Patricia McDade owes one third of a millon dollars in student loans, which she cannot discharge in bankruptcy

Patricia McDade owes one third of a million dollars in student loans, which she cannot discharge in bankruptcy. In a recent decision, Bankruptcy Judge Patrick M. Flatley ruled that McDade could make payments on her enormous debt and still maintain a decent standard of living.

"McDade has not demonstrated that she is unable to maintain a minimal standard of living while repaying at least some portion of her student loans," Judge Flatley wrote. Therefore, in Judge Flatley's opinion,  McDade did not meet her burden of showing that she would suffer "an undue hardship" if she was required to pay back her loans.

Judge Flatley made a mistake. Patricia McDade is 46 years old, and her student loan debt amounts to $333,000 (including $6,000 for her children's education). Although her annual salary was $63,000 at the time of her adversary proceeding, she represented that she was in danger of losing her job. There is no way Ms. McDade can pay back a third of a million dollars in student loans and maintain a decent standard of living, even if she remains permanently employed at her current salary.

Judge Flatley did not specify how much of McDade's student loan debt was accrued interest, but she undoubtedly borrowed far less than $327,000. In fact, McDade argued that the accrued interest on her debt should be discharged even if her underlying loans were not forgiven. But Judge Flatley rejected that argument.

I think Judge Flatley suspected that some of Ms. McDade's expenses were excessive. He pointed out that her expenses rose 20 percent over a ten-month period and that the increase coincided with a pay raise she got at her job. And in fact, she listed a couple of arguably questionable expenses: a $486 monthly car payment and charitable contributions totally $525 a month. She also listed expenses related to her adult daughter.

But McDade was driving a 2014 Jeep Patriot--a very modest car. No bankruptcy court has said student-loan debtors are required to drive a junker in order to qualify for bankruptcy. And if some of McDade's expenses were excessive--the charitable contributions, for example--Judge Flatley might have granted her a partial discharge to compensate for the excessive expenditures. This is what Judge Pappas did in the McDowell case. (Ms. McDowell had purchased a motorcycle.)

Undoubtedly, Ms. McDade can keep her head above water financially if she enters an income-driven repayment plan (IDR) that will require her to make relatively modest monthly payments.  If she goes that route, however, her payments almost certainly will be insufficient to cover accruing interest on her enormous student-loan debt. And an IDR will require her to make monthly payments for 20 or even 25 years.

Ms. McDade may have made some mistakes in the way she handled her student loans, but denying her bankruptcy relief will not accomplish anything useful. She will probably wind up making monthly payments under an IDR until she reaches retirement age, and these payments will hinder her ability to buy a home or save for her retirement.

In fact, Patricia McDade is one of many student-loan debtors who have entered bankruptcy court owing far more than they borrowed due to accrued interest and fees. In my view, it is not in the public interest to shove all these unfortunate individuals into IDRs just to maintain the fiction that the loans aren't in default.

For all practical purposes, Ms. McDade's student loans are in default, and they will remain in default even if she enters an IDR and faithfully makes monthly payments for the next quarter century.

Photo credit: lend.edu

References

McDade v. Direct Subsidized Consolidated Loan, Case No. 15-bk-52, Adv. Proc. No. 15-ap-27 (Bankr. N.D. Va. 2017).

McDowell v. Educational Credit Management Corporation, Bankruptcy Case No. 10–40845–JDPAdv. Proceeding No. 14–08005–JDP, 2016 WL 2603552 (Bankr. D. Idaho 2016).

Columbia rolls out one-year master's program in data journalism that costs $147,000: An Ivy League school stoops to flim-flam

Columbia University is an Ivy League school with one of the top journalism programs in the country. Perhaps that is why Columbia thinks it can get away with rolling out a new one-year master's degree program that will cost students $147,000 (including living expenses).

Why would anyone invest $147,000 for a one-year program in journalism when the job market for journalists is shrinking and the annual median wage for journalists is less than $40,000?

