Tuesday, November 28, 2017

Wells Fargo Facing Penalties Over Ignoring Student Loan Included in Bankruptcy. Essay by Steve Rhode

By Steve Rhode.  November 27, 2017
One of our very own student loan attorneys, Austin Smith, recently scored an important victory on a Wells Fargo student loan.
Austin said, “I confess when we filed this case, I was hoping Wells Fargo would quickly see that we were right, acknowledge the mistake, and fix it. And naively, I thought they might be willing to sit down and fix the problem for all their customers. Everybody makes mistakes, and this could have been a real opportunity for Wells to prove that they’ve changed their business culture. But now I fear that Wells Fargo has no intention of changing its culture or business practices despite their public protestations to the contrary over the last year. They have dug in their heels on this issue, and seem intent to keep doing what they’re doing, which is plainly a violation of the bankruptcy laws.”
In 2007 Ryan, the consumer, filed for bankruptcy. Following the bankruptcy Wells Fargo Bank sued Ryan and obtained a state court judgment to collect on the debt. Ryan had attended Capella University, a for-profit school.
Attorney Austin Smith jumped into the fray as part of a team and last year he reopened the case and sued that the debt had in fact been discharged and sought punitive damages for discharge violations.
In this case, Educational Financial Services, a division of Wells Fargo Bank, tried to make the argument the loan was not actually discharged in the 2007 bankruptcy.
When Wells Fargo sued Ryan in State Court to collect on the student loan debt included in Ryan’s bankruptcy they made no mention of Ryan’s previous bankruptcy and discharge. The consumer felt subsequently pressured into entering a consent judgment over the debt in 2008 and made monthly payments of $150 on the loan for the next seven years.
Finally fed up Ryan found legal help to reopen his previous bankruptcy case to commence an adversary proceeding and have this matter dealt with once and for all.
The valid point raised by Ryan, the Plaintiff, was “that the loans from Wells Fargo were discharged by operation of law on November 29, 2007, because the loans were not a student debt protected by any subsection of Section 523(a)(8).” More on this technical issue can be found here.
The Judge ruled that even though Ryan had previously repaid the debt through the State Court judgment he was not prevented from reopening his bankruptcy and filing an adversary proceeding to rule on the discharge of his non-protected private student loan debt. The issue at hand was if Ryan’s discharge had been violated because the loans were not student loans under Section 523(a)(8).
And while the Court said “Section 523(a)(8) is self-executing, a student loan debt is non-dischargeable absent a determination.” The Court also said, “However, the self-executing nature of Section 523(a)(8) is premised on the debt actually being one for a student loan, a determination that was not previously made by this Court or the State Court which had concurrent jurisdiction to do so.” – Source
This is why it is so important for anyone who includes student loans in a bankruptcy to pursue an adversary proceeding to get a ruling on the dischargeability of the loans. This key step is one that often gets overlooked.
Judge John Gregg ruled Wells Fargo could not easily have the Plaintiff’s complaint dismissed and the issue would have to proceed. As you can imagine, Wells Fargo has appealed the Judge’s ruling and hopes to get a different answer on appeal. – Source
In the appeal Wells Fargo raises the point Ryan’s loans should not be discharged because “he obtained funds from Wells Fargo and the government in excess of the cost of attendance.” But shouldn’t that be the job of Wells Fargo to determine? Because if private student loans are extended for more than the cost of attendance, all or part of the loans can be discharged thru bankruptcy.
Wells Fargo is most likely in a hurry to get this matter resolved in their favor because if they are found to have pursued the alleged discharged private student loan debt they could be facing a precedent and financial consequences.
Ryan’s amended complaint they are trying to get tossed out summarizes the issue at the heart of this case. It says, “Not all student loans are presumptively non-dischargeable in bankruptcy. In fact, the term “student loan” appears nowhere in section 523(a)(8). Instead, section 523(a)(8) makes certain educational debts presumptively non-dischargeable, including government issued educational loans, defaulted conditional government grants and scholarships, certain loans from non-profit institutions, and private education loans that are qualified education loans under the tax code. Section 523(a)(8) does not except from discharge a host of other types of traditional private, credit-based loans couched as “student loans” by for-profit lenders, including loans for K-12 programs, loans made to students at unaccredited trade schools, loans made for alcohol and drug rehab, and loans made in excess of the “cost of attendance.” This is reinforced by the plain language of the discharge order, which states that debts for “most student loans” are non-dischargeable. If debts for “all student loans” are presumptively non-dischargeable, then more than 10 million discharge orders have been issued with an erroneous legal conclusion since 2005.” – Source
The complaint also states, “Given Wells Fargo’s actual and constructive knowledge of the timing of the Plaintiff’s loans, the “cost of attendance” at Capella University, and the nature of the Loans it extended to the Plaintiff, Wells Fargo knew or should have known that the Loans were discharged in the Plaintiff’s bankruptcy.”
This is an interesting case and I can’t wait to get the final ruling after a lot more expensive court time. We’ll have to keep our eye on this one.
*****
Steve's essay was originally posted on The Get Out of Debt Guy web site.
Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here. 

