Tuesday, August 15, 2017

The Unfortunate Case of Mark Tetzlaff, a law school graduate with more than a quarter million dollars in student loans. Bankruptcy is the only reasonable option.

One would have to have a stone-cold heart (or no heart at all) not to feel some sympathy for Mark Tetzlaff.  Tetzlaff obtained a law degree from Florida Coastal School of Law in 2005, but so far at least, he has been unable to pass a bar exam.

In 2012, Tetzlaff filed an adversary proceeding in a Wisconsin bankruptcy court, seeking to discharge more than a quarter of a million dollars in student loans.  Tetzlaff had actually paid off his law-school debt but he had incurred $260,000 in student loans to pursue various other degrees.

During his adversary proceeding, Tetzlaff tried to explain why he had been unable to find steady employment. "He introduced evidence showing that he is a recovering alcoholic, that he has been convicted of several misdemeanor offenses and that these convictions have hindered his ability to find a job." Tetzlaff v. Educational Credit Management Corporation, 521 B.R. 875, 877-878 (E.D. Wis. 2014), aff'd, 794 F.3d 756 (7th Cir. 2015). He also introduced evidence from a psychiatrist that he suffered from narcissistic personality disorder, anxiety and depression.

In addition, Tetzlaff attempted to introduce testimony from a forensic psychologist that he had serious memory problems that prevented him from passing the bar. He also had a vocational counselor lined up to testify that his memory problems were serious enough to hinder him from finding a well-paying job.

An unsympathetic  bankruptcy judge refused to allow Tetzlaff's forensic psychologist and vocational counselor to testify because Tetzlaff he had not disclosed these witnesses by the deadline established in the court's pretrial order. But the judge allowed Educational Credit Management Corporation, Tetzlaff's student-loan creditor, to introduce its own forensic psychologist to testify.

ECMC's psychologist tested Tetzlaff to determine whether he was feigning his psychological symptoms. Not surprisingly ECMC's hired gun concluded that Tetzlaff was a malingerer and that he was feigning his symptoms.

The judge herself concluded that Tetzlaff had not made good faith efforts to find a job and that most of "[Tetzlaff's] energy over the last several years has been directed at making excuses for his failure . . . rather than securing employment." Id. at 880. Accordingly, the judge refused to discharge Tetzlaff's student loans.

Tetzlaff appealed the bankruptcy court's decision to a federal district court, which upheld the bankruptcy judge's decision. And he appealed again to the Seventh Circuit Court of Appeals, which also upheld the bankruptcy judge. And then he sought review by the US Supreme Court, which refused to hear his appeal.

Over the years, Tetzlaff has taken the bar exam at least five times--twice in Illinois and three times in Wisconsin. He failed the exam all five times.  In July 1917, he sued the Illinois Board of Admissions, demanding extra time to take the bar exam along with the right to consult written materials and to take the test in a semi-private room free of distractions.  Tetzlaff claims he is entitled to these "reasonable accommodations" under the Americans with Disabilities Act.

Tetzlaff is now in his late fifties. Twelve years after graduating from law school, he still cannot practice law. Somewhere along his life's journey, he also picked up an MA degree and an MBA; and he is currently pursuing a LLM degree from Temple Law School.

What are we to make of this saga?

First, I believe the bankruptcy court was wrong to deny Tetzlaff a discharge of his student loans. Tetzlaff graduated from a bottom-tier law school, which has very low admission standards. It should not be surprising that he failed the bar exam multiple times. Numerous graduates of Florida Coastal School of Law have failed the bar.  And, as Paul Campos pointed out in his book Don't Go To Law School (Unless), many people who graduate from mediocre law schools will never earn an income that will justify the enormous debt load they take on to get their JD degrees.

Second, I understand why the bankruptcy judge refused to allow a couple of Mr. Tetzlaff's witnesses to testify. Parties to litigation are expected to comply with pretrial orders; and apparently Tetzlaff was granted several extensions to list his expert witnesses before the judge ruled that she would not hear their testimony.

But what kind of justice system do we have that permits a well-heeled creditor like Educational Credit Management Corporation to bring in paid experts to testify that a distressed student-loan debtor is a malingerer? Expert witnesses are hired for one purpose and one purpose only--to help their clients win their cases. ECMC is hounding student debtors in bankruptcy courts all over the United States, and it has almost unlimited resources to hire experts to testify against people who are penniless. Is that fair?

Finally, Mr. Tetzlaff's story illustrates the crazy system of higher education we have constructed in this country that allows an individual to borrow money to obtain multiple degrees when it is clear that this money will never be paid back. Mr. Tetzlaff is a case in point. According to news accounts, he has four academic degrees--a J.D., an MA, an MA, and a BBA--and is pursuing a fifth degree--an LLM.

Let us face facts. Bankruptcy relief is the only sensible option for someone like Mr. Tetzlaff. Even if he eventually passes a bar exam and practices law, it is highly unlikely that he will ever pay back $260,000 in student loans (along with accruing interest).




Mark Tetzlaff (seated on the left) (photo credit Bruce Vielmetti, Milwaukee Journal Sentinel)



References

Mike Brown.  Student Loan Plaintiff Mark Tetzlaff Sues Illinois Board of Admissions to the Bar. Lendedu.com, July 31, 2017.

