions experiencing similar rates of transfer from non-credit courses to credit courses report that they actively recruit non-credit students (Grubb et al. 2002).

Non-credit education is also beneficial for the individual student. Kortesoja (2009) argued that non-credit coursework is often the most convenient and sometimes the only form of postsecondary education available to an adult student. Convenient locations and course times make it a viable offering for many adult students (Grubb et al. 2002; Kortesoja 2009). Similarly, Grubb et al. (2002) observed that the open-enrollment associated with non- credit programming means that registration is often less complex, faster, and more conve- nient than the stringent admissions processes associated with application to a degree program. Health benefits ranging from improved psychosocial well-being to improved confidence and an increased ability to deal with adversity are also noted in research on non-credit students (Narushima 2008).

While the benefits of non-credit programming are plentiful, the challenges institutions of higher education face when considering non-credit programming are as numerous as they are varied. Tabata and Johnsrud (2008) noted that release time and instructional support top the list of faculty concerns when considering new program development. With the relatively low cost of non-credit courses, institutions may not generate enough revenue to provide faculty members with the release time needed for the development of high quality non-credit programming. This, in turn, means that tenure-track faculty members are not regularly hired to develop and teach non-credit coursework (Lieberwitz 2007). Lack of faculty involvement is, perhaps, one reason non-credit coursework is not viewed as an alternative to traditional programming and an important reason that institutions have not widely adopted non-credit programs.

Similarly, innovation in the non-credit realm is typically not considered in the faculty promotion and tenure review process (Tabata and Johnsrud 2008). Lamb (2011) noted that faculty members may be disinterested in innovating if nobody is watching. Thus, there is little incentive for them to engage in non-credit programming and for non-credit coursework to be integrated into the fabric of an institution. Lingering on the fringes means that non- credit programming largely remains distant from shared academic governance as well. Complications with shared governance, a lack of faculty and financial resources, and the potential for lower quality programs can reasonably deter institutions from pursuing non- credit programming.

The Importance of Non-Credit Coursework

Given the crisis in credit programming and the benefits of non-credit programming, the idea of workforce and other non-credit courses is growing in importance despite the issues

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associated with its implementation. Florida reported that 11 % of enrollment statewide is in non-credit programming while California showed 14 % of enrollment in non-credit, and Wisconsin noted that an astounding 70 % of postsecondary enrollment is in non-credit programming (Frentzos 2005). Mullin (2011) contended that by 2018 the United States will need to fill some 30 million jobs that require additional education and that the supply of workers to fill these jobs will fall short by 7.7 million. Meanwhile, the number of students enrolled in short term certificate programs, defined as programs lasting a year or less, has risen 459 % over the past 20 years (Mullin 2011). Van Noy and Jacobs (2009) argued that higher education will experience future growth mainly in non-credit programming.

Further, the Southern Association of Colleges and Schools (SACS), one of six regional accrediting agencies, has formally recognized non-credit coursework for the value it pro- vides to students (Milam 2004). Other influential groups which have recognized the importance of non-credit coursework include the AACC, the League, the Council for Adult and Experiential Learning, and the American Council on Education (Milam 2004). The California Community Colleges, Chancellor’s Office (2006) called non-credit program- ming the “portal to the future” (p.3). To demonstrate their commitment to the importance of non-credit coursework, more than half the states provide funding to community colleges to support workforce training; and many have recently increased funding (Van Noy et al. 2008).

Moreover, many researchers have noted that adult students prefer non-credit program- ming over traditional degree programs (Kortesoja 2009; Pope and Fermin 2003; Waks 2002). Pope and Fermin (2003) noted that the main reason adults enter higher education is to achieve a career-related goal, including continued employability or the promise of a better career. Waks (2002), however, noted that traditional institutions are often too slow to respond to the changing needs of the workforce and therefore traditional programs may not meet the needs and expectations of adult students. Van Noy et al. (2008) agreed and categorized non-credit students as older than degree-seeking students, typically age 36–42 (p. 10), who are lifelong learners not well served by a degree program.

As the baby boomer generation matures, the training and development needs of this population change. CAEL, the Council for Adult and Experiential Education (2009), identified mature workers as an asset to the local and regional economy and noted that institutions of higher education must work to develop programming that targets this popu- lation by retraining workers to enter high demand fields. Additionally, AARP Kentucky, in partnership with the Kentucky Community and Technical College System, recognized the importance of workforce training for those over age 50 and created a program known as Making Age an Asset to help train mature workers (Flynn 2009).

Due to a number of factors including a strong work ethic within the baby boomer demographic group, a shortage of workers, and an increased lifespan, many workers intend to retire not at the traditional age of 65 but at the age of 70 (CAEL 2009). Almost half of today’s workforce does not plan to ever retire, making non-credit workforce training for mature workers an essential component for a robust economy (CAEL 2009). Similarly, Flynn (2009) observed that workers age 55–64 represent the highest growth sector in the workforce and noted that one in five workers will be over the age of 55 by 2015. The importance of non-credit workforce training for this population cannot, therefore, be overemphasized.

It is not only a mature workforce that benefits from non-credit programming, however. Adults pursuing a change of career may also find themselves in need of additional skills and competencies, even if they have already obtained a traditional degree. Lee et al. (2011) contended that job satisfaction levels have dropped consistently over the past five years, resulting in an increased number of adults changing career paths. Yet 52 % of employers

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have difficulty hiring qualified individuals (Lee et al. 2011). Additionally, the U.S. Department of Labor’s Bureau of Labor Statistics (2012) noted that more than 48 million workers, or 36.7 % of the total workforce, separated from their jobs in 2011. Non-credit programming, which is typically less expensive than a traditional degree program, is especially important to those changing careers in a poor economy. Institutions that develop targeted, non-credit programming aimed at vacancies in the local workforce are, therefore, likely to see these programs thrive.

Innovations in Non-Credit Coursework

Currently, a number of institutions and businesses are capitalizing on the importance and need for non-credit programming with a variety of innovations. Recently, the Massachusetts Institute of Technology (MIT) announced the launch of their new online, open-enrollment, non-credit educational platform known as MITx (Crotty 2011). MITx, which launched in the spring of 2012, builds off of MITs already popular OpenCourseWare system (Carey 2012). The OpenCourseWare system is used by over 100 million students and contains lecture notes, exams, and videos online for more than 2,100 MIT classes (Crotty 2011). However, MITx also features interaction among students and allows students to demonstrate mastery over a select number of subjects, earning them an MIT non-credit certificate (Carey 2012).

Similarly, Academic Earth, another free online course provider, allows students to watch lectures and videos on hundreds of subjects from such prestigious institutions of higher education as Yale, Harvard, and NYU among others (Crotty 2011). Although there is no credential associated with the completion of courses through Academic Earth, according to the company’s website, academicearth.org, they nonetheless provide world-class, non-credit education to everyone interested. Most recently, Princeton, Stanford, the University of Michigan – Ann Arbor, the University of California—Berkeley, and the University of Pennsylvania have partnered with Coursera to form an online learning community in which an interactive classroom experience is the cornerstone. Coursera’s website, coursera.org, notes that it provides quality, interactive non-credit education in topics familiar to degree- seeking students like Introduction to Sociology and Fundamentals of Pharmacology. A host of other providers, like the Khan Academy, Udacity and 2Tor, have helped establish a significant online, non-credit presence in the field of higher education (Anders 2012).

Furthermore, institutions of higher education around the world have begun awarding boy- scout inspired badges for coursework completed online (Young 2012). Though the badges may seem trivial, they nonetheless play an important role in the non-credit landscape (Young 2012). Institutions like the University of Western Australia, MIT, and the University of Southern California now award badges for online academic achievements (Young 2012). Although interestingly named—one is titled The Hero Badge for completing an extensive amount of coursework (Young 2012)—the badges represent an international trend towards non-credit education, which is important because it replicates other professional certifica- tions earned outside of academia. Certifications like Six Sigma (Goh 2010), Certified Purchasing Manager (Jacobsen 2008), and licensure as a private pilot through the Federal Aviation Administration (2012) are all well-respected professional certifications issued outside of traditional academic institutions. The range of non-credit badges and certificates is, therefore, extensive.

Businesses, too, have begun to see the value of non-credit education. Jenzabar, a higher education data management provider, has recently added a module for non-credit education that allows institutions to track, enroll, and bill students for non-credit coursework (Jenzabar,

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Inc 2011). Software like Jenzabar provides the institutions with another important tool. Collecting non-credit student data means that they can provide transcripts for non-credit coursework. Van Noy et al. (2008) pointed out that non-credit transcripts are valuable to students because they provide formal documentation of courses completed and skills gained. This documentation allows employers to verify skill levels and training of employees (Van Noy et al. 2008).

Similarly, Lee (2002) discussed the use of other traditional processes and systems in non- credit programming which adds legitimacy to the coursework. For example, Lee (2002) surveyed 33 U.S. institutions and noted that several awarded grades and calculated GPAs in non-credit coursework. This, coupled with a transcript, is an even more valuable combina- tion for the non-credit student seeking to advance in a career. Likewise, Lee (2002) found that some sophisticated non-credit divisions allowed students to declare a concentration in their studies, that some required pre-requisites for students, and that most set a time limit for the completion of coursework. These admittedly traditional policies may reduce the flexi- bility for some students; but transcripts depicting GPAs, concentrations, and pre-requisites may provide them with a reason to enroll in non-credit programming. Some institutions are even retroactively awarding credit for a compilation of completed non-credit coursework (Van Noy et al. 2008), further enticing students to begin their educational journey in non- credit programming. Indeed, the American Council on Education (2012) helps students convert extensive non-credit coursework into credit-bearing courses transferrable to most institutions of higher education.

It is not only domestic institutions and businesses that have seen an increase in non-credit program growth, however. Institutions abroad are also contributing to innovations in non- credit coursework. Ranche House College in Zimbabwe, for example, provides short, non- credit courses to local adults (Mpofu 2009). Since the early 1990s, demand for non-credit coursework in Africa has increased steadily, producing an increased number of institutions offering this type of programming to adults in evenings and on weekends (Openjuru 2011).

This trend is seen also in China, where a knowledge economy is taking hold (Su 2009). In fact, in 2001 the Chinese government included non-credit education, both workforce training and retraining, in their five year plan in order to improve the quality of life for its citizens (Su 2009). Non-credit coursework is popular in New Zealand also, where continuing education departments are focused almost exclusively on short, non-credit classes (Bowl 2010). Additionally, in India non-credit coursework is named one of eight formal educational systems and is offered through a variety of institutions, including a national open- enrollment university (Panda 2011). In Italy, non-credit coursework takes on even greater significance and is listed as one of only six categories of adult education (Romano 2003).

Recommendations

Given the crisis in credit and the recent rise of non-credit, it would be prudent for institutions to consider the expansion of non-credit coursework. Although many institutions already house a diverse non-credit unit, some institutions may be unaware of the enormous growth potential in this area (Van Noy and Jacobs 2009). According to their websites, traditional institutions like MIT, University of Southern California, Yale, Harvard, Berkeley, Columbia, Princeton, and NYU have already begun offering a wide variety of non-traditional non-credit programming. However, some institutions lag behind in this trend and should, therefore, expand their program offerings through the development of non-credit coursework. Because most successful non-credit initiatives begin locally and are tied to workforce development

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(Frentzos 2005), these institutions must first have a complete understanding of workforce needs in their region so as to target specific workforce needs when considering program development.

Understanding local workforce needs will almost certainly require institutions to engage in a series of community conversations and partnerships. In fact, Hasham (2010) noted that decisions made by diverse individuals and organizations are more likely to produce suc- cessful outcomes than decisions made by a single organization. Therefore, engaging com- munity stakeholders in determining workforce development needs will help ensure that institutions develop a successful model for non-credit programming, one that is useful to both the institution and the community. The inclusion of proper stakeholders is crucial to community support of the final initiative (Chadwick 2004) and will allow institutions to rely on the collective intelligence of a diverse group of individuals (Brown et al. 2007).

Although engaging in community development is the first step towards creating a robust non-credit department, institutions of higher education must maintain their momentum by continually striving to understand community and student needs. By maintaining a non- credit database, institutions can regularly analyze student demographics and employment trends. Understanding these trends may help them to make data-driven decisions regarding the development, continuation, or elimination of non-credit programming as necessary. Further, institutions interested in promoting non-credit program development should con- sider faculty work with these courses in the promotion and tenure review process, which will help produce high quality non-credit programming.

Overall, institutions of higher education which commit substantial resources to the investigation and development of non-credit programming are likely to thrive in the coming decades. Through the development and maintenance of community partnerships and a broad understanding of both employment trends and community needs, institutions can capitalize on the burgeoning non-credit market.

Conclusion

Non-credit programming plays an active role in higher education and will remain a vital instructional component as institutions confront an ever-changing workforce. While non- credit coursework should not replace the traditional academic experience, robust non-credit offerings can easily complement an institution’s degree programs and can offer a different style of education to certain populations of students. Just as institutions of higher education have evolved by expanding online offerings, so, too, must modern institutions evolve by developing a greater number of non-credit courses to service an even greater number of potential students.

Although non-credit education allows institutions to serve an expanded group of students and to do so in an affordable, flexible, and expedited manner, institutions must nonetheless realize the limitations of non-credit programming. Due to the typically lower tuition associated with non-credit programming, such coursework may prove difficult to sustain financially. Further research into sustainable financial models for non-credit education is warranted. Additionally, the perceived or actual lack of quality in some non-credit course- work may also lead employers and academics alike to insist that institutions focus on non- credit assessment in the coming years. Current course vetting policies, instructor qualifica- tions, and learning assessments vary widely among non-credit program providers, which may ultimately serve to fragment support for non-credit programming. Further research into quality standards and best-practices in non-credit education is, therefore, necessary.

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Based on the rise in popularity of non-credit coursework, the future of higher education almost certainly includes a robust series of programs and certificates that do not award academic credit. Despite their downsides, non-credit courses have the potential to expand access to higher education for a larger segment of the population in a targeted and flexible manner. Only when credit-granting institutions realize the potential of non-credit education both to serve modern students and to impact workforce trends will they truly begin to educate the populace at large.

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2018

NOTE

FORGIVE AND FORGET: BANKRUPTCY REFORM IN THE CONTEXT OF FOR-PROFIT COLLEGES

Rosalyn Harris was a single mother determined to make life better for herself and her son. Unemployed and without a college degree, Harris believed enrolling in the two-year criminal justice program at the for-profit Everest College was the right step toward the opportuni- ties that higher education would provide.1 Unfortunately for Harris, that was not the case. Despite Everest’s claims of a 75% job- placement rate for students in the criminal justice program, she spent months unsuccessfully applying for jobs in her field after graduating with over $22,000 in student loan debt.2 The only job she was able to secure was a minimum-wage position stocking shelves at Victoria’s Secret.3

Harris’s story, while concerning, is not unique. The growth of the for-profit-college sector has not met the promise of its potential. Rather than provide quality, affordable education to its students — many of whom belong to vulnerable populations — some for-profit in- stitutions have created learning environments that impose significant costs without much benefit. The average tuition is more than four times higher than the average in-district tuition at a public two-year college and 67% higher than the average in-state tuition at a public four-year institution.4 Yet the increased costs of attending for-profit institutions do not translate to a better employment outlook for their graduates. In fact, six years after initial enrollment, for-profit students tend to have higher unemployment rates and lower earnings than do their peers who attended public and nonprofit institutions.5 Further, research has found that employers find graduates with for-profit de- grees and online degrees the least desirable to hire.6 As one education advocate recently noted, “[s]tudents go into the marketplace and they’re told that no one is going to take their degree seriously[.] . . .

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 1 Blake Ellis, My College Degree Is Worthless, CNN MONEY (Nov. 2, 2014, 5:42 PM), http:// money.cnn.com/2014/11/02/pf/college/for-profit-college-degree [http://perma.cc/GLW7-BK5Y]. 2 Id. 3 Id. 4 Average Published Undergraduate Charges by Sector, 2014–15, COLL. BD., http://trends .collegeboard.org/college-pricing/figures-tables/average-published-undergraduate-charges-sector -2014-15 (last visited Mar. 29, 2015) [http://perma.cc/X433-5GVC]. 5 David J. Deming, Claudia Goldin & Lawrence F. Katz, The For-Profit Postsecondary School Sector: Nimble Critters or Agile Predators?, J. ECON. PERSP., Winter 2012, at 139, 159. 6 THE CHRONICLE OF HIGHER EDUC. & AM. PUB. MEDIA, THE ROLE OF HIGHER ED- UCATION IN CAREER DEVELOPMENT: EMPLOYER PERCEPTIONS 58 (2012), https://chronicle .com/items/biz/pdf/Employers%20Survey.pdf [https://perma.cc/N8RS-P92F].

2015] FORGIVE AND FORGET 2019

They’re considered suckers.”7 Despite their good-faith work, many students find that a for-profit education isn’t a reward; it’s a racket.

These factors have combined to create a toxic financial situation for many students who are simply trying to attain an education as a means to access the middle class. Even though for-profit students are only 11% of the higher education population, they are 44% of all fed- eral student loan defaults.8 Perhaps more striking, about one in five for-profit students will default on their education loans within the first three years of entering repayment.9 To address this issue, the Depart- ment of Education has promulgated rules that aim to ensure that for- profit programs are preparing students for gainful employment in rec- ognized occupations.10 Under the regulation, for-profit programs will only qualify as leading to gainful employment if the annual loan re- payments for graduates of the programs do not exceed on average ei- ther 8% of their total earnings or 20% of their discretionary income.11 For-profits that surpass these limits would be subject to the revocation of their eligibility to participate in federal student-aid programs.12

Although these regulations provide a meaningful step toward hold- ing some of the worst-performing for-profit institutions accountable, they provide little solace to dropouts and graduates of underperform- ing institutions who struggle to repay their loans. Unfortunately, when it comes to debt incurred at underperforming for-profit institutions, the existing bankruptcy regime continues to deny retrospective relief to those who need it most. Yet a core principle of debt relief is the notion of a “fresh start.”13 As one bankruptcy court has put it, seeking relief for student loans incurred at an institution that failed to deliver ade- quate training and employable skills “is not the intentional abuse of bankruptcy laws for which denial of discharge was intended as a remedy.”14 ––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 7 Nona Willis Aronowitz, Campus Confusion: Corinthian Colleges Students Face Uncertain Future, NBC NEWS (Aug. 15, 2014, 6:15 AM), http://www.nbcnews.com/news/education/campus - c o n f u s i o n - c o r i n t h i a n - c o l l e g e s - s t u d e n t s - f a c e - u n c e r t a i n - f u t u r e - n 1 7 8 2 3 1 [https://perma.cc/ELV8 -ZMAH] (quoting David Halperin) (internal quotation marks omitted). 8 Press Release, U.S. Dep’t of Educ., Obama Administration Announces Final Rules to Pro- tect Students from Poor-Performing Career College Programs (Oct. 30, 2014), http://www.ed.gov / n e w s / p r e s s - r e l e a s e s / o b a m a - a d m i n i s t r a t i o n - a n n o u n c e s - f i n a l - r u l e s - p r o t e c t - s t u d e n t s - p o o r -performing-care [https://perma.cc/CHS7-A9EN]. 9 Libby Nelson, The Obama Administration Wants to Close 1,400 Programs at For-Profit Col- leges. Here’s How., VOX (Oct. 30, 2014, 11:20 AM), http://www.vox.com/2014/10/30/7130151 /gainful-employment-for-profit-colleges-obama-administration [http://perma.cc/U67M-NAEW]. 10 Press Release, U.S. Dep’t of Educ., supra note 8. 11 Id. 12 Id. 13 See generally Thomas H. Jackson, The Fresh-Start Policy in Bankruptcy Law, 98 HARV. L. REV. 1393 (1985). 14 Correll v. Union Nat’l Bank of Pittsburgh (In re Correll), 105 B.R. 302, 305 (Bankr. W.D. Pa. 1989).

2020 HARVARD LAW REVIEW [Vol. 128:2018

This Note advocates for two different reforms to current bankrupt- cy law that can complement the ex ante regulations adopted in 2014 and that would more fully address the role of for-profit institutions in the student debt crisis.15 Part I provides historical background on the federal loan program and the rise of for-profit colleges. Then the Note proceeds to briefly explain the purpose and substance of the Depart- ment of Education’s gainful-employment regulations finalized in Oc- tober 2014. The remainder of the Note focuses on two important legal and policy issues particular to debt in the for-profit education context. Part II evaluates the judicial standards governing the discharge of in- dividual student loans under Chapter 7 of the Bankruptcy Code. Crit- icizing the existing doctrine as overly stringent and anachronistic, the Note seeks to provide alternatives that courts can embrace that better take into account the modern realities of for-profit colleges and the student debt crisis. Part III turns to the Department of Education’s problematic policy on Title IV eligibility as it pertains to institutional bankruptcy filed by for-profit colleges themselves. By calling into question the Department’s position, the Note hopes to reinvigorate the closed-school-discharge provisions of the Higher Education Act to provide an additional outlet for alleviating the loan burden of students who are victims of failing for-profit institutions.

I. BACKGROUND

A. The Higher Education Act, Its Amendments, and Title IV

In 1965, Congress enacted the Higher Education Act16 (HEA) which established “a Federal program of student loan insurance for students who do not have reasonable access to a State or private non- profit program.”17 While the HEA addresses various aspects of educa- tional opportunities, Title IV is the most pertinent here. Under Title IV,18 Congress created a program administered by the Department of Education to provide postsecondary students with financial aid via federal grants and federally backed loans. Initially, the loan program simply guaranteed student loans by private lenders, instead of issuing

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 15 See, e.g., Andrew Martin & Andrew W. Lehren, A Generation Hobbled by the Soaring Cost of College, N.Y. TIMES (May 12, 2012), http://www.nytimes.com/2012/05/13/business/student -loans-weighing-down-a-generation-with-heavy-debt.html. 16 Pub. L. No. 89-329, 79 Stat. 1219 (1965) (codified as amended at 20 U.S.C. §§ 1001–1107 (2012), 42 U.S.C.A. §§ 2751–2756b (West 2012 & Supp. 2014)). 17 Id. § 421(a)(2), 79 Stat. at 1236. 18 Id. §§ 401–467, 79 Stat. 1219, 1232–54.

2015] FORGIVE AND FORGET 2021

loans directly.19 However, as of 2010, all federal student loans are is- sued directly by the government.20 To be eligible for federal funding, every institution has to enter into a program participation agreement (PPA) with the Secretary of Education.21 In its PPA, an institution is statutorily required to acknowledge that its eligibility for federal fund- ing is conditional upon a host of factors including cohort default rate, publication of accurate employment and graduation statistics, and op- eration of a drug abuse prevention program.22

At the same time as it enacted the HEA, Congress also enacted the National Vocational Student Loan Insurance Act of 196523 (NVSLIA). While the HEA applied to nonprofit institutions, the NVSLIA extend- ed the loan program to vocational and technical schools.24 Although both statutes now operate under Title IV, Congress retained some of the distinctions between for-profit institutions and other institutions of higher education. As opposed to general public and private institu- tions, these profession-focused institutions are required to provide a “program of training to prepare students for gainful employment in a recognized occupation.”25 As this provision has formed the basis for the Department’s expansive new regulations of for-profit colleges, its meaning has recently come under tremendous scrutiny without further guidance from legislative context.

B. The Rise of the For-Profit Education Sector

Over the last decade and a half, the growth of for-profit institutions has been extraordinary. Population growth and the changing labor market have fueled the rising demand for higher education.26 Because

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 19 See Jonathan D. Glater, The Other Big Test: Why Congress Should Allow College Students to Borrow More Through Federal Aid Programs, 14 N.Y.U. J. LEGIS. & PUB. POL’Y 11, 37–38 (2011). 20 See id. at 38; see also Health Care and Education Reconciliation Act of 2010, Pub. L. No. 111-152, §§ 2201–2213, 124 Stat. 1029, 1074–81 (codified as amended in scattered sections of 20 U.S.C.). 21 20 U.S.C. § 1094(a). 22 Id. 23 Pub. L. No. 89-287, 78 Stat. 1037. 24 Id. § 17(a). A few years later, in 1968, Congress combined the two loan programs into a sin- gle Title IV program. Higher Education Amendments of 1968, Pub. L. No. 90-575, § 116, 82 Stat. 1013–14. In 1992, the term “vocational school” was replaced by two different terms — “proprie- tary institution of higher education” and “postsecondary vocational institution.” Ass’n of Private Colls. & Univs. v. Duncan, 870 F. Supp. 2d 133, 140 (D.D.C. 2012) (citing Higher Education Amendments of 1992, Pub. L. No. 102-325, § 481, 106 Stat. 448, 609). For-profit institutions fall within the former. 20 U.S.C. § 1002(b)(1). 25 20 U.S.C. § 1002(b)(1)(A)(i). 26 John Aubrey Douglass, Money, Politics and the Rise of For-Profit Higher Education in the US: A Story of Supply, Demand and the Brazilian Effect, CENTER FOR STUD. HIGHER EDUC. 3 (Feb. 2012), http://www.cshe.berkeley.edu/sites/default/files/shared/publications/docs/ROPS.JAD .ForProfitsUS.2.15.2012.pdf [http://perma.cc/LP8Q-4NER].

2022 HARVARD LAW REVIEW [Vol. 128:2018

of their connection to the marketplace, for-profits are quick to open in order to train students for jobs in fast-growing areas.27

Additionally,

the Internet helped to support new models of educating that moved away from the traditional classroom setting and expanded the market- ing potential of for-profit colleges.28 The favorable regulatory envi- ronment of the first decade of the 2000s also supported the expansion of for-profit institutions by lowering the barrier to accessing federal funds.29

Between 2000 and 2012, enrollment in the for-profit education sec- tor tripled.30 For many members of historically disadvantaged groups, for-profit institutions serve as the primary vehicle for obtaining higher education and improving their economic condition.31 Compared to community colleges, attendees of for-profit institutions are “dispropor- tionately single parents, have much lower family incomes, and are al- most twice as likely to have a General Equivalency Degree.”32 Not surprisingly given the socioeconomic demographics of individuals who seek to obtain a postsecondary education at a for-profit, students at such institutions have to borrow a greater proportion of their educa- tional costs than their peers at public and private nonprofit colleges.33 Four-year for-profit colleges enrolled more than 1.3 million students in the fall of 2014.34 This growth in enrollment has also seen correspond- ing growth in federal loans that for-profits have received. From 2000 to 2011, federal Stafford loans more than doubled from $37 billion to $86 billion, which represents a significant percentage of for-profit rev- enue.35 However, such rapid growth is associated with a decrease in program quality36 and the prioritization of profits over students.37

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 27 David Deming, Claudia Goldin & Lawrence Katz, For-Profit Colleges, 23 FUTURE CHILD. 137, 139 (2013). 28 Douglass, supra note 26, at 3. 29 Id. 30 Deming et al., supra note 5, at 140. 31 See Constance Iloh & William G. Tierney, A Comparison of For-Profit and Community Col- leges’ Admissions Practices, C. & U., April 2013, at 2, 5. Black Americans account for 13% of all students in higher education but represent 22% of students in for-profit institutions. Deming et al., supra note 5, at 146. Latinos comprise 15% of students in for-profits even though they are only 11.5% of students in higher education. Id. Women are also disproportionately enrolled in for-profit colleges, as they comprise 65% of those attending such institutions. Id. 32 Deming et al., supra note 5, at 146. 33 See THE INST. FOR COLL. ACCESS & SUCCESS, QUICK FACTS ABOUT STUDENT DEBT (2014), http://www.ticas.org/files/pub/Debt_Facts_and_Sources.pdf [http://perma.cc/66PY-4NV5]. 34 NAT’L STUDENT CLEARINGHOUSE RESEARCH CTR., CURRENT TERM ENROLL- MENT REPORT – FALL 2014, at tbl.1 (2014), http://nscresearchcenter.org/currenttermenrollment estimate-fall2014 [http://perma.cc/PF57-WQDE]. 35 Deming et al., supra note 27, at 138–39. 36 See id. 37 The combination of for-profit colleges’ reliance on federal aid and increased compensation with higher enrollment incentivizes overly aggressive student recruitment. Id. at 149. The Gov-

2015] FORGIVE AND FORGET 2023

C. The 2014 Gainful-Employment Regulations

Despite having the authority to promulgate regulations governing the administration of Title IV funding,38 the Department of Education has historically chosen not to enact extensive regulations limiting ac- cess to these funds by underperforming institutions of higher learning. Until 2009, the Department primarily relied on two regulatory condi- tions as methods of attempting to ensure efficient use of Title IV re- sources — cohort default rates and the 90/10 rule. First, the cohort de- fault rate conditions an institution’s eligibility to receive certain Title IV funds on the percentage of students who have failed to make their loan payments in a given year.39 An institution loses its eligibility to participate if either its cohort default rate is 25% or higher for three consecutive years or its rate exceeds 40% in any one year.40 And sec- ond, under the 90/10 rule, a for-profit institution is required to receive more than 10% of its revenue from sources other than Title IV loan program funds.41

Recognizing the shortcomings of these two regulations,42 the De- partment initiated a rulemaking to better protect the integrity of feder- al student loan programs and actually enforce the “gainful employ- ment” requirement present in the federal statute. The first iteration of

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– ernment Accountability Office has also found that for-profit colleges engage in aggressive recruit- ing tactics that often contain deceptive statements and practices. See For-Profit Schools: The Student Recruitment Experience: Hearing Before the S. Comm. on Health, Educ., Labor & Pen- sions, 111th Cong. 10–38 (2010) [hereinafter Hearing] (statement of Gregory D. Kutz, Managing Director, Forensic Audits and Special Investigations, Government Accountability Office). 38 See 20 U.S.C. § 1221e–3 (2012). 39 Institutions that fail to meet the requirements of the cohort default rate regulations become ineligible to participate in the Federal Family Education Loan (FFEL), Direct Loan, and Federal Pell Grant programs. 34 C.F.R. § 668.187(a) (2014). A given year’s cohort consists of all the stu- dents who entered repayment that fiscal year on loan-program funds that they received in order to attend that institution. Id. § 668.183(b). 40 Id. § 668.187(a). To place these numbers in context, the national cohort default rate for fis- cal year 2011 was 13.7% for all institutions receiving Title IV funding through loan programs and 19.1% for proprietary (for-profit) institutions. U.S. DEP’T OF EDUC., COMPARISON OF FY 2011 OFFICIAL NATIONAL COHORT DEFAULT RATES TO PRIOR TWO OFFICIAL COHORT DE- FAULT RATES (2014), http://www2.ed.gov/offices/OSFAP/defaultmanagement/schooltyperates.pdf [http://perma.cc/WP5H-K9Z6]. 41 34 C.F.R. § 668.28. 42 For the cohort default rates, the narrow window in which defaults are considered has large- ly prevented this condition from imposing any form of meaningful limitation on access to Title IV funding. See Matthew A. McGuire, Note, Subprime Education: For-Profit Colleges and the Prob- lem with Title IV Federal Student Aid, 62 DUKE L.J. 119, 146–47 (2012). For the 90/10 rule, permitting revenue from other non–Title IV programs such as veterans’ benefits and Pentagon tuition assistance programs to fall outside the ninety-percent threshold undermines the purpose of requiring these institutions to prove independence. See Michael Stratford, New Fodder for 90/10 Debate, INSIDE HIGHER ED (Oct. 13, 2014), https://www.insidehighered.com/news/2014/10/13 /more-profit-colleges-would-fail-9010-rule-if-veterans-benefits-are-included-analysis [https://perma .cc/YM3Z-AFUL].