Monday, November 27, 2017

Representative Alma Adams urges limited loan forgiveness for Charlotte Law School Students: Adams' plea does not go far enough

Representative Alma Adams, Democratic congresswoman from North Carolina, wrote a letter to Secretary of Education Betsy DeVos, urging DeVos to forgive student loans held by students who attended Charlotte School of Law (CSL) from December 2016 until the school was shut down last August.

Representatives G.K. Butterfield and David Price, also from North Carolina, joined Adams in the letter.  The three laid out a seething indictment of CSL, which has been in trouble for a couple of years. The American Bar Association put CSL on probation in October 2016 for misrepresenting the law school's accreditation status and bar passage rates. And the Department of Education yanked the school's eligibility for federal student aid a few months later. Finally, in August 2017, the North Carolina Board of Governors pulled CSL's license to operate--dealing a death blow to the school.

 Without question, CSL was a train wreck. The troubled school had high dropout rates and abominable bar passage rates. Only about a third (35 percent) of CSL graduates passed the North Carolina bar exam in February 2016, compared to 51 percent statewide.  According to Adams and her colleagues, this passage rate would have been even lower if the law school had not paid CSL students not to take the exam. Moreover, the North Carolina legislators alleged, CSL students racked up an average of $200,000 in student-loan debt. Those who were enrolled when the school closed have little hope of having their credits accepted at another law school.

Under current Department of Education regulations, students are eligible for student-loan forgiveness if they were enrolled at a school at the time it closed or up to 120 days prior to closure. The regulations give the Education Secretary the authority to extend the 120-day enrollment requirement if circumstances warrant; and Adams and her colleagues asked DeVos to grant loan forgiveness to all students were enrolled at CSL from December 2016 until the day it closed.

Representatives Adams, Butterfield and Price are to be commended for seeking relief for recent CSL students, but their petition does not go far enough. In my view, every student who attended CSL from the day it opened until the day it closed should be granted student-loan forgiveness--without exception.

Before it shut down, CSL was one of the worst law schools in the United States by almost any measure. Based on metrics developed by Law School Transparency, a public interest law-school monitoring organization, 50 percent of CSL's 2014 entering class ran an "extreme" risk of failing the bar exam, and additional 25 percent ran a "very high" risk of failing the exam.

And it fact, less than half of CSL's 2015 graduating class passed the bar. Moreover, less than 25 percent of its 2016 graduates obtained full-time law jobs; and the law school's underemployment rate for that class was 58.8 percent.

Without question, a lot of former CSL students believe they were defrauded by their law school. According to an Inside Higher Ed story, more than 500 former students filed "borrower defense" claims based on allegations of fraud, and several class-action suits have been filed against the school.

Based on CSL's abysmal record, the only fair thing DeVos can do is wipe out all student-loan debt for every individual who took out student loans to attend CSL. And then DOE needs to take a close look at the other for-profit law schools that are still operating. All law schools with bar pass rates below 50 percent should be closed.

Rep. Alma Adams (in hat). Photo credit: Scott Applewhite AP


References

William Douglas. N.C. Democrats urge Charlotte Law School student loan forgivenessThe News & Observer, November 6, 2017.