Tetzlaff v. Educational Credit Management Corporation, 521 B.R. 875, 880 (E.D. Wis. 2014), aff'd, 794 F.3d 756 (7th Cir. 2015).

Tetzlaff v. Educational Credit Management Corporation, 794 F.3d 756 (7th Cir. 2015),  cert. denied, 2016 U.S. LEXIS 61 (U.S. Jan. 11, 2015).

Bruce Vielmetti. Waukesha man sues for double the time, and an open book, to take Illinois bar exam. Milwaukee Journal Sentinel, July 26, 2017.

William Vogeler. Law Graduate Sues for Open-Book Bar Exam. findlaw.com, July 27, 2017.



Friday, August 11, 2017

Patricia McDade owes one third of a millon dollars in student loans, which she cannot discharge in bankruptcy

Patricia McDade owes one third of a million dollars in student loans, which she cannot discharge in bankruptcy. In a recent decision, Bankruptcy Judge Patrick M. Flatley ruled that McDade could make payments on her enormous debt and still maintain a decent standard of living.

"McDade has not demonstrated that she is unable to maintain a minimal standard of living while repaying at least some portion of her student loans," Judge Flatley wrote. Therefore, in Judge Flatley's opinion,  McDade did not meet her burden of showing that she would suffer "an undue hardship" if she was required to pay back her loans.

Judge Flatley made a mistake. Patricia McDade is 46 years old, and her student loan debt amounts to $333,000 (including $6,000 for her children's education). Although her annual salary was $63,000 at the time of her adversary proceeding, she represented that she was in danger of losing her job. There is no way Ms. McDade can pay back a third of a million dollars in student loans and maintain a decent standard of living, even if she remains permanently employed at her current salary.

Judge Flatley did not specify how much of McDade's student loan debt was accrued interest, but she undoubtedly borrowed far less than $327,000. In fact, McDade argued that the accrued interest on her debt should be discharged even if her underlying loans were not forgiven. But Judge Flatley rejected that argument.

I think Judge Flatley suspected that some of Ms. McDade's expenses were excessive. He pointed out that her expenses rose 20 percent over a ten-month period and that the increase coincided with a pay raise she got at her job. And in fact, she listed a couple of arguably questionable expenses: a $486 monthly car payment and charitable contributions totally $525 a month. She also listed expenses related to her adult daughter.

But McDade was driving a 2014 Jeep Patriot--a very modest car. No bankruptcy court has said student-loan debtors are required to drive a junker in order to qualify for bankruptcy. And if some of McDade's expenses were excessive--the charitable contributions, for example--Judge Flatley might have granted her a partial discharge to compensate for the excessive expenditures. This is what Judge Pappas did in the McDowell case. (Ms. McDowell had purchased a motorcycle.)

Undoubtedly, Ms. McDade can keep her head above water financially if she enters an income-driven repayment plan (IDR) that will require her to make relatively modest monthly payments.  If she goes that route, however, her payments almost certainly will be insufficient to cover accruing interest on her enormous student-loan debt. And an IDR will require her to make monthly payments for 20 or even 25 years.

Ms. McDade may have made some mistakes in the way she handled her student loans, but denying her bankruptcy relief will not accomplish anything useful. She will probably wind up making monthly payments under an IDR until she reaches retirement age, and these payments will hinder her ability to buy a home or save for her retirement.

In fact, Patricia McDade is one of many student-loan debtors who have entered bankruptcy court owing far more than they borrowed due to accrued interest and fees. In my view, it is not in the public interest to shove all these unfortunate individuals into IDRs just to maintain the fiction that the loans aren't in default.

For all practical purposes, Ms. McDade's student loans are in default, and they will remain in default even if she enters an IDR and faithfully makes monthly payments for the next quarter century.

Photo credit: lend.edu


References

McDade v. Direct Subsidized Consolidated Loan, Case No. 15-bk-52, Adv. Proc. No. 15-ap-27 (Bankr. N.D. Va. 2017).

McDowell v. Educational Credit Management Corporation, Bankruptcy Case No. 10–40845–JDPAdv. Proceeding No. 14–08005–JDP, 2016 WL 2603552 (Bankr. D. Idaho 2016).


Columbia rolls out one-year master's program in data journalism that costs $147,000: An Ivy League school stoops to flim-flam

Columbia University is an Ivy League school with one of the top journalism programs in the country. Perhaps that is why Columbia thinks it can get away with rolling out a new one-year master's degree program that will cost students $147,000 (including living expenses).

Why would anyone invest $147,000 for a one-year program in journalism when the job market for journalists is shrinking and the annual median wage for journalists is less than $40,000?

Giannina Segnini, the director of Columbia's Cadillac program in data journalism, argues that the Trump presidency justifies both the new degree and apparently its cost:
Journalists are facing the challenge of covering one of the most unusual and unreliable governments in modern history: President Trump disseminates lies, twisted facts, and changes in policy in real time through his Twitter account . . . . Despite--or perhaps because of--all of this, investigative journalism is flourishing.
But of course it is the elite American universities that are disseminating lies, twisting facts, and changing policies to justify their obscene tuition prices. Thus far, the law schools have been the chief offenders. The average JD graduate enters a stagnant job market with $140,000 in student-loan debt. Law school tuition prices simply cannot be justified

Now a journalism school is getting in on the flim-flam game--pitching a degree in "data journalism" at an inflated price.

