Unlicensed medical doctor who owes $650,000 in student debt is directed to pay 80 bucks a month for 25 years: "The law is an ass"

 

"If the law supposes that," said Mr. Bumble, squeezing his hat emphatically in both hands, "the law is a ass - a idiot".

Charles Dickens, Oliver Twist 

About a year ago, I blogged on the bankruptcy case of Tamara Parvizi, a 51-year-old unlicensed medical doctor who sought to discharge $650,000 in student debt --most of it accumulated from going to medical school.

Actually, Ms. Parvizi attended two medical schools. First, she went to med school at the University of Rochester but dropped out. Later she enrolled at St. George's University School of Medicine, a for-profit medical school on the Caribbean island of Grenada.

Parvizi wasn't represented by a lawyer when she went to bankruptcy court. As an appellate court observed in a footnote, she didn't even file a proper complaint. She simply submitted a two-page letter asking to have her student loans forgiven.

Judge Elizabeth Katz, a Massachusetts bankruptcy judge, denied Parvizi's plea for relief, ruling in part that Parvizi had not made sufficient attempts to maximize her income.

Parvizi appealed, and a Bankruptcy Appellate Court affirmed Judge Katz's decision. The BAP court agreed with Judge Katz that Parvizi had failed to maximize her income, although it admitted that she would be unable to pay back such a mountainous debt even if she tried her best to get a better-paying job.

Judge Katz and the BAP court both said Parvizi should sign up for a REPAY income-based repayment plan. Based on her low income, her monthly payments would only be $80 a month. If she makes regular payments for 25 years, her student debt will be forgiven.

Of course, as the BAP court acknowledged, Ms. Parvizi's debt is negatively amortizing. In other words, her debt grows larger every month because her $80 payments aren't nearly large enough to cover accruing interest.

Indeed, Ms. Parvizi's debt has probably grown by $50,000 since the date of Judge Katz's 2021 decision. That's right--she must now owe around $700,000.

Does any of this make sense to you? It makes no sense to me. Why force a woman in her fifties to make token payments on a debt that will grow to well over a million dollars by the time she finishes her REPAYE plan?

Who benefits from this nonsense? Two medical schools benefited, and one of those schools is a for-profit shop located outside the United States.

And, of course, the four federal judges who reviewed Ms. Parvizi's debt are doing okay. They all make nice salaries and will get fat federal pensions.

The outcome of this litigation is insane. Perhaps Charles Dickens was right when he observed in one of his novels that "the law is an ass."

Our government loans people money to enroll at foreign medical schools

40-year home mortgages, 9-year car notes, and 25-year student-loan programs: This will end badly

Interest rates, as the tv hucksters constantly remind us, are near historic lows. So now is an excellent time to refinance your mortgage--maybe take out some equity to upgrade the bathrooms, take a little vacation, or purchase a home entertainment center.

Or maybe it's time to buy a new vehicle--perhaps a premium class crew-cab pickup, an Audi, or a BMW.  At today's interest rates, the monthly car note won't be that high--especially if you finance your new set of wheels over six, seven, eight, or even nine years!

How about those student loans? You don't make enough money to pay off your college debt under a standard 10-year repayment plan because you have other bills to pay.  But that's no problem. You can sign up for an income-based repayment plan that will stretch out your monthly payments over 25 years.

Twenty-five years is a long time, but maybe the federal government will forgive all that student debt--including yours. After all, what's $2 trillion among friends?

So is everybody happy with their new homes, fancy cars, and impressive college credentials? If so, enjoy the feeling because it won't last much longer.

Inflation is on the move, and who believes it is transitory as our Treasury Secretary tries to reassure us. Wages will probably rise to cover inflation for some employees but not for others. And if you a retired person on a fixed income, inflation will soon erode your standard of living.

That vacation cruise to Greece that you've always dreamed of? Maybe you'll just go to Oklahoma's Boiling Springs State Park this year--a lot cheaper.