Andrew Kreighbaum, Department Lays Out of Options for Charlotte StudentsInside Higher ED, August 25, 2017.

Andrew Kreighbaum, The Slow Death of a For-Profit Law SchoolInside Higher Ed, August 16, 2017.







Saturday, November 25, 2017

UC Berkeley students on food stamps: Are college students really suffering from "food insecurity"?

According to the media, more and more college students are going hungry.  Many universities are organizing food pantries to feed students suffering from "food insecurity."

The San Francisco Chronicle reported recently that more than 500 UC Berkeley students have applied for food stamps so far this year--up from only 111 during all of 2016. Thousands of UC Berkeley students rely on the university's food pantry; 1,549 students obtained donated food there during the month of September alone.

What's going on? Today, the typical college graduate is burdened with $37,000 in student loans. How can students borrow so much money to finance their studies and yet go hungry?

Here are my reflections on food insecurity at American colleges.

First, college students have struggled to feed themselves for more than a hundred years. Dorothy Day, for example, the founder of the Catholic social justice movement, wrote of going hungry during her college days at the University of Illinois back in 1914-1916. "At night," she wrote, "I could study in the university library. When I went back to my room I had to go to bed immediately, and when I was cold and hungry it was hard to get up in the morning."

I don't think Dorothy Day's college experience was atypical for her time. Even when I was in college more than 40 years ago, students heated Campbell's soup in their dorm-room popcorn poppers or made grilled cheese sandwiches by wrapping them in tinfoil and heating them with an electric iron.  And ramen noodles were a staple of many college students' diets.

As a college freshman, I recall eating at Griff's Drive-In with my dormmates on Sunday evenings, when Griff's sold hamburgers for ten cents each. We would pool our resources to buy 30 puny burgers (each garnished with exactly one pickle chip), and we would all eat about four.

Today, however, we have a new term--food insecurity--to describe students who live on limited budgets. Being food insecure doesn't mean students are starving; it just means they have too little to eat from time to time and are often forced to purchase substandard food (like Griff's hamburgers).

For example, the Chronicle featured one food insecure student who eats a typical lunch of "oatmeal, raspberries, chia seeds, flaxseeds, chocolate chips and coconut shavings, plus a spinach salad."  As Joseph Conrad might have put it, "The horror! The horror!"

And of course, college leaders would like the media to focus on their students' so-called "food insecurity" rather than the long-term suffering their graduates will experience when they try to pay off their student loans.  Maybe that's why Janet Napolitano, president of UC, pledged $302,000 to expand food pantries at UC campuses and help students sign up for food stamps.

Janet herself is not missing any meals. Her UC compensation was $3.7 million in 2014-2015, which makes UC's $302,000 contribution for food assistance seem puny in comparison.

 And the UC chancellors are doing OK as well. According to a 2016 newspaper report, nine UC chancellors received a total of $1.5 million in outside income for serving on various corporate boards during 2012-2014--that's in addition to their munificent salaries.

UC professors aren't worried about their next meal either. They draw handsome salaries, have top-notch health insurance, and expect to retire with generous pensions.

The reality is this. College students are not suffering unduly from food insecurity, even though some may be forced to eat spinach salads for lunch. Their suffering is in the future, when they graduate with massive student loan debt they can't pay back and can't discharge in bankruptcy. In fact, many college graduates will be eating ramen noodles for a long, long time.

References

Nanette Asimov. Many college students going hungry, need donated food groceries and food stamps. San Francisco Chronicle, November 23, 217.

Diana Lambert and Alexei Koseff. UC Davis chancellor apologizes, will donate textbook stock to student scholarships. Sacramento Bee, March 4, 2016. Accessible at http://www.sacbee.com/news/investigations/the-public-eye/article64041327.htm

Patrick McGreevy. University of California administration is paying excessive salaries and mishandling funds, state audit saysLos Angeles Times, April 25, 2017.

Monday, November 20, 2017

Law schools give most financial aid to students who need it least: Legal education is "rolling downhill like a snowball headed for hell"

To borrow a phrase from James Howard Kunstler, American law schools are going through their own private version of "The Long Emergency." Law school applications are down, enrollments are down, and the job market for attorneys continues to be terrible.

