Marchus v. Student Loans of North Dakota: Another Victory for Student-Loan Debtors in the Eighth Circuit

In 2020, Debra Jean Marchus filed an adversary proceeding in a North Dakota bankruptcy court, seeking to discharge about $38,000 in student-loan debt. After a trial, Bankruptcy Judge Shon Hastings wiped out the debt.

As summarized in Judge Hastings's decision, Ms. Marchus began her journey through higher education in 1975, forty-five years before she filed for bankruptcy. She first enrolled at North Dakota State University, then attended a couple of for-profit institutions, and finally obtained an associate degree in accounting from the University of Phoenix in 2013.

When Marchus appeared in Judge Hastings's courtroom, she only made $11.00 an hour working as a North Dakota grocery store stocker. Moreover, Marchus had never made a lot of money. Her average annual income over the previous fifteen years was only $14,493. 

As Judge Hastings noted, Marcus bought her clothing from second-hand stores, received health care from Medicaid, and supplemented her food budget with financial assistance from the federal government's SNAP program. She drove a 17-year-old car and lived in a one-bedroom apartment.

Ms. Marchus also suffered from serious health problems, which Judge Hastings summarized in some detail:

[Marchus's] physical conditions include arthritis, water retention, relaspes of colitis, chronic sinusitis . . . , no upper arm strength, weight gain, lack of blood flow in her legs, thyroid disease, hiatal hernia and kidney disease

After sifting through all the evidence (including more than 500 pages of medical records), Judge Hastings concluded Ms. Marchus's financial future did not look promising.

[Marchus] is almost 64 years old. She holds no pension or investment accounts and saved no money for retirement. Her employment and income opportunities are limited, and the prospect of [Marchus] increasing her income either through new employment or a promotion at her current job appears bleak.

Summarizing the evidence (which included more than 500 pages of medical records), Justice Hastings concluded that it was unlikely that Ms. Marchus would ever earn more than her current income. He discharged her debt to SLND in its entirety.

What are we to make of Marchus v. SLND? 

First, Debra Machus is one among millions of Americans who took out student loans to attend for-profit colleges but did not benefit financially. For more than forty years, Marchus attempted to improve her lot in life by enrolling at for-profit schools, and yet she wound up working at a job that paid only $11 an hour.

Second, Marchus's case shows how interest and penalties can cause a student-loan debt to balloon out of control. Debra Marchus borrowed $14,000 in 2007 to attend Aakers Business College, and she paid back more than half that amount with money she received from an inheritance. Nevertheless, by the time she filed for bankruptcy, her debt had grown to more than $38,000! 

Finally, Marchus v. SLND is another win for student-loan debtors who reside in the Eighth Circuit Court of Appeals. Like Diane Ashline's victory in Iowa and Michael Abney's success in Missouri, Marchus's victory in North Dakota is a sign that the bankruptcy judges in the Eighth Circuit are becoming more willing to grant student-loan debtors the relief to which they are clearly entitled.    

References

Abney v. U.S. Department of Education, 540 B.R. 681 (Bankr. W.D. Mo. 2015).

Ashline v. U.S. Department of Education, Adversary No. 16-09028 (Bankr. N.D. Iowa, Sept. 28, 2021).

Marchus v. Student Loans of North Dakota, 630 B.R. 91 (Bankr. D.N.D. 2021).

Elizabeth Lally, N.D. of Iowa Judge Collins Leads the Way On Discharge of Student Debt in the Eighth Circuit, Goosmann Law Firm (July 28, 2018).

Ashline v. Department of Education: Dental Assistant with Master's Degree from Kaplan U. discharges $230,000 in student loan debt

 Diane Ashline, a 47-year old single mother, worked for 20 years as a dental assistant. Hoping to increase her income, she took out student loans to get an undergraduate degree and a master’s degree from Kaplan University, a for-profit school. Unfortunately, these degrees did not help her financially.

Ashline never defaulted on her student loans. Instead, she put them in forbearance during the times she was unable to make payments. Nevertheless, by the time she filed for bankruptcy in 2016, she had accumulated  $230,000 in student debt. 

The U.S. Department of Education DOE) insisted that Ashline be put in an income-based repayment plan (IBR), which would only require her to pay $65 a month.  But Judge Thad Collins, who presided over Ashline’s bankruptcy proceedings, rebuffed DOE’s arguments and discharged all of Ashline’s federal student debt.

The judge pointed out that “no evidence [had been] produced to suggest that [Ashline] would ever be able to leverage her unused master’s degree to obtain a higher paying job in the future.” In fact, he ruled, there was “no suggestion that her income would increase in any meaningful way over the remainder of her working life.”

