Free bankruptcy attorneys for destitute student-loan debtors: Why the heck not?

The New York Times editorialized yesterday that tenants should have access to free attorneys when their landlords start eviction proceedings against them. As the Times put it, "There are few legal fights more lopsided than landlords suing to evict their lower-income tenants." The Times commended New York Mayor Bill de Blasio for his plan to provide municipal funding to hire legal help for the city's low-income tenants.

I agree with the Times; providing tenants with legal assistance when they face eviction would be a good thing. But let's expand that idea a bit. Why not provide free bankruptcy attorneys for destitute student-loan debtors?

After all, almost all college-loan borrowers who try to discharge their student loans in bankruptcy are too poor to hire lawyers to steer them through the bankruptcy process. And when they go to bankruptcy court, they almost always face a platoon of lawyers who argue that their student loans should not be discharged.

The debtor either faces government lawyers dispatched by the U.S. Department of Education or private attorneys hired by Educational Credit Management Corporation (ECMC) or  another federally authorized debt collector. For example, in the Acosta-Conniff bankruptcy case, now on appeal to the Eleventh Circuit, ECMC has six attorney to defend its interests. Six!

Currently, this country has thousands of unemployed lawyers.  As Joshua Wright reported recently, American law schools are turning out two attorneys for every available job. Why not put some of these unemployed law graduates to work defending student-loan debtors in the bankruptcy courts?

I will tell you why not. The Department of Education does not want anyone to discharge their student loans in bankruptcy. And when I say anyone, I mean anyone. In a 2013 case, DOE fought bankruptcy discharge for a quadriplegic who was working full time but who did not make enough money to pay his live-in caregiver and still pay off his student loans.

Lynne Mahaffie, a DOE Under Secretary, issued a letter in July 2015 outlining when DOE would not oppose bankruptcy discharge for distressed student-loan debtors; but that letter was misleading. In fact, DOE and its debt collectors fight almost every debtor who seeks to discharge student loans in bankruptcy. If DOE is going to oppose bankruptcy relief for a quadriplegic, then you know it is going to oppose relief for almost everyone.

DOE, Congress, and the higher education industry know that the whole corrupt, mismanaged, and wildly overpriced system of higher education in the United States would collapse without the student loan program; and the student loan program's continued existence depends on the fiction that students are paying back their loans.

In fact, they are not paying back their loans; but the government has largely managed to hide that fact from the public. If insolvent student-loan debtors were able to discharge their student loans in bankruptcy, millions of people would be entitled to relief. And if that were to occur, then it would be apparent to everyone that the federal student-loan program is itself bankrupt; and the program would collapse.

And Congress, DOE, and the higher education industry want to postpone the day of reckoning for as long as possible.

References

Editorial. A Right to a Lawyer to Save Your Home. New York Times, September 23, 2016, p. A26. Accessible at http://www.nytimes.com/2016/09/23/opinion/a-right-to-a-lawyer-to-save-your-home.html?_r=0

Lynn Mahaffie, Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings. CL ID: GEN 15-13, July 7, 2015. Accessible at https://www.ifap.ed.gov/dpcletters/attachments/GEN1513.pdf

Myhre v U.S. Department of Education, 503 B.R. 698 (Bakr. W.D. Wis. 2013). Accessible at http://www.wiwd.uscourts.gov/wiwb/Decisions/Decisions_rdm/2013/Myhre.pdf

Joshua Wright. The Oversaturated Job Market for Lawyers Continues, and On-The-Side Legal Work Grows. Economicmodeling.com, January 10, 2014. http://www.economicmodeling.com/2014/01/10/the-oversatured-job-market-for-lawyers-continues/

Feds will forgive student loans of disabled borrowers: Doing the right thing in the right way (cutting through red tape)

The Department of Education announced this week that it will write customized letters to 387,000 disabled student-loan borrowers to inform them they are eligible for loan forgiveness. Good for the feds. DOE regulations authorize student-loan forgiveness for borrowers who are permanently disabled, but most people eligible for forgiveness don't apply. In fact, according to an Inside Higher Ed article, almost half of all disabled borrowers (179,000) are in default!

I applaud DOE for doing the right thing and reaching out to people who are entitled to have their student loans forgiven. This is a stark and pleasing contrast to the Department's position in Myhre v. U.S. Department of Education, when DOE opposed bankruptcy discharge for a quadriplegic debtor whose expenses exceeded his income because he had to pay a full-time caregiver to feed, dress, and bathe him.

Apparently, DOE is going to streamline the loan-forgiveness process for disabled borrowers. According to an article by Jillian Berman in Marketwatch:

The borrowers identified by the Department won’t have to go through the typical application process for receiving a disability discharge, which requires sending in documented proof of their disability. Instead, the borrower will simply have to sign and return the completed application enclosed in the letter.

DOE is to be commended for cutting through red tape to forgive these loans.  Perhaps this streamlined approach can be expanded to include student-loan borrowers who were defrauded by the college they attended--particularly students who attended one of the Corinthian Colleges institutions. Thousands of former Corinthian students have applied for loan forgiveness, but the administrative process has been tedious.

This latest development provides more evidence of the massive suffering experienced by millions of distressed student-loan borrowers. Nearly 400,000 of them are permanently disabled!

References

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

Feds May Forgive Loans of Up to 387,000 Borrowers. Inside Higher Ed, April 13, 2016. Accessible at ttps://www.insidehighered.com/quicktakes/2016/04/13/feds-may-forgive-loans-387000-disabled-borrowers?utm_source=Inside+Higher+Ed&utm_campaign=825eb3a0e1-DNU20160413&utm_medium=email&utm_term=0_1fcbc04421-825eb3a0e1-198565653

Myhre v. U.S. Department of Education, 503 B.R. 698 (Bankr. W.D. Wis. 2013).  Accessible at https://www.gpo.gov/fdsys/pkg/USCOURTS-wiwb-3_12-ap-00169/pdf/USCOURTS-wiwb-3_12-ap-00169-0.pdf

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).