Meanwhile, tuition prices at American law schools keep going up, which means most law-school graduates begin their careers with mountains of debt. A 2015 report  by the American Bar Association found that average debt for people attending private law schools was $127,000. But average debt loads at for-profit schools is often higher than that. The average debt load for students who attended the now defunct Charleston School of Law was reportedly $200,000.

With fewer people attending law school and fewer people actually enrolling, law schools have done two things to keep their enrollments up:

First, the second- and third-tier law schools began lowering admission standards, which means more and more of their graduates are failing the bar exams.

According to Law School Transparency, some schools have admission requirements so low that half their students are at "extreme risk" of failing the bar.

Second, law schools have been investing more and more money on financial aid, hoping to lure students through their doors.

Unfortunately, most of this financial aid is going to students who have relatively high LSAT scores and who are most likely to have successful careers. Law schools are increasingly happy to admit students with low LSAT scores, but the schools are not supporting these students with adequate financial aid..

"The net effect," writes retired law professor William C Whitford, "is that lower-LSAT students are subsidizing the legal education of higher-LSAT students, when the latter are more likely to have the postgraduate income that will allow them to repay substantial student indebtedness without undue hardship."

Moreover, the law students with low LSAT scores and overall poorer credentials are likely to be less affluent than law-school applicants with high LSAT scores. As Brian Tamanaha put it in a recent book on law school admission practices, "Law schools have in effect constructed a reverse Robin Hood arrangement, redistributing resources between students making the (likely) poorer future graduates help pick up the tab for the (likely) wealthier future graduates" (as quoted by Whitford).

In short, the middle-tier and bottom-tier law schools have concocted a witches' brew of declining admission standards, inequitable financial aid policies, and high tuition costs, which is forcing the least qualified law students to take out loans that they can never pay back.

Paul Campos summarized this state of affairs in his 2012 book Don't Go To Law School (Unless). Job prospects are so poor for graduates of bottom-rung law schools, Campos warned, that some students would be better off financially if they dropped out after the first year rather than continue with their studies.

All of this is eroding the quality of American lawyers. As bar pass rates go down, the pressure is on state bar associations to lower the pass rate on state bar exams. So far, California has resisted this trend in spite of low pass rates on the California bar exam. At least two states, however--Oregon and Nevada--have caved in to pressure and lowered the pass rate on their state bar exams.

The American Bar Association bears most of the blame for this slow rolling catastrophe. It needs to close the bottom-tier law schools--both public and private. In my view, at least 20 law schools should be shut down.

Apparently the ABA doesn't have the courage to do what needs to be done to preserve the integrity of the legal profession, which, in the words of the immortal Merle Haggard, is "rolling downhill like a snowball headed for hell."  As a result, the long-term health of our democracy is being threatened by a chain of forces driven primarily be greed and cowardice.

Merle Haggard:  "Are we rolling downhill like a snowball headed for hell?"


References

Natalie Bruzda. Nevada lowers the bar for state legal exam as passage rate skids. Las Vegas Review Journal, August 2017.

Paul Campos. Don't Go to Law School (Unless) (2013).

Cathryn Rubino. Oregon Finds Out Easiest Way To Improve Bar Exam Passage Rate is To Lower Its Cut Score. Above the Law (blog), October 5, 2017.

Brian Tamanaha. Failing Law Schools (2012).

Task Force of Financing Legal Education. American Bar Association Report (2015).

William C.Whitford. Law School-Administered Financial Aid: The Good News and the Bad NewsJournal of Legal Education, 67(1) (Autumn 2017).

Sunday, November 19, 2017

House of Representatives taxes graduate students' tuition waivers: Kicking 'em while they are down

A tax bill passed the House of Representatives a few days ago, and Republican congresspeople went out of their way to show contempt for America's postsecondary students. The House bill treats tuition waivers as income, which means that American graduate students who receive these waivers will get big tax bills in the years to come if the bill becomes law in its present form.