Of course, you can't fly to Boiling Spings because airfares are way up, and car rental rates are just short of obscene.  So you will have to drive.  But you should do it soon because gas prices are on the rise. Oil is already back up to $75 a barrel.

So maybe you'll skip a vacation this year and enjoy your backyard--grill a few steaks or hamburgers. But that's becoming more expensive too. A premium steak at the grocery store can cost you $25 a pound.  But hot dogs are cheaper--especially the ones that aren't all beef.

There's nothing the people living in flyover country or modest urban neighborhoods can do about the scary shifts in the national economy.  We will have to tighten our belts, pay off our debts, and cut back on our lifestyles.  

It won't be fun, but we will probably all be OK if we don't do something stupid like refinance our home over 40 years, buy a car on a 9-year note, or borrow $100,000 to go to college.  But most of us are too smart to do something reckless like that.   Right?

You will own it outright in only 9 years!

 

Williams v. U.S. Department of Education: How does someone run up $400,000 in student-loan debt?

 In Greene v. U.S. Department of Education, Judge Richard Posner, a universally esteemed jurist, remarked that the criteria for determining "undue hardship" in student-loan bankruptcy cases are complex. Nevertheless, Judge Posner observed, "[t]he size of the debt is relevant--the larger it is, the more likely that imposing full liability on the debtor will produce an undue hardship . . ."

That makes perfect sense. Nevertheless, federal courts have refused to allow student-loan debtors to discharge their loans in bankruptcy even when the size of their college-loan debt is enormous and virtually impossible to pay off.

Williams v. U.S. Department of Education is a case in point. As the Seventh Circuit Court of Appeals explained, Williams began his college studies in 1982. "[O]ver the next three decades,[he] obtained a bachelor's degree in mathematics, a master's in communication, and a master's in business education." He financed these educational endeavors with student loans. By the time he filed for bankruptcy, he had run up $400,000 in student debt.

As the Seventh Circuit noted in its 2019 opinion, Williams had worked only part-time as a seasonal worker at a flower shop over the six previous years. His annual income was just $10,000.

After filing for bankruptcy, Williams entered into a 25-year, income-based repayment plan. Since his income was so low, he was required to pay nothing under that plan.

Williams tried to discharge this massive debt in an Illinois bankruptcy court, but he got nowhere. The bankruptcy judge refused to forgive his student loans, and the Seventh Circuit, in an opinion joined in by Judge Amy Barrett, affirmed the bankruptcy judge's decision.

Perhaps Mr. Williams was not the most attractive candidate for bankruptcy relief. As the Seventh Circuit pointed out: "If Williams continues what he has done for the last 6 years, which he concedes he can do, he need not pay anything on his debts for the next 25 years, at which point at least half the debt will be forgiven. That suggests no hardship."

Moreover, the Seventh Circuit continued, Williams had not provided any admissible evidence of a good-faith effort to repay his student loans.

Those efforts [ the appellate court observed] were virtually non-existent.  Despite his three degrees and his admitted ability to work full-time, he has worked only part-time in a floral shop for the last six years.  No admissible evidence explains the lack of higher-income work or why he has not, with about $3000 of annual net income, paid more than $140 toward lowering his debts.

I am not arguing that Williams should have gotten bankruptcy relief from his student loans. My point is simply this:  It is crazy for the federal government to issue student loans to an individual for three decades of college studies and then force that person into a 25-year repayment plan that allows him to pay nothing.

Surely we can all agree that this nutty system is unsustainable.

References

Greene v. U.S. Department of Education,  770 F.3d 667, 670 (7th Cir. 2015).

Williams v. U.S. Department of Education, 752 Fed.Appx. 363 (7th Cir. 2019).

The federal student loan program is nutty.

Rodger Love v. U.S. Department of Education: Betsy DeVos wears no clothes (metaphorically speaking)

According to Urban Dictionary, "The Emperor Wears No Clothes," is a phrase "often used in political or social contexts for any obvious truth denied by the majority despite the evidence of their eyes, especially when proclaimed by the government."