Of course anyone who falls for this pitch is a complete fool, and everyone knows that a fool can practice journalism without a master's degree from Columbia. The New York Times' op ed writers have all risen to the pinnacle of their profession, and none of them have a master's degree in data journalism.


Paul Krugman does not have a master's degree in data journalism


References

Preston Cooper, Columbia University Uses Trump To Sell $100,000 Journalism Degrees, Forbes.com, August 10, 2017.

Nick Roll, $147,000 for a One-Year Master's? In Journalism? Inside Higher ED, August 11, 2017.

Giannina Segnini, Data Empowers Journalism Independence in Trump's Era, Columbia Journalism Review, August 3, 2017.




Wednesday, August 9, 2017

Disabled Veteran wins stipulated discharge of student loans in a California bankruptcy court: "Snap out of it!"


The Department of Education has said publicly that it will discharge student-loan debt of people who are disabled. Unfortunately, the right hand sometimes does not know what the left hand is doing. Thus, some disabled people who defaulted on their student loans are still being hounded by the Department of Education or one of its debt collectors.

Jaime Clavito, a disabled veteran of Filipino descent was one of those people. Jaime filed for bankruptcy in California without a lawyer in order to get his student loan debt discharged (about $100,000). DOE opposed him in bankruptcy court, and a trial date was set.

At some point, however, DOE looked closely at Mr. Clavito's evidence and agreed to a stipulated discharge of his student-loan debt.

It is not clear from the record why DOE agreed to a discharge of Jaime Clavito's loans just a few days before trial. DOE's short stipulated agreement to a discharge is only two sentences long and says this:
Pursuant to the agreement of the parties, the United States Department of Education consents to entry of judgment granting a discharge of the plaintiff's student loans pursuant to 11 U.S.C. sec.523(a)(8), each party to bear their own attorney fees and costs. The parties request an order from the Court approving the stipulation and taking the trial (set for 8/14/2017) off calender.
I think, however, the DOE attorneys became convinced that Jaime was entitled to a discharge when they saw the evidence he filed showing that he is disabled.

It is unfortunate that Jaime Clavito's case was resolved so close to the trial date. Being in litigation against the federal government is undeniably stressful, and Jaime Clavito must have endured months of anxiety before finally obtaining his discharge.

Jaime Clavito's victory is similar to the victory Richard Precht won last year, when DOE stipulated to a discharge of his student loans. Like Mr. Clavito, Mr. Precht had a very strong case. He was living on only $1200 a month and his Social Security checks and small pension payments were being garnished.

DOE's first response to Mr. Precht's lawsuit was to file a motion to strike his complaint. Eventually, however, a DOE attorney looked at Richard Precht's voluminous evidence and signed a stipulation agreeing to a discharge of Richard's student loans.

What doe these two cases tell us? Two things.

First, people who have been officially determined to be disabled and people who are living below the poverty line on Social Security income are entitled to have their student loans discharged.  DOE is on record that it will discharge student loans by people who are disabled. As far as I know, DOE has no official policy to consent to discharges for impoverished Social Security recipients, but these people's cases are so strong, I don't think DOE will fight them.

Second, disabled people and people whose Social Security checks are being garnished may have to get DOE's attention in order to get their student loans discharged. DOE initially opposed student-loan discharges for both men, and they both had to file adversary proceedings in bankruptcy court before DOE woke up and agreed to discharge their loans.

People in Mr. Clavito and Mr. Precht's position remind me of that famous scene in Moonstruck, when Ronny Cammareri (played by Nicholas Cage) professes his undying love to Loretta Castorini (played by Cher). Loretta reminds Ronny that she is engaged to be married to Ronny's brother Johnny, but Ronny persists.

Finally, Loretta slaps Ronny hard across the face and yells, "Snap out of it!"

That's basically what Mr. Clavito and Mr. Precht did. By filing for bankruptcy, they figuratively slapped the DOE lawyers across the face and yelled, "Snap out of it."

So if your financial situation is similar to that of Mr. Precht and Mr. Clavito, you need to gather your evidence and file for bankruptcy. Then you need to file an adversary lawsuit against DOE or the debt collector who holds your debt and ask the bankruptcy judge to discharge your student loans.

When you do that, you will be slapping the Department to Education hard across the face. "Snap out of it,!" you will be saying. And I think that will feed pretty good.

References

Jillian Berman. Why Obama is forgiving the student loans of almost 400,000 people. Marketwatch.com, April 13, 2016. Accessible at http://www.marketwatch.com/story/why-obama-is-forgiving-the-student-loans-of-nearly-400000-people-2016-04-12


Clavito v. U.S. Department of Education, Adv. Proceeding No. 16-02238-B (E.D. Cal. Aug. 8, 2017) (Stipulation For Entry of Judgment Against The United States Department of Education).

Clavito v. U.S. Department of Education, Adv. Proceeding No. 16-02238-B (E.D. Cal. Aug. 8, 2017) (judgment signed by Bankruptcy Judge Christopher Jaime).


Precht v. U.S. Department of Education, AD. PRO. NO. 15-01167-RGM (E.D. Va. 2016) (consent order).

Press Release of U.S. Department of Education, U.S. Department of Education to Protect Social Security Benefits for Borrowers with Disabilities, April 12, 2016, accessed August 9, 2017.

Michael Stratford, Feds May Forgive Loans of Up to 387,000 BorrowersInside Higher Ed, April 13, 2016.

