Archive for Ayelet Sheffey

Meet a married couple with $130,000 in student debt after paying off $140,000 – but they started with just $54,000. ‘The loans have always stayed one step ahead of us.’

college students graduation
  • Ron and Marcia Rizzardi started out with a combined $54,000 in debt from their own educations.
  • Over the past 25 years, they've made $140,000 in payments, but today they owe $130,000.
  • It comes down to the high interest rates that prevent people from making even a dent in their principal balance.

After Ron and Marcia Rizzardi got married in 1992, they thought consolidating their student loans was the best financial option for them.

But now, thanks to sky-high interest rates, the Arkansas-based couple owes $130,000 in student debt even though they've made $140,000 in payments over the past 25 years. They've paid off their original loan amount of $54,000 nearly three times over.

"The loans have always stayed one step ahead of us," Marcia told Insider. "It has affected every aspect of our lives."

'We have paid back the original loan and much more'

After leaving the US Air Force in the early 1990s, Ron, now an engineer, went to school to obtain a degree in aviation. To supplement his part-time work as a certified flight instructor, Marcia took out student loans to obtain a master's degree in education - she's still employed in the field. But a few years later, after their two daughters were born, Ron experienced two layoffs and Marcia suffered an injury that put her out of work, causing them to defer their student-loan payments.

But deferring those payments didn't quite give them the relief they hoped for because interest continued to accumulate in the meantime. That's what has "always kept them out of reach" of even making a dent in their principal balance, Ron said.

Their debt load also held them back from saving up for their daughters' education, requiring the couple to take out parent PLUS loans - the most expensive type of loan, which covers the cost of attendance at a college and is not based on income. Those loans have added another $100,000 to their overall debt load. Their daughters also took out student loans themselves while getting their degrees at state universities.

Now, Ron doesn't see himself retiring until he's at least 75 years old, and once the pandemic freeze on student-loan payments lift in February, the couple is looking at $1,600 monthly payments for the foreseeable future.

"It's not like we haven't paid back the money," Marcia said. "We have paid back the money. We have paid back the original loan and much more."

'I fully expect this debt will follow me to my grave'

Both Ron and Marcia enjoy the jobs they have, which can be credited to the degrees they paid for. But they say the high interest rates on their debt eat away at that joy every day.

"We're literally paying for the privilege of these jobs every month," Marcia said.

Interest rates on federal student loans increased in July, with a 3.73% rate for undergraduate loans, a 5.28% rate for graduate loans, and a 6.28% rate for PLUS loans. Insider previously reported that the majority of borrowers who've made at least one payment during the pandemic pause didn't reduce their underlying debt-loads by even $1 - they were just reducing interest.

Other borrowers who took out PLUS loans to ensure their kids could receive an education have told Insider they're looking at student-debt payments for the rest of their lives, thanks to the high interest rates.

"I'm looking at paying $3,000 a month for the better part of the rest of my life," Reid Clark, who took out $550,000 to send his five kids to school, previously told Insider. He estimates he'll have to keep making those payments for at least three more decades.

Ron and Marcia say they live on a "shoestring budget" to keep up with their student debt payments, after living paycheck to paycheck while raising their daughters. But they made it clear they are not looking for any type of handout. They just want their loan to be considered repaid - because it has been.

"I fully expect this debt will follow me to the grave," Ron said. "My only comfort is that it will go away when I die."

Do you have a story to share about student debt? Reach out to Ayelet Sheffey at [email protected]

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Student-loan companies chose to shut down rather than face more accountability, says a top Biden official

College graduate sitting outside
College graduate sitting outside.
  • Two student-loan companies that service a combined 10 million borrowers are shutting down this year.
  • Federal Student Aid Director Richard Cordray said the companies didn't want more accountability.
  • He plans to hold the companies to higher standards to help better protect borrowers.
  • See more stories on Insider's business page.

In recent months, Biden's Education Department told student-loan companies they would be facing a stricter set of rules than under the Trump administration. Some of them decided to shut down instead.