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this rulemaking (“the 2010 Regulation”43) was struck down by a feder- al court under the Administrative Procedure Act44 as arbitrary and ca- pricious.45 However, the Department was not deterred,46 and in Octo- ber 2014, the Department released its final version of the “gainful employment” regulation (“the 2014 Regulation”).47

Unlike the 2010 Regulation, the 2014 Regulation rests entirely on the debt-to-earnings rate — the ratio of the amount of student loan debt graduates from a for-profit program took on compared to their earnings.48 Just as in the 2010 Regulation, the debt-to-earnings ratio will be calculated in two ways: (1) an annual measure that compares student loan debt to annual earnings and (2) a discretionary measure that compares debt to earnings after subtracting 150% of the federal poverty line for a single individual.49 In order to calculate the annual loan repayments, the 2014 Regulation will use a three-year average of the Unsubsidized Stafford Loan rate for undergraduate certificates, as- sociate degrees, graduate certificates, and master’s degrees; and a six- year average for bachelor’s degrees and doctoral programs.50 Earnings will be measured either three and four or six and seven years after graduation, respectively.51

In another difference from the 2010 Regulation, a for-profit will pass the debt-to-earnings measure only if the rate is less than 8% on

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 43 Program Integrity Issues, 75 Fed. Reg. 66,832 (Oct. 29, 2010) (to be codified at 34 C.F.R. pts. 600, 602, 603, 668, 682, 685, 686, 690, 691). 44 Pub L. No. 79-404, 60 Stat. 237 (1946) (codified as amended in scattered sections of 5 U.S.C.). 45 See Ass’n of Private Sector Colls. & Univs. v. Duncan, 681 F.3d 427, 448 (D.C. Cir. 2012). For the most recent regulations, arbitrariness and capriciousness review is unlikely to be an issue given that the Department published multiple statistical regressions detailing the effects, or lack thereof, on low-income and minority students. See Program Integrity: Gainful Employment, 79 Fed. Reg. 64,890, 65,039–57 (Oct. 31, 2014) (to be codified at 34 C.F.R. pts. 600, 668) (providing charts and data showing that the annual earnings rate bears no strong negative correlation with increased enrollment by minorities or Pell Grant recipients). 46 Libby A. Nelson, Trying Again on ‘Gainful,’ INSIDE HIGHER ED (Apr. 16, 2013), https:// w w w . i n s i d e h i g h e r e d . c o m / n e w s / 2 0 1 3 / 0 4 / 1 6 / u s - a n n o u n c e s - r u l e m a k i n g - g a i n f u l - e m p l o y m e n t - s t a t e -authorization-and-long-term-agenda [https://perma.cc/BL7Q-TFEM]. In the previous litigation, the U.S. District Court for the District of Columbia found that the Secretary did have the statuto- ry authority under the HEA to promulgate regulations quantifying the term “gainful employ- ment.” See Ass’n of Private Colls. & Univs. v. Duncan, 870 F. Supp. 2d 133, 146–47 (D.D.C. 2012). 47 Program Integrity: Gainful Employment, 79 Fed. Reg. 64,890. 48 See Ben Miller, What’s Different, What’s New in Final Gainful Employment Rule, NEW AM. EDCENTRAL (Oct. 30, 2014), http://www.edcentral.org/finalgainful [http://perma.cc/PZV9 -GRJH]. The 2010 Regulation advocated for an additional test based on repayment rates that reached not only graduates but also included all students who had enrolled at a given institution. Program Integrity: Gainful Employment, 75 Fed. Reg. 43,616, 43,618 (July 26, 2010) (to be codi- fied at 34 C.F.R. pt. 668). 49 Miller, supra note 48. 50 Id. 51 Id.

2015] FORGIVE AND FORGET 2025

the annual measure or 20% on the discretionary measure.52 If the debt-to-earnings rate falls between 8% and 12% on the annual measure or between 20% and 30% on the discretionary measure, the institution is placed in a warning zone.53 A program will fail the debt-to-earning measure if its annual measure exceeds 12% and its discretionary meas- ure exceeds 30%.54 The number of years that a for-profit spends in the warning zone or has failed the debt-to-earnings ratio determines its el- igibility for Title IV funding. If a school spends four consecutive years in the warning zone or fails twice in a three-year period — a shorter timeframe than in the 2010 Regulation — then it will lose its eligibil- ity.55 The year before an institution is subject to the loss of Title IV eligibility, it must disclose its status to both enrolled and prospective students, and the school must receive some kind of acknowledgement from the recipients that they received the message.56

Recognizing the role that for-profit institutions look to play in providing quality career educations to the populations that need them the most, Secretary of Education Arne Duncan has noted: “[For-profit] colleges must be a stepping stone to the middle class. But too many hard-working students find themselves buried in debt with little to show for it.”57 In announcing the new rule, Secretary Duncan stated that the regulations are a “necessary step to ensure that colleges ac- cepting federal funds protect students, cut costs and improve out- comes.”58 Supporting these goals, the 2014 Regulation will impact a significant number of for-profit college students; an estimated 840,000 students attend for-profits that would not pass under the new regulations.59

As with any regulation that could lead to school closures, one wor- ry with placing restrictions on Title IV funding is that it would also limit student access to postsecondary educational opportunities and force historically underrepresented communities, in particular low- income and minority students, to forego college altogether.60 While it

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 52 Id. 53 U.S. DEP’T OF EDUC., FACT SHEET ON FINAL GAINFUL EMPLOYMENT REGULA- TIONS (2014), http://www2.ed.gov/policy/highered/reg/hearulemaking/2012/gainful-employment -fact-sheet-10302014.pdf [https://perma.cc/RHP5-EWWR]. 54 Miller, supra note 48. 55 Id. Under the 2010 Regulation, a for-profit had to fail three times in a four-year period to lose eligibility and there was no warning zone concept. Id. 56 Id. 57 Press Release, U.S. Dep’t of Educ., supra note 8. 58 Id. 59 James Marshall Crotty, Obama Tightens Screws on For-Profit Colleges, FORBES (Oct. 30, 2014, 7:17 AM), h t t p : / / w w w . f o r b e s . c o m / s i t e s / j a m e s m a r s h a l l c r o t t y / 2 0 1 4 / 1 0 / 3 0 / n e w - g a i n f u l -employment-rules-tighten-screws-on-for-profit-colleges [https://perma.cc/BH8B-FH2J?type=pdf]. 60 See Press Release, Ass’n of Private Sector Colls. & Univs., U.S. Department of Education Regulation Denies Access to Millions of New Traditional Students (Oct. 30, 2014), http://www

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is certainly possible that the 2014 Regulation could have an adverse effect on the educational attainment of underprivileged communities, these concerns are often overstated and actually counterproductive to the interests of the students attending these institutions. First, there are a number of reasons to believe that the 2014 Regulation will result in a shift in enrollment to other for-profit colleges and community col- leges61 rather than a decrease in total enrollment. While access may be limited in the short term, some researchers anticipate positive long- term effects: students, they expect, will adapt and transfer to higher performing institutions rather than exit the postsecondary education market completely.62 Additionally, the capacity of the for-profit sector is rapidly expanding and could accommodate displaced students.63 And, second, even if the new regulations restrict access, it is far better for some students to forego postsecondary education opportunities than to attend one of these failing institutions that provide little to no benefit. Considering a staggering dropout rate64 and minimal wage

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– .career.org/news-and-media/press-releases/us-department-of-education-regulation-denies-access-to -millions-of-new-traditional-students.cfm [http://perma.cc/D5NS-HNKQ]; The Gainful Employ- ment Regulation: Limiting Job Growth and Student Choice: Joint Hearing Before the Subcomm. on Regulatory Affairs, Stimulus Oversight & Gov’t Spending of the H. Comm. on Oversight & Gov’t Reform and the Subcomm. on Higher Educ. & Workforce Training of the H. Comm. on Educ. & the Workforce, 112th Cong. 49–50 (2011) (statement of Harry C. Alford, President & CEO, National Black Chamber of Commerce). 61 See Stephanie Riegg Cellini, For-Profit Higher Education: An Assessment of Cost and Bene- fits, 65 NAT’L TAX J. 153, 157 (2012) (stating that for-profit colleges and community colleges compete for students); Anna S. Chung, Choice of For-Profit College, 31 ECON. EDUC. REV. 1084, 1089 (2012) (suggesting that the population of students at for-profit institutions is highly mobile across educational options). But see Joe Nocera, Why We Need For-Profit Colleges, N.Y. TIMES (Sept. 16, 2011), http://www.nytimes.com/2011/09/18/magazine/why-we-need-for-profit-colleges .html (contending that for-profit colleges and community colleges are not substitute goods and that for-profit colleges are better equipped to meet the needs of certain types of students). 62 See MAC TAYLOR, LEGISLATIVE ANALYST’S OFFICE, AN ANALYSIS OF NEW CAL GRANT ELIGIBILITY RULES 12 (2013), http://www.lao.ca.gov/reports/2013/edu/new-cal-grant /new-cal-grant-010713.pdf [http://perma.cc/H58H-GC2B] (expressing the belief that imposing a maximum cohort default rate of 15.5% will have little effect on access in the long term). 63 See Program Integrity: Gainful Employment, 79 Fed. Reg. 64,890, 65,083 tbl.3.8 (Oct. 31, 2014) (to be codified at 34 C.F.R. pts. 600, 668) (projecting the number of passing programs to nearly double by 2024 as the current expansion of the for-profit sector continues). These institu- tions have been particularly responsive to increased demands from the education market, utilizing innovative practices like distance learning to provide additional services to meet the increasing demand. See Cellini, supra note 61, at 156. 64 See MAMIE LYNCH ET AL., THE EDUC. TRUST, SUBPRIME OPPORTUNITY: THE UN- FULFILLED PROMISE OF FOR-PROFIT COLLEGES AND UNIVERSITIES 2–3 (2010), http://files.eric.ed.gov/fulltext/ED513339.pdf [http://perma.cc/PC6R-7KWS] (noting that only 22% of students seeking bachelor’s degrees at for-profit colleges complete their programs within six years compared to 55% at public colleges). Across the higher education spectrum, individuals who start but fail to complete a program appear to obtain virtually no benefits, and perhaps even suffer some harm in the form of stigmatization. See Melissa Korn, A Bit of College Can Be Worse Than None at All, WALL ST. J. (Oct. 13, 2014, 12:10 PM), http://www.wsj.com/articles/a-bit-of -college-can-be-worse-than-none-at-all-1413158511 [http://perma.cc/S52B-XN7H].

2015] FORGIVE AND FORGET 2027

premium,65 attendance at a for-profit institution that fails the debt-to- earnings ratio will likely fail to provide a student with sufficient return on her investment to overcome the opportunity cost and debt burden incurred in the process.66 The view of education as a vehicle for social improvement not only requires access to educational opportunities but also mandates that those opportunities meaningfully develop the skills students need to succeed in society.67 Along that dimension, any re- strictions on access brought on by the 2014 Regulation would likely benefit low-income and minority students because the for-profit insti- tutions that would be most harmful to their financial and employment interests would be forced to ensure that their students are prepared and able to find jobs that will allow them to service their loan debt.

II. REFORM OF INDIVIDUAL BANKRUPTCY DOCTRINE

While the ex ante regulations adopted by the Department work to protect students from matriculating at some failing for-profit institu- tions, they do not completely eliminate the need for more robust retro- spective relief for debtors who find themselves at underperforming in- stitutions that have retained Title IV eligibility.68 This Part advocates for a loosening of the judicial standards governing dischargeability of debt in individual bankruptcy proceedings to complement the tighten- ing of access to federal funding. The standard controlling discharge of student loans in bankruptcy court is nearly two decades old. With ris- ing tuition costs and fiercer competition among graduates for employ- ment, it is not difficult to imagine why this restrictive standard has

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 65 See Rajeev Darolia et al., Do Employers Prefer Workers Who Attend For-Profit Colleges? Evidence from a Field Experiment 19–20 (RAND Working Paper Series, Paper No. WR-1054, 2014), http://www.rand.org/content/dam/rand/pubs/working_papers/WR1000/WR1054/RAND _WR1054.pdf [http://perma.cc/WH8M-3A3U]; Kevin Lang & Russell Weinstein, Evaluating Stu- dent Outcomes at For-Profit Colleges 25 (Nat’l Bureau of Econ. Research, Working Paper No. 18201, 2012), http://www.nber.org/papers/w18201.pdf [http://perma.cc/FUS4-8H67]. 66 See Stephanie Riegg Cellini & Latika Chaudhary, The Labor Market Returns to a For-Profit College Education, 43 ECON. EDUC. REV. 125, 138 (2014) (noting that, while the optimistic calcu- lations show that graduates of a two-year for-profit earn a 7% per-year return, this number falls short of the 8.5% per-year return needed to cover the full private costs of attendance). 67 See Michael A. Rebell, Poverty, “Meaningful” Educational Opportunity, and the Necessary Role of the Courts, 85 N.C. L. REV. 1467, 1501–03 (2007). See generally Amy L. Moore, When Enough Isn’t Enough: Qualitative and Quantitative Assessments of Adequate Education in State Constitutions by State Supreme Courts, 41 U. TOL. L. REV. 545, 560–75 (2010) (discussing the second wave of education litigation and its emphasis on adequacy rather than equity). 68 Many commentators have criticized the final version of the regulations for being watered down and doubt its ability to truly filter out the worst for-profit colleges. See, e.g., David Halperin, New Gainful Employment Rule Is Weak, but Predatory For-Profit Colleges Remain on the Ropes, HUFFINGTON POST (Dec. 29, 2014, 5:59 AM), h t t p : / / w w w . h u f f i n g t o n p o s t . c o m /davidhalperin/new-gainful-employment-ru_b_6072470.html [http://perma.cc/4Z5V-8U7M].

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been referred to as “a relic of times long gone.”69 Here, this Note ar- gues that more robust ex ante regulation of access to Title IV funds provides courts with leeway or justification to overturn precedent that makes it difficult for debtors to obtain meaningful relief.

A. Undue Hardship and the Current Approach to Discharge

Under the discharge provision of Chapter 7 of the Bankruptcy Code,70 individuals are generally presumed to be able to discharge their debts in a bankruptcy proceeding.71 This presumption, however, does not extend to debt from educational loans.72 Under § 523(a)(8) of the Bankruptcy Code, student loans are presumed not to be discharge- able if “made, insured, or guaranteed by a governmental unit, or made under any program funded . . . by a governmental unit.”73 Currently, the Code only provides for an exception to this general presumption when not allowing discharge would “impose an undue hardship on the debtor and the debtor’s dependents.”74 But Congress did not define “undue hardship” in any of the bankruptcy statutes.

Therefore, in the absence of clear congressional guidance, the bur- den has fallen on the courts to interpret the scope of this exception. The most popular interpretation of undue hardship was first articulat- ed by the Second Circuit in Brunner v. New York State Higher Educa- tion Services Corp.75 Following Brunner, a majority of courts apply a three-part test to determine undue hardship:

(1) that the debtor cannot maintain . . . a ‘minimal’ standard of liv- ing . . . if forced to repay the loans; (2) that additional circumstances exist indicating that this state of affairs is likely to persist for a significant por-

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 69 Roth v. Educ. Credit Mgmt. Corp. (In re Roth), 490 B.R. 908, 920 (B.A.P. 9th Cir. 2013) (Pappas, J., concurring). 70 11 U.S.C. § 727 (2012). 71 See Robert B. Milligan, Comment, Putting an End to Judicial Lawmaking: Abolishing the Undue Hardship Exception for Student Loans in Bankruptcy, 34 U.C. DAVIS L. REV. 221, 227 (2000). There is, however, a limitation on this general presumption: Congress separately provided that, as a matter of policy, certain debts such as unpaid taxes and child support could not be dis- charged under Chapter 7. See 11 U.S.C. § 523; see also Milligan, supra, at 227. 72 Originally, the presumption in favor of dischargeability extended to student loan debt just as it did for most other debt. See Kurt Wiese, Note, Discharging Student Loans in Bankruptcy: The Bankruptcy Court Tests of “Undue Hardship,” 26 ARIZ. L. REV. 445, 446 (1984). However, with regard to student loan debt, the presumption flipped during the 1970s, partially in response to worries that student loan borrowers were abusing bankruptcy laws to discharge their debts. See id. 73 11 U.S.C. § 523(a)(8)(A)(i). 74 Id. § 523(a)(8). This same undue hardship exception has also been extended by statute to Chapter 13 bankruptcy proceedings. See Student Loan Default Prevention Initiative Act of 1990, Pub. L. No. 101-508, § 3007(b), 104 Stat. 1388-25, 1388-28. 75 831 F.2d 395 (2d Cir. 1987) (per curiam); see also Daniel A. Austin, The Indentured Genera- tion: Bankruptcy and Student Loan Debt, 53 SANTA CLARA L. REV. 329, 373 (2013).

2015] FORGIVE AND FORGET 2029

tion of the repayment period . . . ; and (3) that the debtor has made good faith efforts to repay the loans.76

The Brunner test has been adopted in all but four of the federal cir- cuits.77 Yet several commentators have criticized the application of the Brunner test as both overly harsh78 and lacking uniformity.79

The former of these two characteristics is by design. The district court in Brunner deliberately articulated a standard that would prove difficult to overcome.80 Many of the courts that have embraced Brun- ner have interpreted the test as requiring a “certainty of hopelessness” in a debtor’s ability to repay the loan before finding undue hardship and allowing student loans to be discharged.81 For many courts, the second prong of the Brunner test can only be satisfied by extreme cir- cumstances like permanent illness or disability.82 In effect, judicial in- terpretation of this provision of the Bankruptcy Code has produced an inflexible barrier to discharging student loan debt for many individuals who seek bankruptcy not as a means of duping the government but as a means of overcoming a legitimate inability to repay their debts.

In part, the stringent Brunner interpretation of the undue hardship exception has been guided by a belief that the judiciary needed to act as a tough obstacle in order to protect the federal loan program. The district court in Brunner understood this seemingly “draconian” barrier as “plainly serv[ing] the purposes of the guaranteed student loan pro- gram.”83 In explaining this view, the court portrayed the federal gov- ernment as a vulnerable entity dispensing funds without consideration of the likelihood of repayment. Unlike private commercial lenders, the

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 76 Brunner, 831 F.2d at 396. 77 See G. Michael Bedinger VI, Note, Time for a Fresh Look at the “Undue Hardship” Bank- ruptcy Standard for Student Debtors, 99 IOWA L. REV. 1817, 1830 (2014). 78 See, e.g., Robert F. Salvin, Student Loans, Bankruptcy, and the Fresh Start Policy: Must Debtors Be Impoverished to Discharge Educational Loans?, 71 TUL. L. REV. 139, 164 (1996). 79 See, e.g., Milligan, supra note 71, at 261–62; Rafael I. Pardo & Michelle R. Lacey, Undue Hardship in the Bankruptcy Courts: An Empirical Assessment of the Discharge of Educational Debt, 74 U. CIN. L. REV. 405, 412 (2005). 80 See Brunner v. N.Y. State Higher Educ. Servs. Corp. (In re Brunner), 46 B.R. 752, 756 (S.D.N.Y. 1985) (“The effect of these requirements is to make student loans a very difficult burden to shake without actually paying them off.”). 81 See, e.g., Oyler v. Educ. Credit Mgmt. Corp. (In re Oyler), 397 F.3d 382, 386 (6th Cir. 2005); In re Roberson, 999 F.2d 1132, 1136 (7th Cir. 1993); see also Richard Fossey, “The Certainty of Hopelessness:” Are Courts Too Harsh Toward Bankrupt Student Loan Debtors?, J.L. & EDUC., July 1997, at 29, 36. However, some courts have moved away from the view that the Brunner test requires such hopelessness. See, e.g., King v. Vt. Student Assistance Corp. (In re King), 368 B.R. 358, 368–69 (Bankr. D. Vt. 2007) (viewing adherence to the certainty of hopelessness standard as “misplaced,” id. at 368); Salinas v. United Student Aid Funds, Inc. (In re Salinas), 240 B.R. 305, 313 n.15 (Bankr. W.D. Wis. 1999), rev’d, 262 B.R. 457 (W.D. Wis. 1999) (rejecting the need for a “draconian” standard as suggested in Brunner). 82 Oyler, 397 F.3d at 386. 83 Brunner, 46 B.R. at 756.

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federal government does not tailor the terms of each loan to reflect the personalized risk of an individual seeking Title IV loans.84 The virtual inability to discharge student loan debt was viewed as part of the bar- gain struck with a Congress that provided federal loans with limited government oversight and seemingly without regard to the risk of de- fault.85 This understanding of the federal loan program may have ac- curately reflected the regulatory regimes that existed at the time of Brunner and warranted the restrictive understanding of “undue hardship.”

B. Against the Current “Undue Hardship” Approach

But since Brunner was decided in 1985, the regulatory landscape has changed considerably. It was not until 1990 in the Student Loan Default Prevention Initiative Act86 (SLDPIA) that Congress amended the HEA to include the cohort default rate as a restriction on access to funding.87 For the first time, the Department limited an institution’s access to the federal loan program based in part on the number of its graduates successfully repaying their student loan debt.88 Instead of conducting an individualized assessment of repayment risk for each loan applicant, the Department began to examine the aggregate re- payment risk of institutions’ loan portfolios. In this way, the govern- ment’s behavior began to simulate that of commercial lenders to a degree.

Similarly, the 2014 Regulation moved the government a step closer toward commercial lending practices. First, the debt-to-earnings re- quirement in the October 2014 regulations considers exactly what the Brunner court assumed the government as a lender could not: likeli- hood of repayment. The new regulations provide a more sophisticated measure of risk assessment than previous regulations. Unlike the co- hort default rates, which simply measured the number of students avoiding default, the gainful-employment requirement actually looks at the expected ability of a graduate to actively repay loan debt based

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 84 See id. (“When making such loans, the government (as guarantor) is unable to behave like ordinary commercial lenders . . . . It offers loans at a fixed rate of interest, and it does so almost without regard for creditworthiness.”); Michael Simkovic, Risk-Based Student Loans, 70 WASH. & LEE L. REV. 527, 565–66 (2013). 85 See DeRose v. EFG Techs. & Educ. Credit Mgmt. Corp. (In re DeRose), 316 B.R. 606, 609 (Bankr. W.D.N.Y. 2004) (“Congress purposefully granted a benefit to a student for which, in re- turn, both the educational loan and bankruptcy statutes require the student debtor to bear the risks and burdens . . . .”). 86 Pub. L. No. 101-508, §§ 3001–3008, 104 Stat. 1388-25, 1388-25 to -29 (1990) (codified in scattered sections of 11 and 20 U.S.C.). 87 See John H. Robinson & Mary Elizabeth Huber, The Law of Higher Education and the Courts: 1993 in Review, 21 J.C. & U.L. 157, 228–29 (1994). 88 See id.; Simkovic, supra note 84, at 562–63.

2015] FORGIVE AND FORGET 2031

on earnings and disposable income. This practice of using the ratio of income to debt burden is similar to the underwriting standards em- ployed in mortgage lending decisions.89 In that context, lenders make decisions about whether to underwrite a mortgage based in part on the percentage of monthly income consumed by debt payments.90 Here, the Department of Education has likewise decided to limit the access of for-profit institutions to Title IV funding under a similar rationale. And the actual ratios and percentages of the debt-to-earnings require- ment can function as a more objective filter than the first prong of the Brunner test. By looking at loan payments as a percentage of discre- tionary income and annual earnings, the Department has in part quan- tified the subjective “minimal standard of living” analysis in Brun- ner.91 The shift toward greater regulation of the for-profit education sector shows that Title IV funding will not be distributed without con- sideration of the risk of default.

C. Alternatives to a Narrow Brunner Interpretation

In light of more robust ex ante regulation of access to Title IV funds, the various circuits that have embraced the Brunner test for undue hardship should adopt a less restrictive interpretation of § 523(a)(8) in the context of contemporary for-profit institutions. Courts could either apply the existing Brunner analysis but embrace a more lenient “undue hardship” test by adjusting its second prong or abandon Brunner entirely in favor of a totality-of-circumstances test.

If courts elect to work within the existing Brunner framework, they should consider the educational benefits actually obtained by a student in assessing whether an individual debtor’s inability to meet his or her loan obligations is likely to persist for the foreseeable future. The pri- mary source of Brunner’s inflexibility in many courts is the narrow construction of the “additional circumstances” requirement, which ex- cludes consideration of educational benefit.92 Allowing consideration of quality of education at a for-profit institution is not inherently in- compatible with the second prong of the Brunner analysis. In fact, the Ninth Circuit, which continues to follow Brunner (although with res-

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 89 See SANDY BAUM & SAUL SCHWARTZ, COLL. BD., HOW MUCH DEBT IS TOO MUCH? DEFINING BENCHMARKS FOR MANAGEABLE STUDENT DEBT 2–3 (2006), http://research . c o l l e g e b o a r d . o r g / s i t e s / d e f a u l t / f i l e s / p u b l i c a t i o n s / 2 0 1 2 / 9 / r e s e a r c h i n r e v i e w - 2 0 0 6 - 1 2 - b e n c h m a r k s -manageable-student-debt.pdf [http://perma.cc/6475-K3TZ]. 90 See id. 91 See Milligan, supra note 71, at 261–62 (describing the inquiry into an individual’s minimal needs as giving “judges unbridled discretion to factor their personal values and sensitivities into these determinations,” id. at 261). 92 See, e.g., In re Roberson, 999 F.2d 1132, 1137 (7th Cir. 1993); Mathews v. Higher Educ. As- sistance Found. (In re Mathews), 166 B.R. 940, 943 n.3 (Bankr. D. Kan. 1994); Sands v. United Student Aid Funds, Inc. (In re Sands), 166 B.R. 299, 310 n.19 (Bankr. W.D. Mich. 1994).

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ervations93), allows for consideration of “[p]oor quality of education” and “[l]ack of usable or marketable job skills” as objective factors in- fluencing a court’s evaluation of a debtor’s ability to repay his or her loan in the future.94 With this expanded notion of undue hardship, it is no surprise that the bankruptcy courts of the Ninth Circuit have been a friendlier forum for students seeking discharge of loan debts.95 Furthermore, the notion that “additional circumstances” must be en- tirely beyond the control of the debtor96 seems to be less compelling in an economic climate that coerces unskilled workers to pursue over- priced postsecondary education.97 By including factors such as quality of education and type of degree program attended, the Brunner test would be more open to debtors suffering real hardship as a result of valueless degrees from for-profit institutions.

For courts willing to abandon Brunner completely,98 an alternative approach could be a more widespread adoption of the “totality-of- circumstances” test embraced by the Eighth Circuit99 and an assort- ment of district and bankruptcy courts.100 Under that analysis, the bankruptcy court looks at “(1) the debtor’s past, present, and reason- ably reliable future financial resources; (2) a calculation of the debtor’s and her dependent[s’] reasonable necessary living expenses; and (3) any other relevant facts and circumstances surrounding each particular

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 93 See Roth v. Educ. Credit Mgmt. Corp. (In re Roth), 490 B.R. 908, 922–23 (B.A.P. 9th Cir. 2013) (Pappas, J., concurring). 94 See, e.g., Educ. Credit Mgmt. Corp. v. Nys (In re Nys), 446 F.3d 938, 947 (9th Cir. 2006) (quoting Nys v. Educ. Credit Mgmt. Corp. (In re Nys), 308 B.R. 436, 446–47 (B.A.P. 9th Cir. 2004)). 95 See, e.g., Batdorf v. Sallie Mae & Direct Loan SVC Sys. (In re Batdorf), No. 13–22960–C–7, 2014 WL 5100228, at *3–4 (Bankr. E.D. Cal. Sept. 30, 2014) (expressing that “[t]he court is sympa- thetic” to students and their plight, id. at *3); Cota v. U.S. Dep’t of Educ. (In re Cota), 298 B.R. 408, 418–19 (Bankr. D. Ariz. 2003) (finding the second prong satisfied in part due to “the lack of any economic benefit,” id. at 418, to the debtor in question). 96 See Oyler v. Educ. Credit Mgmt. Corp. (In re Oyler), 397 F.3d 382, 386 (6th Cir. 2005) (“[M]ost importantly, [additional circumstances] must be beyond the debtor’s control, not borne of free choice.”). 97 Cf. ELAINE L. CHAO ET AL., U.S. DEP’T OF LABOR, ADULT LEARNERS IN HIGHER EDUCATION 3 (2007), http://files.eric.ed.gov/fulltext/ED497801.pdf [http://perma.cc/R6FV-8877] (discussing a global economy that “demands higher levels of academic and technical knowledge, as well as other skills such as good communication and problem-solving abilities”). 98 Unlike when Brunner was decided, the presumption against discharge continues indefinitely as opposed to the five-year limitation under previous iterations of the statute. See Batdorf, 2014 WL 5100228, at *3 (“The question is what type of demonstration is required of ‘undue hardship’ when the only way out ever is undue hardship. It seems that the latter question is a far different question tha[n] what was before the courts in Brunner and that the perpetuation of the Brunner test is not appropriate or, at a minimum, needs to be re-calibrated.”). 99 See Andrews v. S.D. Student Loan Assistance Corp. (In re Andrews), 661 F.2d 702, 705 (8th Cir. 1981). 100 See, e.g., Kopf v. U.S. Dep’t of Educ. (In re Kopf), 245 B.R. 731, 739–41 (Bankr. D. Me. 2000).

2015] FORGIVE AND FORGET 2033

bankruptcy case.”101 This case-by-case analysis permits a more open- ended inquiry into claims of undue hardship than the traditional Brunner test permits.102 First, the “totality-of-circumstances” test could leave room for courts to distinguish loan debt at for-profit insti- tutions from other educational loan debt. Taking into consideration the unique positions of graduates of ineffective vocational schools, some courts have already begun to call for a standard that accounts for the circumstances giving rise to these graduates’ overwhelming loan burdens.103 Second, this more flexible approach allows for a middle ground between the restrictive interpretations of “undue hardship” and a return to the presumption that student loans are dischargeable like any other debt. But a more flexible standard does not necessarily mean courts must, or will, begin to discharge student debt in a fashion hazardous to the federal loan program. Judicial discretion in bank- ruptcy is and should remain a fundamental aspect of discharging debt of all types.104 In that light, rethinking the narrow Brunner analysis can be understood as freeing up discretion from dated doctrinal stan- dards and allowing broader bankruptcy principles of fairness and eq- uity to guide judicial decisionmaking.

