Does Citizens Bank routinely make student loans to people attending non-approved foreign colleges?

Awhile back, I posted an essay on Decena v. Citizens Bank, a bankruptcy court case that was decided last year in New York. Lorelei Decena had borrowed $161,000 to attend St. Christopher's College of Medicine in Senegal, West Africa. At the time Decena was studying at St. Christopher's, the school was not on the Department of Education's approved schools list.

After graduating, Ms. Decena returned to the United States to pursue a medical career. To her dismay, she discovered that her St. Christopher medical degree did not qualify her to take her medical boards exams in the U.S.; and she filed for bankruptcy.

As almost everyone knows, student loans cannot be discharged in bankruptcy unless the debtor can meet the "undue hardship" standard articulated in 11 U.S.C. sec. 523 of the Bankruptcy Code. The undue hardship standard applies not only to federal student loans but to private student loans as well. This is a very difficult standard to meet, and some courts have applied it harshly.

Fortunately, for Ms. Decena, the bankruptcy court ruled that her loans from Citizens Bank were not covered by the undue hardship rule because St. Christopher's College of Medicine was not on the Department of Education's approved schools list when she studied there. Thus her student loans could be discharged in bankruptcy like any other consumer loan.  A great victory!

A few days ago, I was contacted by another New Yorker who had borrowed about $160,000 in student loans from Citizens Bank to attend a medical school in Great Britain. This school, like Decena's school, was not on DOE's approved schools list when he attended. And somewhat like Decena, this New Yorker discovered that his overseas medical degree does not qualify him to practice medicine in New York.

Obviously, this fellow has a very good argument that his student loans can be discharged in bankruptcy in the same manner as Ms. Decena's loans.  He contacted Citizens Bank and was told that the bank had sold the loan to a debt collection company.  He then wrote the debt collector and enclosed a copy of the Decena case. So far, no response.

What's going on here? Is Citizens Bank routinely making student loans to people enrolled in overseas medical schools?  And is it lending money to people attending foreign schools that are not on the Department of Education's approved schools list?

Although it is not well known, the Department of Education gives out student loans for Americans to attend foreign colleges and universities; and there are universities from all over the world on DOE's approved schools list.  Some of these institutions are foreign medical schools.

In my view, the government should not be lending money for people to study at foreign universities. The United States has plenty of colleges. Moreover, post-secondary enrollments are in decline in the U.S.; and there are lots of empty seats at American institutions.

And I don't think private banks should be lending money to people so they can study at foreign medical schools, particularly when it is unclear whether a foreign medical degree qualifies graduates to practice medicine in the U.S.

But if our government and the banks are going to continue the reckless practice of handing out student loans for people to study in foreign countries, then the people who accept those loans should be able to discharge their student debt in bankruptcy if they discover that their foreign degrees are worthless to them.

References

Decena v. Citizens Bank, 549 B.R. 11 (Bankr. E.D.N.Y. 2016).

Note: Citizens Bank appealed the bankruptcy court's decision to a federal district court, arguing that it had not received proper service of the lawsuit. The district court vacated the bankruptcy court's ruling based on a technicality without disturbing the underlying rationale of the bankruptcy court's decision in favor of Ms. Decena. Citizens Bank v. Decena, 562 B.R. 202 (E.D.N.Y. 2016).

More than a third of college graduates say they would not have attended college had they known what it would cost: Buyer's Remorse

Jessica Dickler reported recently on a survey of college graduates conducted by Citizens Bank. According to Dickler, the survey found that 36 percent of the students surveyed said they would not have attended college had they known what it would cost them. And half said they regretted the amount of indebtedness they incurred to get their college degrees.

Even more startling, the survey found that 60 percent of college graduates had no idea when their loans would be paid off and a third didn't know the interest rate they were paying.

In addition, the same survey found that recent graduates are devoting about 20 percent of their salaries to student-loan payments and that most recent graduates expect to be paying on their student loans until they are in their 40s.  As a consequence, survey respondents reported, they have limited amounts of money to spend on travel, housing, eating out, and entertainment.

I wonder if Citizens Bank will rethink its student-loan policy based on the results of its survey. It was Citizens, you may recall, that loaned $161,000 to Lorelei Decena so she could attend an unaccredited medical school in Africa. Decena successfully discharged her debt to Citizens based on the fact that the school she attended was not on the U.S. Department of Education's approved list of schools

Do you suppose Decena took Citizens' survey? If so, was she was one of the 36 percent who said they regretted their college experience?