Giannina Segnini, the director of Columbia's Cadillac program in data journalism, argues that the Trump presidency justifies both the new degree and apparently its cost:

Journalists are facing the challenge of covering one of the most unusual and unreliable governments in modern history: President Trump disseminates lies, twisted facts, and changes in policy in real time through his Twitter account . . . . Despite--or perhaps because of--all of this, investigative journalism is flourishing.

But of course it is the elite American universities that are disseminating lies, twisting facts, and changing policies to justify their obscene tuition prices. Thus far, the law schools have been the chief offenders. The average JD graduate enters a stagnant job market with $140,000 in student-loan debt. Law school tuition prices simply cannot be justified

Now a journalism school is getting in on the flim-flam game--pitching a degree in "data journalism" at an inflated price.

Of course anyone who falls for this pitch is a complete fool, and everyone knows that a fool can practice journalism without a master's degree from Columbia. 


References

Preston Cooper, Columbia University Uses Trump To Sell $100,000 Journalism Degrees, Forbes.com, August 10, 2017.

Nick Roll, $147,000 for a One-Year Master's? In Journalism? Inside Higher ED, August 11, 2017.

Giannina Segnini, Data Empowers Journalism Independence in Trump's Era, Columbia Journalism Review, August 3, 2017.

Disabled Veteran wins stipulated discharge of student loans in a California bankruptcy court: "Snap out of it!"

The Department of Education has said publicly that it will discharge student-loan debt of people who are disabled. Unfortunately, the right hand sometimes does not know what the left hand is doing. Thus, some disabled people who defaulted on their student loans are still being hounded by the Department of Education or one of its debt collectors.

Jaime Clavito, a disabled veteran of Filipino descent was one of those people. Jaime filed for bankruptcy in California without a lawyer in order to get his student loan debt discharged (about $100,000). DOE opposed him in bankruptcy court, and a trial date was set.

At some point, however, DOE looked closely at Mr. Clavito's evidence and agreed to a stipulated discharge of his student-loan debt.

It is not clear from the record why DOE agreed to a discharge of Jaime Clavito's loans just a few days before trial. DOE's short stipulated agreement to a discharge is only two sentences long and says this:

Pursuant to the agreement of the parties, the United States Department of Education consents to entry of judgment granting a discharge of the plaintiff's student loans pursuant to 11 U.S.C. sec.523(a)(8), each party to bear their own attorney fees and costs. The parties request an order from the Court approving the stipulation and taking the trial (set for 8/14/2017) off calender.

I think, however, the DOE attorneys became convinced that Jaime was entitled to a discharge when they saw the evidence he filed showing that he is disabled.

It is unfortunate that Jaime Clavito's case was resolved so close to the trial date. Being in litigation against the federal government is undeniably stressful, and Jaime Clavito must have endured months of anxiety before finally obtaining his discharge.

Jaime Clavito's victory is similar to the victory Richard Precht won last year, when DOE stipulated to a discharge of his student loans. Like Mr. Clavito, Mr. Precht had a very strong case. He was living on only $1200 a month and his Social Security checks and small pension payments were being garnished.

DOE's first response to Mr. Precht's lawsuit was to file a motion to strike his complaint. Eventually, however, a DOE attorney looked at Richard Precht's voluminous evidence and signed a stipulation agreeing to a discharge of Richard's student loans.

What doe these two cases tell us? Two things.

First, people who have been officially determined to be disabled and people who are living below the poverty line on Social Security income are entitled to have their student loans discharged.  DOE is on record that it will discharge student loans by people who are disabled. As far as I know, DOE has no official policy to consent to discharges for impoverished Social Security recipients, but these people's cases are so strong, I don't think DOE will fight them.

Second, disabled people and people whose Social Security checks are being garnished may have to get DOE's attention in order to get their student loans discharged. DOE initially opposed student-loan discharges for both men, and they both had to file adversary proceedings in bankruptcy court before DOE woke up and agreed to discharge their loans.