Sunday, August 6, 2017

Public Philosophy Network boycotts Texas: Oh, the awful humiliation!

Hey you don't know me, but you don't like me
You say you care less how I feel
But how many of you that sit and judge me
Have ever walked the streets of Bakersfield?

Streets of Bakersfield

Dwight Yoakam and Buck Owens 

The Public Philosophy Network joined The Association of American Law Schools and the state of California in boycotting the state of Texas. The PPN announced that it is moving its 2018 conference from Denton, Texas to Boulder, Colorado.
  
 Why? The group opposes the Lone Star State's immigration policies and a new Texas adoption law, which, the PPN maintains, discriminates against gay people. "The basis of publicly engaged philosophy is the absence of barriers to participation," Robert Frodeman, a PPN spokesperson, explained. "Every person should feel welcomed regardless of their [sic] place of origin, sexual orientation or gender identity."

And besides, Frodeman might have added, the restaurants in Boulder are better than the ones in Denton, Texas.

I have a couple of thoughts about this latest boycott of Texas:

First, who gives a damn if a gang of knucklehead philosophers decides to hold its wingnut conference in Colorado instead of Texas? Philosophy programs are collapsing like aluminum beer cans at universities all over the United States. I say let these nerds nurse their delusion that what they say and do is important. 

And what exactly do the PPN professors say and do? Here's a sample of the group members' scholarly interests, taken from the PPN web site.

Wendy Lee, a PPN member and philosophy professor at Bloomsburg University of Pennsylvania, listed her areas of scholarly expertise as follows: "philosophy of language (particularly later Wittgenstein), philosophy of mind/brain, feminist theory, theory of sexual identity, post-Marxian theory, nonhuman animal welfare, ecological aesthetics, aesthetic phenomenology, and philosophy of ecology." Total cost to attend Professor Lee's university for a year: $24,587.

Tadd Ruetenik, a PPN member and philosophy professor at St. Ambrose University in Iowa, described his interests to include pacifism, vegetarian ethics, and prophetic pragmatism. And what does it cost to take courses from professors like Mr. Ruetenik at St. Ambrose University? $30,000 a year, not counting room and board.

And then there's Maureen Linker, a PPN member who teaches at University of Michigan at Dearborn. Her academic interests: "Implicit Bias, Epistemic Privilege and Epistemic Injustice, Social Difference and Difficult Dialogues." What does it cost to attend Professor Linker's institutition? If you are a non-Michigan resident, it will cost you $29,000 for books, tuition and fees.

No wonder the discipline of philosophy is collapsing at American universities. Students have figured out they are paying too much to attend college to take courses from professors who specialize in vegetarian ethics and epistemic injustice.

And here' my second reflection on the PPN boycott. Although these kooky academics don't realize it, the boycott of a state based on prejudice is reminiscent of the Okie migration into California during the Great Depression.

As John Steinbeck chronicled in The Grapes of Wrath, California state police actually blockaded the state's highways and turned back Dust Bowl refugees at the California border. In the minds of many Californians, the Okies (who were actually from several Southwestern and Midwestern states) were a substandard class of humans who would pollute the pure and sunny atmosphere of the Golden State. 

My analogy is not perfect. The Californians of the Dust Bowl years were trying to keep disfavored people out of their state. Today's prejudice involves a refusal to visit a state deemed a pariah by political elites. But the prejudice is the same. And didn't Professor Frodeman, PPN's spokesperson, say his group believed people should be welcomed regardless of their place of origin?

On the other hand, the Public Philosophy Network's decision to boycott Texas may be a good thing. I'm not sure Texans would feel safe having a bunch of wacky philosophy professors roaming around the plains of North Texas, babbling about epistemic injustice, vegetarian ethics, and nonhuman animal welfare. 


Regional bigotry in the 1930s

References

Nick Roll. Philosophy Group Moves Meeting Out of Texas. Inside Higher ED, August 3, 2017, accessed August 5, 2017, 
https://umdearborn.edu/admissions/undergraduate/reasons-attend/cost-snapshot.













Saturday, August 5, 2017

The SIMPLE Act is misnamed. It's really a Federal Sharecropper Enrollment Program for Distressed Student Borrowers

Hello, Americans. If you think you got screwed by Obamacare, brace yourselves. There may be more Congressional skulduggery ahead. A gang of wooden-headed legislators has conspired to introduce a bill called the SIMPLE Act, which, if passed, will push millions of Americans into becoming sharecroppers for the government for a majority of their working lives.

In keeping with Congressional tradition, the bill is known by a tortuous acronym. SIMPLE stands for Streamlining Income-Driven Manageable Payments on Loans--cute! But let's take a look at the guts of this pernicious legislation, and we will see that a more accurate title of the bill would be the Federal Sharecropper Enrollment Act:

If enacted into law, this is what the SIMPLE Act will do:

First, the bill authorizes the Internal Revenue Service to automatically recertify the income of student borrowers in income-driven repayment plans (IDRs).

Second, the bill allows the government to automatically enroll delinquent student borrowers into IDRs. The enabling language is complicated, bu this is how Representative Ryan Costello (one of the bill's cosponsors) described an earlier iteration of the bill in 2016:
Under our bill, the Department of Education would auto-enroll certain borrowers who have missed payments into a lower monthly payment plan in order to reduce administrative burdens and decrease the risk of those borrowers being placed into more expensive plans. 
Admittedly, the bill has some good features. It makes sense for the IRS to certify the annual income of IDR participants rather than force the borrowers to do it themselves. In fact, the Government Accountability Office noted last year that about half the people in IDRs get kicked out of those plans for failing to certify their income on an annual basis.