III. REFORM OF INSTITUTIONAL BANKRUPTCY STATUTES

In addition to utilizing bankruptcy doctrine to allow students to discharge their educational debt, the Department of Education should consider more readily allowing for-profit institutions to go bankrupt in order to mitigate students’ loan burdens. This Part looks to institu- tional bankruptcy as a means of protecting the financial interests of enrollees at for-profits and questions the Department of Education’s reluctance to support such bankruptcies. Given that failing the gainful-employment test would result in loss of Title IV eligibility — upon which many for-profits are heavily dependent — allowing the bankruptcy of a school that repeatedly graduated students who could not meet the debt-to-earnings ratio would seem to fall in line with the intent of the rule. Under current regulations, if a school closes, stu- dents with federal loans are eligible to have them discharged if they

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 101 Long v. Educ. Credit Mgmt. Corp. (In re Long), 322 F.3d 549, 554 (8th Cir. 2003). 102 See id. (noting that the court “prefer[s] a less restrictive approach to the ‘undue hardship’ inquiry” that Brunner provides). 103 See Roth v. Educ. Credit Mgmt. Corp. (In re Roth), 490 B.R. 908, 922–23 (B.A.P. 9th Cir. 2013) (Pappas, J., concurring) (“It would seem that in this new, different environment, in deter- mining whether repayment of a student loan constitutes an undue hardship, a bankruptcy court should be afforded flexibility to consider all relevant facts about the debtor and the subject loans. But Brunner does not allow it.”). 104 See Durrani v. Educ. Credit Mgmt. Corp. (In re Durrani), 311 B.R. 496, 509 (Bankr. N.D. Ill. 2004); see also 11 U.S.C. § 523(a)(8) (2012).

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meet certain criteria.105 Students who have private loans may also be eligible to have them discharged if the private lender has a procedure for the discharge or if their state provides school-closure assistance.106 As such, school closures can have a positive impact on the financial situation of students who have attended institutions that were closed due to losing eligibility for Title IV funding under the gainful- employment regulation.

A. The Effect of Bankruptcy on For-Profit Institutions

Under the 1992 amendments to the Higher Education Act, institu- tions of higher learning that file for bankruptcy are ineligible for Title IV funds.107 This change was made to remedy the waste, fraud, and abuse that were found in the for-profit higher education sector in the period prior to the reauthorization of the Higher Education Act.108 A congressional investigation found that for-profit institutions could uti- lize bankruptcy protection as a means to shield themselves from regu- latory actions.109 Following the amendment’s passage, the Department of Education promulgated regulations to carry out the statute’s provi- sions.110 The rule not only encompasses the institutions of higher learning themselves but their management companies as well.111

For most postsecondary institutions, federal financial aid is a signif- icant portion of their revenue. In fiscal year 2013, federal grants and loans received under Title IV accounted for an average of 71.5% of the revenues among Title IV–eligible for-profit institutions.112 Given this reliance on federal financial aid, losing Title IV eligibility for three years would force many postsecondary programs to file for bankrupt- cy. Once the institution files for bankruptcy, the Office of Postsecond-

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 105 See 34 C.F.R. § 685.214 (2014). 106 See Rohit Chopra, What Happens to Your Student Loans If Your School Is Shut Down, CONSUMER FIN. PROTECTION BUREAU (July 2, 2014), http://www.consumerfinance.gov/blog /what-happens-to-your-student-loans-if-your-school-is-shut-down [http://perma.cc/YDY6-A95D]. 107 See 20 U.S.C. § 1002(a)(4)(A) (2012). 108 See S. REP. NO. 102-58, at 1–2 (1991). 109 Specifically, the investigators heard testimony that revealed that for-profit institutions going through bankruptcy proceedings were still admitting students who were taking out federal loans to pay tuition. Id. at 19. 110 See 34 C.F.R. § 600.7; see also Aaron Lacey, Why Colleges in Bankruptcy Should Have Ac- cess to Federal Financial Aid, THOMPSON COBURN, LLP (Oct. 7, 2014), http://www . t h o m p s o n c o b u r n . c o m / n e w s - a n d - i n f o r m a t i o n / r e g u c a t i o n / b l o g / 1 4 - 1 0 - 0 7 / w h y - c o l l e g e s - i n -bankruptcy-should-have-access-to-federal-financial-aid.aspx [http://perma.cc/TY3G-J899]. 111 34 C.F.R. § 600.7(a)(2). The ineligibility for federal financial aid funds is effective as of the date of the bankruptcy, and once an institution loses its eligibility, the loss is permanent. 2 DEP’T OF EDUC., FEDERAL STUDENT AID HANDBOOK 2014–2015, at 11 (2014), http://ifap.ed.gov /fsahandbook/attachments/1415FSAHbkVol2Ch1.pdf [http://perma.cc/5GS9-DGMF]. 112 Calculations were made using data from the Department of Education. See U.S. DEP’T OF EDUC., 90/10 REPORT 2012–2013 (2014), https://studentaid.ed.gov/sites/default/files/fsawg /datacenter/library/9010Report20122013.xls [https://perma.cc/J2L6-Z5QK].

2015] FORGIVE AND FORGET 2035

ary Education Identification (OPEID) number that signifies the organ- ization’s status as a Title IV–eligible institution becomes obsolete.113 This number, which would be one of the closing institution’s most val- uable assets, becomes “essentially worthless” and makes finding a will- ing buyer extremely difficult and closure likely.114

Given for-profit institutions’ heavy reliance on federal aid, the 2014 Regulation has the potential to cause bankruptcies at for-profits throughout the country since the rule will revoke Title IV eligibility for institutions that fail to meet the debt-to-earnings ratio.115 As such, the 2014 Regulation could be the catalyst for institutional bankruptcies that could help the least financially capable students. The bankruptcy- related school closures and the subsequent access to closed-school dis- charges could help for-profit students handle debt incurred from edu- cations that did not prepare them for gainful employment.

B. The Department of Education’s Approach to Institutional Bankruptcy

Despite the benefits that students would receive if their for-profit college failed the debt-to-earnings ratio, the Department of Education is not likely to allow an institution to simply shut its doors without in- tervening in the process. Rather, the Department’s policy is geared toward preventing for-profit institution bankruptcies since they lead to closures.116

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 113 Andrew Scurria, For-Profit Colleges Unlikely to See Ch. 11 Fix Soon, LAW360 (Oct. 9, 2014, 8:10 PM), h t t p : / / w w w . l a w 3 6 0 . c o m / a r t i c l e s / 5 8 1 4 4 6 / f o r - p r o f i t - c o l l e g e s - u n l i k e l y - t o - s e e - c h - 1 1 - f i x -soon [https://perma.cc/C4U4-EW6R]. 114 Id. 115 Large for-profit institutions have been in danger of shutting down when the Department of Education has withheld federal funds. See Karen Weise, The For-Profit College That’s Too Big to Fail, BLOOMBERG BUSINESSWEEK (Sept. 25, 2014), h t t p : / / w w w . b u s i n e s s w e e k . c o m / a r t i c l e s /2014-09-25/corinthian-colleges-for-profit-and-too-big-to-fail [http://perma.cc/KD8E-7HPS] [here- inafter Weise, Too Big to Fail]. Even the threatened withholding of federal aid has placed for- profits in precarious financial positions. See John Lauerman & Janet Lorin, ITT Educational Scrutiny Spreads to College’s Lenders, BLOOMBERG BUS. (Aug. 7, 2014, 6:26 PM), h t t p : / / w w w . b l o o m b e r g . c o m / n e w s / a r t i c l e s / 2 0 1 4 - 0 8 - 0 7 / i t t - e d u c a t i o n a l - s c r u t i n y - f r o m - u - s - r e g u l a t o r s - j o i n e d - b y -lenders [http://perma.cc/TD72-J4EY]; see also Karen Weise, S&P Says Weakened For-Profit Col- leges Have a Grim Future, BLOOMBERG BUS. (Aug. 27, 2014), h t t p : / / w w w . b l o o m b e r g . c o m / b w /articles/2014-08-27/weak-student-outcomes-threaten-for-profit-schools-says-s-and-p [http://perma .cc/MTH8-ARLQ]. 116 See Paul Fain, Fallen Giant, INSIDE HIGHER ED (June 26, 2014), https://www .insidehighered.com/news/2014/06/26/corinthians-failure-and-us-role-it-fuels-profit-critics [https:// perma.cc/QSF5-2HLN] (noting that the Department of Education and officials from the for-profit institution Corinthian Colleges were in “[i]ntensive negotiations” to prevent the education compa- ny’s schools from closing). Protecting for-profits from closure is actively pursued when the num- ber of enrollees is high. See Karen Weise, It’s Hard to Shut Down a Poorly Performing For-Profit College, BLOOMBERG BUS. (July 2, 2014), http://www.bloomberg.com/bw/articles/2014-07-02 / w h y - t h e - g o v e r n m e n t - i s - s t r u g g l i n g - t o - s h u t - d o w n - c o r i n t h i a n - c o l l e g e s [http://perma.cc/4WH7 -NRN7]. To do so, the Department may look to support for-profit education companies’ attempts

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This approach was most recently seen in the proposed sale of Co- rinthian Colleges, a postsecondary education company that operates for-profit institutions with nearly 72,000 students.117 More than four years ago, the Government Accountability Office found Corinthian to be one of fifteen for-profit institutions that engaged in fraudulent prac- tices in the enrollment and financial aid process.118 In June 2014, the Department of Education subjected Corinthian to an increased level of financial oversight and withheld its access to $1.4 billion in federal student aid that Corinthian received annually from the Department — more than 80% of the for-profit institution’s total annual revenue.119 Corinthian announced that the twenty-one day withholding would lead to its dissolution and sought financial relief from the Depart- ment.120 In response, the Department gave Corinthian $16 million in student aid so the company could keep its schools open until it could sell them or close them down after classes were completed.121 In No- vember 2014, the company agreed to sell fifty-six of its campuses to the ECMC Group.122 This plan was part of Corinthian’s effort to sell its eighty-five U.S. and ten Canadian campuses, while closing twelve others.123

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– to sell their assets to other organizations, which would operate the acquisitions as new higher- education institutions or programs and accept the students and their credits. See Weise, Too Big to Fail, supra note 115. 117 Weise, Too Big to Fail, supra note 115. 118 Tamar Lewin, Senator to Review Accreditation of For-Profit Colleges, N.Y. TIMES, Aug. 4, 2010, http://www.nytimes.com/2010/08/05/education/05hearing.html; see also Hearing, supra note 37, at 10 (statement of Kutz). Many of the nation’s largest for-profits engage in fraudulent behav- ior and misrepresentations in order to maximize their revenue flow. See SENATE HEALTH, EDUC., LABOR & PENSIONS COMM., FOR PROFIT HIGHER EDUCATION: THE FAILURE TO SAFEGUARD THE FEDERAL INVESTMENT AND ENSURE STUDENT SUCCESS, pt. II (2012), http://www.gpo.gov/fdsys/pkg/CPRT-112SPRT74931/pdf/CPRT-112SPRT74931.pdf [http://perma .cc/4DJW-4GDA]. Despite these findings, Corinthian continued to enroll thousands of students who took out thousands of dollars in loans to pay for their education. Danielle Douglas-Gabriel, How Dozens of Failing For-Profit Schools Found an Unlikely Savior: A Debt Collector, WASH. POST (Nov. 28, 2014), http://www.washingtonpost.com/business/economy/how-dozens-of-failing - f o r - p r o f i t - s c h o o l s - f o u n d - a n - u n l i k e l y - s a v i o r - a - d e b t - c o l l e c t o r / 2 0 1 4 / 1 1 / 2 8 / c 3 e a 8 2 1 8 - 7 4 1 1 - 1 1 e 4 - a 5 8 9 -1b102c2f81d0_story.html [http://perma.cc/L9Q5-SX9J]. 119 Douglas-Gabriel, supra note 118. 120 See Weise, supra note 116. 121 Douglas-Gabriel, supra note 118. 122 Michael Stratford & Paul Fain, Corinthian’s Nonprofit Buyer, INSIDE HIGHER ED (Nov. 21, 2014), h t t p s : / / w w w . i n s i d e h i g h e r e d . c o m / n e w s / 2 0 1 4 / 1 1 / 2 1 / g u a r a n t y - a g e n c y - b u y s - m o s t -crumbling-profit-corinthian-colleges-us [https://perma.cc/L4D7-PYT8]. ECMC is a nonprofit organization that runs one of the largest student loan debt collection practices in the country. Id. ECMC will create the Zenith Education Group, a nonprofit subsidiary, to run the campuses, which enroll more than 39,000 students. Id. 123 Id.

2015] FORGIVE AND FORGET 2037

Under the arrangement, federal student loans were not eligible for forgiveness,124 which would have discharged at least $30 million in student loans at the campuses that ECMC plans to buy.125 In a situa- tion where Corinthian had found no buyer for its campuses and been forced to shut them down due to bankruptcy, students would have been eligible for the cancellation of the more than $1 billion in federal loans used to fund their educations.126

The Department’s intervention did little to support the financial needs of Corinthian’s students — a full thirty-five percent of whom are from households with incomes under $10,000.127 If a student at- tends a school that is sold rather than closed, he or she is ineligible for a loan discharge even if the purchasing entity no longer offers the pro- gram of study he or she had been pursuing.128 This result highlights the problem that such an arrangement poses: it does little more than reshuffle the deck chairs of the Titanic. Unless a school closes, many students are in the same negative financial position they were before the asset sale. Allowing institutions that do not prepare their students for gainful employment to go bankrupt and close would better help those students who attend for-profits that could not pass the 2014 Regulation than pursuing alternatives that prevent loan forgiveness. As one consumer protection advocate noted, “[i]f [Corinthian College’s campuses] had closed as a result of bankruptcy, those students could have had their loans forgiven.”129

The Department justifies its intervention as a means to avoid the “disruption and displacement”130 of the vulnerable for-profit student population.131 This justification presumes that it is better for the en- rollees to continue to finance an education that may not lead to gainful

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 124 See Douglas-Gabriel, supra note 118. Students that Corinthian steered into taking high- interest private loans known as Genesis loans will have their debts forgiven, see id., which would amount to approximately $4 million in forgiveness, see Stratford & Fain, supra note 122. 125 Paul Fain, Best of a Bad Situation?, INSIDE HIGHER ED (Dec. 9, 2014), https://www . i n s i d e h i g h e r e d . c o m / n e w s / 2 0 1 4 / 1 2 / 0 9 / f e d s - r e s p o n d - c r i t i c i s m - b i d - e c m c - b u y - m o s t - c o r i n t h i a n [https://perma.cc/Z52W-TLME]. Officials at the Treasury Department note that this figure is an estimate and that it is difficult to project the costs of loan discharges given the unpredictability regarding the number of students who would file for loan discharges. Id. 126 See Paul Fain, Controlled Crash?, INSIDE HIGHER ED (June 30, 2014), https://www . i n s i d e h i g h e r e d . c o m / n e w s / 2 0 1 4 / 0 6 / 3 0 / c o r i n t h i a n s - f a i l u r e - c o u l d - c o s t - f e d e r a l - g o v e r n m e n t - 1 2 - b i l l i o n [https://perma.cc/FVL6-MYPJ]. 127 Fain, supra note 125. 128 See Chopra, supra note 106. 129 Douglas-Gabriel, supra note 118 (quoting Robyn Smith, a lawyer at the National Consumer Law Center) (internal quotation marks omitted). 130 Ted Mitchell, A Bold New Plan to Protect Students, HOMEROOM (Dec. 5, 2014), http:// www.ed.gov/blog/2014/12/a-bold-new-plan-to-protect-students [http://perma.cc/KZ63-MPQ8]. 131 Fain, supra note 125 (“‘Pulling the rug out from under them under any circumstances would be problematic,’ [Undersecretary of Education Ted] Mitchell said of the affected students. ‘This is a very vulnerable population of learners.’”).

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employment than to receive loan forgiveness.132 But this reasoning runs counter to the consequences of the enforcement of the 2014 Regu- lation. If 2014 Regulation–related bankruptcies were problematic, the Department would not have promulgated a rule that all but forces poorly performing schools to file for bankruptcy. As such, it seems that the regulation supports the shutting down of schools that cannot comply.

While the Department is concerned about students finishing their educations, it is also weary of paying for loan forgiveness.133 Such an economic calculation has a harmful impact on the students who at- tended failing programs and will not allow them to claim restitution for the time spent pursuing a fruitless credential. Furthermore, it mis- diagnoses the problem: it would be a waste of taxpayer dollars to con- tinue to provide federal aid to institutions whose graduates have a likely chance of default. Indeed, by denying Title IV funds to for- profit institutions that declare bankruptcy due to failing the debt-to- earnings ratio test but then supporting those institutions’ asset sales, the Department of Education permits taxpayer funds to continue to go to institutions that have failed their students, putting those students and others that may attend at risk of default.134

As such, the Department’s current policy toward for-profits’ bank- ruptcies is flawed. It values the wrong metrics in determining how to handle for-profits that are both harming their students and failing fi- nancially. Instead of prevention, the Department should support for- profit school closures that result from bankruptcy; especially if the bankruptcy is due to the 2014 Regulation’s revocation of Title IV eli- gibility.135

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– 132 This argument mirrors the concerns that have been expressed about the 2014 Regulation generally limiting access to education for vulnerable students. For discussion on the importance of access to quality education versus access to education, see supra pp. 2025–27. 133 See Molly Hensley-Clancy, Why the Government Supports Everest University’s Controversial Sale, BUZZFEED NEWS (Nov. 24, 2014, 8:00 PM), http://www.buzzfeed.com /mollyhensleyclancy/why-the-government-supports-everest-universitys-controversia [http://perma .cc/ZM3V-TZMD] (“The DOE is concerned about wanting to help students complete their educa- tions, but they also have concerns about having to discharge a very large number of loans if the campus closes.” (quoting Robyn Smith, a lawyer at the National Consumer Law Center) (internal quotation marks omitted)). 134 Studies have found that federal student aid to for-profit students and loan defaults cost tax- payers about $4200 per student while community colleges cost taxpayers about $1500 per student in federal aid. See Cellini, supra note 61, at 168. Loan defaults account for 31% of federal spend- ing on for-profits while they account for just 7% of federal spending on public two-year institu- tions. Id. at 169. 135 While closure is preferred from a consumer protection standpoint, complicating the De- partment’s resistance to school closures is its view that it is legally required to remove a bankrupt institution’s Title IV eligibility. Scurria, supra note 113. Barring the Department’s complete rein- terpretation of its regulations, there are incremental legislative alternatives that could both protect some students and support the Department’s bankruptcy-avoidance position under the gainful-

2015] FORGIVE AND FORGET 2039

IV. CONCLUSION

This Note does not look to disparage all for-profits; many of these institutions provide a quality education and useful skills to their stu- dents. Rather, the Note suggests that high quality for-profit education that leads to employment for vulnerable student populations is more important than education qua education. Too many students have be- come trapped in financially untenable situations in the pursuit of an education that promised to open the doors of opportunity to the mid- dle class. This Note has explored how to protect vulnerable students from an education without promise, and advocates that schools that have a track record of making the lives of their students more difficult be shuttered. For those students that in good faith trusted that their for-profit would help them find gainful employment, the government has a role to play in protecting them from substandard institutions.

––––––––––––––––––––––––––––––––––––––––––––––––––––––––––––– employment-rule enforcement regime. The aim of any proposal would be to promote bankruptcy- related closures and the subsequent school-loan discharges without significantly jeopardizing a for-profit education company’s chance of an orderly wind down. To do so, policymakers could make Title IV eligibility conditional rather than permanent in order for the offending school’s OPEID number to retain some value in bankruptcy. First, an offending school’s OPEID number can retain conditional eligibility if the acquiring institution agrees to shut down a majority of the campuses that failed the debt-to-earning rate test and to turn around the remaining campuses. If those campuses continue to fail the debt-to-earning rate measure, the acquiring institution must shut them down as well within a given time period or risk losing the acquired OPEID number’s Title IV eligibility. Another solution for the OPEID number to again become a marker of federal student aid eligibility would require the acquiring institution to shut down all campuses that failed the debt-to-earning test. Finally, the Department of Education could be prohibited from pursuing school placements unless the schools where the Department is looking to place the stu- dents have not failed and are not in danger of failing the debt-to-earnings ratio test.

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ESSAY

PRESERVING THE PROMISE OF HIGHER EDUCATION: ENSURING ACCESS TO THE “AMERICAN DREAM”

THROUGH STUDENT DEBT REFORM

Bryan D. Watson*

I. Magnitude of the Problem and N ational Security Im plic a tio n s................................................................. 316

II. T he Student Loan M a r k e t ........................................................ 319

III. Bankruptcy and Student Loans: The “Undue Hardship” Sta n dard.................................................................... 321

IV. A C hange in the La w : Expanding Student Loan D ischargeability T hrough an A mendment to 11 U.S.C. § 523(A)(8)..................................................................... 325

V. A ll Student Borrowers A re Not the Sa m e .........................326

VI. Conclusion......................................................................................328

In the pursuit o f the “American Dream,” a college education is presumed to open doors to a prosperous post-graduation life. However, that is simply not the case for millions o f Americans. Instead, as now- U.S. Senator Elizabeth Warren has proclaimed, “ [ijncreasingly, students must begin their adult lives with debts that outstrip their earning potential, creating a financial vortex from which they may never escape.” * 1

Senator W arren’s observation is from seven years ago— and since then, the situation has gotten significantly worse. Despite the individual and societal benefits gained from higher education, the economic burden created by student borrowing has created a drag on the American economy since the 2008 recession,2 threatening trouble for the country’s

* Colonel, U.S. Air Force JAG Corps. The views expressed in this Essay are those o f the author and do not reflect the official policy or position o f the Department o f Defense or the U.S. Government.

1. Elizabeth Warren et ah, Service Pays: Creating Opportunities by Linking College with Public Service, I Harv. L. & Pol’y Rev. 127, 130(2007).

2. According to the U.S. Department o f Commerce’s Bureau o f Economic Analysis, the 315

316 UNIVERSITY O F FLORIDA JOURNAL O F LA W AND PUBLIC POLICY [Vol. 25

future well-being. In response, our society must come to grips with policy alternatives to deep student indebtedness, and implement those which can get immediate help to student borrowers and still pave the way for continued access to higher education. The rationale is clear; if large numbers o f new job market entrants continue to struggle financially and are unable to fully enter the economic mainstream, we will all suffer.

I. Magnitude of the Problem and National Security Implications

Student loans’ outstanding amounts have now topped $1 trillion.* * 3 This sum is still growing and has even exceeded the total amount o f credit card debt in America.4 Moreover, 11.5% o f the debt is more than 90 days delinquent or in default,5 with one in ten borrowers defaulting in their first two years o f repayment and one in seven defaulting in the first three years.6 Overall, this is the highest delinquency rate for all forms o f American debt and the only form o f U.S. consumer debt that has risen consistently since 2003.7 Because o f high levels o f indebtedness, many borrowers are delaying or declining to engage in major life and economic

growth rate o f the U.S. Gross Domestic Product (GDP) continues to hover in the low single-digit percentages. The third quarter o f 2013 growth rate was 4.1%, and the fourth quarter o f 2013 was 2.6%. See U.S. Department of Commerce and Bureau of Economic Analysis, U.S. Economy at a Glance: Perspective fro m the BEA Accounts, available at https://www.bea.gov/news releases/glance.htm, (last visited Nov. 24, 2014); see also U.S. Department of Commerce and Bureau of Economic Analysis, Gross Domestic Product (GDP) Graph, available at http://www.bea.gov/newsreleases/national/gdp/gdp_glance.htm (last visited Nov. 24, 2014).

3. Sam Frizell, Student Loans Are Ruining Your Life. Now T hey’re Ruining the Economy, Too, Time, Feb. 26, 2014, available at http://time.com/10577/student-loans-are-ruining-your-life- now-theyre-ruining-the-economy-too/ (last visited Nov. 17, 2014).

4. Halah Touryalai, Student Loan Problems: One Third o f Millennials Regret Going to College, Forbes, May 22, 2013, available at http://www.forbes.com/sites/halahtouryalai/2013/ 05/22/student-loan-problems-one-third-of-millennials-regret-going-to-college/ (last visited Nov. 17, 2014).

5. See Floyd Norris, The Hefty Yoke o f Student Loan Debt, N.Y. Times, Feb. 20, 2014, available at http://www.nytimes.com/2014/02/20/business/economy/the-hefty-yoke-of-student- loan-debt.html (last visited Nov. 17, 2014). Student loan default is defined as the result o f failure to make payments on a student loan as scheduled according to the terms o f the underlying promissory note, the legal agreement made at the time o f the underlying student loan. U.S. Department of Education and Federal Student Aid, Federal Student Aid: Understanding Defaidt, available at http://studentaid.ed.gov/repay-loans/default (last visited Nov. 24, 2014).

6. Shahien Nasirpour & Chris Kirkham, Student Loan Defaults Surge to Highest Level in Nearly 2 Decades, Huffington Post, Sept. 30, 2013, available at http://www.huffingtonpost. com/2013/09/30/student-loans-default_n_4019806.html (last visited Nov. 17, 2014).

7. Halah Touryalai, $1 Trillion Student Loan Problem Keeps Getting Worse, Forbes, Feb. 21, 2014, available at http://www.forbes.com/sites/halahtouryalai/2014/02/21/l-trillion-student- loan-problem-keeps-getting-worse/.

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decisions such as getting married, having children, purchasing a hom e,8 or even starting a small business9 until they are in a more secure financial situation.

Even more troubling, student loan debt is increasingly wide-spread. A full 42% o f American millennials report that they, or someone in their household, has student debt, and 57% feel that student loan debt is a major societal problem .10 Such opinions are understandable, given that the average student debt o f a new college graduate is about $30,000 today," compared to ju st $17,233 in 2005.12 These sums can be particularly daunting for the increasing numbers o f young adults who are encountering difficulties finding productive post-graduation em ploym ent." In fact, the number o f recent college graduates who are unemployed or underemployed has risen steadily since 2001, and the quality o f their jobs has declined as well, with recent graduates increasingly taking low-wage or part-time positions.14 Student loan debt can be outright devastating for the nearly 50% o f college students who drop out o f college before earning their degree, because they incur substantial financial obligations without the economic benefit o f an additional academic credential.15

Even in light o f the foregoing, large-scale access to higher education is a national security and economic im perative.16 In recognition o f that

8. Hadley Malcom, Millennials' Ball-and-Chain: Student Loan Debt, USA Today, July 1, 2013, available at http://www.usatoday.com/story/money/personalfmance/2013/06/30/stude nt-loan-debt-economic-effects/2388189.

9. See generally U.S. Small Business Administration, Student Start.-Up Plan, available at http://www.sba.gov/startupamerica/student-startup-plan (last visited Nov. 24, 2014) (explaining the “Income-Based Repayment Plan,” a federally funded program designed to lower loan payments for graduates looking to start their own business).

10. Adam Levin, Politicians Ignoring Student Loan Crisis Do So at Their Risk, ABC N ews, Dec. 15, 2013, available at http://abcnews.go.com/Business/politicians-ignore-millennial- student-loan-crisis/story?id=21195661.

11. Id. 12. Touryali, supra note 7. 13. In November 2012, the unemployment rate for a 2012 graduate was 11.6%; for those

in the 16-24 age bracket who are employed, the average annual earnings was $21,000 for women and approximately $24,000 for men. Levin, supra note 10.

14. Lawrence Mishel & Richard Rothstein, Unemployment. Schools, Wages, and the Mythical Skills Gap, Econ. Pol’y Inst., Apr. 2, 2014, available at http://www.epi.org/blog/ unemployment-schools-wages-mythical-skills/.

15. See. e.g., Kelsey Sheehy, Student Loan Repayment Tips fo r College Dropouts, U.S. N ews & World Re p ., June 12, 2013, available at http://www.usnews.com/education/best-col leges/paying-for-college/articles/2013/06/12/student-loan-repayment-tips-for-college-dropouts (last visited Nov. 24, 2014).

16. For an explanation of the role that higher education will play in the global economy in coming years, see generally Knowledge and Skills for the Jobs o f the Future, The White House, http://www.whitehouse.gov/issues/education/higher-education (last visited Nov. 24, 2014):

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fact, federal participation in higher education lending stems from the mid- 20th century, when the aptly-named National Defense Education Act o f 195817 authorized loans to higher education students in order “to strengthen the national defense and to encourage and assist in the expansion and improvement o f educational programs to meet critical national needs' ,18 Since then, federally-supported lending has increased steadily, but it surged dramatically in the decade from 2003-2013; during that period, federal lending nearly doubled.19

The explanation for this increase reflects how the rise in both federal lending and student borrowing kept pace with the escalating cost o f higher education. A primary reason for the latter is that the amount o f legislative contributions to public higher education plummeted in the last decade because o f serious state budgetary shortfalls. Because 80% o f U.S. students enrolled in degree-granting, nonprofit colleges attend publicly-funded institutions, tuition increases in these schools had an immediate effect on a large swath o f students; thus, it is no surprise that trend lines between student tuition costs and legislatures’ decisions to redirect public funds elsewhere correspond with the spike in student loan outlays.20 To illustrate: between 2007 and 2012, tuition at public four-

Eaming a post-secondary degree or credential is no longer just a pathway to opportunity for a talented few; rather, it is a prerequisite for the growing jobs o f the new economy. Over this decade, employment in jobs requiring education beyond a high school diploma will grow more rapidly than employment in jobs that do not; o f the 30 fastest growing occupations, more than half require postsecondary education. With the average earnings o f college graduates at a level that is twice as high as that o f workers with only a high school diploma, higher education is now the clearest pathway into the middle class. In higher education, the U.S. has been outpaced internationally. In 1990, the U.S. ranked first in the world in four-year degree attainment among 25-34 year olds; today, the U.S. ranks 12th. We also suffer from a college attainment gap, as high school graduates from the wealthiest families in our nation are almost certain to continue on to higher education, while just over half o f our high school graduates in the poorest quarter o f families attend college. And while more than half o f college students graduate within six years, the completion rate for low-income students is around 25 percent.

Id. 17. National Defense Education Act, Pub. L. No. 85-864, 72 Stat. 1580. 18. Id. (emphasis added). 19. See C o l l . B d ., T r e n d s in St u d e n t A id 2013, tbl. 1, Total Student A id and Nonfederal

Loans Used to Finance Postsecondary Education Expenses in 2012 Dollars, 2002-2003 to 2012- 2013, available at http://trends.collegeboard.org/sites/default/files/student-aid-2013-full-report. pdf (last visited Nov. 24, 2014). During this timeframe, the total amount o f annual federal loans grew from $54.67 billion to $101.469 billion between 2002-2003 and 2012-2013.

20. See generally B ill Z im m e r m a n , T h e S t u d e n t L o a n S w in d l e : W hy It H a p p e n e d - W h o ’s To B l a m e - How th e V ic t im s C a n B e S a v e d (2014).

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year institutions increased by more than 15% in 40 states, more than 25% in 18 states, more than 50% in seven states, and, incredibly, public university tuition in California and Arizona during this period grew by more than 70%.21 Moreover, this phenomenon has not been restricted to public higher education. When tuition began to increase in the public sector, that fact was not lost on private universities; in part because o f a desire to maintain prestige and accumulate revenue, private institutions raised their tuition as w ell.22 Since many elite private schools turn away huge percentages o f their annual applicants,23 they arguably have “no reason to lower tuition and every reason to continue raising it.”24

II. T he Student Loan Market

As a result, large numbers o f students must borrow significant sums in order to fund their higher education goals. To meet this need, student loans generally fall into two broad categories— federal loans and private loans.23 Prior to 2010, the federal student loan program functioned through private lenders, whereby private banks issued loans to college students, and the underlying debt was guaranteed by the U.S. government.26 However, in 2010, a cooperative arrangement between the Obama administration and the U.S. Congress changed the applicable rules so that all federal student loans are now made directly by the U.S. Department o f Education.27 Commercial lenders who participate in remaining student loan activity are relegated to the private market, which is only around 8% o f the total outstanding student debt.28

The sheer volume o f both types o f student borrowing has caused the entire business cycle o f lending, repayment, and debt collection to rapidly

21. Id. 22. Id. 23. See Top 100 - Lowest Acceptance Rates, U.S. News & World Rep., available at http://

colleges.usnews.rankingsandreviews.com/best-colleges/rankings/lowest-acceptance-rate (last visited Nov. 24, 2014) (ranking the colleges and universities with the lowest acceptance rates).