Judge Collins emphatically rejected DOE’s demand that Ms. Ashline sign up for an IBR, partly due to her age. At the time Judge Collins issued his decision last December, Ashline was 50 years old. “Upon completion of a hypothetical IBRplan,” the judge observed, “she would be between 69 and 74 years old.”

Under an  IBR, the judge explained, interest on Ashline’s student loans would outpace her payments, and she would never pay off her debt.  Although the unpaid debt would be forgiven if she completed her IBR, the forgiven debt would be taxable to her. Ashline would then face a “student loan forgiveness tax bomb”--a tax bill for the entire amount of the forgiven debt.

Judge Collins summarized his ruling in favor of Ms. Collins with these words:

[T]he Court finds that [Ashline] has proven, by a preponderance of the evidence, that not discharging her student loans would impose an undue hardship on her and her dependents. She has maximized her earnings potential. Her future financial condition is not likely to improve to any significant degree. . . . Her expenses are not extravagant. Debtor has made the good faith effort to make payments on her student loans . . . and has deferred those payments when she was unable to make them.

Judge Collins’s decision joins a growing body of case law that rejects the argument that student debtors should sign up for IBRs instead of seeking bankruptcy relief. Indeed, Judge Collins himself has issued two other important decisions in which he discharged student debt.

Gradually, I believe the tide is turning in favor of distressed student-loan debtors in the bankruptcy courts. Increasingly, federal bankruptcy judges are recognizing that forcing college borrowers into IBRs makes no sense.

I hope the Ashline decision and other bankruptcy court decisions in a similar vein will encourage “honest but unfortunate” student-loan debtors to shed their unpayable student loans in a federal bankruptcy court.

References

Ashline v. U.S. Department of Education, Adversary No. 16-09028 (Bankr. N.D. Iowa, Sept. 28, 2021).

Elizabeth Lally, N.D. of Iowa Judge Collins Leads the Way On Discharge of Student Debt in the Eighth Circuit, Goosmann Law Firm (July 28, 2018).

In re Martin, 16-9052 (Bankr. N.D. Iowa Feb. 16, 2018).

Fern v. FedLoan Servicing, 553 B.R. 362 (Bankr. N.D. Iowa 2016), aff’d 563 B.R. 1 (8th Cir. BAP 2017).

You Can Find Justice in the Bankruptcy Court of the NorthernDistrict of Iowa

Fern v. FedLoan Servicing, 553 B.R. 362 (Bankr. N.D. Iowa 2016), aff’d 563 B.R. 1 (8th Cir. BAP 2017).

 

Detour! Don't Choose a College Major That Won't Help You Get a Good Job

As Junior Brown reminded us in Detour, a class Country song, we can avoid a lot of trouble if we heed the warning signs all around us. "Oh, these bitter things I find," Brown sang. "Should have read that detour sign."

And this brings me to the topic of choosing a college major. Many 18-year-olds, maybe most, have only a foggy idea about what they want to do for a living. 

 In the service of transparency (don't you love that word?), I admit to switching majors twice while in college. I finally settled on a dismal major in sociology--sometimes described as the painful enumeration of the obvious. I learned nothing of any value.

So--how do you choose a major when you go to college? 

First, consider what you are good at and pay attention to what friends and mentors tell you about your skills and dispositions. When I was a first-year student, my freshman English instructor, a reporter at the local newspaper, told me I was a good technical writer, and she read one of my essays to my entire class.

I should have paid more attention to her compliment. It did not occur to me that I should focus on a career that would allow me to use my writing skills.  I should have switched my major to journalism. It wasn't until I got to law school many years later that I discovered that my aptitude for technical writing was valuable and could help me earn my living.

Second,  take note of the academic programs that are being shut down by the universities. For example, Youngstown State University announced this week that it is closing 26 academic programs. Programs being axed include Art History, Music History, Italian, Religious Studies, and Dance Management.

YSU said that only 87 students would be affected. In other words, on average, these 26 programs had only 3.3 students.  I wonder how many Youngstown students were majoring in Dance Management.

All over the United States, colleges and universities are closing academic offerings.  Many majors that are being shit-canned (a sociology term I learned in college) are in the humanities and social sciences. Literature, philosophy, anthropology, art history, and sociology are being thrown under the academic bus.  You should probably not devote your college years to taking classes in these fields. 

I regret having to give this advice. Our lives are enriched by an understanding of history and an appreciation for literature and culture. At the very least, every American should have a basic grasp of the causes of World War II and the catastrophe it unleashed all over the world. If it were up to me, no one could get a college degree without reading William Shirer's Rise and Fall of the Third Reich.

Unfortunately, a college education has become so expensive that the primary consideration in choosing a major should be to get a degree that leads to a good job. Thus, I think it would be best for young people to cultivate an appreciation for history and literature on their own time.

Junior Brown: "Should have read that detour sign."