Second, automatically putting delinquent borrowers in IDRs with lower monthly payments is sensible if the alternative is default. And the bill allows borrowers to opt out of being placed in an IDR.

But here's the overarching problem with the SIMPLE Act.  The bill assumes the status quo for the federal student loan program, and its only solution for people who are overwhelmed by their student loans is to shove them into twenty- or twenty-five year repayment plans.

In other words, the SIMPLE Act is streamlining the process of transforming student borrowers into sharecroppers--bound to pay the government a percentage of their income for the majority of their working lives.  And most people in these plans will be making payments so low they won't even be servicing their interest. People in IDRs will see their debt grow larger with each passing year even if they faithfully make payments for a quarter of a century.

The SIMPLE Act is not a solution to the student loan crisis. Basically, its a form of accounting fraud that maintains the fiction that people are paying back their student loans when in fact almost everyone in these plans will never pay off their student loans.

How will Americans react to being transformed into sharecroppers for Uncle Sam? Not well, I predict. Eventually, student borrowers will rise up in fury. Let's hope they vent their anger at the ballot box and not in destructive acts of desperation.

Look on the bright side. We only have to do this for 25 years. 


References

Andrew Kreighbaum. Bipartisan Legislation Tackles Student Loan Defaults. Inside Higher ED, August 4, 2017.

Press release of Representative Suzanne Bonamici. Bonamici, Costello Introduce Bill to Reduce Student Loan Defaults. September 8, 2016.

Tuesday, July 25, 2017

National Collegiate Student Loan Trust's student loans may be uncollectible against California co-signers: Sweet!

National Collegiate Student Loan Trust (NCSL)has been in the news lately. The New York Times recently broke a story about NCSL's efforts to collect on the defaulted student loans it holds. According to the Times, NCSL holds $12 billion in private student loans, and more than 40 percent of those loans ($5 billion) is in default.

Squadrons of NCSL attorneys have fanned out across the United States to sue student-loan defaulters, but they have been running into trouble. In case after case, judges have thrown NCSL's collection lawsuits out of court because NCSL can't produce the paperwork to show that it owns the debt.

And now, in California,  NCSL faces another obstacle to its debt-collection efforts. An obscure  California statute may make it impossible for NCSL to collect against co-signers on private student loans taken out in the Golden State.

Section 1799.91 of the California Civil Code requires lenders to provide loan co-signers with a specific written notice that warns them of the risk they take when they co-sign a loan. The warning states:
You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn't pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.

You may have to pay the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increases this amount.
 The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become part of your credit record.
Importantly, California law requires co-signers to acknowledge receipt of the statutory warning by signing their names below the cautionary message.
National Collegiate Student Loan Trust requires most of its student borrowers to obtain co-signers on their loans; and reportedly, most NCSL loans do not contain the California statutory warning. The combination of missing documents and the California co-signer statute may make it virtually impossible for NCSL to collect on defaulted student loans in California. Moreover, when NCSL borrowers in California find out that their student loans may be uncollectible, it seems inevitable that more of them will default.

Of course no one should encourage a solvent debtor to welsh on a lawful debt. People who took out private loans held by NCSL should pay them back if they have the ability to do so. But the banks made it virtually impossible for destitute private student-loan borrowers to discharge their private college loans in bankruptcy when they lobbied Congress to pass the so-called Bankruptcy Reform Act of 2005. Now, at least, hard pressed student-loan defaulters have some defenses if they get sued by NCSL--particularly in California.

I am grateful to Steve Rhode for alerting me to this important development. Mr. Rhode wrote on this issue in the Get Out of Debt Guy blog site.  I'm also grateful to California attorney Christine Kingston for calling Steve's attention to the California co-signer statute and its significance for student-loan debtors.

 References

Stacy Cowley and Jessica Silver-Greenberg. As Paperwork Goes Missing, Private Student Loan Debts May Be Wiped Away. New York Times, July 17, 2017.

 Steve Rhode. California Student Loan Co-Signer Statute Helps to Kill Student Loan Debt. Get Out of Debt Guy, July 25, 2017.











Monday, July 24, 2017

Association of American Law Schools joins California in Boycotting Texas: Silly Prigs

The Association of American Law Schools recently announced that it is boycotting Texas and moving its 2018 conference on clinical legal education from Austin to Chicago. Why? The AALS is displeased with a couple of statutes passed recently by the Texas Legislature.

I have a few comments to make about the AALS's fatuous tantrum against Texas.  First, AALS's action is a gratuitous insult to a state with a long history of progressive government and tolerance. As I said in an earlier blog, Texas is the nation's second largest economy; and its population is booming because the state offers jobs, relatively inexpensive housing, and decent public schools. It has one of the finest state universities in the United States, and it is sheltering literally millions of immigrants from all over the world.

It was Texas, after all, that accepted a quarter of a million refugees from South Louisiana after Hurricane Katrina devastated New Orleans in 2005.  Houston alone absorbed 150,000 Katrina victims; and the city did it with a smile and a howdy.

Illinois, on the other hand, where the AALS is moving its clinical legal education conference, is  a basket case.According to the Chicago Tribune, Illinois has lost more population than any other state for the last three years in a row.