In remarks obtained by Politico, Director of the Education Department's Federal Student Aid (FSA) office Richard Cordray said that one of his goals as head of the FSA is to hold the companies that collect borrowers student debt to higher standards - and those standards pushed some companies to refrain from renewing their contracts with the government.

"Not everybody was thrilled" with the new standards, Cordray said. "But we have stuck to our guns. Some servicers have decided to exit the program rather than contend with these new realities."

Two student-loan companies are shutting down in December, causing nearly 10 million borrowers to transition to new servicers before the pandemic payment pause ends.

The Pennsylvania Higher Education Assistance Agency (PHEAA) and Granite State Management and Resources announced in July they would be shutting down their loan services in December. Granite State has already announced where its borrowers will be transferred, but PHEAA - which currently services 8.5 million borrowers - has yet to do so and has come under fire by advocates and lawmakers for misleading borrowers, prompting increased oversight.

After announcing that it was shutting down its loan services, a PHEAA spokesperson told Insider in a statement that student-loan programs had "grown increasingly complex and challenging while the cost to service those programs increased dramatically."

The company did not respond to Insider's request for comment regarding accusations the company has misled borrowers, but Massachusetts Sen. Elizabeth Warren said borrowers can "breathe a sigh of relief" knowing they will not be serviced by PHEAA, and Seth Frotman, executive director of the Student Borrower Protection Center, recently told Insider it's a "good thing" the company is shutting down its services.

"Borrowers no longer being forced to deal with this company is a good thing," Frotman said. "At the heart of every student loan scandal that hurt borrowers, PHEAA was at the center, from harming teachers, to military borrowers, to public servants."

Cordray's plan to increase accountability measures for student-loan companies is something lawmakers like Warren have been pushing for, and doing, for years. In April, Warren invited the CEOs of all student-loan companies to testify on the impact of student debt on borrowers, and she called out the CEO of Navient, saying he should be fired for the company's actions in misleading borrowers.

PHEAA CEO James Steeley also testified, and Warren later sent him a letter over what may have been false testimony before Congress.

Cordray said the FSA will collaborate with the Consumer Financial Protection Bureau and the Justice and Treasury Department to help boost oversight, and he said the student-loan companies who are renewing their contracts have "embraced a new normal of 'putting borrowers first.'"

"We will work closely in partnership with our servicers to make sure we deliver quality service to everyone who faces the prospect of repaying their student loans," he said.

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Mitch McConnell says the GOP will vote for the US to default on its debt

Mitch McConnell
Senate Minority Leader Mitch McConnell.
  • Pelosi and Schumer said they would attach a debt-ceiling suspension to the government-funding bill.
  • McConnell quickly struck down the idea, saying the GOP would not vote for the legislation.
  • They effectively dared him to vote for the US to default on its debt, and he met their dare.
  • See more stories on Insider's business page.

As the White House stressed the urgency of raising the debt ceiling to avoid a government default, House Speaker Nancy Pelosi and Senate Majority Leader Chuck Schumer said on Monday that the House would pass legislation to fund the government that includes a debt-limit suspension through the end of next year.

It was a dare to Senate Minority Leader Mitch McConnell, who would need to lend ten Republican votes for it to avert the filibuster and clear the Senate. The Kentucky Republican was unfazed.

"We will not support legislation that raises the debt limit," McConnell said after Pelosi and Schumer's announcement. "Democrats do not need our help."

Treasury Secretary Janet Yellen told Congress earlier this month that the government's money would likely run out in October because of financial uncertainty caused by the pandemic.

Pelosi and Schumer said in a joint statement on Monday that the House would pass legislation before October to fund the government through the end of the year and tack on a debt-ceiling suspension through December "to once again meet our obligations and protect the full faith and credit of the United States."

"Addressing the debt limit is about meeting obligations the government has already made, like the bipartisan emergency COVID relief legislation from December as well as vital payments to Social Security recipients and our veterans," the lawmakers wrote. "Furthermore, as the Administration warned last week, a reckless Republican-forced default could plunge the country into a recession."

Republican lawmakers have said they won't get involved with raising the debt limit and want Democrats to go at it alone, citing their "irresponsible spending" on a $3.5 trillion social-spending bill. Yet renewing the nation's ability to borrow and pay its bills - known as the debt ceiling - also deals with covering spending obligations that Congress already approved.