24. Zimmerman, supra note 20. 25. See U.S. Department of Education, Federal Student Aid, Federal Student Loan

Programs, available at http://studentaid.ed.gov/sites/default/files/federal-loan-programs.pdf (last visited Nov. 24, 2014).

26. Id.; see also Jordan Weissman, No, the Student Loan Crisis Is Not a Bubble, Atlantic, Sept. 6, 2013, available at http://www.theatlantic.com/business/archive/2013/09/no-the-student- ioan-crisis-is-not-a-bubble/279398/.

27. Id. 28. Or, approximately $90 billion o f the $1.1 trillion in outstanding student debt. See Allie

Bidwell, Is the Private Student Loan Market As Bad As It Seems? U.S. NEWS & WORLD Rep., Dec. 23, 2013, available at http://www.usnews.com/news/articles/2013/12/23/is-the-private-student- loan-market-as-bad-as-it-seems (citing Private Student Loan Performance Report -2 0 1 3 , Student Loan Market Data, MeasureOne, http://measureone.com/reports).

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grow into a large-scale financial enterprise. In this regard, it is important to note that the collection process for defaulted student debt can have serious repercussions for borrowers; student loan defaulters enjoy no statute o f limitations protections on the underlying debt,29 and they become subject to special penalties30 through collectors with unique authorities to seize some borrowers’ paychecks, tax refunds, and Social Security benefits without a court order.31 All o f this has caused critics to describe student loan debt collectors as wielding widespread “power that would make a mobster envious.”32

Tragically, the entire situation is poised to worsen in coming years. This is because the full effects o f modem student loan indebtedness are not yet fully realized. Tremendous numbers o f students with the largest debt balances have not yet graduated with their degrees and therefore have yet to get their first job or make (or miss) their first student loan payment. These new graduates will have to struggle mightily in order to repay their student debt, and they may not be able to do so at all.

Given this environment, some observers are openly noting similarities between today’s student loan climate and the pre-2008 American “housing bubble” that had far-reaching effects across the entire economy. Such a comparison pays particular attention to both systems’ arguably lax lending standards, how borrowers and lenders have been specifically incentivized to inject unsustainable amounts o f debt into the lending processes, and how the purchased assets (i.e ., college degrees and homes) ultimately became economically overvalued.33 Accordingly, some

29. See Lockhart v. United States, 546 U.S. 142 (2005) (citing 1991 Higher Education Technical Amendments, 20 U.S.C. § 1091a(a)(2)(D), 105 Stat. 123) (“Notwithstanding any other provision o f statute . . . no limitation shall terminate the period within which suit may be filed, a judgment may be enforced or an offset, garnishment, or other action initiated or taken .. .”).

30. See generally U.S. D e p a r t m e n t o f E d u c a t io n , Student Loans Overview: Fiscal Year 2014 Budget Proposal S-32, available at http://www2.ed.gov/about/overview/budget/budgetl4/ justifications/s-loansoverview.pdf.

31. See Les Kjos, Analysis: Student Loan Collections Toughen, UNITED PRESS In t e r n a t io n a l , Jan. 6, 2005, available at http://www.upi.com/Business_News/Security- Industry/2005/01/06/Analysis-Student-loan-collections-toughen/UPI-35031105052132/; U.S. D e p a r t m e n t o f E d u c a t io n a n d F e d e r a l S t u d e n t A id , supra note 5.

32. See Peter Zuckerman, Ending Student Loan Exceptionalism: The Case fo r Risk-Based Pricing and Dischargeability, 126 H a r v . L. Re v . 587, 606 (2012) (citing John Hechinger, U.S. Gets Tough on Failure to Repay Student Loans, WALL St. J., Jan. 6, 2005, available at http://online.wsj.com/news/articles/SB110497406688418357 (quoting then-Professor (now Senator) Elizabeth Warren)).

3 3 . See, e.g., Dean Baker, The Housing Crash Recession: How Did We Get Here, PUB. B r o a d . S e r v ., Mar. 21, 2008, available at http://www.pbs.org/now/shows/412/housing- recession.html. When the allegedly lax lending standards resulted in a large-scale failure o f borrowers to repay the underlying debt, the entire arrangement suffered. Since that time, the mortgage industry has adopted much more stringent lending practices. Id. The comparison between processes for home mortgages and student loans gains a startling amount o f traction when one considers the fact that home mortgage loans are secured by real estate collateral which can be

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graduates are reasonably contemplating their options, particularly if the prospect o f repayment appears less and less feasible for them. Given their amount o f student loan debt and their potentially dim employment prospects, many such students, like some pre-2008 mortgage borrowers, undoubtedly feel betrayed by the allure o f the “American Dream.” Unfortunately for student borrowers, our society’s primary mechanism for long-term debt relief is simply not a realistic option for them.

III. Bankruptcy and Student Lo ans: T he “Undue Hardship” Standard

With deep roots in evenhandedness and social justice, bankruptcy occupies a strong tradition in American jurisprudence. The case o f Local Loan Company v. Hunt, a leading U.S. Supreme Court case from 1934, illustrates the law ’s socially-conscious philosophical underpinning: bankruptcy is designed to “relieve the honest debtor from the weight o f oppressive indebtedness, and permit him to start afresh . . .” thereby permitting “a new opportunity in life and a clear field for future effort, unhampered by the pressure and discouragement o f preexisting debt.”34 In this way, bankruptcy is about both the debtor and our larger society; by giving a debtor a second chance at a financial future, he or she is rehabilitated to a productive place, instead o f being forced to perpetually labor under a crushing amount o f debt.

As a procedural matter, American bankruptcy proceedings are initiated in a federal court, per the specific requirements o f the U.S. Constitution.’’ Federal statutory law regarding bankruptcy petitioners’

forfeited and sold in the event o f non-payment, but student loans are not. Through such a lens, an outside observer might reasonably question why student borrowers do not have to meet even stronger creditworthiness standards than their mortgage-seeking counterparts; see also, e.g., Michael B. Fishbein, 9 Striking Similarities Between the Housing Bubble and the Higher Education Bubble, Huffington Post, Mar. 31, 2014, available at http://www.huffingtonpost. com/michael-b-fishbein/9-striking-similarities-b_b_50 62840.html. Today, and especially since the recession o f 2008, when a borrower seeks a home mortgage from a lending institution, he or she must satisfy a lender’s extensive list o f personal financial questions focused upon the borrower’s projected ability to repay the debt in the future; see also, e.g., Uniform Residential Loan Application, Freddie Mac Form 65/Fannie Mae Form 1003, available at https://www.fannie mae.com/content/guide_form/1003rev.pdf (last visited Nov. 24, 2014). One o f the popularly-advanced arguments to partially explain the recession o f 2008 is found in the housing market’s willingness to extend credit to less-creditworthy borrowers, and in the way in which those loans were subsequently packaged and resold by successive purchasers o f the original loans.

34. Local Loan Co. v. Hunt, 292 U.S. 234, 244 (1934) (citing Williams v. U.S. Fidelity & Guaranty Co., 236 U.S. 549, 554-55 (1949), Stellwagen v. Clum, 245 U.S. 605, 617 (1918), and Hanover N at’l Bank v. Moyses, 186 U.S. 181, 186 (1902)).

35. U.S. Const., art. I, § 8 , cl. 4.

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cases is found within Title 11 o f the U.S. Code,36 requiring commencement o f bankruptcy cases to be filed through the U.S. Bankruptcy Court, under affiliation with the local U.S. federal court system .’7 When an individual (i.e., non-corporate) petitioner seeks bankruptcy protection, the outcome is most commonly governed by either Chapter 738 or Chapter 1339 o f Title 11 o f the Federal Bankruptcy Code, depending on whether the petitioner seeks liquidation/discharge o f debts or debt reorganization.

When one reads Hunt’s plain language, one might easily imagine the situation o f a new, deeply-indebted college graduate. However, Title 11 carves out a specific exception, intentionally setting an extremely high bar for the discharge o f student loans.40 In that regard, the statutory language o f 11 U.S.C. § 523(a)(8) is explicit: “unless excepting such debt from discharge . . . would impose an undue hardship on the debtor and the debtor’s dependents,” a bankruptcy discharge will not relieve a debtor from any debt that originates from “an educational. . . loan made, insured, or guaranteed by a governmental unit” or “any other educational loan that is a qualified educational loan.”41

Such unsympathetic treatment for student borrowers has not always been the case. Student loans were fully dischargeable in American bankruptcy until 1976, when Congress only prohibited bankruptcy discharge during the first five years o f repayment.42 In the years that followed, various laws and regulations consistently and increasingly isolated student loans from bankruptcy protections, amid alleged fears that “former students would opportunistically seek discharge and impair the solvency o f the student lending program.”43 These concerns partially culminated with the Higher Education Amendments o f 1998, which struck the previous requirement that permitted federal education loans to be discharged after seven years in repayment.44

Oddly, these 1998 Amendments passed Congressional muster despite

36. See 11 U.S.C. §§ 101-1532 (2013). 37. See Federal Rules of B ankruptcy Procedure R. 1002, Commencement o f Case. 38. 11 U.S.C. §§ 701-84 (2013). Chapter Seven is generally the most expeditious for

individual petitioners and involves liquidation of assets by a bankruptcy trustee and a subsequent discharge of non-exempt debts.

39. II U.S.C. §§ 1301-30 (2013). Chapter 13 focuses upon the legal process and oversight of a petitioner’s debt reorganization, versus liquidation.

40. 11 U.S.C. § 523(a)(8) (2013). 41. Id. § 523(a)(8)(A)(i),(a)(8)(B) (emphasis added). 42. Education Amendments o f 1976, Pub. L. No. 94-482, § 127(a), 90 Stat. 2081, 2141

(1976). 43. Zuckerman, supra note 32, at 595. 44. See Higher Education Amendments of 1998, Pub. L. No. 105-244, § 971(a), 112 Stat.

1581, 1837(1998).

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the fact that in 1997, the National Bankruptcy Review Commission46 had specifically recommended the complete repeal o f the student loan exception.46 In making that recommendation, the Commission found no indication that the bankruptcy process had been misused during times when bankruptcy was available for student loans, and that the “undue hardship” standard was applied too restrictively in real-world practice.47 The commission openly questioned the appropriateness o f a system in which a borrower with debt stemming from consumer debt incurred to buy a “car, a vacation, or a pizza” can take full advantage o f bankruptcy protections, but a student borrower cannot.48

Finally, in 2005, the nondischargeability status was extended to the private loan market.49 Since then, the sole avenue by which a bankruptcy petitioner can seek the application o f bankruptcy protection to any student loan debt is to initiate a separate adversarial proceeding within the bankruptcy case, through which he or she has the burden o f affirmatively proving that paying the student loan constitutes an “undue hardship.”50 To complicate matters even further, Congress neglected to define the term “undue hardship,” even though the words appear explicitly in the law. In order to give some level o f predictability to this language, most modem bankruptcy courts have chosen to apply a legal and factual test known as the “Brunner standard,” named after the Second Circuit Court o f A ppeals’ decision in Brunner v. New York State Higher Education Services Corporation.51 In Brunner, the Court held that in order for a debtor to successfully obtain a discharge o f student debt based upon “undue hardship,” that debtor must affirmatively demonstrate three separate criteria: (1) the debtor cannot maintain, based on current income and expenses, a minimal standard o f living; (2) that additional

45. The National Bankruptcy Review Commission was established pursuant to the Bankruptcy Reform Act o f 1994, Pub. L. No. 103-394, 108 Stat. 4106. The commission was created to investigate and study issues relating to the Bankruptcy Code, solicit divergent views o f parties concerned with the operation o f the bankruptcy system, evaluate the advisability o f proposals with respect to such issues, and prepare a report to be submitted to the President, Congress and the Chief Justice not later than two years after the date o f the first meeting. NBRC Fact Sheet, National Bankruptcy Review Commission (Aug. 12, 1997), http://govinfo. library.unt.edu/nbrc/facts.html [hereinafter N ational Bankruptcy Commission Review Fact Sheet].

46. See Recommendations to Congress, National Bankruptcy Review Commission (Oct. 20, 1997), http://govinfo.library.unt.edu/nbrc/report/03recomm01title.html.

47. See Discharge, Exceptions to Discharge, and Objections to Discharge, National Bankruptcy Review Commission (Oct. 20, 1997), http://govinfo.library.unt.edu/nbrc/report/07 consum.html.

48. Id. 49. See Bankruptcy Abuse Prevention and Consumer Protection Act o f 2005, Pub. L. No.

109-8, § 220, 119 Stat. 23, 59 (2005). 50. 11 U.S.C. § 523(a)(8) (2013). 51. Brunner v. N.Y. State Fligher Educ. Services Corp., 831 F.2d 395, 396 (2d Cir. 1987).

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circumstances exist indicating that this state o f affairs is likely to persist for a significant portion o f the repayment period o f the loans; and (3) that the debtor has made good faith efforts to repay the loans.52 The Brunner Court reasoned that Congress’s usage o f the term “undue” indicated that more than a routine level o f hardship was required,5j resulting in the above inquiry into whether the debtor’s purported inability to repay the debt would extend into the future— a question that is very different from a much simpler inquiry into the debtor’s present ability to pay an underlying debt. As a result, the process governing student loans stands in stark contrast to other debts discharged in bankruptcy, where unless there is “litigation involving objections to [a] discharge,” a discharge will be quickly forthcoming.54

The proliferation o f Brunner’s applicability to other federal bankruptcy courts’ decisions has caused significant and widespread difficulty for petitioners seeking to discharge student loan debt. In practice, the application o f the Brunner test to student loan debtors’ bankruptcy cases has resulted in a procedural climate where the “undue hardship” standard is one which very few petitioners can successfully meet. An analysis o f bankruptcy cases bears this out; for example, a petitioner’s likelihood o f prevailing in a student loan discharge case is generally considered “slim and worse than in typical civil litigation, with student loan holders and their agents aggressively fighting discharge cases and much less likely to settle a case out o f court.”53 Additionally, most bankruptcy petitioners will have to fund the services o f an attorney to litigate an adversary proceeding under the “undue hardship” standard— a particularly aggravating fact, given that pro se bankruptcy petitioners’ cases are much more likely to be dismissed outright than are those who are represented by an attorney.56 To that end, it is worth noting that before the recent recession (2007), about 29% o f consumers filing

52. Id. at 397. 53. Id. 54. 11 U.S.C.A. § 727 (2014) (“The court shall grant the debtor a discharge, unless . . .”

(emphasis added)). See also U.S. Courts & Discharge in Bankruptcy: How Does the Debtor Get a Discharge?, U.S. Courts (“Unless there is litigation involving objections to the discharge, the debtor will usually automatically receive a discharge . . .”) (Apr. 13, 2014), http://www.uscourts.gov/FederalCourts/Bankruptcy/BankruptcyBasics/DischargelnBankruptcy. aspx.

55. Specifically, just 36% of debtors’ cases in a recent student loan bankruptcy study were settled out of court, whereas about 97% of all cases in state and federal courts reached an out-of- court settlement. See generally The Truth About Student Loans and the Undue Hardship Discharge, National Consumer Law Center http://www.studentloanborrowerassistance.org/ wp-content/uploads/2007/03iulianoresponse.pdf (last visited Nov. 24, 2014).

56. Id. (citing Katherine Porter, The Do-It Yourself Mirage: Complexity in the Bankruptcy System, in Broke: How Debt Bankrupts the Middle Class, 157 (2012)).

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for bankruptcy held student loans, which totaled about $4.8 billion.57 Today, a conservative estimate o f total student debt not discharged in bankruptcy proceedings is estimated to be about double that, or even higher.38 Overall, the population that even attempts to pursue a discharge o f student loans under the “undue hardship” standard is estimated to be between a mere 0.1% and 0.3% o f bankruptcy petitioners.39

IV. A Change in the La w : Expanding Student L oan Dischargeability T hrough an Amendment to

11 U.S.C. § 523(a)(8)

Extension o f bankruptcy protections to student loan debt could take several forms. Noting the disparities between federal and private loan mechanisms, various lawmakers have proposed legislation such as the “Fairness for Struggling Students Act,”60 which would restore federal bankruptcy law to its pre-2005 status, when privately-issued student loans were still eligible for discharge. Although these legislative attempts have been unsuccessful, there are excellent policy rationales for such action; after all, the obvious differences between federal and private loans prompts a logical question as to why the two types o f loans should ever have been treated on equal footing in the first place. Federally-issued student loans have fixed interest rates, income-based repayment options, and multiple avenues for payment forgiveness or deferment, whereas private loans have interest rates that can vary widely, with very few deferment options and extremely unlikely prospects o f debt forgiveness.61 O f course, a repeal o f § 523(a)(8)’s applicability to only private loans would certainly be opposed strongly by the private loan­ issuing community.

Another alternative is the repeal o f § 523(a)(8), returning student loans’ treatment in the federal bankruptcy structure to its pre-1976 footing. This would be a dramatic policy change, but it deserves serious consideration as a mechanism to offer a viable future to the most desperate class o f student loan borrowers and as a powerful injection into Am erica’s economic engine. In accordance with the National Bankruptcy

57. See Zuckerman, supra note 32, at 604. 58. Id. at 605. 59. Id. at 609. 60. See S. 114, 113th C ongress (2013-2014): A Bill to Amend Title 11, United States

Code, with Respect to Certain Exceptions to Discharge in Bankruptcy, http://beta.congress.gOv/bill/l 13th-congress/senate-bill/l 14/text (last visited Nov. 24, 2014).

61. See generally “What are the Differences Between Federal and Private Student Loans'?,” Federal Student Aid http://studentaid.ed.gov/types/loans/federal-vs-private, (last visited Nov. 24, 2014).

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Review Com m ission’s recommendation in 1997,62 such a step would not necessarily result in a radical and widespread purposeful avoidance o f student debt across American society. Instead, returning the law to 1970s’ levels would merely allow student loans to be treated the same as other personal debts.

V. A ll Student Borrowers A re Not the Same

During the acceleration o f student loan balances in recent years, one particular aspect o f the cause has been largely overlooked from a policy perspective: student loans are made without regard to the borrower’s future creditworthiness.63 Advocates o f this policy argue that a creditworthiness-blind system permits access to higher education for those members o f society who need it the most, especially when young borrowers have little or no personal credit history.

However, given the current magnitude o f the student debt problem in America, this policy begs an obvious question: should individual student borrowers be evaluated on some basis o f their fu tu re ability to pay? After all, Brunner requires bankruptcy judges to evaluate a petitioner’s future ability to pay before making a bankruptcy discharge decision under the “undue hardship” standard. Despite that, future creditworthiness is ignored when a student loan is made at the outset. At best, such a system is inconsistent. At worst, it is outright deceptive. By relying upon a lending scheme that ignores differences in borrow ers’ future debt repayment abilities, our current student loan system undoubtedly leads many individual borrowers to take on far too much debt when compared to the amount o f real financial value on return.

At first blush, it may seem harsh to treat one student’s creditworthiness and future earnings differently from another student’s. However, the facts are clear; student borrowers with certain degrees and academic majors will have an exceedingly difficult time repaying high- balance loans. It is a simple reality that some college graduates earn much more than others soon after graduation,64 while some graduates struggle to find any employment at all.63 In fact, the difference in earning power

62. See National Bankruptcy Review Commission Fact Sheet, supra note 45. 63. For a discussion o f the value o f considering future creditworthiness as a precondition

for higher education loans, see, e.g., Hardeep Walia, The Unspoken Cause o f the Student Loan Crisis, F o r b e s , Sept. 26, 2013, http://www.forbes.com/sites/hardeepwalia/2013/09/26/the- unspoken-cause-of-the-student-loan-crisis/.

64. See Anthony P. Camevale et al., Hard Times, College Majors, Unemployment, and Earnings: Not A ll College Degrees are Created Equal, GEORGETOWN UNIVERSITY CENTER ON E d u c a t io n a n d t h e W o r k f o r c e 4 -6 (2012), https://georgetown.app.box.eom/s/og6p8y9xlyea cejklciO.

65. See id.

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between one undergraduate major and another can be more than 300%.66 This fact was not lost on President Obama when he jokingly questioned the amount o f future earning power a student might receive from an art history degree.67 Even though his comment was quickly criticized and he subsequently apologized,68 the President’s observation reflected a good amount o f current reality. As a financial matter, it should be no surprise to any student that a choice o f college major can be just as important as the decision o f whether to attend college at all. It simply follows that lending decisions for the pursuit o f higher education should, at some level, be made with a candid financial assessment in mind.

Obviously, money is not everything. Our entire society benefits tremendously from valuable contributions made by lower-earning graduates. For many in the higher education community, it is a well- accepted proposition that there is more to picking a college or a major than the salary to be earned after graduation; job satisfaction and the ability to make meaningful contributions to society are tremendously important, too. Individual borrowers and the entire lending industry, however, should both remember that an important corollary is also true: there is much more to debt repayment than the borrower’s mere possession o f an academic degree. If a student wants to pursue a program o f study that has a relatively low future-earning potential, that student is well-advised to conduct a realistic evaluation o f his/her personal situation and plan his/her academic future accordingly.

It is here that a change to § 523(a)(8) can play its most important role. If lenders, whether private lenders or the federal government, begin to realize that some students might be unable to sustain future repayment and perhaps obtain a lawful discharge through bankruptcy, those lenders will become more prudent in their lending habits. For example, lenders might decide to increase interest rates in order to account for additional risk inherent in some underlying loans. In any event, if students are unable to secure high amounts o f student loans at a low interest rate in order to pay high tuition amounts to universities, those students will have to decide whether to opt in favor o f lower-cost educational options, or to pursue an educational goal which a lending agency will fund on acceptable terms. In either event, the end result would put welcome

66. See Press Release, Georgetown University Center on Education and the Workforce, New Report on the Economic Value o f 171 College Majors Links College Majors to Earnings (May 24, 2011), https://georgetown.app.box.eom/s/omooxnult5yvu ctfOftl.

67. Is College Worth It?, Economist, Apr. 5, 2014, http://www.economist.com/news/ united-states/21600131 -too-many-degrees-are-waste-money-return-higher-education-would-be- much-better (last visited Nov. 24, 2014).

68. See Juliet Eilperin, Obama Apologizes to Art Historian fo r Public Quip, Wash. Post, Feb. 18, 2014, http://www.washingtonpost.com/blogs/post-politics/wp/2014/02/18/obama- apologizes-to-art-historian-for-public-quip/ (last visited Nov. 24, 2014).

328 UNIVERSITY O F FLORIDA JOURNAL O F LA W A ND PUBLIC POLICY [Vol. 25

pressure on universities in favor o f reduced student costs. Implementation o f a system that evaluates individuals’ future

creditworthiness will necessitate administrative mechanisms for equitably risk-assessing students’ academic performance and income prospects throughout the life o f the loan. As daunting as that may sound, it is certainly possible to accomplish and, it may be the best way to ensure the longevity o f our student loan industry. After all, the modem lending industry already utilizes such a process when it requires prospective borrowers to make their case for a small business loan69 or for the purchase o f a hom e. 70 Given the dollar amounts at stake for individual higher education students today, it is not at all unreasonable to require student borrowers to prove— with clarity— how their future educational plans and academic performance will likely translate into solid employment and debt repayment.

VI. Conclusion

When student loans become essentially zero-risk for the lender because they are exempt from bankruptcy discharge and subject to “mobster”-style recoupment tactics,71 lenders are incentivized to make loans with relatively few restrictions. When one adds this arrangement to a system where loans are extended to students irrespective o f their future ability to pay, economic disincentives for borrowers begin to disappear in a similar fashion. These two phenomena can then feed into an ideal environment for institutions o f higher learning to increase tuition costs dramatically— especially when public funding is being redirected elsewhere because o f more pressing social needs. The ensuing spiral is a predictable one, where rising tuition costs are fed by an increasing supply o f personal student debt.

Yet, even this economic spiral has limits, and our society may be reaching that point now. The result will likely leave legions o f college graduates in the jaw s o f a dual threat: without the economic means to repay their loans and similarly without the legal mechanisms to avoid repaying them. Because students cannot realistically seek the protection o f personal bankruptcy, these borrowers’ personal economic situation will likely continue to deteriorate, with predictable consequences for an already-anemic job market and an American economy that continues to

69. For a detailed explanation of the value of requiring students to create and modify a business plan for their higher education goals, see Brett Nelson, How to Deal with the $1 Trillion Student Loan Crisis, Forbes, Jan. 20, 2014, http://www.forbes.com/sites/brettnelson/2014/01/20/ how-to-deal-with-the-1 -trillion-student-loan-crisis/.

70. See, e.g., Uniform Residential Loan Application, supra note 33. 71. See Hechinger, supra note 32.

2014] PRESERVING THE PROMISE O F HIGHER EDUCATION 329

sputter. Additionally, the simultaneous growth o f aggregate loan balances and accompanying default rates places the entire current student loan system in jeopardy for future generations o f borrowers.

Simply put, the student loan status quo is unacceptable, if access to the higher education portion o f the “American Dream” is to remain viable. To that end, breaking the destructive cycle o f mounting higher education-related debt will require clarifying, understanding, and leveraging the involved economic incentives. Repealing § 523(a)(8) is the perfect place to start.

330 UNIVERSITY OF FLORIDA JOURNAL OF LAW AND PUBLIC POLICY [Vol.

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www.universitybusiness.com June 2018 | 49

How to bring financial literacy lessons into classrooms and other unexpected places By Nancy Mann Jackson

E very semester, hundreds of freshmen at Champlain College in Vermont gather in a campus meeting room to play the “Game of Life.” It’s not the traditional board

game. Instead, this event simulates financial decisions students will make after graduation. Each student is assigned a salary based on their major and then turned loose in a room full of options—booths that offer apartments, homes, groceries, in- surance, transportation and other essentials.

After students decide how much to spend on each necessity, they must go to the final station, where they “pay” taxes, student loan installments and retirement plan contributions. “Many of

them realize that they actually can’t afford the things they chose, and they might go back and get a roommate or decide to take public transportation instead of buying a car,” says John Pelletier, director of Champlain’s Center for Financial Literacy.

Many colleges and universities are ramping up their efforts to teach students how to manage loan payments and other ex- penses. As the U.S. Congress debates the reauthorization of the Higher Education Act, “one thing that Republicans and Demo- crats agree about is that colleges aren’t doing enough to educate students about loans and how repayment works,” Pelletier says. “I believe colleges have a moral obligation to give students the tools they need to manage the obligations they’ve taken on to attend those colleges.”

Administrators sometimes have trouble finding a captive audi- ence, yet they need to reach students who don’t attend one-on- one counseling sessions or pursue this information on their own. That’s why financial aid staffers are requiring participation in per- sonal finance-focused campus events and pushing in to classrooms

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where students can’t help but become en- gaged as they realize how much they don’t know about their financial futures.

Helping students realize what they need When Niki Pechinski arrived at the Uni- versity of Minnesota Duluth as financial literacy educator in 2013, she learned

right away that she “needed to get into classes,” she says. “I held financial literacy workshops, and even if I had free food, it was really difficult to get students to come for optional events.”

Today, Pechinski lectures about 50 times each year in freshman seminar classes and leads workshops in a variety

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In addition to in-class presentations, financial literacy is provided on campuses in a number of other ways:

One-on-one counseling Most colleges offer individualized financial counseling for students who request it, often with trained peer advisors. At The University of Iowa, students who reduce their loan amount after meeting with a financial literacy specialist reduce it an average of 37 percent, compared to a national average of about 10 percent, says Sara Even, associate director of financial literacy and academic progress.

Mobile apps Harvard University’s Financial Aid Initiative created a free mobile app, Shoestring Strategies, that offers tips on how to eat for free, manage a bank account, snag cheap textbooks or entertain a group of friends without spending a penny.

Online education Colleges can choose from a number of off-the-shelf, online financial education programs to make available to students, but they work best when combined with other in-person programs. “Offering an online tool from a third party can check the box, but it may not solve the prob- lem,” says John Pelletier, director of Champlain College’s Center for Financial Literacy. “Truly helping students im- prove financial literacy takes an ongoing commitment.”

Individualized debt letters At Indiana University, the Office of Financial Literacy sends personalized letters twice per year to each student, updat- ing them on how much they have borrowed and what it will take to repay the loans. From 2013 to 2014, when the letters first started going out, college debt for students across all Indiana campuses declined by 12 percent, or $31 million.

of other classes, including engineering and math. Each semester, she also teaches a two-credit-hour money management course for freshmen as well as a finan- cial peer mentor training class that is re- quired for financial management majors and minors. Pechinski speaks regularly to student organizations, too.

“Talking to students in their classes or association meetings is huge,” she says. “Once they start listening, many of them realize this is information they need and they become engaged.”

At Champlain College, financial aid professionals don’t go into classrooms, but they provide required financial lit- eracy experiences, like the Game of Life and other life skills learning opportuni- ties. “We just don’t think we’re doing our job if a student leaves college without an understanding of finances and how to manage them successfully,” Pelletier says.

Getting the whole campus involved Many colleges do not require financial literacy activities. The onus is often on a financial literacy educator or committee to promote classroom-based financial ed- ucation to academic leaders and faculty.

For instance, when Pechinski real- ized she needed access to students in their classrooms, she began building re- lationships across the University of Min- nesota campus. Faculty in the chemical engineering and math departments were particularly receptive, so she has been in- vited to present in many of those classes.

And word travels, so successful presen- tations in one department have often led to more invitations from other professors.

The University of Iowa’s financial aid office, staffed by three full-time finan- cial literacy professionals, also focuses on making connections across campus to promote its services and raise awareness of the need for financial education, says Sara Even, associate director of financial literacy and academic progress. She sug- gests working closely with the registrar, retention office, bursar, dean of students and academic advising office.

In 2013, Indiana University established its Office of Financial Literacy, which

www.universitybusiness.com June 2018 | 51

works with financial aid but employs three of its own full-time staff and a graduate assistant to provide financial education across campus. They hang posters, run ads in the campus newspaper, “and have lots of meetings with various departments, letting them know we exist and the differ- ent presentations we can do,” says Philip Schuman, director of financial literacy.

The efforts have paid off: In 2013, Indi- ana’s financial literacy group reached about 400 students through in-class presenta- tions; this year, it will reach about 2,000.

Some institutions form a financial lit- eracy committee—including financial aid staff, academic leaders and others—to pro- vide presentations and workshops, Pechin- ski says.

Indiana’s Office of Financial Literacy started the Higher Education Financial Wellness Summit, a national conference for financial literacy instructors. “Tons of people from different departments at- tend—librarians, professors, people from various positions,” Schuman says. “Finan- cial literacy can’t be siloed in one depart- ment. If you have someone who’s willing to take it on as a passion project, that’s who should be doing it. It doesn’t matter if they’re not in a financial office.”

Cross-campus collaboration is not only important for successful financial literacy efforts, but it is a moral obligation, says Champlain’s Pelletier. “Some financial aid offices say, ‘We don’t have time to do this,’ and academic deans say, ‘It’s not my job,’ ” he adds. “Many colleges simply couldn’t exist without the student loan money that students borrow to come there. So colleges must give students the tools they need to manage that debt.”