Illinois' financial affairs are in shambles; its property taxes are outrageously high, and the state has billions of dollars in pension obligations that it will never repay. In short, Illinois is looking  less and less like a state and more and more like a banana republic. 

And Chicago, where the AALS's 2018 CLE conference will take place, is one of the most dangerous cities in America--more than 2,000 shooting victims this year and almost 400 murders! And the year's still young.

Second, the AALS has joined a pernicious trend that the state of California has made fashionable. California now bans state-funded travel to eight American states--including Texas. Where will this end? Is America going to collapse into a loose affiliation of warring political entities like the Italian city states of medieval Europe?

Finally, AALS's condescending attitude toward Texas seems singularly inappropriate in light of the shameful way American law schools have behaved over the last 20 years. Year after year, the law schools have brazenly raised their tuition rates even while the market for new lawyers has collapsed.  The law schools have drastically lowered admissions criteria in order to keep their enrollments up, and some law schools have standards so  low that half their students are in danger of failing the state bar exam.

American law school graduates now hit the job market with an average debt load of $140,000; and a significant percentage of the ones who graduate from bottom-tier law schools fail the bar.

In fact, Southern Illinois University's law school, in the state where the AALS will squat for its 2018 legal education conference, is near the bottom of the barrel.  According to Law School Transparency, LSAT scores for SIU's 2014 cohort are so low that 25 percent of the graduates from that cohort are at EXTREME RISK of failing the bar.  Cost to attend SIU Law School: $145,000.  USI's 2015 bar pass rate: about 70 percent.

Do you think the AALS nabobs will be talking about their own moral crisis at their conference in Chicago? Not bloody likely. 

So here's some friendly advice to all you self-righteous prigs who enjoy thumbing your noses at the Lone Star State. Be nice to the Texans, because when the national economy collapses--and it will collapse--it will be Texas that rises most quickly from the rubble; and you might be looking for a job in the state you now despise.

And after we sack Pisa let's boycott Texas.


 References

Elyssa Cherney and Elvia Malagon. Nearing 400, homicides in Chicago continue to outpace last yearChicago Tribune, July 24, 2017.

 Marwa Eltagouri. Illinois loses more residents in 2016 than any other state. Chicago Tribune, December 21, 2016.

Richard Fossey. California bans state-funded travel to Texas: Frankly, my dear, Texans don't give a damn. Condemned to Debt, June 27, 2017.

Nick Roli. Law School Group Ditches Texas Conference. Inside Higher Ed, July 24, 2017.







Thursday, July 20, 2017

Building a Better America Budget A Laugh for Student Loans: Great Essay By Steve Rhode

The House Budget Committee has just rolled out a first pass at a new federal budget titled Building a Better America.

People dealing with student loans had better start thinking quickly and clearly if their political ideology is more important than the future of student loan debtors.
Here are a couple of choice sections.
“The Federal Government holds most student loan debt; as of the first quarter of 2017, its portfolio was $1.29 trillion, up from roughly $516 billion in fiscal year 2007. As Federal lending consumes an ever-larger share of the student loan market, it crowds out private and other lenders that may have better products to meet borrowers’ needs.”
It would appear the argument is the government wants to get out of the student loan market and drive more people to private student loans which don’t have any of the payment options, forgiveness programs, or helpful options federal loans have.
“Account for the True Costs of Student Loans. By statute, the government’s accounting procedures for assessing the costs of student loan programs do not incorporate market risk. For example, borrowers may have trouble finding a job and repaying loans in an economic downturn. To measure student loan program costs, the budget recommends using fair value accounting, which does assume such market risk.”
While the budget may recommend fair value accounting, the Department of Education is busy trying to gut regulations protecting students from underperforming schools which lead to failed educations and problem debt. The administration can’t have it both ways.
“In areas such as health care, welfare, environmental regulation, education, workforce development, and transportation, we put federal spending on a budget and empower the states, which are best suited to address the individual needs of their citizens and communities.”
I get the philosophy of returning more responsibility to the states but won’t this just create an inequity in the ability of individuals to plan for education when there may be a patchwork of education initiatives by state instead of one federal regulation when it comes to student loan and education issues?
“Simplify and Streamline Higher Education Programs and Financing to Protect Students and Taxpayers. The current Federal aid system is complicated and time-consuming for students and parents trying to make higher education financing decisions. In addition to Federal grant aid, six loans, nine loan repayment plans, eight loan forgiveness programs, and 32 options for loan deferment and forbearance exist. Each program has different eligibility criteria and terms. The budget envisions a simplified, transparent, and fiscally sustainable aid system. Principles for reform include more transparency for loans and repayment plans, removing perverse incentives to over-borrow, consolidating the array of programs, and protecting taxpayers.”
While it is possible that some changes could be made in the loan options, forgiveness programs, and repayment options, the key question here in a budget that is poised to trim costs is what will be cut and eliminated? The administration has already indicated they would like to like to change income driven repayment programs to make them shorter but have higher monthly payments. The Trump administration also would like to make wholesale changes or eliminate forgiveness programs like the Public Service Loan Forgiveness program.
I’d love to hear your opinion. Do you think the changes proposed in this budget will help to make American education great again? Post your comments below.

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This essay by Steve Rhode first appeared in  Get Out of Debt Guy on July 18, 2017. To learn more about Steve Rhode, click here.