Democrats are assailing what they view as Republican hypocrisy, noting the national debt grew nearly $8 trillion under President Donald Trump - chiefly on the back of GOP tax cuts and bipartisan emergency spending packages during the pandemic. Republicans supported raising the debt ceiling three times during the Trump administration.

By tacking on the debt ceiling to the government-funding legislation, Pelosi and Schumer are daring the GOP to vote for a default. "The American people expect our Republican colleagues to live up to their responsibilities and make good on the debts they proudly helped incur in the December 2020 '908' COVID package that helped American families and small businesses reeling from the COVID crisis," Pelosi and Schumer wrote, referring to the December stimulus package passed under President Donald Trump.

On Sunday, Pelosi wrote in a letter that every time the debt limit has needed to be raised, "Congress has addressed it in a bipartisan basis." On the same day, Yellen urged Congress to come together to raise the limit, citing the "economic catastrophe" that could result with the failure to do so.

A large majority of Senate Republicans are retrenching and following McConnell's lead, saying they'll cast a vote against the measure. They're also insisting that Democrats can employ reconciliation, the same party-line process that's being used to muscle through a $3.5 trillion social spending package.

"[Democrats] got the votes to keep us from defaulting, let's see what they do," Sen. Richard Shelby of Alabama, the ranking member in the Appropriations Committee, told Insider.

Shelby was among a handful of GOP senators who didn't sign onto a pledge in August to oppose lifting the debt ceiling. That roster included Sen. Susan Collins of Maine, who was pressed by reporters on whether she supported raising the borrowing cap. "I'm not answering that," she said.

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Janet Yellen says she wouldn’t be Treasury Secretary today if she ‘didn’t have an excellent babysitter 40 years ago’

Janet Yellen smiling in front of a microphone
Janet Yellen.
  • Treasury Sec. Janet Yellen credits "excellent" childcare for her professional success.
  • She urged Congress to invest in affordable childcare in the $3.5 trillion social spending bill.
  • The Treasury released a report on Wednesday detailing the lack of accessible childcare for parents.
  • See more stories on Insider's business page.

Janet Yellen is the first female Treasury Secretary of the US, but she said it might not have been possible without the childcare made available to her after giving birth to her son four decades ago.

"Looking back, I'm not sure I would be here, in this job today, if I didn't have an excellent babysitter 40 years ago," Yellen said during remarks on Wednesday on shortages in the childcare system.

Yellen joined Vice President Kamala Harris at the Treasury Department in urging for increased investments in childcare, and she said that while she was lucky to have given her son great childcare, it is certainly not the norm for most families today. The Treasury released a report on Wednesday that found parents need childcare at a time when they can least afford it - right when they give birth - and there is currently no funding mechanism, stressing the need for reform.

"For the vast majority of Americans, the child care industry works in precisely the opposite way it worked for us, which is to say it doesn't work at all: Those who provide child care aren't paid well, and many who need it, can't afford it," Yellen said.

House Democrats recently unveiled their plan to invest $761 billion to make childcare more affordable as part of their social spending bill, which included a universal pre-K for three- and four-year-olds and investments to ensure children do not go hungry. It also includes a cap on families' spending on childcare at 7% of income so anyone who wants care can afford it, regardless of how much money they make.

Insider reported on Tuesday that 110 economists echoed Yellen's calls in a letter stressing the importance of affordable childcare in Democrats' $3.5 trillion social spending bill. Betsey Stevenson, a top economist under Obama and one of the letter' signatories, told Insider in an interview that the "fundamental flaw" in childcare is the lack of investment.

"What we have done is create a nation of kids who are underinvested in, and that feeds into not just what our potential is as an economy, but it also feeds into inequality," Stevenson said.

Democrats are in the process of debating elements of the reconciliation bill, including an expanded $300 monthly child tax credit, but where benefits for children and families stand remain uncertain given hesitation from centrist lawmakers, like West Virginia Sen. Joe Manchin, who wants a work requirement for the benefits.