Covering the biggest concerns When professors invite financial aid pro- fessionals into their classrooms, it’s cru- cial to ensure the presentation is worth giving up class time. And when students find the content to be relevant and help- ful, they will be more likely to act on it.

Topics that have most interested stu- dents at Minnesota Duluth in recent years include borrowing, credit and bud- geting, Pechinski says. To ensure that she’s delivering timely and relevant in- formation, she polled freshman seminar students last semester about the types of financial information they want—which confirmed that they’re hungry for exist- ing lesson topics such as student loans and budgeting.

At Indiana, the financial literacy office has a “set menu” of presentation topics, such as loan repayment and how credit scores work. When a professor or group organizer schedules a presentation, usually one of these presentations fits their needs. But staff will also develop customized presentations, Schuman says.

For students nearing graduation, Champlain covers more advanced topics such as salary negotiations and credit re- pair. Also, his group is often asked to speak in classes at the School of Public Health.

“Financial wellness is a component of public health, in that the elimination of stress brought about by finances can make people healthier,” Schuman says. “We work with the School of Public Health to help educate students on how to organize finances in such a way that it

mirrors who they are as a person, and we provide them with strategies to be more efficient with their finances.”

Creating future donors Administrators have several options when measuring the effectiveness of money management lessons. At Iowa, the financial literacy module was added to the freshman experience course, Suc- cess at Iowa, in fall 2017. Ninety-two percent of students polled said they found the content useful. Based on pre- and post-test scores, students’ confidence in managing money increased by an aver- age of 30 percent.

Financial literacy efforts can also improve cohort default rates (CDR) when students better understand how to handle post-college financial obliga- tions. “CDRs are interesting, but they don’t tell the whole story,” says Minne- sota’s Pechinski. “I get phone calls from alumni who are making their payments but they’re struggling financially. It’s be- yond CDR. Every individual gets to de- cide how OK they are with debt, but for a lot of people, student loan repayment is very stressful and impacts their choices for a long time.”

Lessons in financial literacy help by preparing students to better understand their post-college repayment commit- ments as well as to make more informed choices about future jobs, salary nego- tiations, housing and budgets to manage those debts.

For many colleges, the bottom line is that educating students about finances is simply the right thing to do. Efforts will likely also pay off for the institution in the long run. “These programs are low- cost efforts that really benefit students,” Schuman says. “And when students grad- uate with less debt, they’re more likely to give back to the university.”

Nancy Mann Jackson, an Alabama-based writer, is a frequent contributor to UB.

When students find the content

of a finance presentation

given in class to be relevant and

helpful, they will be more likely

to act on it.

MORE ONLINE: Barriers to providing fi nancial content within courses, UBmag.me/fi nancialcontent

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B r o k e n P r o m i s e s : H o w D e b t - f i n a n c e d H i g h e r E d u c a t i o n R e w r o t e A m e r i c a ’s S o c i a l C o n t r a c t

a n d F u e l e d a Q u i e t C r i s i s

Seth Frotman*

Abstract The U.S. student loan market stands at $1.5 trillion— the second

largest consumer debt market in the coun try. Despite the vast size o f this market and the far-reaching spillover effects o f student loan debt on individuals and communities, the American higher education system increasingly relies on debt financing as the predominant mechanism by which American families pay fo r college. Furthermore, student loans still lack a comprehensive twenty-first century consumer protection infrastructure. Researchers and policymakers are only now beginning to acknowledge the threat runaway student debt poses to the American social contract— even as millions o f borrowers across the country struggle with the consequences o f this quiet crisis.

I. In t r o d u c t io n

Student loan debt has fundamentally changed the lives and livelihoods o f tens o f millions o f people. This notion is both obvious and intuitive to the forty-four million Americans who currently owe more than $1.5 trillion in student loan debt, yet remains surprisingly controversial in Washington.* 1 America’s embrace o f a debt-

© 2018 Seth Frotman. Assistant Director and Student Loan Ombudsman o f the Consumer Financial Protection Bureau. The views as expressed are the author’s alone and do not necessarily represent those o f the Consumer Financial Protection Bureau. This Article was adapted from keynote remarks by Seth Frotman at the Utah Law Review Symposium: Financing the Future: The Law and Politics o f Student Debt in American Higher Education on October 20, 2017, with special thanks to Bonnie Latreille and Chris Peterson.

1 See Consumer Credit-G.19 in March 2018, F e d . R e s . B o a r d OF GOVERNORS (May 07, 2018), https://www.federalreserve.gov/releases/gl9/current/default.htm [https://perma. cc/K3LR-4CRT] (as o f March 2018, outstanding student loan debt totaled $1,521 trillion). Commentators have argued that for the majority of student loan borrowers, student loan debt is not a burden. See, e.g., Editorial Board, Democrats ’ Loose Talk on Student Loans, W a s h . POST (July 31, 2016), https://www.washingtonpost.com/opinions/democrats-loose-talk-on- student-loans/2016/07/3 l/fe93430e-5417-1 le6-88eb-7dda4e2f2aec_story.html?utm_term= .f08fc3070e44 [https://perma.cc/A85K-NECC] (“ [T]he benefits from such investment in human capital accrue to individuals who possess it. So it is not unreasonable to ask them to share the cost.”); Debra Liese, Beth Akers & Matthew Chingos: Does the Public Narrative About Student Debt R efe ct Reality?, PRINCETON U n i v . P r e s s (Oct. 27, 2016), http://blog.press.princeton.edu/2016/10/27/beth-akers-matthew-chingos-does-the-public- narrative-about-student-debt-reflect-reality/ [https://perma.cc/P2FG-5B5N] (“The crisis that

81 1

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financed higher education model has broken the basic tenets o f the social contract between the U.S. government and its citizens— the contract that relies on the supposed notion that higher education is the nation’s great equalizer; and that attending college always provides a clear pathway to the middle class.* 2 An honest assessment o f the situation shows this to no longer be tme.

This student debt crisis did not happen by accident. A $1.5 trillion market is never an accident.3 This quiet crisis is the consequence o f incremental policy decisions that drove up college costs and shifted the burden for shouldering these costs to individual students— a shift financed by consumer debt.

ft is imperative to understand the array o f decisions that led to this place for two reasons. First, because the people whose lives have been so severely impacted by student debt deserve an accurate accounting o f why they have been uniquely asked to bear this burden. And second, so that policymakers and the higher education community— from universities, to researchers, to foundations— can shape a response that recognizes and effectively addresses the real problems that student loan borrowers face across their financial lives.

In 2008, the worst economic recession since the Great Depression crippled the nation and destroyed trillions o f dollars in household wealth.4 Millions o f Americans stood by, powerless to intervene in their own financial lives.5 The financial crisis exposed deep rooted systemic problems underlying the m ost basic functions o f

permeates public discussion is a manufactured narrative based largely on anecdotes, speculation, shoddy research, and inappropriate framing of the issue.”).

2 See In America, Education Is Still the Great Equalizer, HOMEROOM (last visited Apr. 10, 2018), https://blog.ed.gov/2011/12/in-america-education-is-still-the-great-equalizer/ [https://perma.cc/TY5B-YPNN] (‘“ In America, education is still the great equalizer,’ Secretary Duncan told a group of graduates at Fayetteville State University’s Winter Commencement on Saturday. Duncan described the importance of education in today’s economy, and that education is, in the long run, one of the best investments one can make for the ftiture.”).

3 See generally Seth Frotman, CFPB, Prepared Remarks Before the California State Senate Banking and Financial Institutions Committee (Mar. 22, 2017), http://files.consumerfinance.gov/ftdocuments/201703_cfpb_Frotman-Testimony-CA- Senate-Banking-Committee.pdf [https://perma.ee/TR42-DN79] [hereinafter Frotman, CFPB, Prepared Remarks] (detailing the policy decisions that led to the rise in student debt across the country); see also Mark Huelsman, Reflecting on $1 Trillion in Sttident Debt, and Why We 're Headed for $2 Trillion, Demos (Apr. 24, 2014), http://www.demos.org/blog /4/24/14/reflecting-l-trillion-student-debt-and-why-were-headed-2-trillion [https://pemia.ee /AMT3-9FPF] (finding that the United States’ student loan market will likely reach $2 trillion in 2022).

4 Fed. Res. Bd. of Governors, Flow of Funds Accounts of the United States: Flows and Outstandings Fourth Quarter 2008 (2009), https://www.federalreserve. gov/releases/z 1/20090312/zl.pdf [https://pemia.cc/JC62-RSKR] (“For 2008 as a whole, household net worth fell SI 1.2 trillion.”).

5 See generally Problems in Mortgage Servicing from Modification to Foreclosure: Hearing before the Comm, on Banking, Hous., & Urban Affairs, 111th Cong. (2010), https://www.gpo.gov/fdsys/pkg/CHRG-l 1 lshrg65258/html/CHRG-l 1 lshrg65258.htm [https://pemia.cc/Z9L W-LLXS].

2018] Broken Promises 813

consumer credit markets.6 The economy failed consumers at every turn. Millions of people needlessly lost their homes.7 The most vulnerable people in the country were hit the hardest. 8 Nearly a decade later, many families and communities have yet to recover. 9

As is often the case, researchers and policymakers engaged in a familiar cycle o f study and reaction— diagnosing the causes, learning the lessons, and enacting the “right” reforms. 10 In response, America’s leaders made three promises. First, they

6 See Press Release, U.S. Dep’t o f the Treasury, Remarks by Deputy Secretary Sarah Bloom Raskin at the National Foundation for Credit Counseling 50th Annual Leaders’ Conference (Sept. 28, 2015), https://www.treasury.gov/press-center/press-releases/Pages/ jl0186.aspx [https://perma.cc/9B2T-GTE6] (“The financial crisis exposed the real dangers from having a system with misaligned incentives and shoddy oversight of complex markets. Those fundamental flaws took a toll on a crucial wealth-building asset—the home— and in their wake we were left with households with damaged balance sheets and a slow, uneven recovery— indicative o f a slow rebuilding of household wealth. We need to ensure that we design a credit system that can be navigated and that functions efficiently for all participants in all economic environments.”); see also Adam J. Levitin, Hydraulic Regulation: Regulating Credit Markets Upstream, 26 Yale J. on Reg. 143, 151 (2009) (“The events of the past year have laid bare the shortcomings o f our current system o f financial-institution regulation. These shortcomings have played out on two levels: consumer protection and systemic ris k .. . . ”).

1 See Patricia A. McCoy, Barriers to Foreclosure Prevention During the Financial Crisis, 55 Ariz. L. Rev. 723, 726 (2013) (finding that artificial barriers to foreclosure prevention programs inflicted “enormous, needless losses on borrowers, investors, and society at large”).

8 See Ann Owens & Robert J. Sampson, The Russell Sage Foundation and The Stanford Center on Poverty and Inequality, Community Well-Being and the Great Recession 6 (2013), https://www.stanford.edu/group/recessiontrends/cgi- bin/web/sites/all/themes/barron/pdf/Communities_fact_sheet.pdf [https://perma.cc/P8EK- 9G7N] (“Many of the nation’s most vulnerable communities have borne the brunt of the economic crisis, as poverty, vacancy rates, and particularly unemployment rates increased more in disadvantaged and minority neighborhoods.”); Why D id the Housing Bust Hit Black and Latino Families Harder?, Fed. Res. Bank of St. Louis: On t h e Econ. (Aug. 10,2017), https://www.stlouisfed.org/on-the-economy/2017/august/why-housing-bust-hit-black-latino -families-harder [https://perma.ee/ZZ2U-QRMR].

9 See Emilia Istrate & Tadas Pack, County Economies 2016: Widespread Recovery, Slower Growth (2017), http://www.naco.org/sites/default/files/documents/ County-Economies-2016.pdf [https://perma.cc/78ZX-ZUT6]; Rakesh Kochhar & Richard Fry, Wealth Inequality Has Widened Along Racial, Ethnic Lines Since End o f Great Recession, Pew Res. Ctr. (Dec. 12, 2014), http://www.pewresearch.org/fact- tank/2014/12/12/racial-wealth-gaps-great-recession [https://perma.cc/XJT5-SLGM]; Ten Years After Financial Crisis, Nearly One-in-Three Americans Still Feeling the Sting, Country Fin. (July 13, 2017), https://www.countryfinancial.com/en/about- us/newsroom/year2017/Americans-still-feeling-sting-of-fmancial-crisis.html [https://perma .cc/5AQE-AQMB].

10 See, e.g., Dodd Statement on Implementation o f Dodd-Frank Act, U.S. S. COMM. ON Banking, Housing, & Urban Affairs (Sept. 30, 2010), https://www.banking.senate.gov/ public/index.cfm/democratic-press-releases?ID=6312FD47-F649-lCF7-E53D-C4D3C313

814 Utah Law Review [No. 4

promised that the public and private spheres would install a framework to stop many o f the practices that led to the financial crisis." Second, they promised that this framework would protect individual consumers accessing and repaying the financial products that underpin a twenty-first century economy. 12 And finally, they promised that by learning from the practices that ignited the last crisis, America’s financial system could prevent the next one. ' 3 In effect, leaders promised the country that they would never let something like this happen again. 14 The current student loan market is the first real test o f this proposition.

For nearly a decade, the federal government has attempted to get a handle on the country’s growing student debt problem.1"’ And yet, as policymakers across the

1292 [https://perma.ccAV596-8WNG] (“I believe we can say that, thanks to the hard work of Democrats and Republicans on this committee— and with the sage counsel o f our witnesses and many others whose perspectives we have considered carefully— we have delivered the reform our financial system needs and provided the American people with the economic stability they deserve.”).

11 See, e.g., Press Release, U.S. Dep’t of Treasury, Treasury Deputy Secretary Neal Wolin Written Testimony before the Senate Banking Committee on “Implementing the Dodd-Frank Wall Street Reform and Consumer Protection Act” (Sept. 30, 2010), https://www.treasury.gov/press-center/press-releases/Pages/tg881 .aspx [https://perma.cc/2J Q3-LANY] (“The Act builds a stronger financial system by addressing major gaps and weaknesses in regulation that helped cause the financial crisis that led to the recession. It puts in place buffers and safeguards to reduce the chance that another generation will have to go through a crisis o f similar magnitude.”).

12 See, e.g., Arthur E. Wilmarth, Jr., The Financial Services Industry's Misguided Quest to Undermine the Consumer Financial Protection Bureau, 31 Rev. Banking & Fin. L. 881, 881 (2011-2012), https://www.bu.edu/rbfl/files/2013/09/UnderminingTheConsumerFinan cialProtectionBureau.pdf [https://perma.cc/UP7Y-REY6] (“The preamble to the Dodd- Frank Wall Street Reform and Consumer Protection A c t .. . affirms that one o f the statute’s primary purposes is ‘to protect consumers from abusive financial services practices.’ When President Obama signed Dodd-Frank into law, he declared that the statute would create ‘the strongest consumer financial protections in history.’”).

13 See Rep. Maxine Waters, How to Prevent Another Financial Crisis, U.S. H. Comm. ON Fin. Serv. (Sept. 19, 2014), https://democrats-financialservices.house.gov/news/docu mentsingle.aspx?DocumentID=398641 [https://perma.cc/7CYE-6MGH].

14 See, e.g., President Barack Obama, Remarks in Reno, Nevada, Am. Presidency Project (Sept. 30, 2008), http://www.presidency.ucsb.edu/ws/index.php?pid=84462 [https://perma.cc/E37K-JA8M] (“These are the changes and reforms that we need. . . . Common-sense regulations for our financial system that will prevent a crisis like this from ever happening again.’’); Wall Street Reform: The Dodd-Frank Act, WHITE HOUSE (last visited Apr. 10, 2018) https://obamawhitehouse.archives.gov/economy/middle- class/dodd-frank-wall-street-reform [https://perma.cc/MXM5-TBSB] (“To make sure that a crisis like this never happens again. President Obama signed the Dodd-Frank Wall Street Reform and Consumer Protection Act into law.”).

15 See, e.g., Sec’y John B. King, Jr., Giving Every Student a Fair Shot: Progress Under the Obama Administration’s E ducation Agenda (2017), https://www2.ed.gov/documents/press-releases/cabinet-exit-memo.pdf [https://perma.cc/2J 9E-NBWQ] (reflecting on the administration’s achievements in improving student loan affordability); Fact Sheet: Taking Action to Help More Americans Manage Student Debt,

2018] Broken Promises 815

governm ent have supposedly w orked to prevent another crisis, it rem ains clear— it is too late. Those prom ises w ere broken and, yet again, A m erica finds itse lf facing a crisis.

Today, m ore than eight m illion federal student loan borrow ers arc in d e fa u lt.16 A nother three m illion borrow ers are at least tw o p aym ents b e h in d .17 In 2017 alone, 1.1 m illion federal student loan borrow ers defaulted— that is one default every tw enty-eight sec o n d s.Is

W hite House (Apr. 28, 2016), https://obamawhitehouse.archives.gov/the-press- office/2016/04/28/fact-sheet-taking-action-help-more-americans-manage-student-debt [https://perma.cc/8A53-Y3EF] (outlining the administration’s efforts to increase flexibility and affordability during student loan repayment). Additionally, in 2010, Congress passed the Dodd-Frank Wall Street Refonn and Consumer Protection Act (Dodd-Frank Act), calling for increased measures to protect student loan borrowers. 12 U.S.C. § 5535 (2010). See also Matthew B. Fuller, A History o f Financial A id to Students, 44 J. STUDENT FIN. AID 42, 58 (2014) (“The Higher Education Act was reauthorized in 2008, under the name The Higher Education Opportunity Act of 2008, and reinforced the government’s and society’s discontent with increasing college costs.”).

16 See Federal Student Loan Portfolio, U.S. Dep’t Educ., https://studentaid.ed.gov/sa/ about/data-center/student/portfolio [https://perma.cc/YUF6-SX2] (last visited Apr. 10, 2018); Federal Perkins Loan Program Status o f Default as o f June 30, 2016, U.S. Dep’t Educ. (June 12, 2017), https://ifap.ed.gov/perkinscdrguide/1516PerkinsCDR.html [https://perma.ee/DU4Q-BAC9].

17 Portfolio by Delinquency Status, U.S. Dep’t E duc., https://studentaid.ed.gov/sa/ sites/default/files/fsawg/datacenter/library/DLPortfoliobyDelinquencyStatus.xls [https://perma.cc/4392-JVQS] (last visited May 8, 2018).

18 See Direct Loans Entering Default, U.S. Dep’t Educ. 2017 Q 2-2018 Q l, https://studentaid.ed.gov/sa/sites/default/files/fsawg/datacenter/library/DLEnteringDefaults .xls [https://perma.cc/NY8L-5CTP] (last visited May 8, 2018); see also CFPB Concerned About Widespread Servicing Failures Reported by Student Loan Borrowers, CFPB (Sept. 29, 2015), https://www.consumerfmance.gov/about-us/newsroom/cfpb-concemed-about- widespread-servicing-failures-reported-by-student-loan-borrowers/ [https://perma.cc/F8LK -SDLC] (“One in four student loan borrowers are currently in default or struggling to stay current on their loans, despite the availability of income-driven repayment options for the vast majority o f borrowers.”); see also Paul Fain, Growing Number o f Borrowers Are in Default, Inside Higher Ed (Dec. 14, 2017), https://www.insidehighered.com/quicktakes/ 2017/12/14/growing-number-borrowers-are-default [https://perma.cc/W53L-FKZ2] (“Roughly 298,000 borrowers entered into default during the quarter that ended in Septem ber. . . with 274,000 defaulting for the first time.”); Shahien Nasiripour, The Government C an’t Agree with Itself on Policing Student Loan Companies, Bloomberg (Aug. 24, 2016, 8:24 AM), https://www.bloomberg.eom/news/articles/2016-08-24/the- govemment-can-t-agree-with-itself-on-policing-student-loan-companies [https://perma.ee/ J4LA-HSNR] (“An American defaulted on a student loan direct from the U.S. Department o f Education every 28 seconds over the past year. Nearly all o f those more than 1.1 million defaults were avoidable, because almost every borrower is eligible for a repayment plan based on affordability.”).

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To put these numbers into context, in 2016, three times as many people defaulted on a student loan than lost their home due to foreclosure.19 In fact, the rate o f student loan defaults in 2016 is comparable to the foreclosure rate following the mortgage meltdown.20 However, this is only one part o f the crisis. Ballooning, unaffordable student loan debt does not end with the millions o f borrowers who are behind or in default on a student loan.

Some people have tried to explain away the student loan crisis by relying on an overly narrow definition o f what it means for a borrower to be “struggling.”21 However, by limiting the definition o f the student debt problem to those borrowers

19 Household Debt and Credit Report (0 4 2017), Fed. R es. Bank N.Y., https://www.newyorkfed.org/microeconomics/hhdc.html [https://penna.cc/8AXT-5WFF] (last visited Apr. 10, 2018) (reporting 339,000 foreclosures in 2016 calendar year).

2(1 See Michelle Conlin, Student Loan Borrowers, Herded into Default, Face a Relentless Collector: The U.S., REUTERS: INVESTIGATES (July 25, 2017, 1:00 PM), https://www.reuters.com/investigates/special-report/usa-studentloans [https://perma.cc/Z8 73-BGWK] (“Today, 11 percent o f the $1,325 trillion o f federal student loans outstanding is severely delinquent or in default, higher than the mortgage default rate at the peak o f the foreclosure crisis in 2010 . . . . ”).

21 See, e.g., Sandy Baum, Student Debt: Rhetoric and Realities of H igher Education Financing 7 (2016) (“The misperception that bachelor’s degree recipients with very high levels o f debt are typical coexists with the misperception that individuals who have borrowed for college are among the groups in society struggling most.”); Joel A. Elvery, Is There a Student Loan Crisis? Not in Payments, Fed. Res. Bank OF Clev., https://clevelandfed.Org/~/media/content/newsroom%20and%20events/publications/forefro nt/ff%20v7n02/ff%20v7n0204%20is%20there%20a%20student%201oan%20crisis%20pdf. pdf?la=en [https://perma.cc/J4DV-JNEL] (last visited Apr. 10, 2018) (arguing that the college wage premium and the option to make student loan payments based on income negates the harm o f increased student debt); Liese, supra note 1 (“The typical borrower we hear about in news stories about student loan debt tends to have an enormous balance, is unemployed or working a low-paying job, and lives with his or her parents to save money on living expenses. These struggling borrowers are real, and their problems are troubling, but they are outliers in the broader picture o f student borrowing in the United States.”); Lizzie O ’Leary, Why Student Debt Is ‘A Crisis 'fo r Some Borrowers, PBS: News Hour (Oct. 21, 2016, 7:36 PM), https://www.pbs.org/newshour/show/student-debt-crisis-borrowers [https://perma.cc/CF05-3NC5] (in which Sandy Baum states, “Student debt is a crisis for some people, but student debt is not the generalized crisis that the common discourse would make it appear. Yes, people are paying more o f their incomes for a college education, but still it’s worth it for most people.”).

2018] Broken Promises 817

who are behind or in default, the literature assumes that the remaining thirty-three million borrowers are doing just fine.22 This perspective is deeply flawed. 2 '

First, it is certainly not acceptable to write off the financial futures o f eleven million people. Second, by defining down what it means to “struggle” to include only those in immediate, documented financial distress, these commentators are ignoring the broader reality of debt-financed higher education. For every borrower who misses a student loan payment or defaults on a debt, there is another borrower who is struggling to buy a home, start a business, or save for retirement due to the burden o f their student loans. 24

22 See, e.g., Claudio Sanchez, Is the Student Loan Crisis Fact or Fiction?, NPR: Ed (July 28, 2016, 6:00 AM), https://www.npr.org/sections/ed/2016/07/28/487032643/is-the- student-loan-crisis-fact-or-fiction [https://penna.cc/DWB8-ENQP] (interviewing Sandy Baum, who states that “ [p]eople have an image o f a recent bachelor’s degree recipient who went to college for four years and is now 22-23 years old and is working at Starbucks. Those people are very rare. People who earn bachelor’s degrees, by and large, do fine.”).

23 See Marshall Steinbaum, W ho’s Afraid o f the Student Debt Crisis?, Bos. Rev. (Dec. 20, 2016), http://bostonreview.net/education-opportunity/marshall-steinbaum-whos-afraid- student-debt-crisis [https://perma.cc/TY6M-CJ67] (“Baum, Akers, and Chingos— as well as Adam Looney and Constantine Yannelis, authors o f a Brookings Institution study both books rely on— are all correct that crisis is felt most acutely by the worst-off borrowers with low incomes, who also tend to have small loan balances. But that pattern does not imply that the policy is a success for everyone else.”); see also Rajashri Chakrabarti et al., At the N. Y. Fed: Press Briefing on Household Borrowing with Close-Up on Student Debt, Fed. Res. Bank of NY: L iberty Street Econ. (Apr. 3,2017), http://libertystreeteconomics.newyorkfed.org /2017/04/at-the-ny-fed-press-briefing-on-household-borrowing-with-close-up-on-student- debt.html [https://perma.cc/E9N3-ADSP] (“We have noted in the past that delinquency and default rates are lower among higher-balance borrowers; however, the default rates among higher-balance borrowers have worsened notably in recent years. Further, payment progress is slower among those who borrowed more.”).

24 See, e.g., Meta Brown & Sydnee Caldwell, Young Student Loan Borrowers Retreat from Housing and Auto Markets, Fed. Res. Bank OF NY: LIBERTY STREET ECON. (Apr. 17, 2013), http://libertystreeteconomics.newyorkfed.org/2013/04/young-student-loan- boiTowers-retreat-from-housing-and-auto-markets.html [https://perma.cc/T5UA-NUQJ] (illustrating the potential for lost asset accumulation opportunities, homeownership rates o f 30-year-old student loan borrowers decreased by more than 5 percent compared with homeownership rates of 30-year-old non-borrowers); Fed. Res. Bank of NY, Press Briefing on Household D ebt, with Focus on Student Debt 36-47 (Apr. 3, 2017), https://www.newyorkfed.org/medialibrary/media/press/PressBriefmg-Household-Student- Debt-April32017.pdf#page=39 [https://perma.ee/3AF8-BJYU] (finding that college attendees with student debt have lower homeownership rates than college attendees without student debt and that higher debt balances are associated with lower home ownership rates); Brent W. Ambrose et al., The Impact o f Student Loan Debt on Small Business Formation (Mar. 31, 2014), https://papers.ssm.com/sol3/papers.cfm?abstract_id=2417676 [https://perma.cc/ST5Z-F44X]; Brandon Busteed, Student Loan Debt: Major Barrier to Entrepreneurship, Gallup (Oct. 14, 2015), http://www.gallup.com/businessjoumal/186179 /student-loan-debt-major-barrier-entrepreneurship.aspx [https://perma.cc/KM63-NLWP]; Consumer Fin. Protection Bureau, Snapshot of Older Consumers and Student Loan D ebt 14 (2017), http://files.consumerfinance.gov/f7documents/201701_cfpb_OA-

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Student debt has imperiled access to these key pillars o f the middle class for far too many Americans. The Great Recession devastated an entire generation of people, and by breaking the promises made in the aftermath, America has condemned the next.

As this Article will show, the country is doomed to repeat history again and again until policymakers rebuild the foundation on which these promises were made. Part II o f this Article reflects on the series o f discrete and intentional policy decisions by state and federal lawmakers that led to unprecedented levels o f student loan borrowing. Part III discusses the student loan servicing market structure and how lapses in oversight lead to consumer harm. Part IV evaluates how action across all levels o f government can relieve student debt burdens and mitigate consumer harm. Finally, Part V analyzes areas in need o f further study as researchers and policymakers seek to fix the student debt crisis.

II. A $1.5 Trillion Problem

In order to address the student debt crisis, one must first understand how the crisis came to be. In all instances, public policy reflects a series o f choices. The student debt crisis is no exception. History can trace the rapid rise of student debt to a series o f choices made in state houses across the country, stretching back more than a decade,26 These choices were laid on a foundation built at the federal level that not only tolerated, but promoted, debt-financed higher education.26

Student-Loan-Snapshot.pdf [https://perma.cc/284M-RNY5] (reporting that borrowers nearing retirement “had a lower median amount in their employer-based retirement account or an Individual Retirement Account (IRA) than consumers without student loan debt”); Joseph Egoian, 73 Will Be the Retirement Norm for M illennial, NERDWALLET (Oct. 23, 2013), https://www.nerdwallet.com/blog/investing/73-retirement-nomt-millennials/ [https://penna.cc/QF9V-RN5C] (finding that a 4 year college graduate with median student loan debt of $23,000 has about $115,000 less in retirement savings than a 4 year college graduate with no student loans by the time they reach age 73); Jeffrey P. Thompson & Jesse Bricker, Does Education Loan Debt Influence Household Financial Distress? An Assessment Using the 2007-09 SC FPanel 2 (Fin. & Econ. Discussion Series, Working Paper No. 2014- 90, 2014), https://www.federalreserve.gov/econresdata/feds/2014/files/201490pap.pdf [https://pemia.cc/8GFF-9VJG] (finding “that student loans are correlated with financial distress in the 2007-09 SCF panel and families that hold student loans are more likely to transition to financial distress between 2007 and 2009. Families with student loans in 2007 were about 4 percentage points more likely to be 60 days late paying bills and about 5 percentage points more likely to be denied credit in 2009.”).

25 See Michael Mitchell et al., Ctr. on Budget and Po l’y Priorities, A Lost Decade in Higher Education Funding: State Cuts Have Driven Up Tuition and Reduced Quality (Aug. 23, 2017), https://www.cbpp.org/sites/default/files/atoms/files/ 2017 higher_ed_8-22-17_fmal.pdf [https://perma.cc/2RDW-MRTH].

26 See, e.g., Council of Econ. Advisers, E xec. Office of the President, Investing in H igher Education: Benefits, Challenges, and the State of Student Debt 10 (2016), https://obamawhitehouse.archives.gov/sites/default/files/page/files/20160718_cea

2018] Broken Promises 819

A. State D isin vestm en t in H igher E ducation

At the height of the Great Recession, state lawmakers grappled with declines in tax revenue and sought ways to plug holes in their battered budgets. 27 In nearly every state, lawmakers chose to cut public investment in higher education as a way to fill these gaps.28 This choice directly affected the public colleges and universities that educate nearly three-quarters o f all college students in this country.24

student_debt.pdf [https://perma.cc/5R2B-QFM3] (“ [M]any individuals who cannot pay for college upfront may find it worthwhile to borrow to finance their education.. . . A major function of the federal student loan system is to ease the credit constraints caused by imperfections in the private loan market and ensure that all citizens have access to affordable loans.”); see also Press Release, Office of the Press Sec’y, The White House, Fact Sheet: Taking Action to Help More Americans Manage Student Debt (Apr. 28, 2016), https://obamawhitehouse.archives.gov/the-press-office/2016/04/28/fact-sheet-taking-action -help-more-americans-manage-student-debt [https://perma.cc/2KJB-UAJS]; Morgan Adamson, The Financialization o f Student Life: Five Propositions on Student Debt, 21 POLYGRAPH 97, 97 (2009) (“O f all the transformations that have taken place in the American university,.. . perhaps the most radical is the shift toward financing higher education through borrowed money.”).