Private Student-Loan Debt at an All-Time High: TICAS Releases Snoozer Report

 According to a recent report by the Institute for College Access and Success (TICAS), the 2020 class of college graduates has amassed $136 billion in private student debt.  When this amount is added to the total student debt from federal student loans--about $1.8 trillion, Americans are on the hook for almost $2 trillion in student debt.

Interestingly, students in the District of Columbia had the highest average private-debt level: $51,738. Eight states in the Northeast were in the top ten for high private student debt. The average private student debt in Delaware for the class of 2020 was over $50,000.

As Cody Hounanian, Executive Director of the Student Debt Crisis Center, aptly noted, the TICAS report shows that the costs of higher education have "skyrocketed and are out of control."

But are colleges doing anything to control their costs? Not much. Higher Education thinks it should be congratulated because tuition costs rose less than the inflation rate--the first time in decades that tuition increases didn't exceed inflation. I suppose that's good news of a sort, but the critical fact is that tuition costs go up every year.

TICAS's report concluded with a list of policy recommendations, but they're nothing to write home about.

TICAS recommends more federal grant money for low-income students, more oversight of the private student-loan industry, more loan counselors, and better advertising of income-based repayment plans.

Ho, hum!

TICAS did not recommend bankruptcy relief for student-loan debtors who are overwhelmed by the college debt. It said nothing about cracking down on the private-college industry, other than a vague recommendation to "Tighten Institutional Accountability."

I've been writing about the student-loan crisis for 25 years, and I've read dozens of reports and policy papers by think tanks and policy centers.  

Most of them recommend more money, more transparency, and more lenient income-based repayment programs.  TICAS's recommendations added nothing new.

Another snoozer report on the student-loan crisis!

The College Bookstore: Where Are the Friggin' Books?

 An LSU student, Kathryn Craddock, wrote a scathing critique of LSU's book store--operated, of course, by Barnes & Noble. 

"The colors are bland, the lighting is nauseating, and the inventory is full of tacky, overpriced LSU-themed junk," Craddock wrote in Reveille, the student newspaper. 

She said the bookstore's atmosphere shares more in common with a Walmart than an academic building. "I would even go far as to say that the building and its contents are creepy." 

Ms. Craddock's assessment of LSU's bookstore is absolutely correct. In fact, LSU's Barnes &Noble outlet doesn't even call itself a bookstore. The sign in front of the building simply says "Barnes & Noble at LSU."

Of course, the bookstore has a coffee shop where it sells Starbucks coffee--vile, overpriced stuff. But the store is really a souvenir and t-shirt shop. You can get an LSU t-shirt there for only $35 plus tax.  Or you can buy an LSU cap that will run you close to thirty bucks.

But books? Where are the friggin' books? As Ms.Craddock accurately described:

The LSU bookstore host shelves upon shelves of nightmares. There are the cheesy self-help books and celebrity memoirs with terrible attempts at relating to younger crowds.

I don't live far from LSU's Barnes & Noble, and I occasionally browse around the place. The store's textbook section is squeezed into a corner on the second floor--kinda hard to find.

The first floor is devoted to LSU-themed clothing, bric-a-brac, and--as Ms.Craddock attested, celebrity memoirs and self-help books. I recall seeing a self-help volume titled Taller, Slimmer, Younger--marked down to only a dollar.

I still remember the campus bookstore from my college days. Most of the store was devoted to textbooks, the ostensible purpose for being a college bookstore.

But the store also had a respectably-sized section devoted to fiction and literature. As a first-year college student from rural Oklahoma, I didn't know nothin' bout no literature, but I was attracted to a line of books with similar covers published by Scribner. I bought The Masters, a novel by C.P. Snow; Hemingway's Farewell to Arms; and F. Scott Fitzgerald's Tender is the Night.

I chose these books on my own; they were not assigned to me for a college class. And I read them uncritically. 

But I only knew about these books because I stumbled upon them at Oklahoma State University's campus book store. 

LSU's Barnes & Noble has a small stock of fiction, and you might find something by Hemingway or Steinbeck. But if you buy an LSU-branded water bottle first, you probably can't afford to buy a good novel.

And who needs to read works of fiction anyway when you can buy a self-help book that will make you look taller, slimmer, and younger for only a buck?

 

Luxury Student Housing and the Slumification of American College Towns

 In the nineteenth and early twentieth centuries, cotton production was a staple of America's Southern economy.  Even today, the United States is one of the world's largest exporters of cotton.

But cotton has some problems. Grown year after year, cotton depletes the soil.  Before commercial fertilizers became available, cotton growers simply grew cotton on a plot of land until the ground was exhausted and then moved on to places where the land was still fertile.

Something similar is happening in the luxury student-housing market. All over the country, college towns are seeing a boom in student-oriented apartment developments.  Developers buy relatively cheap land near college campuses, build so-called luxury apartments, rent them to college students and then sell the units to new investors--often pension funds and private-equity funds.