 A great many graduate students get tuition waivers as compensation for the work they do for the universities where they pursue their studies.Some graduate students work as classroom teachers and researchers; and in return for their services the universities waive tuition. Many Americans would not be able to pursue graduate degrees if it were not for these tax-free waivers. After all, tuition at prestigious private universities is about $50,000 a year.

Under current tax law, tuition waivers are not taxable; and if the law changes, thousands of graduate students will suffer. As Erin Rousseau explained in a New York Times op ed essay, taxing tuition waivers "would make meeting living expenses nearly impossible, barring all but the wealthiest students from pursuing a Ph.D." Undoubtedly, this new tax burden would force graduate students to take out even more student loans, and many may do the math and decide that it doesn't make economic sense to get a graduate degree.

And this is not the only kick in the ribs that House Republicans delivered to American students. The House bill also eliminates the student-loan interest deduction, which allows middle-income student borrowers to get a modest tax break while they are paying off their student loans.

Millions of Americans are already suffering from staggering levels of student-loan debt; and the House bill only adds to their burdens. Instead of making life harder for students, Congress should pass legislation that will relieve some of their distress.  For example:

  • Congress should pass a law barring the government from garnishing the Social Security checks of elderly student-loan defaulters.
  • The tax code needs to be amended so that student borrowers on income-driven repayment plans don't get tax bills for forgiven debt when their long-term repayment plans are complete.
  • Student-loan debt collectors should be brought under control and some limit should be placed on the amount of fees and penalties that can be assessed against debtors who default on their loans.
But Congress isn't doing anything to ease the suffering of student borrowers. Instead, the House of Representatives passed a bill to raise their taxes!

Congress should be careful.  Forty-four million Americans are weighed down by student-loans. That's a big voting block if students ever get together.



References

Rousseau, Erin. The House Just Voted to Bankrupt Graduate Students. New York Times, November 16, 2017.

Thursday, November 16, 2017

College dropouts who don't pay off their student loans: The village of the damned

About 70 percent of high school graduates go on to college, but a lot of them drop out before getting their college degrees. And a good number of dropouts took out student loans to finance their studies.

What happens to these people?

A recent survey polled college dropouts who had outstanding student loans; and this is what the pollsters found.
  • Respondents reported that they had, on average, almost $14,000 in student-loan debt.
  • More than half of college dropouts said they were not making any payments on their student loans.
  • More than a third of the survey respondents (35 percent) said they had not made a single payment on their student-loan debt
What are we to make of this?

First of all, indebted college dropouts are probably underestimating how much they owe on student loans. Other studies have shown that a lot of student borrowers are hazy about how much they borrowed, and some don't know the interest rate on their loans. Quite a few don't know the difference between federal loans and private loans, and aren't sure which type of loans they have.

So it seems fair to conclude that if indebted college dropouts report that they owe an average of $14,000, they probably owe more--maybe a lot more. For one thing, dropouts who aren't making loan payments may not understand how much accrued interest has been added to their loan balances. And dropouts who defaulted on their student loans may not realize that the debt collectors undoubtedly added default penalties to their accumulated debt.

It is true that some dropouts who aren't making student-loan payments may have obtained economic hardship deferments that temporarily excuse them from making monthly loan payments. But interest accrues on a student loan while it is in economic hardship status, which means that the loan balance is growing month by month.

This is what we can say for sure: Last year, 1.1 million student-loan borrowers defaulted on their loans at an average rate of 3,000 people each day.  And some percentage of that number are people who took out student loans to attend college and then dropped out.

Indebted college dropouts don't know it, but they have entered the village of the damned. If they defaulted on their student loans, the loan balances ballooned due to default penalties. Even if their loans are in forbearance, interest continues to accrue. At some point, these unfortunate dropouts will realize they are carrying debt loads they can't pay off.

At that point, they will only have two options. They can enter an income-driven repayment plan, which will stretch their payments out for 20 or 25 years. Can you imagine making monthly payments on student loans for a quarter of a century even though you dropped out of college without a degree?

The other option is bankruptcy, and that option is going to be more and more viable as the bankruptcy courts wake up to the fact that the student-loan program is a catastrophe that has wreaked misery and suffering on millions.