People in Mr. Clavito and Mr. Precht's position remind me of that famous scene in Moonstruck, when Ronny Cammareri (played by Nicholas Cage) professes his undying love to Loretta Castorini (played by Cher). Loretta reminds Ronny that she is engaged to be married to Ronny's brother Johnny, but Ronny persists.

Finally, Loretta slaps Ronny hard across the face and yells, "Snap out of it!"

That's basically what Mr. Clavito and Mr. Precht did. By filing for bankruptcy, they figuratively slapped the DOE lawyers across the face and yelled, "Snap out of it."

So if your financial situation is similar to that of Mr. Precht and Mr. Clavito, you need to gather your evidence and file for bankruptcy. Then you need to file an adversary lawsuit against DOE or the debt collector who holds your debt and ask the bankruptcy judge to discharge your student loans.

When you do that, you will be slapping the Department to Education hard across the face. "Snap out of it,!" you will be saying. And I think that will feed pretty good.

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

Clavito v. U.S. Department of Education, Adv. Proceeding No. 16-02238-B (E.D. Cal. Aug. 8, 2017) (Stipulation For Entry of Judgment Against The United States Department of Education).

Clavito v. U.S. Department of Education, Adv. Proceeding No. 16-02238-B (E.D. Cal. Aug. 8, 2017) (judgment signed by Bankruptcy Judge Christopher Jaime).

Precht v. U.S. Department of Education, AD. PRO. NO. 15-01167-RGM (E.D. Va. 2016) (consent order).

Press Release of U.S. Department of Education, U.S. Department of Education to Protect Social Security Benefits for Borrowers with Disabilities, April 12, 2016, accessed August 9, 2017.

Michael Stratford, Feds May Forgive Loans of Up to 387,000 Borrowers. Inside Higher Ed, April 13, 2016.

Public Philosophy Network boycotts Texas: Oh, the awful humiliation!

Hey you don't know me, but you don't like me

You say you care less how I feel
But how many of you that sit and judge me
Have ever walked the streets of Bakersfield?

Streets of Bakersfield

Dwight Yoakam and Buck Owens 

The Public Philosophy Network joined The Association of American Law Schools and the state of California in boycotting the state of Texas. The PPN announced that it is moving its 2018 conference from Denton, Texas to Boulder, Colorado.

  

 Why? The group opposes the Lone Star State's immigration policies and a new Texas adoption law, which, the PPN maintains, discriminates against gay people. "The basis of publicly engaged philosophy is the absence of barriers to participation," Robert Frodeman, a PPN spokesperson, explained. "Every person should feel welcomed regardless of their [sic] place of origin, sexual orientation or gender identity."

And besides, Frodeman might have added, the restaurants in Boulder are better than the ones in Denton, Texas.

I have a couple of thoughts about this latest boycott of Texas:

First, who gives a damn if a gang of knucklehead philosophers decides to hold its wingnut conference in Colorado instead of Texas? Philosophy programs are collapsing like aluminum beer cans at universities all over the United States. I say let these nerds nurse their delusion that what they say and do is important. 

And what exactly do the PPN professors say and do? Here's a sample of the group members' scholarly interests, taken from the PPN web site.

Wendy Lee, a PPN member and philosophy professor at Bloomsburg University of Pennsylvania, listed her areas of scholarly expertise as follows: "philosophy of language (particularly later Wittgenstein), philosophy of mind/brain, feminist theory, theory of sexual identity, post-Marxian theory, nonhuman animal welfare, ecological aesthetics, aesthetic phenomenology, and philosophy of ecology." Total cost to attend Professor Lee's university for a year: $24,587.

Tadd Ruetenik, a PPN member and philosophy professor at St. Ambrose University in Iowa, described his interests to include pacifism, vegetarian ethics, and prophetic pragmatism. And what does it cost to take courses from professors like Mr. Ruetenik at St. Ambrose University? $30,000 a year, not counting room and board.