But Yellen said during her remarks it's "past time that we treat child care as what it is - an element whose contribution to economic growth is as essential as infrastructure or energy."

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4 reasons Congress should permanently expand $300 monthly child tax credits, according to more than 400 economists

Nancy Pelosi and Chuck Schumer
Nancy Pelosi and Chuck Schumer.
  • 410 economists urged Congress to make permanent $300 monthly checks to families with children.
  • They wrote in a letter the child tax credit will significantly reduce childhood poverty in the US.
  • Democrats are clashing over how to include the credit in their $3.5 trillion social spending bill.
  • See more stories on Insider's business page.

As Senate Democrats clash over what an expanded child tax credit will look like in their $3.5 trillion social spending bill, over 400 economists laid it out simply: the credit should be made permanent to combat child poverty in the country.

On Wednesday, 410 economists, led by Berkeley economics professor Hilary Hoynes and Director of Northwestern's Institute for Policy Research Diane Schanzenbach, sent a letter to House and Senate leadership urging them to make the expanded child tax credit permanent.

The signatories, which included former top Obama administration economists Jason Furman and Betsey Stevenson, wrote that childhood poverty is a "staggering problem" in the US, affecting approximately one in seven children and indefinitely impacting their livelihoods as they grow up.

"Children growing up in poverty begin life at a disadvantage: on average they attain less education, face greater health challenges, and are more likely to have difficulty obtaining steady, well-paying employment in adulthood," the economists wrote. The National Academy of Sciences estimated that because of those difficulties, child poverty has cost the country between $800 billion and $1.1 trillion each year.

The economists outlined four reasons why expanding, and making permanent, the child tax credit would be beneficial:

  1. It would dramatically reduce poverty and improve children's lives by improving childrens' health and educational attainment;
  2. It would be a long-term investment and bring in more tax revenue down the road by reducing government medical spending for children;
  3. It would have minimal impact on employment given that the credit would phase out for high levels of earning;
  4. And the vast majority of people use the credits to pay for necessities, like food and utilities.

President Joe Biden expanded the child tax credit through December in his stimulus law, in which individuals who earn $75,000 or less are eligible for up to either a $250 or $300 direct payment per child depending on their age.

Insider's Madison Hoff reported last month that just the first round of payments managed to keep 3 million children out of poverty, signaling the substantial impact a further expanded credit would have for children and families across the country.

But Congressional Democrats are divided on basic provisions of the program, including how long to extend it and whether low-income families who don't have to file taxes should be able to receive advance monthly payments, known as fully refundability.

House Democrats proposed renewing the program until 2025 in their social spending plan, along with locking in full refundability for families that don't earn enough to pay taxes.

But the structure of the program could change due to resistance from Sen. Joe Manchin of West Virginia, a key centrist. He's pushed a work requirement for parents to receive the credit. He told Insider on Tuesday that the benefit should only go to people paying taxes.

Many Democrats are balking at the idea, including architects of the measure like Rep. Suzan DelBene of Washington and Sen. Michael Bennet of Colorado.

"I think it's already clear in the country the incredible benefits the child tax credit is delivering to families and I hope to find a way to preserve it in its current form," Bennet told Insider on Tuesday.

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A House Democrat says he wants a labor market ‘so tight’ that people with tattoos won’t have to cover up to get hired

Rep. Brad Sherman
Rep. Brad Sherman.
  • Rep. Brad Sherman told WSJ he wants a labor market "so tight" that people with tattoos can easily get hired.
  • This was in regards to his support for Powell's reappointment to Fed Chair.
  • Democrats are debating the reappointment, with progressives wanting a new chair who is more climate-focused.
  • See more stories on Insider's business page.

As debate among Democrats continues over whether to appoint Federal Reserve Chairman Jerome Powell to another four-year term, one lawmaker expressed his support for Powell and what it would mean for people looking for work.

"I want a labor market so tight that you don't even have to cover up your tattoos to get a job," California Rep. Brad Sherman told the Wall Street Journal. "I want employers camped out in front of my office begging for my help in how to hire people getting out of federal prison."