In my view, now is the time for people who are overwhelmed by student debt to file for bankruptcy.  It is true that student-loan debtors must prove undue hardship in order to get bankruptcy relief. But, as Matt Taibbi's article in Rolling Stone documented, a lot of people are suffering at the undue hardship level.


College droputs with student-loan debt: The village of the damned


References

Tyler Durden. (2017,November 7). About 33% of Students Drop Out of College; Here's How Many Go On to Default On Their Student Debt. zerohedge.com (blog).

LendEDU (2017, November 2). College Dropouts and Student Debt. LendEDU.com (blog).

Matt Taibbi. (2017, October). The Great College Loan SwindleRolling Stone.

The Wrong Move on Student LoansNew York Times, April 6, 2017.




Tuesday, November 14, 2017

Department of Education Coming to Jesus Moment With For-Profit Schools. Article by Steve Rhode

By  on November 10, 2017
99 percent of student loan fraud claims come from for-profit colleges and schools.
I’d love to tell you I absolutely think the current Trump administration Department of Education is going to get the message that for-profit colleges are problematic, but I doubt it.
The Century Foundation has obtained data from the U.S. Department of Education through a Freedom of Information Act (FOIA) request which paints a very clear picture of issues surrounding for-profit schools and student loan fraud issues. I can’t wait to see the magic the Department of Education uses to make these facts go away or not be relevant.
Out of the total of 98,868 complaints reviewed by TCF, for-profit colleges generated more than 98.6 percent of them (97,506 complaints). Of these complaints nonprofit colleges generated 0.79 percent (789 complaints) and public colleges generated 0.57 percent (559 complaints).
Approximately three-fourths of all claims (76.2 percent) were against schools owned by one for-profit entity, the now-closed Corinthian Colleges (75,343 claims). Removing Corinthian from the analysis, the vast majority of claims, over 94 percent, were still against for-profit colleges (22,160 of the 23,525 non-Corinthian claims).
Claims are concentrated around fifty-two entities—forty-seven for-profit companies and five nonprofit institutions—that have each generated twenty or more borrower defense claims. Of these five nonprofits, three converted from for-profit ownership.
The backlog of fraud complaints—currently numbering 87,000 not yet reviewed—is increasing, with the number of new claims submitted per month averaging approximately 8,000 since mid-August.”
The data uncovered while for-profit schools account for ten percent of student enrollment the students who attended were 1,100 times more likely to file a fraud claim.

*******

This article appeared on The Get Out of Debt Guy site. Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve here.

Thursday, November 9, 2017

Matt Taibbi's Rolling Stone article on student loans: Why don't distressed student borrowers file bankruptcy?

Matt Taibbi wrote a terrific article for Rolling Stone about the student loan crisis. Titled "The Great College Loan Swindle" Taibbi's piece told the story of two distressed student-loan borrowers: Scott Nailor and Veronica Martish.

Nailor borrowed $35,000 to get a college degree in education. Unfortunately, his first teaching job only paid $18,000; and he fell behind on his payments. Ultimately, he filed for bankruptcy and defaulted on his student loans. Apparently, he did not try to expunge his student-loans in bankruptcy, because he still paying on them. Due to penalties and accrued interest, Nailor estimates he now owes $100,000.

Veronica Martish, a 68-year-old military veteran, borrowed $8,000 to take courses at Quinebaug Valley Community College; and her investment in higher education did not pay off any better than Nailor's.  She fell behind on her student-loan payments and her debt swelled to $27,000 due to fees and interest. Martish eventually entered a loan "rehabilitation" program, but her payments hardly put a dent in the loan principle. She told Taibbi that she's paid $63,000 on her student loans and is nowhere near paying them off.

Taibbi's article about the student-loan crisis is excellent, and he choose two people--Nailor and Martish--who could be the poster children for this catastrophe. Unfortunately, Taibbi's article did not mention the one avenue of relief that is probably open to both Martish and Nailor--bankruptcy.

It is true that student loans are very hard to discharge in bankruptcy, but it is not impossible.  Debtors must show that their student loans constitute an "undue hardship," and the courts have traditionally defined undue hardship quite harshly.  Most federal courts have adopted the Brunner test for determining whether undue hardship exists.