This metaphor came to mind as I read the adversary complaint filed in Love v. U.S. Department of Education.  Rodger Love is asking a Kansas bankruptcy court to discharge his student loans--both federal and private.

As Mr. Love said in his complaint, he "has no hope of paying back the loans, and they have created a noose around [his] neck for the remainder of his economically productive years."

Mr. Love is clearly right. He is 47 years old. Although he is employed full-time, he "does not anticipate receiving substantial raises or promotions in the future." Nevertheless, Love is saddled with $167,000 in student loan debt, apparently to study at Washburn University, where he did not obtain a degree.

He now owes far more than he actually borrowed.  Love took out $29,000 in federal loans and $68,000 in private loans--totally just $97,000. The balance of his debt--about $70,000--is mostly accumulated interest.

Indubitably, Betsy DeVos's Department of Education will oppose a student-loan discharge for Mr. Love. DOE will probably argue that Mr. Love has not done enough to maximize his income--no matter what he has done to improve his financial circumstances. 

If Mr. Love eats a hamburger at McDonald's twice a month, DOE will say he hasn't been frugal.  And no matter what the court records reveal, DOE will almost certainly argue that Mr. Love has not handled his student loans in good faith.

But that will be government bullshit, already packaged in DOE lawyers' canned legal briefs.

I'll bet you dollars to donuts that DOE will tell the bankruptcy judge that Mr. Love should sign up for a 25-year repayment plan.  But, as he pointed out in his complaint, he will be 72 years old before he finishes a 25-year plan.  And since the payments won't cover accruing interest, he will owe more than he owes right now when the plan terminates in 2045.  And whatever amount is forgiven will be taxable to him as earned income.

That's nuts. Why does DOE continue, year after year, to oppose bankruptcy relief for student-loan debtors who are clearly at the end of their rope?

One reason.  DOE forces desperate debtors into long-term repayment plans so it can pretend that mountains of student debt are loans in good standing. But that is not true. Billions of dollars in outstanding student loans is not collectable.

If Education Secretary Betsy Devos believes DOE's opposition to student-loan bankruptcy helps maintain the solvency of the federal student loan program, she is the emperor who wears no clothes.  That stance defies the naked truth, which is this: Forty-five million Americans have outstanding student loans, and at least half of it will never be paid back.

References

Love v. U.S. Department of Education, Case No. 13-41680 (Bankr. D. Kan. Jan. 28, 2020) (complaint).

Hey, Betsy--put some clothes on!

Good News out of Kansas: A compassionate bankruptcy judge grants a 59-year-old debtor a partial discharge of her student loans

The Remarkable Case of Vicky Jo Metz

Twenty-seven years ago,Vicky Jo Metz, took out $16,613 in student loans to go to community college. Over time, she paid back 90 percent of what she borrowed--almost $15,000.

But interest accrued at the rate of 9 percent, and by the time Metz came to bankruptcy court in 2018, her debt had quadruped--that's right, quadrupled--to $67,277!

Educational Credit Management Corporation, the federal government's most ruthless student-loan debt collector, opposed discharging Metz's loans.  Put Ms. Metz in a 25-year income-based repayment plan, ECMC argued.

But Kansas Bankruptcy Judge Robert E. Nugent rejected ECMC's heartless argument.  Ms. Metz is 59 years old, Judge Nugent pointed out. By the time she finishes a 25-year IBRP, she will be 84.

ECMC testified that Metz's monthly payments under a 25-year IBRP would only be $203. But, Judge Nugent observed, such a payment is about $300 a month less than the amount necessary to pay the accruing interest. Thus, after making minimal payments for 25 years, Metz would owe $152,277.88--nine times more than she borrowed.

Under the terms of an IBRP, Ms. Metz's loan balance would be forgiven after 25 years--the entire $152,000.  But the forgiven debt would be taxable to her as income. "That," Judge Nugent remarked with powerful understatement, "could generate considerable tax liability for a retired 84-year-old living on social security."