Sherman was talking about a meeting he had with Powell in 2019, when the Fed chair asked him for help in hiring the newly paroled from federal prisons. Sherman said he wanted to have another one of those meetings, and he's worried about any agenda that might take the Fed's focus off of establishing a tighter labor market.

Sherman's office did not immediately respond to Insider's request for comment.

Powell's term is set to end in February, and the Biden administration is currently deciding whether to keep him in the position. Treasury Secretary Janet Yellen - a former Fed chair herself - has told White House advisers she wants to see Powell stay at the central bank, and Biden advisers are leaning toward recommending a second term for Powell, according to Bloomberg.

But progressives, including New York Rep. Alexandria Ocasio-Cortez and Massachusetts Rep. Ayanna Pressley, are urging Biden to oust Powell in exchange for a head of the central bank that would prioritize climate change and racial justice.

"To move forward with a whole of government approach that eliminates climate risk while making our financial system safer, we need a Chair who is committed to these objectives," Ocasio-Cortez, Pressley, and two other Democratic colleagues said in a statement last month.

Along with Sherman, though, some more centrist Democrats have concerns that progressives are taking the focus off of Fed priorities. Jon Tester, a centrist Democrat from Montana, told the Journal that a Fed chair "should not be involved in the political footballs thrown around on Capitol Hill."

"That's the reason I want Jerome Powell," Tester added. "He's proven he can maintain the independence of the Fed."

House lawmakers do not get a vote on Powell's reappointment, but as Insider's Ben Winck previously reported, the Fed has not been silent on the issues progressive lawmakers brought up. Central bank officials have increasingly looked into how the climate crisis endangers the financial sector and the broader economy, and the Fed's latest framework - rolled out in August 2020 - seeks to create a more inclusive and equitable labor market.

The Senate Banking Committee will is set to hold the confirmation hearing for Biden's Fed chair nominee.

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Wisconsin school board president who backtracked on canceling free school lunch says it opened his eyes because ‘I eat every meal every day. I cannot relate to being hungry.’

Montana school lunch
  • Waukesha was the only school district in Wisconsin to opt out of Biden's free lunch program.
  • This week, it opted back in, with board members saying they were unaware of the hunger in their district.
  • But it was a 5-4 vote, and some members likened free lunch to mask mandates.
  • See more stories on Insider's business page.

Waukesha, a Wisconsin school district, voted in June to opt out of President Joe Biden's free school lunch program under the argument that children and families could become "spoiled" with free meals. But nearly two months later, and after widespread criticism, the district opted back into the program and admitted they didn't know how many children go hungry.

The Milwaukee Journal Sentinel reported on Monday that by a 5-4 vote, the Waukesha school board rescinded its previous decision and chose to opt back into the pandemic free lunch program, which gives free meals to all K-12 students, regardless of income. Superintendent James Sebert asked the board members to reconsider their decision, and after weighing the feedback the board had received, Board President Joseph Como said he hadn't been aware of all the situations of hunger in the district.

"I appreciate your input very much," Como said. "I eat every meal every day. I cannot relate to being hungry. I've been blessed."

Another board member, Greg Deets, added that he first voted to opt out of the free school lunch program because he didn't know the full extent to which students in the district go unfed.

"I made the earlier votes without really looking at all the implications and I wasn't really informed and I apologize for that," Deets said. "The truth is that many of our students are hungry throughout the school day and we have the ability to do something about that."

But, as the Journal reported, other board members didn't feel the same way. Karin Rajnicek, the school board member who made headlines for saying free school meals could make students and families "become spoiled," defended her comments at the board meeting and said she was speaking from her own experience with feeling spoiled by free meals for her children.

And other board members said the change of course to opt into school meals was just giving into intimidation.

"If it's food and free lunch today, it will be forced masking, forced whatever-we-want-to-do in schools because the mob will have the power to tell us what to do," board member Anthony Zenobia said.

Before reversing course, Waukesha was the only school district in Wisconsin to opt out of the pandemic free lunch program, which extends through spring of 2022, and instead chose to remain in the the National School Lunch Program, which requires families to fill out an application to qualify for free or reduced-price school meals.