And then there's Maureen Linker, a PPN member who teaches at University of Michigan at Dearborn. Her academic interests: "Implicit Bias, Epistemic Privilege and Epistemic Injustice, Social Difference and Difficult Dialogues." What does it cost to attend Professor Linker's institutition? If you are a non-Michigan resident, it will cost you $29,000 for books, tuition and fees.

No wonder the discipline of philosophy is collapsing at American universities. Students have figured out they are paying too much to attend college to take courses from professors who specialize in vegetarian ethics and epistemic injustice.

And here' my second reflection on the PPN boycott. Although these kooky academics don't realize it, the boycott of a state based on prejudice is reminiscent of the Okie migration into California during the Great Depression.

As John Steinbeck chronicled in The Grapes of Wrath, California state police actually blockaded the state's highways and turned back Dust Bowl refugees at the California border. In the minds of many Californians, the Okies (who were actually from several Southwestern and Midwestern states) were a substandard class of humans who would pollute the pure and sunny atmosphere of the Golden State. 

My analogy is not perfect. The Californians of the Dust Bowl years were trying to keep disfavored people out of their state. Today's prejudice involves a refusal to visit a state deemed a pariah by political elites. But the prejudice is the same. And didn't Professor Frodeman, PPN's spokesperson, say his group believed people should be welcomed regardless of their place of origin?

On the other hand, the Public Philosophy Network's decision to boycott Texas may be a good thing. I'm not sure Texans would feel safe having a bunch of wacky philosophy professors roaming around the plains of North Texas, babbling about epistemic injustice, vegetarian ethics, and nonhuman animal welfare. 

Regional bigotry in the 1930s

References

Nick Roll. Philosophy Group Moves Meeting Out of Texas. Inside Higher ED, August 3, 2017, accessed August 5, 2017, 

https://umdearborn.edu/admissions/undergraduate/reasons-attend/cost-snapshot.

The SIMPLE Act is misnamed. It's really a Federal Sharecropper Enrollment Program for Distressed Student Borrowers

Hello, Americans. If you think you got screwed by Obamacare, brace yourselves. There may be more Congressional skulduggery ahead. A gang of wooden-headed legislators has conspired to introduce a bill called the SIMPLE Act, which, if passed, will push millions of Americans into becoming sharecroppers for the government for a majority of their working lives.

In keeping with Congressional tradition, the bill is known by a tortuous acronym. SIMPLE stands for Streamlining Income-Driven Manageable Payments on Loans--cute! But let's take a look at the guts of this pernicious legislation, and we will see that a more accurate title of the bill would be the Federal Sharecropper Enrollment Act:

If enacted into law, this is what the SIMPLE Act will do:

First, the bill authorizes the Internal Revenue Service to automatically recertify the income of student borrowers in income-driven repayment plans (IDRs).

Second, the bill allows the government to automatically enroll delinquent student borrowers into IDRs. The enabling language is complicated, bu this is how Representative Ryan Costello (one of the bill's cosponsors) described an earlier iteration of the bill in 2016:

Under our bill, the Department of Education would auto-enroll certain borrowers who have missed payments into a lower monthly payment plan in order to reduce administrative burdens and decrease the risk of those borrowers being placed into more expensive plans. 

Admittedly, the bill has some good features. It makes sense for the IRS to certify the annual income of IDR participants rather than force the borrowers to do it themselves. In fact, the Government Accountability Office noted last year that about half the people in IDRs get kicked out of those plans for failing to certify their income on an annual basis.

Second, automatically putting delinquent borrowers in IDRs with lower monthly payments is sensible if the alternative is default. And the bill allows borrowers to opt out of being placed in an IDR.

But here's the overarching problem with the SIMPLE Act.  The bill assumes the status quo for the federal student loan program, and its only solution for people who are overwhelmed by their student loans is to shove them into twenty- or twenty-five year repayment plans.