27 See Dennis Jones & Jane Wellman, Breaking Bad Habits: Navigating the Financial Crisis, Change, May-June 2010, at 6, 8 http://archive.sheeo.org/annualmeeting/Change% 20Jones%20and%20Wellman%20Breaking%20Bad%20Habits.pdf [https://perma.cc/69Y8 -9Q47] (“Although states are reluctant to raise taxes, they evidently have less o f a problem letting tuitions go up. And up they are going— California, Oregon, Washington, New York, Wisconsin, and Florida announced increases ranging from 10 to 33 percent. The normally tuition-resistant Florida legislature has authorized annual increases in undergraduate tuitions of 15 percent per year until they reach national averages for public four-year institutions.”); Tracy Gordon, State and Local Budgets and the Great Recession, BROOKINGS (Dec. 31, 2012), https://www.brookings.edu/articles/state-and-local-budgets-and-the-great-recession [https://penna.cc/E6V4-LMEW] (finding that in the second quarter of calendar year 2009, state and local revenue has reached a 20 year low, and then between 2009 and 2012, states faced more than $500 billion in cumulative budget shortfalls); Phil Oliff et al., States Continue to Feel Recession’s Impact, Ctr on Budget and Po l’y Priorities (June 27, 2012), https://www.cbpp.org/research/states-continue-to-feel-recessions-impact?fa=view& id=711 [https://perma.cc/H6H4-5TVQ] (“The Great Recession that started in 2007 caused the largest collapse in state revenues on record.”).

28 See Michael Mitchell et al., Funding Down, Tuition Up: State Cuts to Higher Education Threaten Quality and Affordability at Public Colleges, Ctr on Budget and Pol’y Priorities (Aug. 15, 2016), https://www.cbpp.org/research/state-budget-and- tax/funding-down-tuition-up [https://perma.cc/X3AE-V9VY] (finding that 43 states cut funding for higher education in response to declining state revenue during the recession, and that by 2016, only four states had increased per-student funding back to pre-recession levels); see Gordon, supra note 27.

29 See U.S. Department of Education, National Center for Education Statistics, Higher Education General Information Survey (HEGIS), “Fall Enrollment in Colleges and Universities” surveys, 1970 through 1985; Integrated Postsecondary Education Data System (IPEDS), “Fall Enrollment Survey” (IPEDS-EF:86-99); IPEDS Spring 2001 through Spring

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T hese state policym akers predicted that, o f the tough choices they faced on spending cuts, cuts to h ig h er education w ould have the least ram ifications.30 L egislators rightly assum ed that i f states chose to provide less financial support for public colleges and universities, then these schools could sim ply raise the cost o f college in order to m ake up any shortfall.3'

U nfortunately, this sam e rationale also assum ed that individual students and th eir fam ilies could handle a tuition bill o f seem ingly any size, w ithout any real dow nside for the state.32 W hen the financial consequences o f these policies w ere passed on to fam ilies, but not reflected on state balance sheets, state law m akers could act as i f their choices cam e at no cost to th eir state o r their citizens. In a budgetary sense, this w as undoubtedly true.33 But in a broader social and econom ic sense, it could not be further from the truth. In fact, the costs w ould prove to be enorm ous.

2016, Fall Enrollment component; and Enrollment in Degree-Granting Institutions Projection Model, 2000 through 2026.

30 See Harold Hovey, Nat’l Ctr. for Pub. Policy and Higher E duc., State Spending for Higher E ducation in the N ext Decade: The Battle to Sustain Current Support 19-20 (1999), http://www.higheredinfo.org/analyses/State_Spending_ Hovey.pdf [https://perma.cc/3NTD-5FKR] (arguing that states treat higher education spending as a “balance wheel’’ for state budgets because higher education institutions have “perceived fiscal flexibility to absorb temporary fiscal adversity” and “the ability to maintain and increase spending levels by shifting larger proportions of costs to users by tuition and fee increases,” among other factors).

31 See id.\ Douglas A. Webber, State Divestment and Tuition at Public Institutions, Econ. of Educ. Rf.v. 1, 3 (Oct. 2017), https://doi.Org/10.1016/j.econedurev.2017.07.007 [https://penna.cc/XN9H-VGBT] (finding that post-2000, for every $1,000 per student state budget cut to higher education funding, costs increased by $318 per student); Jennifer A. Delaney & William R. Doyle, The Role o f Higher Education in State Budgets, in State Postsecondary E ducation Research: N ew Methods to Inform Policy and Practice 55, 55 (Kathleen M. Shaw & Donald E. Heller eds., 2007) (“When states’ revenues are low, higher education is an attractive option for heavy cuts because it has the ability to collect fees for its services (an ability lacking in most other state spending categories).”).

32 See Delaney & Doyle, supra note 31. 33 See generally Hans Johnson, Pub. Policy Inst. OF Ca l., Defunding Higher

Education: What Are the E ffects on College Enrollment 4 (2012), http://www.ppic.org/content/pubs/report/R_512HJR.pdf [https://perma.cc/S36L-5CX9] (“ [H]igher education is seen as a budget area that, unlike other government services, has the ability to compensate for cuts in state expenditures. A common and not incorrect assumption is that public colleges and universities have sources of funds, particularly students and the tuitions they pay, that are not available to other government services.”); Roger Fillion, Tackling Tuition, NCSL: State Legislatures M agazine (Mar. 1, 2016), http://www.ncsl.org/bookstore/state-legislatures-magazine/tackling-tuition.aspx [https://penna.cc/9UU7-3JD4] (“Since colleges can offset reductions in state spending with tuition hikes, cutting higher education spending is often one o f a few options states have when balancing budgets.”); see, e.g., Governor Christie Signs Final Balanced Budget, Delivering 2 Full Terms o f Unprecedented Pension Stability, Fiscal Responsibility, & Tax R elief INSIDER NJ (Jul. 5, 2017, 1:48 AM), https://www.insidernj.com/press- release/govemor-christie-signs-final-balanced-budget-delivering-2-full-terms-unprecedent

2018] Broken Promises 821

A decade later, research shows that this rationale was rooted in a pyramid of flawed assumptions. First, policymakers incorrectly assumed that families and households would be able to absorb rising college costs without experiencing any long term financial consequences. Second, policymakers relied on the belief that college was always a sound investment. In other words, they believed that as long as they could point to the college wage premium—narrowly defined as the wage gap between college educated workers and workers without a degree— the long term economic benefits to families and to society would eventually offset any immediate increase in costs. Years o f evidence has now exposed the flaws in both o f these assumptions and paint a deeply disturbing picture o f the individual and societal costs of student debt.

In the face o f this mounting evidence, policymakers and higher education leaders arc finally starting to recognize that their choices over the preceding decade set up millions to fail. As Gordon Gee, the former President of The Ohio State University said in 2012, “1 readily admit it. . . . I didn’t think a lot about costs. I do not think we have given significant thought to the impact o f college costs on families.”34 In order to confront the consequences o f these faulty assumptions and to, in Gee’s words, “give significant thought” to the drivers o f and solutions to the student loan crisis, one must take an honest assessment o f the myriad o f ways that student debt is impacting individual borrowers, families, and their communities.

B. The D om ino E ffect o f Stu d en t D ebt

Over the last decade, the total volume o f outstanding student loan debt more than tripled, adding $1 trillion on the backs o f borrowers.35 Student loan debt now makes up 11% o f all household debt, up from only 5% in less than ten years.36 The average student loan balance has nearly tripled since 2 0 0 5 /7 These increases

ed-pension-stability-fiscal-responsibility-tax-relief [https://perma.cc/7TB8-7PVM]. But see Gordon Macinnes, New Jersey Must Make Higher Education a Priority Again, N. J. Pol’y Persp. (Oct. 16, 2017), https://www.njpp.org/budget/new-jersey-must-make-higher- education-a-priority-again [https://perma.ee/T83S-75W8] (“New Jersey’s 21-percent cut in inflation-adjusted state spending on public college operating costs since the Great Recession—the equivalent of a $2,113 drop per full-time student— is the 13th largest reduction in the nation.”).

34 Andrew Martin & Andrew W. Lehren, A Generation Hobbled by the Soaring Cost o f College, N.Y. Times: Business Day (May 12, 2012), http://www.nytimes.com/2012/05/ 13/business/student-loans-weighing-down-a-generation-with-heavy-debt.html?pagewanted =a!l [https://perma.cc/55TV-EWAH].

35 See Historical Data: Consumer Credit Outstanding (Levels), FED. Res. Board OF Governors (Feb. 07, 2018), https://www.federalreserve.gov/releases/gl9/HIST/cc_hist_ memo_levels.html [https://perma.cc/7PJ2-A32J].

36 See Household Debt and Credit Report (Ql, 2017), Fed. Res. Bank N.Y.: Ctr. Microecon. Data, https://www.newyorkfed.org/microeconomics/hhdc.html [https://perma .CC/4JRX-NNXG],

37 See Joel Elvery, Is There a Student Loan Crisis? Not in Payments, Fed. Res. Bank Clev. (May 16, 2016), https://clevelandfed.org/newsroom-and-events/publications/fore

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translate into very real financial consequences for student loan borrowers. For a typical borrower, this increase results in higher amounts coming out o f monthly paychecks. According to one recent study, in 2015, the average student loan payment for a millennial borrower was $351 per month— a payment amount more than 50% higher than it was a decade prior.38

New evidence shows that declines in household fonnation and homeownership are being driven by student debt— creating barriers to economic mobility for borrowers across the country.39 Another study found that rising levels o f student debt resulted in 360,000 fewer homes purchased by twenty-eight to thirty-year-olds over the previous fifteen years.40 For individual families, this struggle is real and immediate. But for policymakers and researchers, the most alarming consequences o f the student debt crisis may happen not at the individual level, but rather where student debt begins to shape the economy and society.41

front/ff-v7n02/ff-20160516-v7n0204-is-there-a-student-loan-crisis.aspx [https://perma.ee/ J4DV-JNEL] (“ [Outstanding balances have risen 280 percent since 2005 . . . . ”).

38 Id. 39 See, e.g., Daniel Cooper & J. Christina Wang, Student Loan Debt and Economic

Outcomes, Fed. Res. Bank Bos.: Current Po l ’y Persp. (Oct. 2014), https://www.bostonfed.Org/-/media/Documents/Workingpapers/PDF/economic/cppl407 .pdf [https://perma.cc/7YZL-5HRP] (“ In addition, the distribution of total wealth excluding student debt liabilities is lower for homeowners with student debt than for homeowners without student loan debt (again conditional on at least some college attendance). This wealth disparity remains even after controlling for a wide range o f demographic and other factors.”).

40 Zachary Bleemer et ah, Echoes o f Rising Tuition in Students' Borrowing, Educational Attainment, and Homeownership in Post-Recession America, Fed. R es. Bank OF N.Y. (July 2017), https://www.newyorkfed.org/research/staff_reports/sr820 [https://perma.cc/HB5S-H6DG]; see also Shahien Nasiripour, Student Debt Is a Major Reason M illennial A re n ’t Buying Homes, Bloomberg (July 17, 2017, 10:25 AM), https://www.bloomberg.com/news/articles/2017-07-17/student-debt-is-hurting-millennial- homeownership [https://pemia.cc/6NDJ-59TU] (“There’s a good chance the number of millennials kept from buying homes because o f their student loans has only grown since the period the economists studied. As tuition has risen, total student debt has increased 13 percent, and every new class graduates with more student debt than the preceding one.”); Rajashari Chakrabarti et ah, Diplomas to Doorsteps: Education, Student Debt, and Homeownership, Fed. Res. Bank N.Y.: Liberty Street Econ. (Apr. 3, 2017), http://libertystreeteconomics.newyorkfed.org/2017/04/diplomas-to-doorsteps-education- student-debt-and-homeownership.html [https://perma.ee/PXA3-7LLE],

41 See, e.g., Press Release, Remarks of Secretary Lew before the Financial Literacy Education Commission (FLEC) (Oct. 23, 2013), http://www.treasury.gov/press- center/press-releases/Pages/jl2191.aspx [https://perma.cc/PXA3-7LLE] (Secretary of the Treasury Jacob Lew remarking that student debt is “hampering our economy” across multiple sectors of society); Minutes of the Federal Open Market Committee, (Mar. 19-20, 2013), http://www.federalreserve.gov/monetarypolicy/fomcminutes20130320.htm [https://perma.cc/394U-7S98] (noting that the Federal Reserve’s Federal Open Market Committee, the central bank’s monetary policy rate setting board, identified student debt as a risk to aggregate household spending in coming years); Fin. Stability Oversight Council, 2014 Annual Report (2014) 22, http://www.treasury.gov/initiatives/fsoc/

2018] Broken Promises 823

Mounting evidence shows that the ripple effects o f student debt on society are substantial. Researchers are beginning to show how this debt fuels economic, gender, and racial inequality, inhibits asset accumulation, accelerates wealth gaps, and carves out a generational divide that, even in the best o f circumstances, will take decades to erase.42 The evidence shows that the burden of student debt is not shared equally, and the impact o f this burden is far more severe for certain populations:43

• Women make up half o f all college students, and yet owe two-thirds of outstanding student loan debt. And the gender pay gap only serves to keep women in debt longer.44

• Over 90% o f African American and 72% o f Latino students leave school with debt, compared to 66% o f white students.43 This debt hangs over their financial lives for longer and at a greater rate than their white peers. Data shows that twelve years into repayment, white borrowers have paid down 65% o f their loan balance, while African American borrowers owe 113% o f what they originally borrowed.46 Disturbingly, at four-year, nonprofit

Documents/FSOC%202014%20Annual%20Report.pdf [https://perma.cc/HS75-2XJ3] (noting that “high student-debt burdens may dampen consumption and could impact household demand for housing purchases”). See also Sophia Caronello, Why-Jerome Powell Is Worried About Growing Student Debt, Bloomberg (Mar. 1, 2018), https://www.bloomberg.com/news/articles/2018-03-01/why-jerome-powell-is-worried- about-growing-student-debt-chart.

42 See generally William Elliot & Melinda Lewis, Student Debt Effects on Financial Well-Being: Research and Policy Implications, 29 J. Econ. Surveys 614 (2015), http://onlinelibrary.wiley.eom/doi/10.l 111/joes. 12124/full [https://perma.cc/84B8-X8J8] (finding that student loan debt can delay asset accumulation for years and can decrease a family’s net worth by 63 percent); see also infra Part II.C.

43 See Daniela Kraiem, The Cost o f Opportunity: Student Debt and Social Mobility, 48 Suffolk U. L. Rev. 689, 699 (2015) (“Students with unmanageable debt are more likely to be low-income, female, black, and have dependent members such as children or elderly parents.”).

44 See Kevin Miller, Women's Student Debt Crisis in the United States, Am. Ass’N U. Women (May 2017), https://www.aauw.org/research/deeper-in-debt/ [https://perma.cc/VH P2-363S],

45 See Table 331.95, Na t’l Ctr. for E duc. Stat.: Dig. E duc. Stat., https://nces.ed.gov/programs/digest/dl5/tables/dtl5_331.95.asp [https://perma.ee/6QT2- BKBS] (last visited Apr. 10, 2018).

46 See Ben Miller, New Federal Data Show a Student Loan Crisis fo r African American Borrowers, Ctr. FOR Am. Progress (Oct. 16, 2017, 9:00 AM), https://www.americanprogress.org/issues/education-postsecondary/news/2017/10/16/4407 11 /new-federal-data-show-student-loan-crisis-african-american-borrowers [https://perma.ee /WSV7-ATVY]; see also Judith Scott-Clayton, The Looming Student Loan Default Crisis Is Worse than We Thought, Brookings (Jan. 11, 2018), https://www.brookings.edu/research/ the-looming-student-loan-default-crisis-is-worse-than-we-thought/ [https://perma.ee/RAL9- J3XL] (“Debt and default among black college students is at crisis levels, and even a bachelor’s degree is no guarantee of security: black BA graduates default at five times the rate of white BA graduates (21 versus 4 percent), and are more likely to default than white dropouts.”).

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schools, African Americans defaulted at four times the rate of their white 47peers.

• One o f the most telling factors in whether residents o f a zip code will struggle with paying their student debt is not income, but rather the racial composition— zip codes with predominantly African American and Latino populations have higher rates of delinquency and default than predominantly white zip codes with comparable income levels.48

• But the student debt struggle is not limited by race and gender. Data also shows that rural areas such as Appalachia and other communities seemingly long forgotten by policymakers have some of the highest incidences o f delinquency and default.49

This research shows that where pursuing a college degree was once marketed as the “great equalizer,” it now perpetuates the divide between the “haves” and the “have-nots.”50 One recent study projected that a typical household headed by two college-educated adults with average student loan debt balances loses out on more than $200,000 in accumulated wealth over a lifetime.51

47 Robert Kelchen, Institutional Accountability: A Comparison o f the Predictors o f Student Loan Repayment and Default Rates, 671 ANNALS Am. Acad. Pol. Soc. Sci. 202, 212-217 (2017), http://joumals.sagepub.com/doi/fiill/10.1177/0002716217701681.

48 See Marshall Steinbaum & Kavya Vaghul, How the Student Debt Crisis Affects African Americans and Latinos, WASH. CTR. FOR EQUITABLE GROWTH (Feb. 17, 2016), http://equitablegrowth.org/how-the-student-debt-crisis-affects-african-americans-and- latinos/ [https://perma.cc/BQ2X-KP5P].

49 See Mapping Student D ebt, www.mappingstudentdebt.org[https://perma.cc/LM T8-PF5N] (last visited Apr. 10, 2018) (showing student loan delinquency rates by zip code); see also State Council of Higher Educ. for Va., Policy Considerations for Student-Loan Refinancing Authority 5 (2016), http://www.schev.edu/docs/default- source/Reports-and-Studies/2016-reports/ student-loan-refinance-review-11-1-2016. pdf [https://perma.cc/8WYN-V37N] (finding that student loan delinquency rates in Appalachia are among the highest in Virginia).

50 See, e.g., William E lliot & M elinda Lewis, Assets & E duc. Initiative, Univ. of Ka n ., Student Loans Are W idening the W ealth Ga p: Time to Focus on Equity 7 (2013), http://aedi.ssw.umich.edu/sites/default/files/publications/publication-cd-reports- rl.p d f [https://perma.cc/VUR5-CKUT] (“However, despite our collective belief in an American dream of equitable opportunities for all, higher education today increasingly reinforces patterns of relative privilege, particularly as students rely more and more on student loans to finance college access.”).

51 Robert Hiltonsmith, Demos, at What Cost? How Student Debt Reduces L ifetime Wealth 9 (2013), http://www.demos.org/sites/default/files/imce/AtWhatCost Final.pdf [https://perma.cc/E8NR-GAA2]; see also Richard Fry, Young Adults, Student Debt, and Economic Well Being, Pew Res. Ctr. (May 14, 2014), http://www.pewsocialtrends.org/2014/05/14/young-adults-student-debt-and-economic- well-being/ [https://perma.cc/9LMJ-VMTK] (“[S]howing that millennials who incur debt after graduation have an average net worth of seven times less than that o f their non-indebted counterparts. Millennials with no debt when graduating have an average net worth of $64,700, while millennials graduating with student debt have only $8,700 on average.”); Cooper & Wang, supra note 39. See generally Emily Rauscher & William Elliott, The

2018] Broken Promises 825

It is increasingly clear that the student debt crisis is much broader than a series of individual student loan defaults. As more Americans pursue higher education, only to be weighed down by unaffordable student debt, this supposed equalizer is quickly turning into one o f the greatest forces cementing economic inequality in this nation/ 2

With a more honest assessment o f the full impact o f the crisis, one can now look back to the pyramid o f assumptions used to justify the public policies that led us here and ask how well they hold up.

C. The M yth o f the C ollege W age P rem ium

First, one should reconsider the assumption that families could continue to absorb the financial effects o f rising college costs without passing these costs on to students.53 For much of the country’s recent past, families have shared the economic burden o f paying for college by drawing on a combination o f income, savings, home

Relationship Between Income and Net Worth: A Virtuous Cycle fo r High but Not Low Income Households, 20 J. Poverty 380 (2016) (finding that a college graduate with an extra $10,000 in student loans will achieve the nation’s median net worth 26 percent slower than a college graduate without that debt, concluding that financing higher education through student loans can put college graduates who begin school with few assets even further behind their wealthier peers).

52 See, e.g., Thomas Piketty, Transcript o f Student Loan Debt Is the Enemy o f Meritocracy in the U.S., Big T hink, http://bigthink.com/videos/thomas-piketty-on-the-rise- of-us-student-debt [https://perma.cc/LV68-ZDQT] (“And I think if we really want to promote more equal opportunity and redistribute chances in access to education, we should do something about student debt. And it’s not possible to have such a large group of the population entering the labor force with such a big debt behind them.”); William C. Dudley, Opening Remarks at the Convening on Student Loan Data Conference, Fed. Res. Bank of N.Y. (Mar. 4, 2015), https://www.newyorkfed.org/newsevents/speeches/2015/dudl50304. html [https://perma.cc/SSL5-M4CL] (“We have gained an increasing understanding that how we finance post-secondary education has significant effects on a variety o f critical economic outcomes, including economic growth and inequality. For example, our research suggests that higher student debt and delinquencies reduce household formation and depress homeownership ”); W illiam Gale et al., Brookings Inst., Student Loans Rising: An Overview of Causes, Consequences, and Policy Options 3-4 (2014), https://www.brookings.edu/wp-content/uploads/2016/06/student_loans_rising_gale_hams_ 09052014.pdf [https://perma.cc/5G97-DCSX] (showing that student debt “is associated with students pursuing jobs that pay higher wages initially, perhaps at the expense of wages in the future,” “that student loan borrowers are roughly 60 to 70 percent less likely to apply to graduate school—after controlling for other factors— than non-borrowers,” that “ [h]igh student loan burdens may disqualify students from taking on mortgage debt, and debt aversion may dissuade student loan holders from purchasing a home even if qualified to do so,” and that “[s]tudent debt may also discourage retirement saving, by delaying the initiation o f contributions to retirement plans, by reducing the level of contributions, or by increasing the demand for early withdrawals.”); ELLIOT & LEWIS, supra note 50.

53 See supra Part II. A.

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equity, and retirement savings in order to contribute.54 These family contributions, when combined with a student’s income from part-time work, and paired with a combination of student loans and grants, were sufficient to leave a typical borrower with a modest debt load at graduation. As tuition rose in the years preceding the Great Recession, this equilibrium was tenuous, but it held. Then the recession hit.

Rising student debt levels are not just a byproduct o f rising college costs, but rather the shift from the state to the household and then the household to the individual. During the recession, millions of families suffered a series o f continuing economic shocks. Widespread unemployment, combined with drops in home equity, investments, and retirement savings, battered household balance sheets.55 As wealth declined, particularly for working families, many households could no longer make a major financial contribution to higher education.56 Students were left with the

54 See V. Joseph Hotz et al., The Role of Parental Wealth & Income in Financing Children’s College Attendance & Its Consequences, Fed. Res. Bank o f NY, presented at the Southern Economics Association Annual Meeting 2 (Dec. 6, 2017) (unpublished manuscript), available at https://www.newyorkfed.org/medialibrary/media/research/ conference/2017/higher_education/Hotz_Wealth_Paper_l 2-05-17 [https://perma.cc/9CBS- SG6D] (“The recent trends in household income and a [sic] housing wealth are likely to have important consequences for the educational attainment and college financing decisions of the next generation, as parents have long been a primary source o f financial support for their children’s post-secondary education”).

55 See M. William Sermons, America's Household Balance Sheet: The State o f Lending in America & Its Impact on U.S. Households, C t r . FOR RESPONSIBLE L e n d in g 12 (Dec. 2012), http://www.responsiblelending.org/sites/default/files/uploads/2-americas-household- balance-sheet.pdf [https://penna.cc/9CBS-SG6D] (“Data show that the recession depleted household assets. University o f Michigan researchers found that households lost value in their homes and other financial assets and also used financial assets to deal with income loss .. . .”); BRIDGET T er ry L o n g , The Financial Crisis and College Enrollment: How Have Students and Their Families Responded?, in How THE FINANCIAL CRISIS AND GREAT R ec e ss io n A f f e c t e d H ig h e r E d u c a t io n 214 (Jeffrey R. Brown & Caroline M. Hoxby eds., 2012) (“This period o f economic turmoil has also strongly affected the housing market by reducing the value o f many families’ homes, while others have lost their homes altogether. [Researchers] conclude that ‘the average household experienced a decline in net worth of $177,000 between the middle o f 2007 and the trough o f the asset price decline in the first quarter o f 2009.’”); Megan Kowalski & Hadley Malcolm, Fewer Parents Can Pay College Tuition, USA T o d a y (July 23, 2013, 8:22 AM), https://www.usatoday.com/story/money/personalfinance/2013/07/22/recession-coIlege- tuition-savings-plans/2569809/ [https://perma.cc/WD6B-56YM] (‘“ The post-recession reality is (parents) don’t have the income and savings,’ says Sarah Ducich, senior vice president o f public policy at Sallie Mae. ‘It’s not that they’re not willing to stretch. It’s that they don't think they have the money to do that.’”).

56 See, e.g., Gene Amromin et al., The Housing Crisis and Rise in Student Loans, Fed. Deposit Insurance Corp. 1 (Oct. 20, 2016) (unpublished manuscript), available at https://www.fdic.gov/news/conferences/consumersymposium/2016/documents/mondragon _paper.pdf [https://perma.cc/E2SZ-CEEE] (“Our results show that the decline in house prices reduced households’ ability to finance college enrollment with home equity credit, but that constrained households mostly responded by continuing to enroll in college and relying

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choice to not go to college or to take on debt. " 7 When faced with this choice, millions o f people chose debt.58

While conventional wisdom often points to the rapid rise in college tuition as the sole driver o f increased student indebtedness, that is only part o f the story. 59 The other part is the willingness o f policymakers to pile college costs onto families at the exact moment these families were trying to stay afloat during the financial fallout o f the recession.60

Having exposed this first assumption as flawed, one should then consider the great catchall in the higher education funding debate— the proposition that the boost in wages earned by college graduates justifies the explosion o f student debt because, over time, college is still “worth it. ” 61

on student loans. Our estimates suggests the 30% fall in house prices from the 2006 peak resulted in the average college student borrowing an additional $1,300 in student loans, with some evidence o f larger effects on liquidity-constrained and less-educated households.”); Long, supra note 55, at 214 (“Previous research suggests that changes in home values can affect educational attainment, and other research has found that families rely on home equity as a way to finance college. Therefore, with reductions in home values and the ease o f getting a home equity loan, there is some concern that the Great Recession may have reduced the likelihood o f college attendance.”); Hotz et al., supra note 54, at 2.

57 See Kowalski & Malcolm, supra note 55; Nate JOHNSON, Lumina Found., College Costs, Prices and the Great Recession 7 (Apr. 2014), https://files.eric.ed.gov/fi.illtext/ED555862.pdf [https://perma.cc/HQ86-KG89].

58 Between Fall 2005 and Fall 2010, the number o f full time, first time degree seeking undergraduate students receiving federal student loans increased 50 percent (1.2 million to 1.8 million). Laura G. Knapp et a l., U.S. Dept, of Educ., Enrollment in Postsecondary Institutions, Fall 2005; Graduation Rates, 1999 and 2002 Cohorts; and Financial Statistics, Fiscal Year 2005 (Apr. 2007), https://nces.ed.gov/pubs2007/2007154.pdf [https://perma.cc/3JHA-CEGS]; Laura G. Knapp et al., U.S. Dept, of E duc., Enrollment in Postsecondary Institutions, Fall 2010; Financial Statistics, Fiscal Year 2010; and Graduation Rates, Selected Cohorts, 2002-07 (Mar. 2012), https://nces.ed.gov/pubs2012/2012280.pdf [https://perma.cc/QJQ3-6VU2].

59 See Michael Greenstone & Adam Looney, Rising Student Debt Burdens: Factors Behind the Phenomenon, BROOKINGS (Aug. 12, 2013), https://www.brookings.edu/blog/jobs/2013/07/05/rising-student-debt-burdens-factors- behind-the-phenomenon [https://perma.cc/4FTV-SDNW] (finding that “neither college enrollment nor net college tuition has risen enough over the past decade to explain the rapid upsurge in student debt. Instead, this phenomenon seems to be driven by an increase in the share of student-loan borrowing used to finance each dollar of college tuition”).

60 See Johnson, supra note 57, at 7 (“States that were hardest hit by the recession and that cut appropriations to higher education the most also had the highest tuition increases. . .. While not surprising, the correlation between recession impact and tuition hikes illustrates one o f the policy problems associated with state higher education finance. Prices go up exactly where and when citizens are least able to afford the increases.”).

61 See also Colleen Curtis, President Obama: College Is the Best Investment You Can Make, White House (Apr. 25, 2012, 10:55 AM), https://obamawhitehouse.archives.gov/ blog/2012/04/25/president-obama-college-best-investment-you-can-make [https://perma.ee/

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F or m ore than h a lf a century, part o f the A m erican dream was built on the im plicit understanding, right or w rong, that college is alw ays a sound investm ent and that taking on debt to get a degree is ju s t a necessary step on a w ell-w orn path to the m iddle class.*’2 C onventional w isdom suggested that the burden on individuals should not be a focus for policym akers because these increased costs w ere alw ays offset by the b roader econom ic gains that com e from getting a higher education.63 It is easy to see how this led a generation o f policym akers and higher education officials to em brace the m yth that a student loan w as “good d ebt.”64

B ut for b o rrow ers— and for the policym akers and researchers that led them there— conventional w isdom around the m erits o f “good d eb t” is ju s t as dangerous as the w idely held but m isguided b e lie f that hom e values w ould alw ays rise in perpetuity and an investm ent in o n e ’s house alw ays paid off.65

ZDU4-X74M]. 62 See generally Raj Chetty et al., Mobility Report Cards: The Role o f Colleges in

Intergenerational Mobility (July 2017) (unpublished manuscript), available at http://www.equality-of-opportunity.org/papers/coll_mrc_paper.pdf [https://perma.cc/3XKE -RSVY] (analyzing students' earnings outcomes and parents’ incomes for American colleges and universities); Lawrence E. Gladieux, Federal Student A id Policy: A History and an Assessment (Oct. 1995), https://www2.ed.gov/offices/OPE/PPI/FinPostSecEd/gladieux.html [https://perma.cc/JC4Z-5QKE] (detailing the history o f federal student loans as a mechanism to assist middle class students and families afford college); see also Matthew B. Fuller, A History o f Financial A id to Students, 44 J. OF STUDENT Fin. Aid 1,25 (2014).