Is this a good thing? From an investor's standpoint, luxury student housing is profitable. According to one source, students pay a higher rate per square foot of space than other tenants, and students can take out student loans to pay the rent.

Even better, there is a never-ending supply of new students to keep the apartment buildings full.

But, just as cotton exhausts farmland, student housing gets run down over time, causing maintenance costs to go up. Moreover, college students are famously fickle renters, and they tend to search out newer apartments and offer more amenities than their old digs.

As newer and more luxurious apartment complexes come on the market, older apartment buildings become harder to fill. Rent prices go down, maintenance gets deferred, and then the luxury student apartment complexes of yesteryear become the slum districts of today.

We see this happening in the college town where I live. As the Baton Rouge Advocate noted in a recent news story, the Tigerland neighborhood south of Louisiana State University is "the storied college bar district and surrounding housing options once considered some of the most luxurious for LSU students. . . ."

But most of the Tigerland student apartments were built in the 1960s and 1970s, and they have seriously deteriorated. Several have been converted into so-called "Section 8 housing," housing for low-income households who receive public assistance.

This is no problem for the present generation of college students. They have their pick among hundreds of newer apartments that offer more amenities--fitness centers, swimming pools, recreation rooms, etc. 

Meanwhile, Tigerland has become notorious for crime, including murder. The Sandpiper Apartments on Tigerland Avenue are so infamous that Hillar Moore, the local district attorney, attempted to shut the place down as a "legal nuisance."

According to a 2021 newspaper article, Moore said the police had received 195 calls at the Sandpiper since 2016, an apartment complex with only 14 units!

The Sandpiper's owner asked the judge and prosecutors to be more sympathetic:

"If they shut me down, they should shut down the whole place," he said after the hearing. "The entire neighborhood needs to be condemned, to be honest. You would be appalled to know some of the crimes that are happening there." [As quoted in the Baton Rouge Advocate]

On the bright side, Tigerland is only a short walk to the LSU campus, and the rents are reasonable.  

Why should I care whether the neighborhoods around LSU are becoming slums? After all, I'm a retired professor, not a college student.

But I live in College Town, an old subdivision near the LSU campus. The Sandpiper, which the district attorney tried to shut down, is located only 1.3 miles from my home. 

Tigerland--only a short walk to the LSU campus

 

Three-Year College Degrees: Is That a Good Idea?

 I recently stopped off at my local natural food store to pick up a box of my favorite organic breakfast cereal. The stuff tastes like maple-flavored cardboard, which I prefer to strawberry-flavored cardboard.

This cereal is expensive, and when I picked up the box, I noticed it seemed too light--like it was only half full. I realized then that the cereal manufacturer was hiding its rising costs by giving me less for my money instead of charging me more.

Something like that is happening in higher education. According to Inside Higher Ed, "Higher education thought leaders" and several colleges are developing three-year college degree programs. 

Why? Because a college education has gotten intolerably expensive, and a three-year program would theoretically reduce the cost of a college education by 25 percent.

Several models would slash the total number of credit hours from 120 to 90. Sort of like my breakfast cereal. Colleges keep their costs down by offering students fewer courses.

Is this a good idea?

Maybe. Most people agree that many students are taking required courses that don't interest them in the least. Why should an engineering student have to take a course in biology?

But the "thought leaders" are forgetting one critically important fact. Most students don't complete their college degrees in four years. In fact, only a little more than half the students at public universities  (57.6 percent) get their degrees in six years!

Private colleges have a slightly higher graduation rate.  Still, only about two-thirds of private-school students graduate within six years.

That tells me that most college students are in no hurry to complete their degrees and enter the world of work.

Some experts think that three-year college programs have significant drawbacks. A Connecticut college discontinued its three-year program because it "did not allow for the psychosocial and academic development of 18- to 22-year olds" that would occur if students were on campus for four years.

In an article published ten years ago, the Washington Post reported that three-year college programs are not catching on. Some students dropped out of the three-year option, the paper said, because they wanted more time to participate in student activities.

I applaud any effort to cut the cost of going to college. And maybe some of those required classes should be dropped. When I was a student (in the previous century), I took required courses in history, geography, biology, and chemistry.

Except for my American history course, which I loved, the information I got from my required classes went in one ear and out the other. I remember selling my chemistry text within an hour after finishing my final exam. (I got a C.)

Let's keep working on ideas to cut the cost of going to college. We've simply got to get tuition prices down and keep students from taking out student loans they can't repay.  Three-year college programs may be part of the answer.

But let's not cut history courses from the college curriculum. I took an American history class when I was a college freshman, and I still remember why Washington crossed the Delaware.

Why did Washington cross the Delaware, and who cares anymore?