Judge Nugent sensibly concluded that Metz could not pay back the $67,000 she currently owed while maintaining a minimal standard of living. He also concluded that Metz's financial situation was unlikely to change. In fact, with very little retirement savings, Metz's income would probably go down because she would be living almost solely on Social Security in her retirement years.

Finally, Judge Nugent determined that Metz had made a good faith effort to repay her student loans. "She has paid more than $14,000 toward this loan," he noted, "not a dime of which has gone to principal."

In short, Judge Nugent summarized: "Ms. Metz will simply never be able to afford to make a significant monthly payment on her student loan." Furthermore, requiring Metz to pay the accumulated interest "would result in undue hardship to her now and in the future.

Nevertheless, Judge Nugent stated, Metz could pay back the $16,613 she originally borrowed. So this is what Judge Nugent ordered:

Rather than be yoked to a pay-as-she-earns time bomb, Ms. Metz should instead be required to pay the principal balance of the loan, $16,613.73. Doing that would not impose an undue hardship on her within the meaning of [the undue hardship standard in the Bankruptcy Code]. Therefore, that amount is excepted from her discharge in this case and the rest of her student loan is discharged. Ms. Metz should arrange to make a monthly payment that will amortize that debt over a reasonable 5 to 10-year period.

Why the Metz Case is Important

Vicky Jo Metz's case is important for two reasons. First, Judge Nugent rejected ECMC's argument, which it has made hundreds of times, that  a distressed student-loan debtor should be forced into an income-based repayment plan as an alternative to bankruptcy relief.  As Judge Nugent pointed out, an IBRP makes no sense at all when the debtor is older and the accumulated debt is already many times larger than the original amount borrowed.

Indeed ECMC's argument is either insane or sociopathic. Why put a 59-year old woman in a 25-year repayment plan with payments so low that the debt grows with each passing month?

Second, the Metz case is important because it is the second ruling by a a Kansas bankruptcy judge that has canceled accrued interest on student-loan debt. In Murray v. ECMC, decided in 2016, Alan and Catherine Murray, a married couple in their late forties, filed for bankruptcy in an effort to discharge $311,000 in student loans and accumulated interest.

The Murrays took out a total of $77,000 in student loans back in the 1990s, and they made monthly payments totally 70 percent of what they borrowed. But, much like Vicky Jo Metz, the Murrays saw their student-loan debt grow larger and larger over the years until their debt totaled $311,000--four times what they borrowed.

Fortunately for the Murrays, Judge Dale Somers, a Kansas bankruptcy judge, granted them a partial discharge of their massive debt. Judge Somers ruled that the Murrays had managed their student loans in good faith, but they would never be able to pay back the $311,000 they owed. Very sensibly, he reduced their debt to $77,000, which is the amount they borrowed, and canceled all the accumulated interest.

Conclusion

Judge Nugent and Judge Somers have grasped the essence of the student-loan crisis. Millions of Americans are seeing their student-loan indebtedness double, triple and even quadruple as interest accrues and compounds. Vicky Jo Metz, the Murrays, and people in similar positions will never pay back their massive student-loan debt.

Putting these poor souls into 25-year income-based repayment plans denies them the fresh start that the bankruptcy courts were created to provide. Under the government's income-based repayment program, this debt will be forgiven after 25 years, but the Internal Revenue Service considers the amount of the forgiven debt to be taxable income.

This is nuts. Judge Somers and Judge Nugent demonstrated compassion and common sense when they canceled accumulated interest on massive student-loan debt owed by the Murrays and Ms. Metz. Let us hope other bankruptcy judges will begin following their example.

References

In re Murray, 563 B.R. 52, 60 (Bankr. D. Kan. 2016), aff'd sub nom. Educ. Credit Mgmt. Corp. v. Murray, No. 16-2838, 2017 WL 4222980 (D. Kan. Sept. 22, 2017).