References

Decena v. Citizens Bank, 549 B.R. 11 (Bankr. E.D.N.Y. 2016).

Jessica Dickler. Buyer's College buyer's remorse is real. CNBC News, April 7, 2016. Accessible at http://www.cnbc.com/2016/04/07/college-buyers-remorse-is-real.html

Jessica Dickler. College costs are out of control. CNBc News, July 16, 2016. Accessible at http://www.cnbc.com/2016/07/12/college-costs-are-out-of-control.html

Citizens Bank. Millennial College Graduates with Student Loans Now Spending Nearly One-Fifth of Their Annual Salaries on Student Loan Repayments. April 7, 2016. Accessible at http://investor.citizensbank.com/about-us/newsroom/latest-news/2016/2016-04-07-140336028.aspx

Davidson v. Sallie Mae: Another student-loan debtor sheds debt in bankruptcy because institution she attended was not on Department of Education's Approved School List

In my last post I reported on Decena v. Citizens Bank, in which a New York bankruptcy judge discharged Lorelei Decena's student-loan debt in bankruptcy because Decena had borrowed the money to attend an African medical school that was not on the Department of Education's Federal School Code List.

Normally, student-loan debt is not dischargeable in bankruptcy unless the borrower can show that repayment would create an "undue hardship," a very difficult standard to meet. But in Decena's case, the bankruptcy judge ruled  that St. Christopher's College of Medicine, the African medical school Decena attended, was not an "eligible educational institution" because the school was not on the Department of Education's list of approved schools Thus, Decena could discharge the loans she took out to attend St. Christopher's (more than $160,000) without having to show undue hardship.

Richard Gaudreau, writing for Huffington Post, recently reported on another case in which a student-loan debtor freed herself from student-loan debt  because the institution she attended was not listed in  DOE's Federal School Code List.

In Davidson v. Sallie Mae, Jennifer Lynn Davidson borrowed approximately $20,000 from Sallie Mae to attend a "Co-Active Coach Training Program" operated by an outfit  called CTI. As she explained in her Adversary Proceeding complaint, Davidson quickly became disenchanted with the program after her instructor swore at her during the first session and then announced that there would be a clothing-optional pool party at the end of the program day. She immediately notified CTI that she was withdrawing from the program.

Davidson sued Sallie Mae in an Oregon bankruptcy court to discharge her educational loans in bankruptcy, and  she eventually persuaded Sallie Mae to sign a Stipulated Judgment agreeing to allow her to discharge the debt.

Why did Sallie Mae throw in the towel and allow Davidson to free herself from her student loans? Because--as Gaudreau explained in his Huffington Post article--CTI was not on the Department of Education's Federal School Code List.

What are we to make of Davidson's victory?

First, Sallie Mae is apparently loaning money to people to enroll in all kinds of so-called educational programs without regard to program quality, secure in the belief that people who take out loans for these programs will find it  virtually impossible to discharge their debt in bankruptcy.  In Davidson's case, however, Sallie Mae slipped up and loaned Davidson money to attend CTI's "Co-Active Coach Training Program" without checking to see whether CTI was on the Department of Education's Federal School Code List.

Second, students who borrow money to enroll in programs at marginal institutions like CTI and St. Christopher's College of Medicine should definitely consult DOE's School Code List to determine if the institution they attended is on it. If the school is not on that list, a borrower has a reasonable shot at shedding the student-loan debt in bankruptcy without having to show that it would be an "undue hardship" to repay the loan.

As Gaudreau pointed out, bankruptcy courts are not in total agreement as to what constitutes an educational loan that is covered by the Bankruptcy Code's undue hardship rule. But Lorelei Decena convinced a bankruptcy judge that St. Christopher's College of Medicine was not an "eligible educational institution" for purposes of the undue hardship standard; and Jennifer Lynn Davidson apparently persuaded Sallie Mae that loans taken out to attend CTI were likewise not subject to the undue hardship rule.

Congratulations to Lorelei Decena and Jennifer Lynn Davidson for their victories in the bankruptcy courts. As for Sallie Mae and Citizens Bank, which collectively lost $180,000, they got the bankruptcy-court outcomes they so richly deserved.


References

Davidson v. Sallie Mae,  Case No. 12-33122-TMB-7, Adversary Proceeding Number 12-03171 (Bankr. D. Or. Aug. 15, 2012) (Stipulated Judgment to Discharge Educational Loan Debt and Dismiss Adversary Proceeding) (from an article appearing in Getoutofdebt.org). Accessible at https://getoutofdebt.org/wp-content/uploads/2013/07/183-1_new.pdf

Decena v. Citizens Bank, 549 B.R. 11 (Bankr. E.D.N.Y. 2016).