"It's the student that's in the lunch line... that stands there when there isn't money to pay the bill. It's the student that has to go back and sit at the table," Deets said. "I think we should do whatever we can so that students in our district don't have to experience those situations."

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47,000 service members will finally get the student loan debt relief they’ve been promised for years

Veterans Day 2019
Members of the United States Marine Corps stand listening to the 45th President Donald J. Trump's address of the crowd for the opening ceremony of the New York City 100th annual Veterans Day Parade and wreath-laying at the Eternal Light Flag Staff.
  • The Education Dept. announced it is waiving interest on student loans for 47,000 service members.
  • Receiving the benefit will also be automated so borrowers don't have to submit individual requests.
  • This benefit was created under the Higher Education Act, but paperwork held back many from accessing it.
  • See more stories on Insider's business page.

A day after the Education Department wiped out $5.8 billion in student debt for borrowers with disabilities, it announced service members will also be getting relief: waived interest that has been a benefit under the Higher Education Act but has barely been accessed.

On Friday, the Education Department announced the Federal Student Aid (FSA) office will be retroactively waiving interest on student loans for 47,000 former and active-duty service members. The relief will happen automatically, removing the requirement for service members to make individual requests to access the benefit. According to the press release, automating the process means eight times more current and active-duty service members will receive the benefit than in 2019.

"Brave men and women in uniform serving our country can now focus on doing their jobs and coming home safely, not filling out more paperwork to access their hard-earned benefits," FSA Chief Operating Officer Richard Cordray said in a statement. "Federal Student Aid is grateful for our strong partnership with the Department of Defense, and we will seek to reduce red tape for service members wherever possible."

Service members deployed to areas that qualify them for "imminent danger or hostile fire pay," according to the Higher Education Act, should not accrue interest on student loans that were first disbursed on or after October 1, 2008. But since the process was not previously automated, only a small proportion of eligible service members were able to access the benefit, with only about 4,800 of them getting relief in 2019.

Along with waived interest, service members also qualify for full student-debt relief under the Public Service Loan Forgiveness (PSLF) program, which forgives student debt for public servants after 120 monthly qualifying payments. But not only is this program flawed, rejecting 98% of applicants, if a service member is deployed and puts payments on pause, that time doesn't count toward loan forgiveness, extending the period they have to keep paying.

And according to a Government Accountability Office report, as of January 2020, 287 Dept. of Defense personnel received loan forgiveness, while 5,180, or 94% of DOD borrowers, were denied.

In April, Republican Sen. Marco Rubio of Florida and Democratic Sen. Maggie Hassan of New Hampshire introduced legislation that allows service members who deferred their student loan payments while deployed to count that period of time toward their PSLF progress, expediting the process for student-debt relief.

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Elon Musk says we need universal basic income because ‘in the future, physical work will be a choice’

GettyImages 1229892421
Elon Musk.
  • Elon Musk said that with the rise of robots, universal basic income will be necessary in the future.
  • Musk is working on creating a robot that would do mundane tasks so humans don't have to.
  • This would take away a lot of service jobs, though, which is why humans would need guaranteed income.
  • See more stories on Insider's business page.

Tesla CEO Elon Musk is stepping behind the universal basic income movement because of the potential rise of robots - in fact, he's working on one himself.

During a Thursday presentation on artificial intelligence (AI) hosted by Tesla, Musk said he is working on creating a "Tesla Bot," or a robot that would do "dangerous, repetitive, and boring tasks" so humans don't have to. But Musk recognized that the creation of this robot might take the place of jobs that people are currently getting paid for, which is why he said a guaranteed income will likely be necessary in the future.

"Essentially, in the future, physical work will be a choice," Musk said during the presentation. "This is why I think long term there will need to be a universal basic income," he added.

Musk said that the robot will be "friendly," standing at a height of 5'8'' and reaching speeds up to five miles per hour. But if its creation goes to plan, it will take many people's jobs.

While Musk's robot has not yet taken over, businesses across the country have turned to automation rather than paying humans for work. For example, Insider previously reported that restaurants struggling to hire workers for months, they have turned to QR codes where diners can view menus, rather than having a waiter bring them one.

