Slavery in the United States ended with the Civil War, but slavery in another form lived on. Slavery was replaced by a new kind of bondage, whereby tenant farmers and share croppers basically became serfs to their landlords and were as bound to them as if they were still human chattel. The age of the share cropper and the tenant farmer did not end until the Great Depression, when the rural poor fled the land and migrated to the cities or to California.
But those days are over, right? No one in the United States is a slave or an indentured servant in the 21st century.
Sadly, our national government has created a new form of bondage, which it imposes on college students who participated in the federal student loan program but can’t pay back their loans. Some of these former students are burdened with student-loan obligations for decades--hounded by the loans they cannot repay and the accumulating interest on their debt. Some of them have become true indentured servants--bound to pay a portion of their income to their federal student-loan creditors for a majority of their working lives.
The Disturbing Case of In re Stevenson
If you think I have overstated my case, you should read In re Stevenson (2011), a recent decision by the U.S. Bankruptcy Court in Massachusetts. Janice Stevens took out two student loans in 1983 to obtain additional education beyond her bachelor’s degree. She took out a third loan in 1987 and another in 1992. By 2008, when she filed for bankruptcy, Ms. Stevenson was in her mid-50s, and her total indebtedness was approximately $112,000, including accrued interests and costs.
Ms. Stevens filed an adversary proceeding in bankruptcy court, seeking to have her student loans discharged on the grounds of undue hardship. Most people would think she had a pretty good case. Although she had held good jobs over the years, she had suffered periods of joblessness and homelessness and had sometimes lived in homeless shelters. In addition, Ms. Stevenson had health issues--back problems, high blood pressure and an autoimmune disease that required her to take medicine.
During the bankruptcy proceedings, Ms. Stevenson held a part-time job at Walgreens, earning less than $500 a month. She supplemented her meager income with unemployment checks, which were scheduled to terminate in a matter of months. She also received a monthly subsidy from the State of Massachusetts to help her pay her rent.
In spite of Ms. Stevenson’s bleak economic circumstances, Judge Joan Feeney ruled that her student loans were not dischargeable in bankruptcy. Judge Feeney concluded that Ms. Stevenson should continue paying her loans through the federal government’s Income Contingency Repayment Plan (ICRP), whereby she would pay a percentage of her income toward paying down her loans for a period of 25 years. At the end of the 25 year period, any remaining balance would be forgiven.
Did Judge Feeney Make Ms. Stevenson an Indentured Servant?
When she came into bankruptcy court, Ms. Stevens had unpaid student loans stretching back to 1983. Instead of discharging her debt based on undue hardship, Judge Feeney concluded that Ms. Stevenson should participate in a federal repayment program that would obligate her to pay a percentage of her income toward her debt for 25 years.
If Ms. Stevenson goes on the ICRP, she will be nearly 80 years old when her payment obligations cease. By that time she will have been burdened with student-loan debt for well over half a century.
It seems to me that the Income Contingent Repayment Plan, which Judge Feeney endorsed for Janice Stevenson, is nothing more than a modern version of indentured servitude, whereby student-loan debtors like Ms. Stevenson pay a portion of her income to student-loan creditors for the balance of her working lives.
The federal student loan program is out of control, and the Income Contingency Repayment Plan is making life harder for overburdened student-loan debtors, not easier.
Congress needs to do two things. First, it should amend the bankruptcy laws to allow insolvent student-loan debtors to discharge their debts in bankruptcy just like any other overburdened debtor.
Second, Congress should pass legislation abolishing the ICRP option for stressed out student-loan debtors. People who are insolvent deserve the fresh start that bankruptcy is designed to give them. They don’t deserve to be saddled with a 25-year repayment plan that will cripple them financially for the rest of their working lives.
In re Stevenson, 463 B.R. 586 (Bkrtcy. D. Mass. 2011).