Old and in the Way: Hundreds of thousands of elderly student-loan debtors are experiencing real financial hardship, and the federal government doesn't care

Old and in the way, that's what I heard them say

They used to heed the words he said, but that was yesterday

Gold will turn to gray and youth will fade away

They'll never care about you, call you old and in the way

Old and In the Way

Lyrics and music by David Grisman

Many Americans think student-loan defaulters are young scofflaws who obtained valuable university degrees and simply refuse to pay back their loans.

But that stereotype could not be further from the truth.

In fact, most of the people who defaulted on their student loans simply fell on hard times. Many acquired their degrees from for-profit universities that charged far too much for substandard educational experiences. Millions of people who attended for-profit colleges found themselves worse off financially after finishing their studies than they were before they enrolled in these sleazy institutions.

Some people borrowed money to obtain undergraduate degrees and were unable to find jobs that paid well enough for them to service their loans. Some of these unfortunate souls doubled down and borrowed more money to go to graduate school.  Those who borrowed to go to law school found a collapsing job market for lawyers.

Other  student-loan borrowers became ill, got divorced or were laid off from their jobs. For a thousand different reasons, millions of student-loan debtors fell off the ladder in their climb toward economic security and never recovered. In short, most people who defaulted on their student loans simply did not have the financial resources to make their loan payments.

And many student-loan defaulters are elderly.

As Natalie Kitroeff reported recently in Bloomburg Business Week, about one out of four student-loan debtors age 65 and older are in default. Half the student loans held by people who are 75 years old or older are in default.  And 155,000 elderly Americans are having their Social Security checks garnished due to defaulted student loans, an enormous increase from 2002, when only 31,000 Americans were having their Social Security checks garnished.

Surely all humane people can agree that the federal government should not be garnishing elderly people's Social Security checks to collect on defaulted student loans. Or perhaps we can't. In the Lockhart decision, the U.S. Supreme Court upheld the government's authority to garnish the Social Security checks of student-loan defaulters. And get this: The decision was unanimous. There were no liberals on the Supreme Court on the day the Lockhart case was decided.

But perhaps humane people can at least agree that the government should not oppose bankruptcy relief for student-loan defaulters who are living on Social Security income of less than $800 a month. But again, perhaps we can't. Educational Credit Management Corporation actually opposed bankruptcy relief for Jane Roth, a 68-year-old woman with chronic health problems who was living on a monthly Social Security check of only$774.

Fortunately, the Ninth Circuit Bankruptcy Appellate Panel was considerably more compassionate than ECMC, and it discharged Roth's student loan debt.

I once thought the Roth decision might bring the federal government to its senses and that it would issue strict orders against opposing bankruptcy relief for student-loan defaulters living entirely off their Social Security checks. But I was wrong.

In fact the Obama administration is ignoring the Roth decision. The Department of Education issued a guidance letter in July 2015 (the Mahaffie letter) outlining when student-loan creditors should not oppose bankruptcy relief for insolvent college-loan borrowers; and it did not even mention the Roth decision.  And the Department of Education's lawyers filed a pleading in a California bankruptcy court last month arguing that the Roth decision is not binding on any bankruptcy court.

For all its blah-blah-blah about providing relief for distressed student-loan debtors, the Obama administration's Department of Education is doing little more than pitching long-term repayment plans whereby student-loan borrowers are forced to make loan payments for 20 or 25 years.

And DOE's lawyers run like hounds to the bankruptcy courts to oppose bankruptcy discharge for insolvent student loan debtors, regardless of their age.

In short, if you are an elderly person who defaulted on your student loans you have no friends in the Obama administration. As far as the President Obama's Department of Education is concerned, you are just old and in the way.


References

Natalie Kitroeff. Student Debt May Be the Next Crisis Facing Elderly Americans. Bloomberg Businessweek, December 18, 2015.  Accessible at:  http://www.bloomberg.com/news/articles/2015-12-18/student-debt-may-be-the-next-crisis-facing-elderly-americans

Lockhart v. United States, 546 U.S. 142 (2005).

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

U.S. General Accounting Office. Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Borrowers. GAO-14-866T. Washington, DC: General Accounting Office. http://www.gao.gov/products/GAO-14-866T

U.S. Department of Education. Strengthening the Student Loan System to Better Protect All Borrowers.  Washington, D.C., October 1, 2015: Author. Accessible: http://www2.ed.gov/documents/press-releases/strengthening-student-loan-system.pdf