In addition, Cracker Barrel rolled out a mobile app that lets customers pay for meals; McDonald's started testing automated drive-thru ordering at 10 Chicago locations; and Dave & Buster's plans to expand its contactless ordering, effectively getting rid of many restaurant jobs humans once did.

If this trend continues, it's likely that universal basic income will become a larger part of the conversation. Some cities have already started testing out pilot universal basic income programs for targeted groups of residents, and California recently launched the nation's largest statewide universal basic income program prioritized for pregnant people and those aging out of the foster system.

And after the pandemic spurred Congress to approve three stimulus checks for Americans, some Democrats called to continue those checks well beyond the end of the pandemic, and in late March, amid infrastructure negotiations, 21 Democratic senators urged President Joe Biden in a letter to include recurring direct payments in his infrastructure plan, saying that when checks ran out after the CARES Act, poverty rose.

Even with the concern that rising automation will take people's jobs, though, economics writer Noah Smith wrote in a June 13 blog post that it could optimize job growth given that people who were taking orders and busing tables could develop more valuable skills.

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A top Democrat wants to make them pay. All the executives behind defunct for-profit schools, that is.

Rep. Bobby Scott
Rep. Bobby Scott.
  • For-profit schools have shut down in recent years amid allegations of fraud and misleading students.
  • House Education Chair Bobby Scott urged the Education Sec. to hold the executives of those schools accountable.
  • He wants the executives to pay for the closure costs that students and taxpayers were saddled with.
  • See more stories on Insider's business page.

A series of for-profit colleges have shut down in recent years amid accusations of fraud, mismanagement, and misleading students into taking on student debt they can't pay off. A top Democrat wants to make these schools' executives pay.

On Monday, House Education and Labor Committee Chair Bobby Scott wrote a letter to Education Secretary Miguel Cardona, urging him to hold owners, board members, and executives of now-defunct for-profit schools "individually responsible" for money the schools owe to the federal government.

"Given the substantial burden that is currently being borne by students and taxpayers when for-profit and converted for-profit institutions collapse, it is clear the Department has a responsibility to pursue any and all legal avenues available to recoup money that was allocated through financial aid programs," Scott wrote.

After major for-profit chains, notably including Corinthian Colleges and ITT Technical Institutes, shut down, students and taxpayers had to pay the closure costs - not the people who ran the school.

Scott highlighted actions the Securities and Exchange Commission (SEC) has taken, like bringing ITT to court in 2015 for deceiving investors about high rates of late payment and defaults on student loan, but he noted that SEC penalties have been narrow, and the Education Department can do more given its authority under the Higher Education Act - including making them pay for the debt students had to take on.

Last year, Student Defense, which advocates for students' rights, released a report detailing how executives can be held accountable under the Higher Education Act, and Dan Zibel, author of the report and Vice President of Student Defense, wrote on Twitter on Thursday that "too many predatory colleges have profited from fleecing students & bilking taxpayers."

Since 2015, more than 200,000 defrauded students filed claims for a complete discharge of their loans in a process known as the "borrower defense to repayment." This methodology, approved by Education Secretary Betsy DeVos, compared the median earnings of graduates with debt-relief claims to the median earnings of graduates in comparable programs. The bigger the difference, the more relief the applicant would receive.

But compared to a 99.2% approval rate for defrauded claims filed under President Barack Obama, DeVos had a 99.4% denial rate for borrowers and ran up a huge backlog of claims from eligible defrauded borrowers seeking student debt forgiveness, which is why Cardona reversed that policy to start giving borrowers defrauded by for-profit schools the relief they qualify for.

Scott's letter is the second asking the Education Department to hold for-profit education executives accountable. In October 2020, Massachusetts Sen. Elizabeth Warren led five of her Democratic colleagues in pushing for the department to use all the legal tools at its disposal to hold executives of the for-profits that "defrauded students personally, financially accountable."

The lawmakers wrote the department's failure to enforce accountability "has also encouraged future lawbreaking by executives who feel confident they can enrich themselves at the expense of students and taxpayers without consequence."

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