But he is not typical, and it would be tragic if Siegel becomes the poster child for the student-loan crisdis.
Americans need to understand that most student-loan defaulters are not successful, self-employed professionals like Siegel. Rather, they are typically people in desperate circumstances due a a host of negative life events (job loss, divorce, illness) that left them unable to manage their student-loan debts.
If Americans are looking for a poster child for the student loan crisis, I nominate Alethea Lamento.
Arethea Lamento, Not Lee Siegel, is the Poster Child for the Student Loan Crisis
As explained by a sympathetic bankruptcy court, Alethea Lamento was a 35-year-old single mother of two when she filed for bankruptcy. She was working for a grocery store chain for $10.15 an hour, and she only made ends meet for herself and her two children by living rent-free with her mother and her step-father.
Lamento had accumulated $70,000 in student loan debt while trying to obtain an education that she hoped would open the door to a better life. Unfortuantely, she married a man who, according to the bankruptcy court, was "abusive in multiple ways," and her husband did not want her to go to college. She made several attempts to get training to increase her income but she was unsuccessful due in part to the fact that she was a mother of two and married to a man who discouraged her from obtaining an education.
As the court explained, Lamento was never able to make a voluntary payment on her student loans, and the federal government eventually began garnishing her paychecks to collect on the accumulated debt. Lamento then filed for bankruptcy.
In the bankruptcy proceedings, the U.S. Department of Education and Educational Credit Management Corporation appeared as creditors and opposed Lamento's request to have her student-loan debt discharged. They argued she should be put in a 25-year income-based repayment plan.
But a sympathetic and compassionate bankruptcy court rejected these arguments and discharged Lamento's student loans. First of all, the court pointed out, it was obvous that Arethea would not be able to maintain a minimal standard of living if she were forced to pay off her student loans.
“At the age of
35, she has no money to pay rent or utilities for housing for herself and her
two children,” the court wrote. “Without the generosity of her mother and
stepfather, her family would have nowhere to live” (p. 676). Alethea’s salary
did not allow her to pay rent or utilities, which the bankruptcy court
considered to be basic needs. Nor did she have health insurance, which the
court also considered to be a basic need.
Alethea's creditors argued that her financial circumstances would improve, but the court did not agree. “The evidence showed conclusively that Alethea’s financial
situation is not temporary and that it is likely to persist for a significant
part of the repayment period,” the court ruled.
In the bankruptcy court's view, Alethea had filed for bankruptcy in good faith. It was true, the court acknowledged, that Alethea had made no
voluntary payments on her student loans. Nevertheless, it was undisputed that
with her limited income and tight budget, Alethea had never made enough money
to make student-loan payments.
ECMC and the Department of Education
tried to make much of the fact that Alethea had refused their offer to enter
into a 25-year income-based repayment plan. In their view, her refusal to agree
to a long-term repayment plan showed her lack of good faith.
But the court rejected this line of
reasoning. As the court pointed out, the creditors’ position basically amounted
to the argument that the only way a student-loan debtor can show good faith
in a bankruptcy proceeding is to sign up for a long-term repayment plan.
The court ruled that Alethea’s reasons
for rejecting a 25-year income-based repayment plan “to be credible,
convincing, and offered in good faith” (p. 679). In the court’s opinion, it was
clear that Alethea was not able to pay anything on her student loans and would
be unable to do so in the foreseeable future. Thus her participation in an
income-based repayment plan would be futile.
In addition, the court pointed out,
there were burdens associated with such agreements. First, if Alethea agreed to
a 25-year repayment plan, she would essentially be trading one nondischargeable
debt for another. Second, signing up for such a repayment plan would require
Alethea to report her income to her student-loan creditors for the next 25
years.
Finally, and perhaps most importantly,
the court noted that the creditors’ insistence on a long-term repayment plan overlooked
“the psychological effect” of having a significant debt obligation stretch out
over a quarter of a century. “Given Alethea’s desperate circumstances, and her
status as the proverbial honest but unfortunate debtor, she is entitled to
sleep at night without these unpayable debts continuing to hang over her head
for the next 25 years” (p. 679, emphasis supplied).
Conclusion: Millions of Student-Loan Defaulters are Entitled to Bankruptcy Relief
Perhaps Lee Siegel should have paid off his student loans, but millions of people who took our student loans in good faith don't make enough money from their jobs to pay back their loans. All these people are entitled to bankruptcy relief.
As Americans contemplate the growing student-loan disaster, they need to realize that Rober Siegel is not the typical student-loan debtor. More typical by far is Alethea Lamento, a single mother of two and an "an honest but unfortuante debtor," who deserves relief from oppressive student loans.
Note: Parts of this blog essay are taken from an article I co-authored with Robert C. Cloud and which appeared in Teachers College Record Online earlier this year. The opinions expressed in this blog are soley my own.
References
Delisle, J. & McCann, C. (2014,
September 26). Who's Not Repaying Student Loans? More People Than You Think. Forbes.com. Retrieved from http://www.forbes.com/sites/jasondelisle/2014/09/26/whos-not-repaying-student-loans-more-people-than-you-think/
Fossey, R. & R. C. Cloud. (2013,
November 22). "The Law Does Not Require a Party to Engage in Futile Acts”:
Student Loans, Bankruptcy and a Compassionate Federal Court. Teachers College Record, http://www.tcrecord.org, ID Number: 1733.
Fossey, R. & R. C. Cloud (2015, February 23). In Re Lamento: An Honest But Unfortunate Debtor
Is Entitled To Sleep At Night Without Worrying About Unpayable Student-Loan
Debt. Teachers College Record Online, http://www.tcrecord.org ID Number: 17871
In re Lamento, 520 B.R. 667 (Bkrtcy.
N.D. Ohio 2014).
In re Roth, 490 B.R. 908 (9th Cir. BAP
2013).
Krieger v. Educational Credit Management
Corporation, 713 F.3d 882 (6th Cir. 2013).
David Marans, This Author Called for A Student Loan Boycott, And CNBC Was Not Having It. Huffington Post, June 8, 2015. Accessible at: http://www.huffingtonpost.com/2015/06/08/cnbc-student-loan-boycott_n_7537432.html
Lee Siegel. Why I Defaulted on My Student Loans. New York Times, June 7, 2015, Sunday ReviewSection, p. 4.
David Marans, This Author Called for A Student Loan Boycott, And CNBC Was Not Having It. Huffington Post, June 8, 2015. Accessible at: http://www.huffingtonpost.com/2015/06/08/cnbc-student-loan-boycott_n_7537432.html
Lee Siegel. Why I Defaulted on My Student Loans. New York Times, June 7, 2015, Sunday ReviewSection, p. 4.
Student borrowers and the economy
(2014, June 10). New York
Times. Retrieved from
http://www.nytimes.com/2014/06/11/opinion/student-borrowers-and-the-economy.html?_r=0
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