Showing posts with label Matt Taibbi. Show all posts
Showing posts with label Matt Taibbi. Show all posts

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.




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.









Saturday, November 4, 2017

Matt Taibbi's Rolling Stone article on student debt crisis: You should read it

If you believe in social justice and basic human decency, you must read Matt Taibbi's article on the student-loan crisis that appeared this month in Rolling Stone.

Writing in the tradition of great American investigative journalism, Taibbi deconstructs "the great college loan swindle" that is destroying the lives of millions. Taibbi illustrates his theme by telling the story of two swindled student debtors: Scott Nailor and Veronica Martish.

Scott Nailor, a thirty-seven year-old school teacher, has contemplated suicide because he is chained to college loans he will never pay off. Nailor borrowed $35,000 to get a degree from the University of Southern Maine, which qualified him for a job as a school teacher.

This debt, which might seem modest to some people, was barely manageable on Nailor's salary as a school teacher, which initially paid just $18,000. He and his wife consolidated their student debt, which had grown to $50,000. Then the couple declared bankruptcy, but they did not discharge their student loans.

Today, Taibbi wrote, Nailor makes monthly payments of $471 a month on student-loan debt that has grown to $100,000.  None of his payments go to paying down principle. "I will never be able to pay it off," Nailor told Taibbi. "My only escape from this is to die."

And Taibbi also tells the story of Veronica Martish, a 68-year-old veteran from the Vietnam War. In 1989, she borrowed $8,000 to take courses at Quinebaug Valley Community College. Due to family problems, Martish fell behind on her loan payments and entered a loan rehabilitation program. By this time, her $8,000 had grown to $27,000 due to fees and interest tacked on by one of the federal government's debt collectors.

Martish told Taibbi that she had paid a total of $63,000 on her $8,000 student loan, but has yet to pay off the principle. By the time she dies, Martish estimates her loan balance will have grown to $200,000. "Nothing ever comes off the loan," she explained. "It's all interest and fees."

These stories may seem incredible to you, but in fact they are all too common. In fact, the bankruptcy courts have chronicled similar experiences when student-loan debtors stagger into bankruptcy court. Remember Brenda Butler, who paid $15,000 on $14,000 in student loans? Twenty years after graduating from college, she owed $32,000--twice what she borrowed. A bankruptcy judge refused to wipe out her student loans. She should stay in a long-term repayment plan, the judge advised--a plan that will not end until 42 years after Butler graduated from college.

And how about Alan and Catherine Murray, the Kansas couple who borrowed $77,000 to pay for undergraduate and graduate degrees? They made $54,000 in loan payments--about 70 percent of the principle.  Yet 20 years after finishing their studies, their accumulated student-loan debt had ballooned to $311,000--more than four times what they borrowed.

Millions of people have seen their student loans grow exponentially due to fees and unpaid interest. When that happens, a debtor's only option is to sign up for an income-driven repayment plan (IDR) that can last from 20 to 25 years. But these plans generally set monthly payments so low that the payments don't reduce the principal on the debt.  College debtors on IDRs see their loan balances grow larger and larger with each passing month even when they faithfully make their loan payments.

This was the situation Scott Nailor found himself in. No wonder he contemplated suicide.

And it gets worse. When all those millions of people in IDRs make their last monthly payment, the remaining balance on their loans will be forgiven; but the IRS considers the forgiven amount to be taxable income.

Does anyone in Congress give a damn? I don't think so. And Secretary of Education Betsy DeVos, whose family has profited from the debt-collection industry, certainly doesn't give a damn.

And so America descends into an era of shocking exploitation perpetrated by colleges, the federal government, and the debt-collection industry.

I will end this reflection by quoting a paragraph from Taibbi's searing essay:
It's a multiparty affair, what shakedown artists call a "big store scheme," like in the movie The Sting: a complex deception requiring a big cast to string the mark along every step of the way. In higher education, every party you meet, from the moment you first set foot on campus, is in on the game.
Donald Trump and Betsy DeVos: the "big store" scheme


References

Butler v. Educational Credit Management Corporation, No. 14-71585, Adv. No. 14-07069 (Bankr. C.D. Ill. Jan. 27, 2016).

Murray v. Educational Credit Management Corporation, CASE NO. 14-22253, CHAPTER 7, ADV. NO. 15-6099 (Bankr. D. Kan. Dec. 8, 2016), aff'd, No. 16-2838 (D. Kan. Sept. 22, 2017).

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