Wednesday, July 19, 2017

Missing Paperwork for Private Student Loans May Make Them Uncollectible: Boo Hoo!

Some debt collectors for private student loans are finding it difficult to collect because they can't prove they actually own the debt.  According to the New York Times, "Judges have already dismissed dozens of lawsuits against former students, essentially wiping out their debt, because documents proving who owns the loans are missing."

A little background. The federal government is the largest student-loan lender; it now holds $1.4 trillion in outstanding federal-loan debt.  But there is also a smaller private student-loan market. About $108 billion is private student loans is held by banks and private financial agencies like Sallie Mae.

National Collegiate Student Loan Trusts, an umbrella name for 15 trusts, holds about $12 billion of the total private student-loan debt. More than 40 percent of that debt--$5 billion--is in default; and National  Collegiate has been aggressively pursuing defaulters in court. According to the Times, the trusts brought 800 collection cases last year--an average of 4 a day.

But National Collegiate has a big problem: when it goes to court it often cannot prove it is legally entitled to collect on the debt. How did that happen?

Many of these student loans were taken out more than 10 years ago by dozens of private banks. These loans were then bundled together into securities and sold to investors. A lot of this debt was sold and resold several times before it wound up in the hands of National Collegiate's trusts.

Somewhere along the way, a lot of important paperwork got lost, and now National Collegiate often can't prove it owns the underlying debt it seeks to collect. As a result hundreds of its debt collection cases have been thrown out of court. Boo hoo!

This is essentially the same problem that arose during the home mortgage crisis of 2008. Home mortgages were packaged into asset-backed securities and then sold and resold to various investors. When the loans went into default, the owners of the repackaged mortgages often could not prove they were entitled to collect the debt.

I have a few comments on National Collegiate's troubles.

First, the federal government doles out $150 billion a year in student aid. No one should be going to private lenders for student-loan money. If the higher education industry had any integrity, it would discourage students from taking out private loans. But our rapacious colleges and universities don't care if their students are taking out private loans to pay tuition.

Second, the private student-loan market grew after Congress passed the so-called Bankruptcy Reform Act of 2005, which made private student loans nondischargeable in bankruptcy unless the borrower could prove undue hardship. The banks know that their student-loan customers will find it almost impossible to discharge their private loans in bankruptcy.

Third, the banks have further protected themselves against losses by requiring student borrowers to find co-signers for their student loans. Millions of parents and grandparents have cosigned private loans for their relatives and are liable to repay them if the student defaults. And bankruptcy isn't an option for grandma or grandpa because they too are subject to the undue hardship rule.

In short, the private student loan industry is a sleazy business and ought to be shut down. Congress could close this industry almost overnight if it repealed the undue hardship standard in the 2005 Bankruptcy Reform Act.  And colleges and universities could help shut the industry down if they would publicly discourage their students from taking out private loans.

Personally, I don't give a damn if National Collegiate and its investors lose a ton of money because they don't have the paperwork proving they own the student loans they purchased.  After all, National Collegiate is a sophisticated party. If it purchased debt without obtaining the necessary documents proving ownership, it deserves to have its collection cases thrown out of court.



References

Stacy Cowley and Jessica Silver-Greenberg. As Paperwork Goes Missing, Private Student Loan Debt May Be Wiped Away. New York Times, July 17, 2017.







Saturday, July 15, 2017

A single mother of three children gets a bankruptcy discharge of her student loans: Price v. Betsy DeVos and U.S. Department of Education

Kristin Price, a single mother of three young children, won an important victory in a Pennsylvania bankruptcy court last month. On June 23, Judge Eric Frank issued an opinion discharging all of Ms. Price's federal student loans--approximately $26,000. This is another win for the good guys.

Price v. DeVos and the U.S. Department of Education: A single mom files for bankruptcy

At the time of trial, Ms. Price was 29 years old and had three children ages 3, 5 and 11. Although she was still married, she was separated from her husband and anticipated a divorce.

Price obtained a Bachelor of Science degree in Radiology Science from Thomas Jefferson University in 2011, financing her studies with federal and private loans.  At the time of trial, she worked part-time as a vascular sonographer but was unable to find full-time work in her field. She testified she could obtain a second part-time job working outside her field but the additional child care costs did not justify that option.

Price received informal child support from her estranged husband, but her reasonable expenses still exceeded her income. She testified that she lived with her mother in return for paying her mother's mortgage payment--about $1400 a month.

At the time Price filed her adversary complaint in the bankruptcy court, she owed nearly $26,000 in federal loans and $30,000 to Chase Bank.  Price settled with Chase prior to trial. Thus the only issue before Judge Frank was whether Price was entitled to have her federal loans discharged.

Judge Frank applied the three-part Brunner test to rule for Ms. Price

Judge Frank applied the three-part Brunner test to decide Price's case. The Department of Education conceded that Price passed the first prong of the Brunner test; she could not pay back her federal loans and maintain a minimal standard of living.

The Department also conceded that Price passed Brunner's third prong. It acknowledged that she had handled her student loans in good faith.

But DOE argued that Price could not pass Brunner's second prong. According to DOE, Price could not show additional circumstances making it likely that her financial situation would not improve "for a significant portion of the repayment period of the student loans." Basically, DOE maintained that Price was young and healthy and was qualified for a good job in the medical field. Eventually, DOE pointed out, Price's children would grow up and leave the home, which would enable Price to get a better job and repay her student loans.