63 See, e.g., Beth Akers, Higher Education Debt Is Worth It, but Is n ’t Risk Free, Brookings (Jan. 12, 2016), https://www.brookings.edu/opinions/higher-education-debt-is- worth-it-but-isnt-risk-free/ [https://perma.cc/2BA6-8423] (“But the rapidly rising cost of college education is not as troubling as it first appears. While the price o f higher education has increased, so has its value. Over the last 30 years the lifetime earnings associated with having a college degree has grown by 75 percent. Today’s students are paying more to go to college, but they are also getting more out of it. In this sense they’re getting a better deal. .. . Research indicates that the financial rate o f return on a college degree is about 15 percent— a rate that far exceeds the yield on most other investments available to the individual consumers, especially young ones.”); see also Jaison Abel & Richard Deitz, Do the Benefits o f College Still Outweigh the Costs?, 20 Current Issues in Econ. And Fin. 1, 8 (2014); Anthony P. Camevale, College Is Still Worth It, Inside Higher Ed (Jan. 14, 2011), https://www.insidehighered.com/views/201 l/01/14/camevale_college_is_still_worth_it_for

americans [https://penna.cc/W7EH-XZKK]. 64 See, e.g., Stephen J. Rose, Good Debt: Why Student Loans Are Better fo r You than

You Think, T he Atlantic (Sep. 4, 2012), https://www.theatlantic.com/business/archive/2012/09/good-debt-why-student-loans-are- better-for-you-than-you-think/261918/ [https://perma.cc/VG7P-JVBC]; Christopher Shea, D on't Listen to Those Scary Tales o f Student-Loan Woe, Wash. Post (Mar. 21, 2013), https://www.washingtonpost.com/opinions/dont-listen-to-those-scary-tales-of-student-loan- woe/2013/03/2 l/0a94b 134-90a2-11 e2-bdea-e32ad90da239_story.html?utm_term=. 174e64 dl0da9 [https://penna.cc/DN3L-EHPZ].

65 See Shahien Nasiripour, Recent Federal Student Loans Look A Lot Like Subprime Mortgages, Huffington POST (Sep. 10, 2015, 09:29 PM), https://www.huffingtonpost.com/ entry/recent-federal-student-loans-look-a-lot-like-subprime-mortgages_us_55flcca6e4b093

2018] Broken Promises 829

To start, wages o f those without a degree are dropping rapidly.66 In effect, the bottom has fallen out o f the labor market for non-collegc-educated American workers. This creates a deeply misleading contrast. In other words, the college wage premium does not persist across generations because things are getting better for college educated workers— it persists because things are worse for those without a degree. 67 In fact, when accounting for inflation, wages for college graduates have

be51be0ad9 [https://perma.cc/2G8F-AJ58] (“Rather than paying down their balances after leaving school, borrowers with recent federal student loans are experiencing an increase in debt as they fail to make enough payments to offset the accumulating interest on their loans. The situation parallels subprime mortgages before the financial crisis, when lenders gave borrowers loans they couldn’t afford by allowing them to make payments that didn’t actually reduce their balances.”); see generally Press Release, U.S. Dept, of the Treasury, Remarks by Deputy Secretary Sarah Bloom Raskin at the Rappaport Center for Law and Public Policy Conference on the Student Debt Crisis (Mar. 18, 2016), https://www.treasury.gov/press- center/press-releases/Pages/jl0389.aspx [https://perma.cc/CUY9-535C] (“More generally, the experience of the last decade provides a painful reminder that debt burdens can worsen economic downturns and slow economic recoveries.. . . While student loan debt is much smaller than mortgage debt and does not pose the same systemic risk, a burden o f student debt could, in principle, have analogous effects down the line.”).

66 See Jillian Berman, A High-School Diploma Is Pretty Much Useless These Days, Huffington Post (Dec. 6, 2017), https://www.huffmgtonpost.eom/2014/05/27/value- college-degree_n_5399573.html [https://perma.cc/MUG7-TYWG] (quoting economist Elise Gould in stating, “The only reason that the [college] premium has gone up at all is because wages for high-school graduates have actually fallen”); Abel & Deitz, supra note 63, at 8 (“ [A lthough the wages o f college-educated workers have stagnated since the early 2000s— and even declined in the years since the Great Recession— the wages o f high school graduates have also been falling. As a result, the college wage premium has remained near its all-time high.”); Patricia Cohen, It's a Tough Job Market fo r the Young Without College Degrees, N.Y. Times (May 10, 2016), https://www.nytimes.eom/2016/05/l l/business/ economy/its-a-tough-job-market-for-the-young-without-college-degrees.html?_r=0 [https://perma.cc/8J2H-VMYV].

67 See Shaila Dewan, Wage Premium from College Is Said to Be Up, N.Y. Times: Economix (Feb. 11, 2014, 8:23 PM), https://economix.blogs.nytimes.com/2014/02/ll/ wage-premium-from-college-is-said-to-be-up/ [https://perma.ee/2LHF-BCFV] (quoting one researcher as saying that “[l]or today’s young adults, the only thing more expensive than going to college is not going to college”); Abel & Deitz, supra note 63, at 8; Paul Taylor et al., The Rising Cost o f Not Going to College, Pew Res. Ctr. 3 (Feb. 11, 2014), http://assets.pewresearch.Org/wp-content/uploads/sites/3/2014/02/SDT-higher-ed-FINAL- 02-1 l-2014.pdf [https://perma.cc/4WL4-JV8Z]; see also Rohit Chopra, Prepared Remarks o f Rohit Chopra Before the Federal Reserve Bank o f St. Louis, CFPB (Nov. 18, 2013), https://www.consumerfmance.gov/about-us/newsroom/student-loan-ombudsman-rohit- chopra-before-the-federal-reserve-bank-of-st-louis/ [https://perma.cc/4GKY-VJV3] (“Much has been made o f the college wage premium, that is, the difference between incomes of college graduates versus non-college graduates.. . . But behind that headline number is a more troubling trend. The growing gap between college graduates and others isn’t really due to rising starting wages for the average college graduate— it’s that the wages o f those without a degree are falling rapidly.”).

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remained nearly stagnant for more than a decade.68 At the same time, cost o f living for all Americans has steadily climbed. The cost o f health care and housing has outpaced inflation for the last decade.69 For all but the highest earning households, these expenses have consumed a steadily rising share of incomes.70

Therefore, it should come as no surprise to researchers or policymakers when a college graduate is not satisfied with her lot in life or when she questions the value o f her degree. Yet these researchers and policymakers continue to tout a tired statistic describing how bachelor’s degree recipients earn an additional million dollars over their lifetimes when compared to non-college-educated workers. 71 This tired statistic does not account for a paycheck already stretched too thin; it does not explain why a college graduate now struggles to accumulate the same assets her

68 See Dylan Matthews, Between 2000 and 2012 American Wages G r e w . . . Not at All, Wash. Post (Aug. 21, 2013) https://www.washingtonpost.com/news/wonk/wp/2013/08/ 21/between-2000-and-2012-american-wages-grewnot-at-all/?utm_term=.5bfac97678ad [https://penna.cc/H32A-MB86]; Elise Gould, The State o f American Wages 2016, Econ. Po l’y Inst. (Mar. 9, 2017), http://www.epi.org/publication/the-state-of-american-wages- 2016-lower-unemployment-fmally-helps-working-people-make-up-some-lost-ground-on- wages/ [https://perma.cc/HKR7-LJV8] (“ [F]rom 2000 to 2016, educational attainment has not been sufficient to return many workers to where they were before the recessions o f the 2000s: the bottom 50 percent o f workers with a college degree still have lower wages than they did in 2000 or 2007.”).

69 See Jiachuan Wu & Stephen Culp, U.S. Inflation, Reuters, http://fmgfx.thomson reuters.com/gfx/mgs/l/1262/1901/index.html [https://perma.cc/9YBY-5VMP] (last visited Dec. 24, 2017); Chopra, supra note 67 (“While conventional wisdom has focused heavily on rising tuition as the primary driver of debt, this may be too sim plistic.. . . The deterioration of household balance sheets seems to be a major culprit.”).

70 See Bureau o f Labor Statistics, Table 45. Quintiles of income before taxes: Shares of average annual expenditures and sources o f income, Consumer Expenditure Survey, 2005, https://www.bls.gov/cex/2005/share/quintile.pdf [https://pemia.cc/C2C6-S5ZV]; Bureau of Labor Statistics, Table 1101. Quintiles o f income before taxes: Annual expenditure means, shares, standard errors, and coefficients o f variation, Consumer Expenditure Survey, 2016, https://www.bls.gov/cex/2016/combined/quintile.pdf [https://perma.cc/4WGV-7DMN]; see also Erin Currier et al., The Precarious State o f Family Balance Sheets, Pew CHARITABLE Trusts (Jan. 2015), http://www.pewtmsts.Org/~/media/assets/2015/01/fsm_balance_sheet _report.pdf [https://perma.ee/YZX4-UF4D]; Sermons, supra note 55, at 12.

71 See, e.g., Anthony P. Carnevale et al., The Economic Values o f College Majors, Georgetown U. Ctr. o n E duc. and the Workforce 5 (2015), https://cew.georgetown. edu/wp-content/uploads/Exec-Summary-web-B.pdf [https://perma.cc/N2BF-2C8X]; Margaret Spellings et al., U.S. Dept, of E duc., A Test of L eadership: Charting the Future of U.S. Higher E ducation: A Report of the Commission Appointed by Secretary of E ducation Margaret Spellings 6 (Sept. 2006), https://www2.ed.gov/ about/bdscomm/list/hiedfuture/reports/pre-pub-report.pdf [https://perma.cc/3QPB-7JQF]. But see Doug Lederman, College Isn't Worth a Million Dollars, Inside Higher E d (Apr. 7, 2008), https://www.insidehighered.com/news/2008/04/07/miller [https://perma.ee/J5XD- E9WT],

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parents did after leaving school; nor does it explain the role that debt-financed higher education plays in the widening wealth gap.72

The college wage premium may seem pronounced and persuasive to an economist, but it is meaningless to millions o f today’s college graduates. The notion that “other people have it worse” offers little solace when far too many o f the bomowers who have done everything asked o f them still struggle to afford a down payment, start a business, or save for retirement. When “other people have it worse” becomes the new foundation for the American Dream, America has failed an entire generation.

III. A d d in g In s u l t t o In ju r y

It did not have to be this bad. In 2007, Congress created what is, in effect, an insurance policy for borrowers that assume the risk o f an unaffordable higher education.72 Through income-driven repayment (“IDR”) borrowers could make payments based on their incomes, not their debt load.74 With IDR, Congress promised that students need not worry about persistent economic distress after college as monthly payments would always be affordable because they would be based on how much a borrower earns.75 Having put in place this insurance policy for borrowers who are unemployed or have very low incomes (in some cases, as low as

12 See supra Part II.B. and C. 73 See 20 U.S.C. § 1098e(b) (2018). Note that an Income-Contingent Repayment

(“ICR”) plan was introduced in 1993 as part of the Student Loan Reform Act, but was limited to a small set o f Direct Loan borrowers and therefore was not widely utilized. As o f March 31, 1997, 56,298 Direct Loan borrowers were enrolled in ICR. U.S. Gov’t Acct. Off., Direct Student Loans: Analyses of Borrowers’ Use of Income Contingent R epayment Option 2 (Aug. 1997), https://www.gao.gov/assets/230/224560.pdf [https://pemra.cc/PX8Y-V2S6].

74 See 20 U.S.C. § 1098e(b) (2018). Income-Based Repayment, Pay As You Earn Repayment, Revised Pay As You Earn Repayment, and Income-Contingent Repayment are collectively referred to as income-driven repayment plans. See Income-Driven Plans, U.S. Df.p’t . Educ., https://studentaid.ed.gov/sa/repay-loans/understand/plans/income-driven [https://perma.cc/Q6Z2-MH35] (last visited Apr. 10, 2018).

75 In 2007, income-based repayment was introduced as part of the College Cost Reduction and Access Act. H.R. 2669, 110th Cong. (2007). See generally Higher Education, Higher Cost and Higher Debt: Paying For College in the Future: Hearing on Examining College Affordability, Focusing on Higher Education, Higher Costs and Higher Student Debt, and the Higher Education Act and Its Amendments Before the S. Comm, on Health, Education, Labor, and Pensions, 110th Cong. 1 (2007), available at https://www.gpo.gov/fdsys/pkg/CHRG-l 10shrg33516/html/CHRG-l 10shrg33516.htm [https://perma.cc/96LC-298Z] (discussing how efforts to reduce the burden o f student loan payments supports higher education policy goals). See also Thompson & Bricker, supra note 24 (finding “that student loans are correlated with financial distress in the 2007-09 SCF panel and families that hold student loans are more likely to transition to financial distress between 2007 and 2009. Families with student loans in 2007 were about 4 percentage points more likely to be 60 days late paying bills and about 5 percentage points more likely to be denied credit in 2009.”).

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$0 per month), the IDR framework should also translate to, in the words o f former Department o f Education Under Secretary Ted Mitchell, a “zero default rate.”76

O f course, IDR is not the perfect solution to the most alarming spillover effects o f student debt, including effects on wealth inequality, retirement security, and homcowncrship; but it docs have the potential to serve as a powerful protection against both short term and long term financial shocks, acting as a critical bulwark against rising student loan defaults.77

This is a great idea— in theory. But as the Consumer Financial Protection Bureau (CFPB) has frequently highlighted, the nation’s outdated and dysfunctional student loan system was never up to the task o f delivering on this promise.78 When

76 T ed Mitchell, U.S. Dep’t E duc., Opening Address at the CFPB Field Hearing on Student Debt (May 14, 2015), https://www.consumerfinance.gov/about-us/blog/live- from-milwaukee/ [https://perma.cc/4YFT-RB6N].

7' Student loan borrowers enrolled in the most generous IDR plan have delinquency rates seven times lower than borrowers enrolled in standard repayment. See CFPB, Student Loan Servicing: Analysis of Public Input and Recommendations for Reform 22-23 (2015), http://files.consumerfmance.gov/i7201509_cfpb_student-loan-servicing-report.pdf [https://perma.cc/KT6P-YE2B]; see also Holger M. Mueller & Constantine Yannelis, The Rise in Student Loan Defaults in the Great Recession 1 (Nov. 2017) (unpublished manuscript) (“The Income Based Repayment (IBR) program introduced by the federal government in the wake o f the Great Recession reduced both student loan defaults and their sensitivity to home price fluctuations, thus providing student loan borrowers with valuable insurance against negative shocks.”); Daniel Herbst, Liquidity and Insurance in Student Loan Contracts: Estimating the Effects o f Income-Driven Repayment on Default and Consumption 1 (Jan. 31, 2018) (unpublished manuscript), available at https://drive.google.eom/file/d/l A- gq_LlqfFY6r2gDTcUK9-Y3ZV8Go6SU/view [https://penna.cc/2ALA-BK9H]; Mark Huelsman, When It Comes to Student Debt, It's Really a Matter o f Wealth, WASH. POST (May 16, 2018), https://www.washingtonpost.com/news/grade-point/wp/2018/05/16/when- it-comes-to-student-debt-its-really-a-matter-of-wealth/?utm_term=.664d34569a94.

78 See CFPB, Student Loan Servicing, supra note 77, at 11-12 (“The ability to assess the overall quality o f student loan servicing is limited by lack o f data, particularly for loans not held by the federal government; however, existing evidence . . . suggests that current servicing practices may not meet the needs of borrowers or loan holders, including, in the case o f federal loans held by the Department of Education, the needs of taxpayers.”); Seth Frotman, CFPB, Remarks at the J udge Advocate G eneral’s Legal Center and School 4 (Oct. 17, 2017), available at https://s3.amazonaws.com/files.consumer fmance.gov/f/documents/201710_cfpb_Frotman-Remarks-JAG-School.pdf [https://perma. cc/JM4L-S4EE] (“Servicemembers with student loans continue to suffer from outdated policies and servicing lapses that can prevent them from accessing the benefits and protections they are promised under federal law.”); CFPB, Annual Report of the CFPB Student Loan O mbudsman 4 (2016), available at https://s3.amazonaws.com/files.consum erfinance.gov/f/documents/102016_cfpb_Transmittal_DFA_l 035_Student Loan Ombuds man_Report.pdf [https://perma.cc/2PTN-T9HK] (observing “that legacy requirements in the rehabilitation program place increased burden on borrowers, increase costs for taxpayers, create unnecessary barriers to repayment success, and fail to consider the significant changes that have occurred in higher education finance market in the past decade”); see also CFPB, Annual Report of the CFPB Student Loan O mbudsman 21-22 (2015), available at https://www.consumerfmance.gov/data-research/research-reports/annual-report-of-the-

2018] Broken Promises 833

there are still eight million defaults a decade after laying out the supposed zero- default-rate framework, this is simply another broken promise. 79 And when another three million people are approaching default and there has been no real action to prevent it, these borrowers know they were right/ 0 And for every borrower who is struggling to keep up, there are others trying to get ahead but who are knocked off track due to roadblocks and obstacles that can add thousands o f dollars in additional debt and years o f needless student loan payments. 81

When policymakers made the choice to drive tens o f millions o f new students into debt, they should have seen this coming. Compared to other major classes of consumer debt, student loans are subject to less government oversight, offer fewer affirmative consumer protections, and government rarely holds market participants

cfpb-student-loan-ombudsman-2015/ [https://perma.cc/5TYT-X6H3] (“The identity of the student loan servicer assigned to service a borrower’s loan may impact future loan performance. A study released by the Association of Community Colleges Trustees (ACCT) examined the performance o f a cohort o f federal loan borrowers attending community colleges in Iowa using administrative loan performance data provided by school financial aid offices. This analysis revealed that default rates for seemingly-similar borrowers varied substantially depending on the identity o f a borrower’s student loan servicer. In one case, nearly three quarters (73.1 percent) of all borrowers assigned to one specific servicer ended up in default. ACCT also observed that, of the six other servicers who handled loans for 1,500 borrowers or more, the share of borrowers who defaulted ranged from approximately 5 percent to more than 20 percent.”).

79 See C m GPS: Global Perspectives & Solutions, Education: Back to Basics 81 (2017), https://www.privatebank.citibank.com/ivc/docs/CitiGPS_Education_Backt_ Basics.pdf [https://perma.cc/7GB4-82ZB] (“Default and 90-day delinquency rates are about 11%. To some this might appear eerily reminiscent o f the mortgage crisis where delinquency rates had peaked at 11.5% in 2010.”).

80 See Fed. Student Aid, U.S. Dep’t . Educ., Direct Loan Portfolio by Delinquency Status 1 (2017), available at https://studentaid.ed.gov/sa/sites/default/files /fsawg/datacenter/library/DLPortfoliobyDelinquencyStatus.xls [https://perma.cc/C6R6- UVQU]; see also CFPB, Annual Report of the CFPB Student Loan Ombudsman (2016), supra note 78, at 4 (finding that one in three student loan borrowers who cure a default through rehabilitation is delinquent within 60 days).

81 See, e.g., CFPB, M idyear U pdate on Student Loan Complaints 19 (2016), available at https://s3.amazonaws.com/files.consumerfmance.gov/f7documents/201608_cf pb_StudentLoanOmbudsmanMidYearReport.pdf [https://perma.cc/2PCZ-PTFG] (discussing how servicing breakdowns related to the recertification o f income-driven repayment plans may “result in the capitalization o f unpaid interest charges, potentially increasing loan balances by hundreds or even thousands o f dollars”); CFPB, Staying on Track While Giving Back (2017), available at http://files.consumerfinance.gov/i7documents/201706_cfpb_PSLF-midyear-report.pdf [https://perma.cc/LYQ5-FK3S] (explaining how servicing “delays inhibit [borrowers’] ability to make qualified payments driven by their income, or borrowers can end up making dozens o f unnecessary payments, costing them thousands o f dollars that they might otherwise never have had to pay”).

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to account for their most egregious practices.82 As a result, borrowers routinely fail to benefit from the protections that are in place.83 The consequences for borrowers are greater than merely the lost protection o f IDR; borrowers encounter breakdowns starting from the day a borrower receives her first bill and continuing until the day she pays off her loans.84 These breakdowns are not mere annoyances that can be greeted with a collective shrug. This is not like calling the cable company.

By October 2017, the CFPB had received over sixty thousand complaints from student loan borrowers.82 That is more than one new complaint each hour, twenty- four hours per day, seven days per week since the CFPB started accepting student

82 See Letter from the Nat’l Consumer Law Cent, to the CFPB 7 (July 13, 2015), available at https://www.regulations.gov/document?D=CFPB-2015-0021 -6840 [https://perma.cc/FND4-TZMD] (“There are few laws specifically governing student loan servicer conduct for either federal or private loans. The absence o f clear borrower protections contrasts with other consumer credit areas such as credit cards and mortgages.”); Letter from Consumers Union to Monica Jackson, Office o f the Exec. Sec’y, CFPB (July 13, 2015), available at https://www.regulations.gov/document?D=CFPB-2015-0021 -0975 [https://perma.cc/Q2XL-6K5F] (“ [F]or people who took out loans to get an education, there are fewer protections and the system is often tough to navigate—as a result, these borrowers may be at the mercy o f their servicers.”).

83 See Frotman, supra note 78, at 7 (“The Bureau has heard from tens o f thousands of borrowers who are struggling to keep up with their payments because they are unable to access essential consumer protections. It’s clear that the status quo isn't working.”); see also U.S. Gov. Accountability Office, Federal Student L oans: Education Could Do More to FIelp Ensure Borrowers A re A ware of R epayment and Forgiveness Options 13 n.21 (2015), available at http://www.gao.gov/products/GAO-15-663 [https://perma.cc/V8SL-L6RT] (finding that 70 percent o f borrowers in default had income that would entitle them to a reduced monthly payment under an income-driven repayment plan); Andrew Kreighbaum, New Guidelines on Loan Servicing, Inside Higher Ed (July 21, 2016), https://www.insidehighered.com/news/2016/07/21/education-dept-spells-out-new- student-borrower-protections [https://perma.cc/H5BE-D5WF] (quoting Secretary of Education John King as stating “Every borrower deserves access to the right infomiation and resources to manage and ultimately pay off their d e b t . . . . When loan servicers make mistakes or don’t provide the right information at the right time, borrowers pay the price”).

84 See, e.g., CFPB, Student Loan Servicing, supra note 77, at 103-32 (documenting widespread servicing problems at all stages of student loan repayment); CFPB, Student Data & Student Debt 1 (2017), https://s3.amazonaws.com/files.consumerfmance.gov/17 documents/201702_cfpb_Enrollment-Status-Student-Loan-Report.pdf [https://perma.cc/DF 47-5MKE] (documenting how enrollment status errors may incorrectly trigger early repayment for student loan borrowers); CFPB, Mid-Year Update on Student Loan Complaints 3 (2015), http://files.consumerfinance.gov/f/201506_cfpb_mid-year-update- on-student-loan-complaints.pdf [https://perma.cc/44XQ-V35M] (“Complaints received by the CFPB indicate that borrowers are having trouble obtaining accurate payoff statements in order to refinance, as well as experiencing payment processing errors and delays.”).

85 See CFPB, Annual Report of the CFPB Student Loan Ombudsman 2 (2017), available at http://files.consumerfmance.gov/17documents/cfpb_annual-report_student- loan-ombudsman_2017.pdf [https://perma.cc/F4ZA-UPSB] (noting that, as of August 31, 2017, the CPFB had received 50,700 student loan complaints and 9,800 debt collection complaints from student loan borrowers).

2018] Broken Promises 835

loan complaints in 2012.86 Driven by these complaints, the CFPB and other federal and state law enforcement officials allege rampant illegal practices across the student loan market that are hurting student loan borrowers at every stage o f repayment.87

These enforcement actions offer evidence that, too often, on top o f the historic debt that was pushed onto an entire generation, the process of repaying a student loan routinely adds insult to injury. After saddling borrowers with a mountain of student debt, they are then subject to hannful and illegal industry practices that drive them to default or lead to thousands o f dollars in unnecessary costs.88 Collectively,

86 See CFPB, Monthly Complaint Report Vol. 22, 4 n.5 (2017), available at https://s3.amazonaws.com/files.consumerfinance.gov/f/documents/201704_cfpb_Monthly- Complaint-Report.pdf [https://perma.cc/G5YC-MQH3].

87 See, e.g., Nearly 78,000 Service Members to Begin Receiving $60 Million Under Department o f Justice Settlement with Navient fo r Overcharging on Student Loans, U.S. Dep’t J ust. (May 28, 2015), http://www.justice.gov/opa/pr/nearly-78000-service-members- begin-receiving-60-million-under-department-justice-settlement [https://perma.ee/UQ57- 39RH]; FDIC Announces Settlement with Sallie Mae fo r Unfair and Deceptive Practices and Violations o f the Servicemembers Civil R elief Act, FDIC (May 13, 2014), http://www.fdic.gov/news/news/press/2014/prl4033.html [https://perma.cc/VH2X-JUHF]; CFPB Sues N ation’s Largest Student Loan Company Navient fo r Failing Borrowers at Every Stage o f Repayment, CFPB (Jan. 18, 2017), https://www.consumerfmance.gov/about- us/newsroom/cfpb-sues-nations-largest-student-loan-company-navient-failing-borrowers- every-stage-repayment [https://perma.cc/AAX8-SWA7] [hereinafter CFPB Sues Navient]; CFPB Takes Action Against Wells Fargo fo r Illegal Student Loan Servicing Practices, CFPB (Aug. 22, 2016), https://www.consumerfmance.gov/about-us/newsroom/cfpb-takes-action- against-wells-fargo-illegal-student-loan-servicing-practices/ [https://perma.cc/DAC5- C539]; CFPB Orders Discover Bank to Pay $18.5 Million fo r Illegal Student Loan Servicing Practices, CFPB (July 22, 2015), http://www.consumerfinance.gov/about- us/newsroom/cfpb-orders-discover-bank-to-pay- 18-5-mill ion-for-illegal-student-loan- servicing-practices [https://perma.cc/9MMC-RHU5] [hereinafter CFPB Orders Discover Bank to Pay]', AG Ferguson Files Suit Against Sallie Mae Offshoot Navient Corp., Announces Student Loan Bill o f Rights Legislation, WASH. STATE Off. OF THE Att’y Gen. (Jan. 18, 2017), http://www.atg.wa.gov/news/news-releases/ag-ferguson-files-suit-against- sallie-mae-offshoot-navient-corp-announces-student [https://perma.cc/6RBQ-T3DS]; Attorney General Madigan Sues Navient and Sallie Mae fo r Rampant Student Loan Abuses, III. Att’y G en. (Jan. 18, 2017), http://www.illinoisattorneygeneral.gov/pressroom/2017

01/20170118.html [https://perma.cc/XU5G-GG44]; AG Healy Sues to Protect Public Service Loan Forgiveness, Att’y Gen. Mass. (Aug. 23, 2017), http://www.mass.gov/ago/news-and-updates/press-releases/2017/2017-08-23-pheaa- lawsuit.html [https://perma.cc/ANB8-5UYQ]; Attorney General Shapiro Sues N ation’s Largest Student Loan Company fo r Widespread Abuses, OFFICE OF At t ’y Gen. Josh Shapiro (Oct. 5, 2017), https://www.attomeygeneral.gov/Media_and_Resources/Press_ Releases/Press_Release/?pid=4042 [https://perma.cc/WR2W-G8NC]; CFPB Takes Action Against Citibank fo r Student Loan Servicing Failures that Harmed Borrowers, CFPB (Nov. 21, 2017), https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action- against-citibank-student-loan-servicing-failures-harmed-borrowers/ [https://perma.cc/D9JV -ZMT8].

88 See, e.g., CFPB Sues Navient, supra note 87 (“From January 2010 to March 2015, the company added up to $4 billion in interest charges to the principal balances of borrowers

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this adds billions o f dollars o f additional student debt to household balance sheets, thereby creating a further drag on the econom y and dam aging the financial future for m illions o f people.

O ver the last six years, the CFPB has show n a w idening disconnect betw een the protections touted in press releases and the reality forty-four m illion p eople face on the gro u n d .w W idespread harm ful and illegal practices, m isaligned econom ic incentives, and antiquated or ill-considered public policies coalesce in w ays that

who were enrolled in multiple, consecutive forbearances. The Bureau believes that a large portion o f these charges could have been avoided had Navient followed the law.”); CFPB Projects that One-in-Three Rehabilitated Student Loan Boirowers Will Re-default Within Two Years, CFPB (Oct. 17, 2016), https://www.consumerfmance.gov/about- us/newsroom/cfpb-projects-one-three-rehabilitated-student-loan-borrowers-will-re-default- within-two-years/ [https://perma.cc/22SR-JWGJ] (stating that program implementation failures may cost consumers $125 million in unnecessary interest charges alone); CFPB Orders Discover Bank to Pay, supra note 87 (“Today’s action demonstrates how Discover failed at providing the most basic functions of adequate student loan servicing for a portion o f the loans that were transferred from Citibank. Thousands of consumers encountered problems as soon as their loans became due and Discover gave them account statements that overstated their minimum payment. Discover denied consumers information that they would have needed to obtain tax benefits and called consumers’ mobile phones at inappropriate times to contact them about their debts.”).

89 See, e.g., Navient Statement on Apr. 10, 2017 Article, available at https://news.navient.com/static-files/7e0e7414-45af-4979-80da-d9f5ef40ee7f; but see CFPB, CFPB Sues Nation's Largest Student Loan Company Navient fo r Failing Borrowers at Every Stage o f Repayment (Jan. 18, 2017), https://www.consumerfinance.gov/about- us/newsroom/cfpb-sues-nations-largest-student-loan-company-navient-failing-borrowers- every-stage-repayment [https://perma.cc/AAX8-SWA7]; CFPB, CFPB Takes Action Against Wells Fargo fo r Illegal Student Loan Servicing Practices (Aug. 22, 2016), https://www.consumerfinance.gov/about-us/newsroom/cfpb-takes-action-against-wells- fargo-illegal-student-loan-servicing-practices/ [https://perma.cc/M962-PS89]; CFPB, CFPB Orders Discover Bank to Pay $18.5 Million fo r Illegal Student Loan Servicing Practices (July 22, 2015), http://www.consumerfmance.gov/about-us/newsroom/cfpb-orders- discover-bank-to-pay-18-5-million-for-illegal-student-loan-servicing-practices [https://perma.cc/9MMC-RHU5]; CFPB, Supervisory Highlights: Issue 13, Fall 2016 (Oct. 2016), https://www.consumerfmance.gov/documents/1389/Supervisory_Highlights_ Issue 13__Final_10.31.16.pdf [https://perma.cc/7296-G7UC]; CFPB, Supervisory Highlights: Issue 15, Spring 2017 (Apr. 2017), https://www.consumerfmance.gov/docu ments/4608/201704_cfpb_Supervisory-Highlights_Issue-15.pdf [https://perma.cc/94W4- 8XAN]; CFPB, Supervisory Highlights: Issue 10, Winter 2016 (Mar. 2016), http://files.consumerfmance.gov/17201603_cfpb_supervisory-highlights.pdf [https://perma. cc/5XKP-KR5F]; CFPB, Supervisory Highlights: Issue 9, Fall 2015 (2015), http://files.consumerfmance.gov/f7201510_cfpb_supervisory-highlights.pdf [https://perma. cc/Q5QM-YTWS]; CFPB, 2015 Annual R eport of the CFPB Student Loan Ombudsman (Oct. 2015) https://www.consumerfmance.gov/data-research/research- reports/annual-report-of-the-cfpb-student-loan-ombudsman-2015/ [https://perma.cc/79SN- MR9C]; CFPB, 2016 Annual Report of the CFPB Student Loan Ombudsman (Oct. 2016), https://www.consumerfinance.gov/data-research/research-reports/2016-annual- report-cfpb-student-loan-ombudsman [https://perma.cc/79SN-MR9C].

2018] Broken Promises 837

deny payment relief to struggling student loan borrowers. 90 Furthermore, when struggling borrowers fall victim to a rigged system, they are treated like tax cheats and dead beat parents as they are driven to poverty through garnishment and offsets. 91 With this in mind, two conclusions are inevitable.

