Earlier this month, the Consumer Financial Protection Bureau (CFPB) announced a historic deal with predatory for-profit Corinthian Colleges Inc., which will forgive nearly a half-billion dollars in private student loans that were taken by gullible teenagers to pay the schools' absurdly hefty tuition — $60,000 to $75,000 a year for a bachelor's degree. The CFPB lawsuit alleged a litany of shady practices: advertising inflated job placement rates, promising a guaranteed "career" after graduating that was really no more than a single day of work, and an absurd pay-to-place scheme where the school bribed employers to temporarily hire graduates. The complaint also alleged Corinthian systematically pushed students into predatory, high-interest loans rather than more reasonable federal options.
Beyond providing an immediate 40 percent debt relief for eligible students, this agreement will also remove negative information from their credit reports, which could have a truly profound effect on the lives of these individuals.
This deal's a great win for victims of Corinthian's scheme struggling with mountains of debt — and holding a degree of highly dubious value. It's also a reminder of the sand upon which our entire student loan debt system is currently built.
The most important thing to understand about the CFPB's ruling here is that Corinthians had already abandoned any attempt to recover the full balance of those predatory loans; they'd sold $505 million in debt to a third-party collections company for a pittance, just $19 million. (H/t Alan Pyke.) That's probably because charging people $75,000 a year at 15 percent interest for a degree that leads to a $17,000 a year job is a long-term strategy for financial stability that, to put it mildly, lacks foresight. After all, someone with no money can owe you $10 or $10 million, and either way... you ain't gettin' paid. There are around 7 million Americans currently in default of their student loan debt. How many of those will ever be able to pay their loans back in full?
This is why this decision is so important — and still so lacking. See, the CFPB only went after Corinthians about the private loans they'd peddled, not the federally subsidized loans plenty of students also took. And when you remember that the federal government has a troublesome conflict of interest here, reaping considerable profits off these students' debt, it's hard not to view this decision somewhat cynically. The CFPB's rationale for recouping Corinthian's privately issued loans could apply just as easily to the federal governments'. If the debt was shredded because it was taken under false pretense, because Corinthian went out of its way to deceive and coerce prospective students into taking loans that they couldn't afford (and for college programs with terrible track records), why only forgive the private loans? Were the students who took public loans not also deceived? Perhaps less so, but that's a difference of degree, not one of kind.
The half-billion-dollar figure being trumpeted triumphantly by the CFPB is a fiction, a hypothetical that was never going to be repaid in the first place. But it gives a relatively new agency a high-profile head to mount on its proverbial wall, all for the low, low cost of $19 million!
For young people struggling with debt, and organizers looking for creative ways of confronting it, this scenario should serve as a valuable object lesson. After all, the ballooning debt these young people faced, combined with their perilous financial situation, made the sum of these debts increasingly divorced from reality, which lowered their cost on the secondary market. Is this a strategy that can be exploited more broadly? Those interested in reducing the student loan debt crisis can also look to the beneficiaries of this program in the weeks and months ahead to bolster their case for a broader debt forgiveness program.
Time to Give the White House Its Due
Obama deserves a lot of credit here. Almost two years ago, when the student loan debt crisis first started entering the public consciousness, much of the focus from the Obama administration centered on Income Based Repayment (IBR). Income Based Repayment is a system that ties your monthly loan payments to your income. Ideally, people with lower incomes and a lot of debt won't get buried in monthly payments, while high-earning individuals subsidize some of the subsequent lost revenue. It's a system that Obama has laudably expanded in recent years, but it's also a system that tends to favor the wealthy. Why? Because forgiving a lot of student loan debt tends to help people who accrue a lot of it, and those tend to be the children of the "merely affluent," people who tend to go to comically expensive post-graduate programs such as law school.
If you're really concerned about helping the people who suffer most in our current student loan environment, you'd direct your focus toward the poorest of the poor. These are people who are often coerced into taking huge loans to attend programs for which they're ill-prepared and unable to complete, left with neither degree nor a debt-free start to adulthood. (Demos' Matt Bruenig has been making this point for years.)
In recent months, it seems that Obama has come to a similar conclusion, directing his energy toward reforms that will help the poorest, most disadvantaged students escape the traps our current system lays before them. Last month, he released his presidential budget, which included an (unlikely) proposal to make two-year community college programs entirely free. Black Americans account for 27 percent of community college enrollees, despite only making up 11 percent of the population, while California's community college system, the largest in the nation, brags about having the lowest-income student body in the state.
On Tuesday, Obama's appointee at the CFPB won a huge victory for the victims of predatory for-profit colleges, a group of people who are overwhelmingly poor and minority students. (Between 2004 and 2010, black enrollment at for-profit colleges expanded by more than 250 percent.) Apart, these are relatively minor pieces of news. But taken together, they reveal a renewed focus by the Obama administration on those young Americans who need his assistance most desperately. That's an extremely positive
The Utility of Hold-Your-Nose Politics
Not to be lost in this story is the prominent role of the Consumer Financial Protection Bureau, the brainchild of Massachusetts Sen. Elizabeth Warren. You may remember that the CFPB, conceived in the wake of the subprime mortgage collapse of 2008, was leaderless for three years, until the threat of the filibuster-eliminating "nuclear option" compelled Republicans in the Senate to capitulate and allow Democratic senators to appoint Richard Cordray as its head.
If you're the type of left-liberal to criticize Obama for his failures in reining in our foreign adventurism, for turning heroic whistle-blowers and journalists into treasonous criminals, or expanding our surveillance state to unprecedented levels (and I'm certainly of this camp a lot of the time), it's important to look to the CFPB and remember the ugly utility of party politics. Obama is not perfect, surely, but in our current system, agencies like the CFPB — which works to advance the interests of the weak and powerless — are strictly the result of Democratic politicians and policies.
It was a Democratic Congress that created the CFPB; it was a Democratic president who appointed consumer advocate Richard Cordray to lead it; it was a Democratic Senate that confirmed him against the strenuous objection of Republicans everywhere. It's important to remember that when we make the perfect the enemy of the good, we risk losing important marginal changes that can make huge, real-world differences in the lives of millions of Americans who need basic assistance more than they need some litmus test of ideological purity.