Vicky Jo Metz v. Educational Credit Management Corporation, 589 B.R. 750 (D. Kan. 2018).

Goodbye, Arne Duncan. We Hardly Knew Ye. The Secretary of Education Is Leaving Higher Education in a Mess

Arne Duncan is stepping down as Secretary of Education in December. Like all good politicians, Arne knows when it's time to slip out the door and look for a new gig.

Duncan is a photogenic guy and he says everything the progressive community wants to hear. But he did not have the moral courage to clean up the federal student loan program, and he is leaving American higher education in a mess. Duncan didn't do anything substantive to relieve the suffering of millions of people who have  been ripped off by the for-profit college sector. And he didn't do enough to rein in colleges that have high student-loan default rates and low graduation rates.

So where does the nation stand regarding federal student loans? First of all, Americans are carrying at least $1.3 trillion in outstanding student-loan debt (including private student loans, which is perhaps 10 percent of the total).

At least 7 million people are in default, and another 3.9 million are in long-term repayment plans that can stretch payments out for as long as 25 years. A great many of people in these plans will never pay off the principal on their loans.

Of course, the epicenter of the disaster is the for-profit college sector. According to a report released recently by the Brookings Institution, almost half of the people who borrowed money to attend for-profit colleges default within five years of beginning repayment.

And as I have said before, the true magnitude of this train wreck has been hidden from the public because millions of former students have received economic-hardship deferments that relieve them from making loan payments without being counted as a defaulter. The public really has no idea what the true cost of the federal-loan fiasco is.

Moreover, in spite of the fact that the entire higher education industry is heavily dependent on federal student-aid money, a lot of colleges are struggling. Moody's estimates that the number of colleges that are closing will triple by 2017.  True--Moody's estimate translates into only 15 colleges closing in that year, a small percentage of the more than 2000 colleges; but Moody's estimate is probably over-optimistic. The whole private sector is slashing tuition to attract students, so that the actual price of tuition is only about half the sticker price that colleges are advertising.

The higher education industry and its sycophants continually assure the public that all is well. People who graduate from college make more than high-school graduates, we are repeatedly told. We also hear that college costs haven't really gone up that much when inflation is taken into account and we calculate how much colleges are discounting their tuition prices. And we are also told that most of the defaulters owe small amounts of money, so rising college tuition isn't the heart of the problem.

All these excuses carry a certain amount of truth, but the fact remains that millions of people have had their credit ruined, their career hopes dashed, and their dreams of financial security destroyed by borrowing money to attend college that they are unable to pay back.

These millions have only one real route toward a second chance in life--discharge of their loans in bankruptcy. But the Department of Education opposes almost all efforts to discharge student loans in the bankruptcy courts other than people who have catastrophic health problems. In fact, DOE--Arne Duncan's DOE--opposed bankruptcy relief for a quadriplegic student-loan debtor who held a job but was unable to provide for himself and pay the full-time caregiver that he needed in order to survive.  And DOE had unleashed its lackey, Educational Credit Management Corporation, to hound debtors in the bankruptcy court. ECMC is as ruthless  as a character from a Dickens novel, but Duncan did nothing to bring this outfit under control.

So goodbye, Arne Duncan; and good riddance. I'm sure he will toddle off to a cushy university job where he will be working for one of the elite and over-priced institutions that benefited from the shameful federal student-loan program.

But Arne is still young enough to be forced to appear at a congressional hearing ten years from now, when irate Congresspeople will be asking questions about the student-loan bubble that ultimately burst. I can envision him flanked by high-priced lawyers; and I can hear the cameras clicking while he reads his prepared statement to cranky legislators glaring at him over their bifocals.  I'm sure he will be just as glib on that day as he is today, and I'll bet he'll be wearing a nice suit.

References

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default rates. Washington, DC: Brookings Institution (2015). Accessible at: http://www.brookings.edu/about/projects/bpea/papers/2015/looney-yannelis-student-loan-defaults

Kellie Woodhouse, Closures to Triple. Inside Higher Education, September 25, 2015

Kellie Woodhouse. Discounting Grows Again. Inside Higher Education, August 25, 2015.