And here is where Judge Frank's opinion gets interesting. Price argued that her future financial prospects should be considered for no longer than the remaining period of her 10-year loan repayment obligation, which ended in 2024. DOE argued that Judge Frank should consider Price's financial prospects for a much longer time--the 20- or 25-year period of an income-based repayment plan.

Fortunately for Price, Judge Frank did not buy DOE's argument. The judge ruled that Price had rejected a long-term income-based repayment plan in good faith; and thus he would consider her financial prospects based on the terms of her ten-year repayment obligation and not the 20 or 25 years DOE requested.

Judge Frank said he was obligated to consider Price's future financial prospects based on "specific articulable facts, not unfounded optimism." If he were required to consider Price's financial situation over a 20- or 25-year term, Judge Frank reasoned, his determination "[would] be nothing more than mere guesswork, without any reasonable degree of certitude."

Moreover, Judge Frank pointed out, DOE's own expert testified that DOE's 20-year REPAYE program was ill-suited for Price and that he would not recommend it for her. Judge Price also noted that a REPAYE plan would require Price to consolidate her debt, which would cause accrued interest to be capitalized into a larger loan balance--meaning she would be "paying interest on interest."

If Price's meager income did not improve significantly in later years, Judge Frank explained, her loan would eventually "reach a kind of 'escape velocity,'" meaning that her monthly payments would not be enough to cover accruing interest and her loan balance would grow "for the next several decades."

Based on this analysis, Judge Frank then considered what Price's financial prospects would likely be over the next five years--about 70 percent of the remaining repayment period. The judge concluded Price would probably be unable to pay back her loans over that period.

In short, after applying the second prong of the Brunner test to Price's financial outlook, the judge discharged all of Price's federal loans.

Without question, the heart of Judge Price's ruling was based on his conclusion that Price had rejected a long-term payment period in good faith. And of course, his decision was made a lot easier due to the fact that DOE's own expert admitted that a long-term repayment plan was not appropriate for her.

What does the Price decision mean for other overburdened student-loan debtors?

 Judge Frank's Price decision is significant for at least three reasons:

 First, this is the most recent in a string of bankruptcy court decisions that have discharged student-loan debt owed by single mothers with dependent children. Price follows in the wake of Lamento, Acosta-Conniff (on appeal), Fern, and McDowell--all decisions involving single mothers with children who won discharges or partial discharges of their student loans.

Second, this is the latest in a series of very well-reasoned bankruptcy court decisions in which bankruptcy judges have worked hard to grant relief to overburdened debtors within the harsh constraints of the Brunner test. Judge Frank's decision was 25 pages long; Judge Berger's decision in the Johnson case out of Kansas was extensively researched. The Abney decision, the Fern decision, and several more have displayed remarkable intellectual agility and commendable commitment to the bankruptcy courts' core purpose, which is to grant overburdened debtors a fresh start in life.

Third, Judge Frank ruled that when a court applies the second prong of the Brunner test to determine whether  a debtor's financial prospects will improve in the future, the appropriate time period for consideration is the original term of the loan (generally 10 years) rather than the extended term of a hypothetical 20-year or 25-year income-based repayment plan.

Admittedly, Judge Frank's conclusion on this last point is a little fuzzy. Price had refused to sign up for a long-term, income-based repayment plan, and Judge Frank ruled that Price's decision to reject such a plan had been made in good faith. Judge Frank might have ruled differently if Price had signed up for a 20-year REPAYE plan before filing for bankruptcy.

Indeed, the judge wrote that the "outcome may well be different in other cases in which the extended loan repayment programs present a more attractive option, or for other appropriate reasons." And the judge also noted that DOE did not dispute the fact that Price's decision to reject a long-term repayment plan had been made in good faith.

In the final analysis, all we can say for sure about the Price decision is this: A healthy 29-year old mother of three children with good future job prospects won a bankruptcy discharge of her student loans based primarily on the fact that her judge did not think Price would be in a position to repay her loans over the next five years.

Personally, I would have liked the Price decision better if Judge Frank had said that a student-loan debtor's financial prospects should always be limited to the term of the original student loan--generally no more than 10 years. That's not what the judge ruled. Nevertheless, it is a good decision for student-loan debtors.

References



Acosta-Conniff v. ECMC [Educational Credit Management Corporation], 536 B.R. 326 (Bankr. M.D. Ala. 2015), reversed550 B.R. 557 (M.D. Ala. 2016), reversed and remanded, No. 16-12884, 2017 U.S. App. LEXIS 6746 (11th Cir. Apr. 19, 2017).
Richard Fossey & Robert C. Cloud. Tidings of Comfort and Joy: In an Astonishingly Compassionate Decision, a a Bankruptcy Judge Discharge the Student Loans of an Alabama School Teacher Who Acted as Her Own Attorney. Teachers College Record, July 20, 2015. ID Number: 18040.

In re Lamento, 520 B.R. 667 (Bkrtcy. N.D. Ohio 2014).

Price v. U.S. Department of Education, ky. No. 15-17645 ELF, Adv. No. 16-0011, 2017 Bankr. LEXIS 1748 (Bankr. E.D. Pa. 2017).


McDowell v. Educational Credit Management Corporation, 549 B.R. 744, 774 (Bankr. D. Idaho 2016).