In other words, the SIMPLE Act is streamlining the process of transforming student borrowers into sharecroppers--bound to pay the government a percentage of their income for the majority of their working lives.  And most people in these plans will be making payments so low they won't even be servicing their interest. People in IDRs will see their debt grow larger with each passing year even if they faithfully make payments for a quarter of a century.

The SIMPLE Act is not a solution to the student loan crisis. Basically, its a form of accounting fraud that maintains the fiction that people are paying back their student loans when in fact almost everyone in these plans will never pay off their student loans.

How will Americans react to being transformed into sharecroppers for Uncle Sam? Not well, I predict. Eventually, student borrowers will rise up in fury. Let's hope they vent their anger at the ballot box and not in destructive acts of desperation.

Look on the bright side. We only have to do this for 25 years. 

References

Andrew Kreighbaum. Bipartisan Legislation Tackles Student Loan Defaults. Inside Higher ED, August 4, 2017.

Press release of Representative Suzanne Bonamici. Bonamici, Costello Introduce Bill to Reduce Student Loan Defaults. September 8, 2016.

National Collegiate Student Loan Trust's student loans may be uncollectible against California co-signers: Sweet!

National Collegiate Student Loan Trust (NCSL)has been in the news lately. The New York Times recently broke a story about NCSL's efforts to collect on the defaulted student loans it holds. According to the Times, NCSL holds $12 billion in private student loans, and more than 40 percent of those loans ($5 billion) is in default.

Squadrons of NCSL attorneys have fanned out across the United States to sue student-loan defaulters, but they have been running into trouble. In case after case, judges have thrown NCSL's collection lawsuits out of court because NCSL can't produce the paperwork to show that it owns the debt.

And now, in California,  NCSL faces another obstacle to its debt-collection efforts. An obscure  California statute may make it impossible for NCSL to collect against co-signers on private student loans taken out in the Golden State.

Section 1799.91 of the California Civil Code requires lenders to provide loan co-signers with a specific written notice that warns them of the risk they take when they co-sign a loan. The warning states:

You are being asked to guarantee this debt. Think carefully before you do. If the borrower doesn't pay the debt, you will have to. Be sure you can afford to pay if you have to, and that you want to accept this responsibility.

You may have to pay the full amount of the debt if the borrower does not pay. You may also have to pay late fees or collection costs, which increases this amount.

 The creditor can collect this debt from you without first trying to collect from the borrower. The creditor can use the same collection methods against you that can be used against the borrower, such as suing you, garnishing your wages, etc. If this debt is ever in default, that fact may become part of your credit record.

Importantly, California law requires co-signers to acknowledge receipt of the statutory warning by signing their names below the cautionary message.

National Collegiate Student Loan Trust requires most of its student borrowers to obtain co-signers on their loans; and reportedly, most NCSL loans do not contain the California statutory warning. The combination of missing documents and the California co-signer statute may make it virtually impossible for NCSL to collect on defaulted student loans in California. Moreover, when NCSL borrowers in California find out that their student loans may be uncollectible, it seems inevitable that more of them will default.

Of course no one should encourage a solvent debtor to welsh on a lawful debt. People who took out private loans held by NCSL should pay them back if they have the ability to do so. But the banks made it virtually impossible for destitute private student-loan borrowers to discharge their private college loans in bankruptcy when they lobbied Congress to pass the so-called Bankruptcy Reform Act of 2005. Now, at least, hard pressed student-loan defaulters have some defenses if they get sued by NCSL--particularly in California.

I am grateful to Steve Rhode for alerting me to this important development. Mr. Rhode wrote on this issue in the Get Out of Debt Guy blog site.  I'm also grateful to California attorney Christine Kingston for calling Steve's attention to the California co-signer statute and its significance for student-loan debtors.