Richard Gaudreau. Some Private Loans Eligible for Automatic Discharge. Huffinton Post, June 21, 2016. Accessible at http://www.huffingtonpost.com/richard-gaudreau/when-is-a-student-loan-no_b_10530086.html

U.S. Department of Education. Federal School Code List 2016-1017.

Decena v. Citizens Bank: A woman borrowed $161,000 to attend medical school in Africa and discharged the debt in bankruptcy

Lorelei Decena, an American, attended medical school at St. Christopher's College of Medicine in Senegal, West Africa.  After completing the program in 2004, she returned to the United States only to learn that St. Christopher's was not an accredited medical school and that she was not eligible to take the medical board exams in many states.

Decena financed her medical studies with a series of loans totaling $161,592, which she took out from Citizens Bank, which is headquartered in Rhode Island. She made loan payments from 2006 until 2011, but she quit making payments when she returned to school to obtain a masters' degree.

In 2015, Decena filed a "no asset" Chapter 7 bankruptcy petition and later filed an adversary complaint to discharge her student loans with Citizens Bank. Citizens Bank failed to answer her complaint and the court clerk entered a default.

At a hearing to get a default judgment entered against Citizens, an attorney appeared to represent the bank. Citizens' attorney argued that the default should be set aside on the ground that Decena had sent her lawsuit by regular mail rather than certified mail. The bankruptcy court  rejected this argument, reasonably pointing out that Citizens obviously had notice of Decena's lawsuit because it had sent a lawyer to defend the bank's interests.

The court then considered whether Decena had a legitimate ground for discharging her student-loan debt in bankruptcy. Interestingly, Decena did not argue that it would be an undue hardship for her to pay back the loans--the position taken by most student-loan debtors in bankruptcy. Rather she maintained that the loan was not the kind education loan debt that was covered by the undue hardship exception.

The court agreed with her. In essence, the court ruled that a private loan to attend an unaccredited, unlicensed medical school is not the kind of loan that can be excepted from discharge in bankruptcy under the undue hardship rule. Nor was it a "qualified education loan" that came under the undue hardship exception.

Key to the court's decision was its finding that St. Christopher's College of Medicine was not listed in the Federal Schools Code during the year Decena completed her studies. Thus, the court ruled, Decena "established a prima facie case that St. Christopher's is not an 'eligible educational institution,'" entitled to benefit from the Bankruptcy Code's undue hardship rule.

What can we learn from this quirky case? Three things:

1. Don't enroll in an unlicensed, unaccredited African medical school if you want to practice medicine in the United States. Perhaps Lorelei Decena should have investigated St. Christopher's a little more thoroughly before borrowing money to study there.

2. If you are a bank, don't lend money to someone to study medicine in Africa unless the institution the debtor will attend is on the Federal Schools Code list. Citizens Bank was apparently under the impression that its loans to Decena could not be easily discharged in bankruptcy, but the bank was wrong.

3. If you are an African medical school that seeks to enroll American students, you should make sure your institution is listed in the Federal Schools Code.

In fact, St. Christopher's lapse in this regard is puzzling. Over 500 foreign institutions are listed on the Federal Schools Code, making them eligible to participate in the U.S. student loan program, including more than two dozen foreign medical schools. Why didn't St. Christopher's do whatever it had to do to get its name on that list?

This case illustrates the global expanse of the federal student loan program, which allows Americans to borrow money to attend colleges all over the world (although not St. Christopher's in Senegal). We are a wealthy nation of more than 300 million people. You would think we could manage medical education in such a way that no one would need to borrow money in order to study medicine in a foreign country.

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Note. St. Christopher's web site contains these statements: 

Graduates of St. Christopher Iba Mar Diop College of Medicine may practice medicine in the United States through the Educational Commission for Foreign Medical Graduates (ECFMG).  

*****

It is important that future students intending on practicing medicine in the United States obtain licensing information direct from the appropriate state agencies. This information can be obtained from the Federal State Medical Boards (FSMB). Students are expected to have a thorough understanding of medical licensure laws in their state or states of intended practice before applying. Many states have specific rules and requirements beyond the medical school curriculum and applicants are urged to make specific inquiries into what these are before making a commitment to the College.

References

Decena v. Citizens Bank, 549 B.R. 11 (Bankr. E.D.N.Y. 2016).