  

Susan Dynarski wrings her hands because we don't have enough information about the student debt crisis. But we know enough to take action.

Susan Dynarski recently wrote a half-page article in the Sunday Times, complaining about the government's lack of useful data about the federal student loan program. She's right of course.

The U.S. Department of Education releases very little useful information about the student-loan crisis. The Federal Reserve Bank of New York, which has issued alarming reports on the problem, relies on Equifax, a private credit reporting agency, for most of its information--not DOE. 

Why don't we have better data? Dynarski quotes a former DOE official who says "lack of will" on the part of DOE's data  collectors is part of the answer, along with "reluctance of senior political leadership in the Department of Education to press for action."

In other words, the Obama administration and Arne Duncan's Department of Education don't want the public to know just how bad the student loan crisis really is.

Barack Obama and Arne Duncan just want to get out of town before the federal student loan program collapses. They are like those American officials during the Vietnam War who scrambled to get on one of the last helicopters leaving Saigon before the city fell to the North Vietnamese.

Barack & Arne just want to get out of town before the student loan crisis blows up.

Make no mistake. Barack and Arne know what's going on. They know the lid is about to blow off this smoothly managed crisis.  And they are trying to strew a little evidence around to show they are trying to address the problem without really doing anything about it. For example, President Obama released his laughable and toothless "Student Bill of Rights" earlier this month.

Solving the student-loan crisis will take more than empty platitudes. It will take courage.

• It will take courage to rein in the for-profit college sector, which is raping low-income and minority students by enticing them to enroll in high-cost educational programs that don't lead to good jobs.
• It will take courage to amend the Bankruptcy Code so that insolvent student-loan debtors can get reasonable access to bankruptcy relief.
• It will take courage to stop garnishing the Social Security checks of elderly debtors who defaulted on their student loans.
•  It will take courage to stop the private student-loan debt collectors from tacking huge penalties on to the loan balances of defaulted student-loan debtors.

And it will also take a sense of human decency, which President Obama's Department of Education apparently does not have.

Thus, in the Myhre bankruptcy case,  we see the Department of Education opposing bankruptcy relief for a quadriplegic student-loan debtor who was working full time and was still unable to support himself financially, much less pay off his student loans.

And in the Lamento bankruptcy case, the Department of Education opposed bankruptcy relief for a single mother of two who was working full time and was only able to put a roof over her children's heads because she was living rent free with her mother and stepfather.

In both the Myhe case and the Lamento case, DOE wanted these unfortunate student-loan debtors to sign up for 25-year repayment plans. And that has been the Obama administration's overall strategy for dealing with the student loan crisis.

Yes, rather than do the decent thing and work for bankruptcy relief for worthy student-loan debtors, President Obama's Department of Education is trying to force most oppressed student-loan debtors into 25-year repayment plans.

And why is DOE doing that? Because if President Obama and Arne Duncan's Department of Education were forced to publicly admit that millions of student-loan debtors are insolvent and will never pay off their loans, the whole sorry business of the federal student loan program would collapse.

But they won't admit it. And that is why, Ms. Dynarski,  the Department of Education is not releasing useful data about the student-loan crisis.

But I'll bet you already knew that, didn't you, Ms. Dynarski? After all, you are one of President Obama's advisers.

Susan Dynarski: We need more information!

 References

Susan Dynarksi. So Much Student Debt, So Little Information. New York Times, March 22, 2015, Business section, p. 5.

Richard Fossey & Robert Cloud. In re Lamento: An Honest But Unfortunate Debtor is Entitled to Sleep at Night Without Worrying About Unpayable Student-loan Debt. Teachers College Record, February 23, 2015.

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

Myhre v. U.S. Department of Education, 503 B.R. 698 (Bankr. W.D. Wis. 2013).