 References

Stacy Cowley and Jessica Silver-Greenberg. As Paperwork Goes Missing, Private Student Loan Debts May Be Wiped Away. New York Times, July 17, 2017.

 Steve Rhode. California Student Loan Co-Signer Statute Helps to Kill Student Loan Debt. Get Out of Debt Guy, July 25, 2017.

Association of American Law Schools joins California in Boycotting Texas: Silly Prigs

The Association of American Law Schools recently announced that it is boycotting Texas and moving its 2018 conference on clinical legal education from Austin to Chicago. Why? The AALS is displeased with a couple of statutes passed recently by the Texas Legislature.

I have a few comments to make about the AALS's fatuous tantrum against Texas.  First, AALS's action is a gratuitous insult to a state with a long history of progressive government and tolerance. As I said in an earlier blog, Texas is the nation's second largest economy; and its population is booming because the state offers jobs, relatively inexpensive housing, and decent public schools. It has one of the finest state universities in the United States, and it is sheltering literally millions of immigrants from all over the world.

It was Texas, after all, that accepted a quarter of a million refugees from South Louisiana after Hurricane Katrina devastated New Orleans in 2005.  Houston alone absorbed 150,000 Katrina victims; and the city did it with a smile and a howdy.

Illinois, on the other hand, where the AALS is moving its clinical legal education conference, is  a basket case.According to the Chicago Tribune, Illinois has lost more population than any other state for the last three years in a row.

Illinois' financial affairs are in shambles; its property taxes are outrageously high, and the state has billions of dollars in pension obligations that it will never repay. In short, Illinois is looking  less and less like a state and more and more like a banana republic. 

And Chicago, where the AALS's 2018 CLE conference will take place, is one of the most dangerous cities in America--more than 2,000 shooting victims this year and almost 400 murders! And the year's still young.

Second, the AALS has joined a pernicious trend that the state of California has made fashionable. California now bans state-funded travel to eight American states--including Texas. Where will this end? Is America going to collapse into a loose affiliation of warring political entities like the Italian city states of medieval Europe?

Finally, AALS's condescending attitude toward Texas seems singularly inappropriate in light of the shameful way American law schools have behaved over the last 20 years. Year after year, the law schools have brazenly raised their tuition rates even while the market for new lawyers has collapsed.  The law schools have drastically lowered admissions criteria in order to keep their enrollments up, and some law schools have standards so  low that half their students are in danger of failing the state bar exam.

American law school graduates now hit the job market with an average debt load of $140,000; and a significant percentage of the ones who graduate from bottom-tier law schools fail the bar.

In fact, Southern Illinois University's law school, in the state where the AALS will squat for its 2018 legal education conference, is near the bottom of the barrel.  According to Law School Transparency, LSAT scores for SIU's 2014 cohort are so low that 25 percent of the graduates from that cohort are at EXTREME RISK of failing the bar.  Cost to attend SIU Law School: $145,000.  USI's 2015 bar pass rate: about 70 percent.

Do you think the AALS nabobs will be talking about their own moral crisis at their conference in Chicago? Not bloody likely. 

So here's some friendly advice to all you self-righteous prigs who enjoy thumbing your noses at the Lone Star State. Be nice to the Texans, because when the national economy collapses--and it will collapse--it will be Texas that rises most quickly from the rubble; and you might be looking for a job in the state you now despise.

And after we sack Pisa let's boycott Texas.

 References

Elyssa Cherney and Elvia Malagon. Nearing 400, homicides in Chicago continue to outpace last year. Chicago Tribune, July 24, 2017.

 Marwa Eltagouri. Illinois loses more residents in 2016 than any other state. Chicago Tribune, December 21, 2016.

Richard Fossey. California bans state-funded travel to Texas: Frankly, my dear, Texans don't give a damn. Condemned to Debt, June 27, 2017.

Nick Roli. Law School Group Ditches Texas Conference. Inside Higher Ed, July 24, 2017.