The Brunner test ask three questions:

1)Can the debtor maintain a minimal standard of living for himself or herself and dependents and pay off the student loans?

2) Are the debtor's financial circumstances likely to change in the reasonably foreseeable future?

3) Did the debtor handle his or her student loans in good faith?

In the past, the bankruptcy courts applied the Brunner test quite harshly, and many worthy debtors were denied relief. In fact, a myth has developed that it is impossible for debtors to discharge their student loans in bankruptcy.

In recent years, however, more and more student debtors have gone into the bankruptcy courts and gotten their loans discharged in bankruptcy or at least partially discharged. In fact, several debtors have gotten bankruptcy relief from their student loans even though their circumstances were less dire than either Nailor's or Martish's. 

Indeed, I feel confident that Nailor and Martish could wipe out their student loans in bankruptcy if only they had competent legal counsel to guide them through the process.

After all, what bankruptcy judge would deny relief to Veronica Martish, a 68-year-old military veteran who borrowed $8,000 and has paid more than $60,000 toward paying off the debt?

What judge would deny relief to Scott Nailor who borrowed $35,000, now owes $100,000 and is so depressed by his debt that he contemplated suicide.

Nailor would be interested to know that several bankruptcy courts have considered the psychological stress of long-term indebtedness when applying the undue hardship rule. And Martish would be interested in knowing that the Ninth Circuit's Bankruptcy Appellate Panel discharged the debt of Janet Roth, a woman about the same age as Martish and who probably made fewer payments on her loans than Martish did.

I feel sure most bankruptcy judges would be quite sympathetic to both Martish and Nailor. Someone needs to tell these distressed debtors that they should file bankruptcy and attempt to get their student loans discharged in bankruptcy through an adversary proceeding.

References

Matt Taibbi. (2017, October). The Great College Loan SwindleRolling Stone.









Millions of Older Americans Are Delinquent On Their Loans: Long-Term Repayment Plans Will Make the Problem Worse

Several decades after obtaining their college degrees, millions of older Americans are still paying on their student loans. According to the Consumer Financial Protection Bureau, the percentage of student borrowers over 60 years of age who carry student-loan debt increased by 20 percent from 2012 to 2017.

Even more alarming is the rising number of older student borrowers who are delinquent on their student loans. In all but five states, delinquency rates among older student debtors went up over the last five years.

In California, for example, more than 300,000 people age 60 or older hold $11 billion in student-loan debt, and 15 percent of these borrowers are delinquent.

Delinquency rates for older borrowers vary substantially from state to state. In Georgia, Mississippi, Oklahoma, South Carolina, and West Virginia, one out of five student-borrowers age 60 or older are delinquent on their loan payments.

As the CFPB noted, these data show that an increasing number of older Americans are still shouldering student-loan debt at an age when most of them are living on fixed incomes.  And these data do not reflect the Department of Education’s recent campaign to recruit more and more college borrowers into income-based repayment plans that can stretch out for as long as 20 and even 25 years.

During Obama’s second term in office, the Department of Education rolled out two relatively generous income-driven repayment plans (IDRs): PAYE and REPAYE.  Both plans call for participants to pay 10 percent of their adjusted gross income on their student loans for a period of 20 years.

Most commentators have viewed these initiatives as a humane way to lower struggling borrowers’ monthly payments. But for many of the people in IDRS, probably most of them, the monthly payments don’t cover accruing interest. For these people, their IDRs cause their loan balances to go up even if they make regular monthly payments.  Thus, IDR participants will enter their retirement years with thousands of dollars in unpaid student-loan debt.

The CFPB report should be alarming to everyone. Already, we are seeing student borrowers enter their sixties with increasing levels of debt; and delinquency rates are climbing.

This is a crisis right now, but as the IDR participants reach retirement age, the crisis will grow worse. Indeed, it will be a calamity as millions of people try to service their student loans while surviving on Social Security checks and small pensions.

References

Older consumers and student loan debt vary by state. Consumer Financial Protection Bureau, August 2017.