A. P olicym akers, Regulators, a n d L a w E n fo rcem en t O fficials N eg lec t the Stu d en t L oan M arket at B o r r o w e r s ' P eril

Simply because the word “student” comes before “loan,” policymakers routinely treat these consumers like second class citizens. As previously mentioned, when compared to other consumer financial products like credit cards or mortgages, the companies paid to manage the student loan repayment process are subject to less oversight and consumers are entitled to fewer affirmative protections.92 Student loan

90 See, e.g., Susan Dynarski et al., An Economist’s Perspective on Student Loans in the United States, ECON. STUD. AT BROOKINGS (2014), http://www.brookings.edu/~/media/ research/files/papers/2014/09/economist_perspective_student loans dynarski/economist p erspective_student_loans_dynarski.pdf [https://perma.cc/SZS6-343D] (“Here we have a classic ‘principal-agent’ problem, with the agent (the student loan servicers) having little incentive to act in the best interests o f the principal (the federal government). Student loan servicers don’t have much incentive to prevent borrowers from defaulting, because the servicers either don’t own the underlying loans or, if they do, face few costs if a borrower defaults. Restructuring a borrower’s payments and preventing default requires effort, and the beneficiary o f this effort is the government and the student— not the servicer.”); see also Molly Hensley-Clancy, How America's Student Loan Giant Dropped the Ball, B u zzF E E D (Feb. 13, 2017, 10:46 AM), https://www.buzzfeed.com/mollyhensleyclancy/how-things- went-wrong-at-americas-student-loan-giant?utm_term=.ruBNlD2LzX#.gyXGeQq30w [https://perma.cc/7D76-J4AJ] (“At Navient’s call centers. . . [a Navient employee] said . . . [d]uring March Madness, her managers created a bracket on the wall and had agents compete against one another to collect payments and resolve accounts.”).

91 See, e.g., U.S. Gov’t Accountability Off., GAO-17-45, Social Security Offsets: Improvements to Program Design Could Better Assist Older Student Loan Borrowers with Obtaining Permitted Relief (2016), http://www.gao.gov/assets/ 690/681722.pdf [https://perma.cc/W7AC-H9C3] (showing that 47 percent o f student loan borrowers subject to Social Security offsets have a monthly benefit that is below the poverty line and is further reduced by the offset. For 16 percent o f borrowers, their Social Security benefits are above the poverty line but the offset reduces the benefit below the poverty line); CFPB, Snapshot of Older Consumers and Student Loan Debt (Jan. 2017), https://s3.amazonaws.com/files.consumerfmance.gov/f7documents/201701_cfpb_OA- Student-Loan-Snapshot.pdf [https://perma.cc/284M-RNY5] (detailing the financial strain benefits offsets have on older student loan borrowers); CFPB, 2016 Annual Report of the CFPB Student Loan Ombudsman, supra note 89 (documenting how servicing breakdowns can lead to “unnecessary offset of tax returns garnishment o f wages or certain [S]ocial [S]ecurity benefits, and prolonged ineligibility for federal student aid.”).

92 See, e.g., Letter from the National Consumer Law Center to the Consumer Financial Protection Bureau (July 13, 2015), https://www.regulations.gov/document?D=CFPB-2015- 0021-6840 [https://perma.ee/FND4-TZMD] (“There are few laws specifically governing student loan servicer conduct for either federal or private loans. The absence o f clear

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borrowers routinely face breakdowns and harmful practices that would simply never be permitted in other markets.93 And a series o f recent actions by the U.S. Department o f Education purport to further shield the largest student loan companies from scrutiny by regulators and law enforcement officials.94

B. The Department o f Education Cannot Self-Regulate

If policymakers seek to accomplish any meaningful and lasting reform, they must overcome the misguided notion that one o f the nation’s largest creditors, the Department o f Education, should be relied upon to self-regulate. Too many people

borrower protections contrasts with other consumer credit areas such as credit cards and mortgages.”); Letter from Suzanne Martindale, Staff Attorney, Consumers Union, to Monica Jackson, Office of the Executive Secretary, Consumer Financial Protection Bureau (July 13, 2015), https://www.regulations.gov/document?D=CFPB-2015-0021 -0975 [https://perma. cc/2J4C-8KYE] (“ [F]or people who took out loans to get an education, there are fewer protections and the system is often tough to navigate— as a result, these borrowers may be at the mercy o f their servicers.”).

93 For example, the CFPB has noted the issues student loan borrowers face when their loans are transferred to a new servicer. In 2015, the CFPB released data from one large student loan servicer showing that:

Out o f the more than 2.5 million accounts transferred, the company encountered problems with more than one out o f five borrower accounts. These problems largely related to the transfer of records and other basic account information. . . . The cause o f many o f these problems may have originated with servicing errors made by the transferor servicer. Issues identified by this company include: Incorrect balance information leading to a change in monthly paym ent. . . ; incorrect balance information that would have produced balloon payments . . . ; multiple consecutive forbearances prior to transfer. . . ; [and] trailing and missing payments.

CFPB, Annual Report of the CFPB Student Loan Ombudsman (Sept. 2015), http://files.consumerfmance.gOv/f/201509_cfpb_student-loan-servicing-report.pdf [https://perma.cc/M4VJ-4UT2]; cf. 12 U.S.C. § 2605(b)-(e) (2018) (defining mortgage servicer obligations in the event of a servicing transfer); 12 C.F.R. § 1024.33 (regulations for mortgage servicing transfers).

94 See Letter from Kathleen Smith, Acting Asst. Secretary, Office o f Postsecondary Education, to The Honorable Richard Cordray, Director, Consumer Financial Protection Bureau (Aug. 31, 2017), https://edworkforce.house.gov/uploadedfiles/2017-09- 01_signed_letter_to_cfpb.pdf [https://perma.cc/7UP5-9QEL] (revoking an information sharing agreement related to consumer complaints); U.S. Dep’t of Education, Federal Preemption and State Regulation of the Department of E ducation’s Federal Student Loan Programs and Federal Student Loan Servicers, 83 Fed. Reg. 10619 (Mar. 12, 2018), https://www.federalregister.gov/documents/2018/03/12/2018- 04924/federal-preemption-and-state-regulation-of-the-department-of-educations-federal- student-loan; U.S. Department of Education Statement of Interest, Massachusetts v. Pennsylvania Higher Education Assistance Authority (PHEAA), No. 1784CV02682 (2018).

2018] Broken Promises 839

arc too com fortable only looking to the D epartm ent o f E ducation to fix the consum er debt m arket it dom inates. The D epartm ent o f E ducation is responsible for contracting w ith p rivate com panies to originate and service the m ore than $ 1 trillion in consum er debt it ow ns.95 In no other m arket and w ith no other creditor w ould policym akers p e n n it self-policing o r reform via contract, rather than im posing independent statutory and regulatory requirem ents that are transparent and enforceable.1"’

A s recent events have illustrated, self-regulation by the D epartm ent o f E ducation leaves student loan borrow ers exposed and vulnerable to the political priorities o f each new adm inistration.97 W here sym pathetic adm inistrations prio ritized consum er protection, reform that w as im plem ented through guidance and contracts fail to endure.47 A nd w here one adm inistration m ay prioritize consum er protection, the next m ay seek to advance a different goal.99 B ut w hat ties all

95 See Loan Servicing Contracts, U.S. Dept. OF Educ. (last visited Apr. 10, 2018), https://studentaid.ed.gov/sa/about/data-center/business-info/contracts/loan-servicing [https://penna.cc/4WCB-PSVV].

96 See also U.S. Gov’t. Accountability Off., GAO-16-196T, Federal Student Loans: Key Weaknesses L imit Education’s M anagement of Contractors (2015), https://www.gao.gov/assets/680/673725.pdf [https://perma.cc/75MK-6DFN]. For a historical perspective of the Department o f Education’s oversight in a predominately FFELP loan market, see Statement o f Representative George Miller Before House Committee on Education and Labor (May 10, 2007), https://www.gpo.gov/fdsys/pkg/CHRG- 110hhrg34989/html/CHRG-l 10hhrg34989.htm [https://perma.cc/HGZ6-U36P] (“ [T]he federal student loan programs must be managed in the best interests o f students, parents and taxpayers. . . . I agree with New York Attorney General Andrew Cuomo that testified before this committee last month when he said that the department [of Education] had been ‘asleep at the switch’ when it comes to overseeing the federal student loan programs. In fact, Mr. Cuomo might have been too polite . . . . Over the last several months, New York Attorney General Cuomo has led the way in the investigations into the student loan industry, and many other state attorneys general have begun their own investigations. But the Department of Education has been conspicuously missing from action.”).

97 See supra note 96 and accompanying text. 98 See Letter from Betsy DeVos, Secretary, U.S. Dept, o f Educ., to James W. Runcie,

Chief Operating Officer, Federal Student Aid (Apr. 11, 2017), https://www2.ed.gov/documents/press-releases/student-loan-servicer-recompete.pdf [https://perma.cc/Z825-EHHT] (withdrawing the previous administration’s memorandum detailing policy direction for federal student loan servicing); see also Letter from Ted Mitchell, Under Secretary, U.S. Dept, o f Educ., to James Runcie, Chief Operating Officer, Federal Student Aid (July 20, 2016), https://www2.ed.gov/documents/press-releases/loan- servicing-policy-memo.pdf [https://penna.cc/W5ZL-A29F]; supra note 96.

99 On March 12, 2018, Education Secretary Betsy DeVos issued a new “interpretation” o f the Higher Education Act, purporting to preclude oversight by states over the servicing o f certain types of smdent loans. U.S. Dep’t of E ducation, Federal Preemption and State R egulation of the D epartment of Education’s Federal Student Loan P rograms and Federal Student Loan Servicers. Subsequent to the release o f this statement, the student loan industry has relied on this interpretation to support legal claims that its practices are, in effect, above the law. See Student Loan Servicing Alliance (SLSA) v. Taylor et al.,

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adm inistrations to g eth er is the desire to m anage a $1 trillion portfolio at the low est cost possible in order to invest in other priorities— pitting o th er higher education program s against the investm ent necessary to deliver on the baseline protections pro m ised to borrow ers.

Industry takes its lead from these p rio rities.100 U nprecedented efforts to deprioritize or deflect rigorous oversight by independent federal and state agencies risks leaving a $1 trillion blind spot in the heart o f the n a tio n ’s financial secto r.101 S tudent loan borrow ers deserve better. I f the student loan m arket continues dow n this path, it leaves the future o f forty-four m illion people subject to the political w inds and special interest groups w ho view the student debt crisis as an avenue to enrich them selves, openly touting that they have no responsibility to help student loan b o rro w e rs.102

IV. T he R o a d A h e a d

The task aw aiting to d a y ’s policym akers and researchers is, in som e w ays, m ore difficult than the previous crisis. T he present problem is a quiet crisis. It is not driven by storefronts springing up on com ers in vulnerable com m unities and peddling financial products that strip w ealth from those least able to afford it. It does not feature fam ilies forced from their hom es because they fell behind on a m ortgage they could not afford. There are no abandoned houses to point to. R esearch now show s that a foreclosure harm s m ore than ju st the individual fa m ily .103 The ripple effect o f

No. l:18-cv-00640 (D.D.C. filed Mar. 20, 2018); Pennsylvania Higher Education Assistance Authority (PHEAA) v. Perez et al.. No. 1:18-cv-00770 (D.D.C. filed Apr. 4, 2018).

100 See, e.g., Letter from James P. Bergeron, President, N at’l Council o f Higher Educ. Resource, to Kathleen Smith, Acting Asst. Secretary for Postsecondary Education, U.S. Dept, o f Educ., http://www.ncher.us/resource/resmgr/images/letters-testimony/2017/07-18- 17_NCHER_Letter_to_ED_.pdf (“NCHER urges the Department to issue regulatory guidance that clearly states that federal student loan servicers and guaranty agencies are governed by the Department’s rules and requirements and those o f other federal agencies, and preempt state and local laws and actions that purport to regulate the activities of participants in the federal student loan programs, including federal contractors.”).

101 See Frotman, CFPB, Prepared Remarks, supra note 3; see also Letter from 20 State Attorneys General to The Honorable Betsy DeVos, U.S. Dept, of Educ. (Sep. 26,2017), https://ag.ny.gov/press-release/ag-schneiderman-fellow-ags-betsy-devos-stop-undermining- critical-protections-student (“Congress did not exempt the $1.3 trillion federal student loan market from the CFPB’s jurisdiction— or from the jurisdiction o f any other law enforcement agencies.”).

102 See Defendant’s Motion to Dismiss, CFPB v. Navient, No. 3:CV-17-00101-RDM, at 20-21 (M.D. Pa. 2017), available at https://news.navient.com/static-files/d95cl0ce-l la3- 41b6-8ea7-49a83a41cf04 [https://perma.cc/AY2D-ULB6] (“[Tjhere is no expectation that the servicer will ‘act in the interest of the consumer.’”).

103 See G. Thomas Kingsley et al., The Urban Institute, T he Impacts of Foreclosures on Families and Communities (2009), https://www.urban.org/sites/ default/files/publication/30426/411909-The-Impacts-of-Foreclosures-on-Families-and- Communities.PDF [https://perma.cc/UJ9N-GWTN]; James H. Carr et al., The Foreclosure

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a foreclosure extends across the co m m u n ity .104 H ow ever, to a casual observer, the signs o f a fa m ily ’s ow n internal student debt crisis are less visible than the em pty house at the end o f the block that used to belong to a neighbor and now belongs to a bank. B ut sim ply because a fa m ily ’s crisis is not as readily apparent, does not m ean that the effects on com m unities are any less significant or severe. T he burden o f student debt can ravage com m unities in a m yriad o f ways.

F or exam ple, consider a borrow er devoting so m uch o f his paycheck to his m o nthly student loan p aym ent that he never puts enough aw ay to save for a hom e. He is then p ushed into an often punishing rental m arket that further limits the options available to him and his fam ily, such as the school district in w hich they can live, thus perpetuating a cycle o f econom ic and geographic segregation. C onsider also one o f the several tow ns in rural A m erica w here residents lost their jo b s after a m ajor em ployer— a factory, a m ine, o r a lum ber m ill— w as shuttered. T hese residents go back to school to learn new skills, take on debt, fall behind on their debt despite protections that should prevent this, and now the tow n is doubly harmed.

C onsider also the thousands o f borrow ers w ho took on debt so they could go to school to learn the skills necessary for vital professions. T hese borrow ers depend on th eir credit to get o r keep a jo b because in m any states, a credit check can still be used as a precondition for nearly any em p lo y m en t.10" Furtherm ore, thousands o f nurses, teachers, EM Ts, and other public servants rely on th eir credit to m aintain th eir professional licen se s.106 A nd yet, all across the country, these borrow ers fall behind on a student loan and becom e unable to get or keep the jo b that keeps a ro o f ov er their h e a d .107

Crisis and Its Impact on Communities o f Color: Research and Solutions, Nat. Community Reinvestment Coalition (Sept. 2011), https://schar.gmu.edu/sites/default/files/faculty- staff/cv/ncrc_foreclosurewhitepaper_2011.pdf [https://perma.cc/AG93-TF2P].

104 See Kingsley et al., supra note 103; Carr, supra note 103; see also Brief of Nat’l Ass’n o f Counties as Amici Curiae, Bank o f America v. Miami, 137 S. Ct. 1296 (2016), available at http://static 1.1 .sqspcdn.com/static/F624306/27284305/1476191781460/BOA filed.pdf?token=HTNgFPT14MuaeHcz3ZoecAJw9W8%3D [https://penna.ee/HY6X- JY2X] (arguing that cities are uniquely harmed when banks engage in discriminatory lending practices that lead to foreclosures).

105 See Amy Traub, Demos, Discredited: H ow Employment Credit Checks K eep Qualified Workers Out of a Job (2013), http://www.demos.org/sites/defaulFfiles/ publications/Discredited-Demos.pdf [https://perma.cc/99FJ-UUSD] (noting that as of February 2013, only 8 states have passed legislation that restrict employment discrimination based on credit checks).

106 See Jessica Silver-Greenberg et al., When Unpaid Student Loan Bills Mean You Can No Longer Work, N.Y. T imes (Nov. 18, 2017), https://www.nytimes.eom/2017/l 1/18/ business/student-loans-licenses.html [https://perma.cc/QT5S-E2NJ]; Jobs with Justice, State Laws and Statutes that Suspend Professional Licenses and Certificates (2014), http://www.jwj.org/wp-content/uploads/2015/02/State-Laws-and-Statutes-That- Suspend-Professional-Licenses-and-Certificates.pdf [https://perma.cc/2R9H-38QB].

107 See Silver-Greenberg, supra note 106.

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A growing body o f evidence suggests that millions o f Americans are experiencing crises exactly like these. 108 Individual lives arc disrupted; families become buried under the financial consequences o f unmanageable student debt; and this devastation ripples across their communities. The stakes are high and the consequences are enormous for neighborhoods, communities, states, and the nation— all driven by a cycle dependent on the debt that flows through this broken system and spurred on by the tired assumptions that set the country down this path.

So, what can researchers and policymakers do to end the student debt crisis? The national conversation is starting to incorporate exciting and far reaching proposals for how actors at all levels of the public or the private sector can help new borrowers avoid the consequences o f student debt. 100 This is a laudable and

108 See, e.g., William Elliott III, New Report: Are Student Loans the Best We Can Do?, N ew Am. (Sept. 9, 2014), https://www.newamerica.org/asset-building/the-ladder/new- report-are-student-loans-the-best-we-can-do/ [https://perma.cc/RR38-Q88U] (“[A] growing body of research is beginning to reveal that student loans, large and small, have negative effects on far too many potential students’ college preparation, the decision to enroll in college, which college to select, whether to stay and complete college, which j ob to take after college, whether and when to marry, when they have kids, the amount o f overall financial stress they experience, whether to buy a home, and whether, when, and how much they save for retirement.”); Remarks o f Secretary Lew Before the Financial Literacy Education Commission (Oct. 2013), http://www.treasury.gov/press-center/press-releases/Pages/jl2191 .aspx [https://perma.cc/R5TB-6H3H] (Secretary o f the Treasury Jacob Lew remarked that student debt is “hampering our economy” across multiple sectors o f society); Richard Fry, Young Adults, Student Debt and Economic Well-Being, Pew Res. Ctr. (May 14, 2014), http://www.pewsocialtrends.org/2014/05/14/young-adults-student-debt-and-economic-well -being/ [https://perma.cc/AME2-BVZ9] (“Research also shows a troubling connection between higher debt burdens and other economic challenges like material or health care hardship. As student loan borrowers enter repayment, they are less likely to have emergency savings or save for retirement. One study shows that households headed by a young, college- educated person without student debt have seven times the typical net worth as a similar household with student debt.”); see also Phyliss Korki, The Ripple Effects o f Rising Student Debt, N.Y. T imes (May 24, 2014), https://www.nytimes.com/2014/05/25/business/the- ripple-effects-of-rising-student-debt.htmr?_r=0 [https://perma.cc/Q2NE-TEQY].

109 See, e.g., Mark Huelsman, Demos, The Case for Debt-Free Public College (2015), http://www.demos.org/sites/default/files/publications/thecasefordebtfreecollege- j n a r k .pdf [https://perma.cc/GA6X-6RQP] (detailing “why a return to a debt-free system o f public universities and colleges would help revive the promise o f affordable higher education regardless o f one’s family income”); Keith Ellison, The Argument fo r Tuition-Free College, Am. Prospect (Apr. 14, 2016), http://prospect.org/article/argument-tuition-free- college [https://perma.cc/2RJ2-AZ8Y] (“The first step in making college accessible again, and returning to an education system that serves every American, is addressing the student loan debt crisis. . . . Eliminating student loan debt is the first step, but it’s not the last. Once we ensure that student loan debt isn’t a barrier to going to college, we should reframe how we think about higher education.”); Michael Dannenberg & Konrad Mugglestone, The Promise o f “Free ” College, DEMOCRACY JOURNAL (Nov. 14, 2017), https://democracy joumal.org/arguments/the-promise-of-free-college/ [https://perma.cc/Q3PW-EA8Y] (defining metrics to evaluate free college policy proposals); see also CFPB, Innovation

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necessary endeavor, but it is w holly inadequate to address the crisis borrow ers are facing today. P olicym akers could m ake college free for everyone tom orrow , but that w ould do nothing to help the m illions o f A m ericans struggling today. For those borrow ers w ith student debt, solutions that help the next guy not only m iss the m ark, but reinforce the notion that A m erica is w illing to w rite o ff this entire generation o f borrow ers. A m erica cannot forget forty-four m illion people.

A. Strengthen C onsum er Protections in the Stu d en t L oan M arket

S trengthening consum er protections in this m arket, w hile not a cure-all, is a critical step. A t a bare m inim um , fixing the severely broken repaym ent system that fails m ore student loan borrow ers each day is essential. W hen society asks people to take a risk and go to college, it m ust m ake sure that at the very least, they do not spend the next tw o decades o f their lives navigating a m inefield o f illegal practices.

The student loan m arket can achieve this through robust oversight at the state and federal levels. For decades, state and federal regulators have overseen banks, credit unions, debt collectors, and other com panies that provide financial products or services to c o n s u m e rs ." 0 This oversight has been a key com ponent o f the p o st­ recession strategy to ensure consum ers are protected w hen things go w r o n g ." 1 H ow ever, tellingly, until 2014, a student loan servicing industry responsible for handling over a trillion dollars in consum er debt w as not subject to the sam e federal

Highlights: Emerging Student Loan Repayment Assistance (Aug. 16, 2017), https://www.consumerfmance.gov/data-research/research-reports/innovation-highlights- emerging-student-loan-repayment-assistance [https://perma.cc/BXK3-GBZZ] (discussing “the growing number o f employer-based student loan repayment programs that can save eligible employees hundreds or thousands in loan principal and interests payments, but where barriers to innovation exist.”); Nat’1 Conference o f State Legislatures, Student Loan Debt (Nov. 9, 2015), http://www.ncsl.org/research/education/student-loan-debt.aspx [https://perma.cc/X673-NUDB] (discussing a variety o f state policy ideas for addressing student loan debt).

110 By 1914, the 48 contiguous states had instituted state-based bank examinations, and by 1931, they had each established a specific agency for state-based bank regulation. Benjamin Klebaner, A merican Commercial Banking: A History 99 (1990); see also CFPB, Federal Consumer Agency to Partner with State Regulators on Supervision of Providers of Consumer Financial Products and Services, Including Mortgage L enders, Private Student Lenders and Payday L enders (Jan. 4, 2011), https://www.consumerfmance.gov/about-us/newsroom/consumer-agency-to- partner-with-state-regulators [https://perma.cc/HH63-GA3S].

111 See Testimony o f Steven L. Antonakes, Massachusetts Commissioner o f Banks Before the House Financial Services Committee (Apr. 23, 2009), https://www.csbs.org/sites /default/files/2017-1 l/April232009StevenAntonakesTestimony.pdf [https://perma.cc/R7M P-BHDS] (“The states have long been recognized as leaders in responding to consumer protection issues with innovative solutions.. . . States have been leading the fight to reign in abusive lending through predatory lending laws, licensing and supervision of mortgage lenders and brokers, and through enforcement of consumer protection laws and standards of safety and soundness.”).

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accountability.112 And today, only a handful o f states have expanded their oversight to include these companies despite the central role they play in many citizens’ economic lives.113

How does one explain to student loan borrowers all across the country that if they rent out a spare room on Airbnb, they likely need to obtain a license to do so, but the companies running the $1.5 trillion student loan system often operate in the shadow s?114 Student loan borrowers deserve a government that focuses on their problems by building out the critical framework necessary to ensure these companies are com plying with the law.

Additionally, to ensure this oversight is effective, the student loan market also needs clear rales o f the road, just like those in other consumer debt markets. When setting standards in this market, individual borrowers, law enforcement, and regulators must be given the tools to hold student loan companies accountable for meeting these standards.

B. Expanding Help f o r Struggling Borrowers

Second, the public and private sectors must think o f innovative ways to help borrowers and their families reduce the financial burden caused by student debt. States have implemented a range o f creative solutions that help borrowers in repayment, from programs like New Y ork’s “Get on Your Feet,” to M aryland’s “ Sm artBuy.” 11'' Programs like these are not only critical for student loan borrow ers’

112 See Defining Larger Participants o f the Student Loan Servicing Market, CFPB, https://www.consumerfinance.gov/policy-compliance/rulemaking/final-rules/defming- larger-participants-student-loan-servicing-market/ [https://pemia.cc/89R7-FlRW2] (last visited Apr. 10, 2017).

113 To date, Connecticut (Pub. Acts 15-200 and 15-162), the District of Columbia (L21- 0214), California (AB 2251), Illinois (Public Act 100-0540), and Washington (SB 6029) have passed legislation for state-based student loan servicing oversight. At least a dozen other states have considered similar legislation, including Colorado, Maine, Maryland, Massachusetts, Minnesota, Missouri, New Jersey, New Mexico, New York, Oregon, Rhode Island, and Virginia.

114 See What Legal and Regulatory Issues Should 1 Consider Before Hosting on Airbnb?, AlRBNB, https://www.airbnb.com/help/article/376/what-legal-and-regulatory- issues-should-i-consider-before-hosting-on-airbnb [https://perma.cc/FV6H-WTDH] (last visited Apr. 10, 2017) (“In many cities, you must register, get a permit, or obtain a license before you list your property or accept guests.”).

115 See New York State, Get on Your Feet Loan Forgiveness Program, https://www.hesc.ny.gov/repay-your-loans/repayment-options-assistance/loan-forgiveness- cancellation-and-discharge/nys-get-on-your-feet-loan-forgiveness-program.html [https://perma.cc/W8YB-EV5H] (last visited Dec. 18, 2017) (“The NYS Get on Your Feet Loan Forgiveness Program provides up to 24 months of federal student loan debt relief to recent NYS college graduates who are participating in a federal income-driven repayment plan whose payments are generally capped at 10 percent of their discretionary income.”); Maryland State, Maryland SmartBuy, http://mmp.maryland.gov/Pages/SmartBuy/default.

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financial futures, but must be viewed as an extension of the national effort and obligation to continue righting the wrongs o f the Great Recession. There is no silver bullet to fix'a problem o f this scale, but innovative policymaking, diligent oversight, and a government-wide crackdown on illegal student loan industry practices offer necessary first steps.

V. Conclusion

Society should not succumb to the wishes o f those who have not only resigned themselves to this broken system, but have also endorsed the status quo as an acceptable new normal.116 We must find ways to end the cycle o f debt-fueled higher education and student loan borrower distress.

Individual groups and organizations across the country are taking notice o f how student debt affects their members. Organizations ranging from the AARP and the National Association o f Realtors, to the NAACP and the American Federation o f Teachers, are continuing to increase their efforts to fix the student debt crisis.117 This

aspx [https://pemia.cc/94KF-GFAB] (last visited Dec. 18, 2017) (offering student loan borrowers a state-funded home mortgage down-payment loan that can be used to pay off student loan debt); see also Kansas State, Kansas State Loan Repayment Program, http://www.kdheks.gov/olrli/FundLoan.html [https://perma.ee/47ZP-KXPP] (last visited May 7, 2018).

116 See, e.g., Claudio Sanchez, Is the Student Loan Crisis Fact or Fiction?, NPR (July 28, 2016), https://www.npr.org/sections/ed/2016/07/28/487032643/is-the-student-loan- crisis-fact-or-fiction [https://perma.cc/DWB8-ENQP] (“Student debt is really creating a lot o f opportunities for people. People wouldn’t be able to go to college otherwise.”); Joel A. Elvery, Is There a Student Loan Crisis? Not in Payments, Fed. Res. Bank of Clev. (May 16, 2016), https://clevelandfed.Org/~/media/content/newsroom%20and%20events/publicat ions/forefront/ff%20v7n02/ff%20v7n0204%20is%20there%20a%20student%201oan%20cr isis%20pdf.pdf?la=en [https://perma.ee/J4DV-JNEL] (“If the share o f young people pursuing college degrees is going to rise, it will probably be because of increases in college enrollment by low- and middle-income students, to whom student loans are especially important. Like any borrower, a potential student loan borrower should focus on whether the debt is enabling her or him to make a valuable investment in the future.”); Beth Akers & Matthew Chingos, Is a Student Loan Crisis on the Horizon, Brown Ctr. on E duc. Po l’y at Brookings (June 2014), https://fortunedotcom.files.wordpress.com/2014/06/is_a_ student loan crisis on the_horizon.pdf [https://perma.cc/VZN5-7JNF]; see also Mark Huelsman, The Debt Divide: The Racial and Class Bias Behind the “New N orm al’’ o f Student Borrowing, Demos (May 19, 2015), http://www.demos.org/publication/debt-divide- racial-and-class-bias-behind-new-normal-student-borrowing [https://perma.ee/7E3A- 8PWX],

117 See Eilieen Ambrose, Student Debt Traps Older Borrowers, AARP (2014), https://www.aarp.org/money/credit-loans-debt/info-2014/student-loan-debt-traps.html [https://perma.cc/HE64-QBZQ]; Nat. Assoc, of Realtors, Student Loan Debt and Housing Report 2017: When Debt Holds You Back (2017), https://www.nar.realtor/sites/default/files/reports/2017/2017-student-loan-debt-and- housing-09-18-2017.pdf [https://perma.cc/6YCJ-H4EA]; Letter from The Leadership Conference on Civil and Human Rights, to Secretary Betsy DeVos (Sept. 19, 2017),

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is promising, but reinforces how much work still needs to be done and how many more people need to be doing it. Student debt is not simply a “college student” issue. It is not only a “consumer protection” issue. Nor is it solely an economic justice issue, or a civil rights issue, or an elder justice issue. The student loan crisis is all of these and more.

If this country is to build a foundation for these reforms, more research, advocacy, and organizing is needed. New scholarship, in particular, is necessary for these policies to be successful. Researchers should consider the following questions:

• If you care about income disparities and economic justice, what have you done to demonstrate how student debt entrenches inequality?

• If you care about civil rights and racial justice, what have you done to explore the uniquely burdensome role o f student debt in communities of color?

• If you remain committed to the American ideal o f college as a gateway to the middle class, what have you done to show how the debt-financed higher education model impedes this ideal?

• If you care about college access and affordability, what have you done to ensure that the determinant of success is not limited to walking across the stage with a diploma?

• If you care about protecting American consumers, what have you done to lay out a twenty-first century consumer protection framework for the student loan market?

Perhaps most importantly, the academic community should ask itself if it has collectively done the work necessary to demonstrate to policymakers across the country that debt-fueled higher education merely shifts these costs onto those least able to bear them. Researchers and advocates have an opportunity and obligation to cast aside the tired and faulty assumptions that underpin this crisis and document for elected officials that such policy decisions merely shift the burden onto the backs of the students, families, and communities they represent. The only indisputable conclusion is that there is much more work to do. America needs to do better for this generation and for the next. Policymakers need to renew the promise to never let this happen again. And this time, they need to keep that promise.

https://civilrights.org/letter-re-concems-impact-student-loan-servicing-debt-collection- changes-undermined-regulations-black-latino-borrowers/ [https://pemra.cc/S5UR-SXBN]; Letter from American Federation of Teachers, to State Attorneys General (Apr. 26, 2017), https://www.aft.Org/sites/default/files/ltr_generic_agstuloansvc_042617.pdfihttps://pemra. cc/J3FD-8YG5] (AFT’s coalition wrote to 56 state attorneys general and state banking commissioners to urge oversight action on behalf of student loan borrowers).

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