Wednesday, August 28, 2019

“A noose around her economic neck”: A young lawyer wins a partial discharge of her private student loans

Nitcher v. National Collegiate Student Loan Trust, decided a few days ago, is another story of a heavily indebted lawyer who attempted to have her student loans discharged in bankruptcy. 

Leslie Taiko Nitcher is a 38-year-old attorney who graduated from Willamette University School of Law and passed the Oregon State Bar in 2008. She found it difficult to find steady work, but she finally landed a law job that paid her $69,000 in 2018.

Nitcher took out federal student loans and private student loans while she was in school. Although she made some payments on her student-loan debt, she owed a quarter of a million dollars on her loans ten years after she graduated. About $200,000 of that debt consisted of federal student loans, which she managed by enrolling in an income-based repayment plan (REPAYE). She pays $479 a month under that plan, which obligates her to make monthly payments for 25 years.

Nitcher also owed $51,000 in private student loans and she attempted to discharge these loans in bankruptcy. Bankruptcy Judge Peter C. McKittrick was sympathetic to her plight and granted Nitcher a partial discharge that requires her to pay only $16,500 on that debt, payable in 110 monthly payments.

Here is how Judge McKittrick began his opinion :
This adversary proceeding tells a far too common story of the plight of a professional swallowed by massive student loan debt, much of which she has no hope of repaying during her lifetime. In 2005, when Leslie Nitcher . . . enrolled in law school, it was with the hope and expectation her advanced degree would lead to a legal career at a level of compensation commensurate with the standard of living that lawyers historically have enjoyed. Instead, she faced a bleak job market when she graduated from law school in 2008. 
The question before the court, Judge McKittrick wrote, was "to what extent her student loan debt will remain a noose around her economic neck for the remainder of her economically productive years."

Judge McKittrick finished his opinion by explaining why he ruled as he did. "The reason I have concluded that the Student Loans should be discharged is largely because Nitcher cannot survive if [her private-loan creditor] garnishes her wages." 

The Nitcher decision is important because it is one of a growing number of bankruptcy-court decisions in which judges acknowledge the heavy burden that many law graduates face due to the tremendous amount of student-loan debt they accumulate during their studies. In many instances, they simply cannot pay it back.

As Judge McKittrick put the matter, Nitcher had “a noose around her economic neck." Unfortunately, Nitcher is still obligated to make monthly payments of $479 a month under REPAYE, which will not terminate until she is in her 60s. Thus, Judge McKittrick loosened the noose around Ms. Nitcher's neck, but she will continue standing on the scaffold for the next quarter of a century.

References

Nitcher v. National Collegiate Student Loan Trust, Bankr. Casse No. 18-31729-pem7 (August 23, 2019).




Tuesday, August 27, 2019

A disbarred lawyer is unable to discharge $250,000 in student loans in bankruptcy. Will he ever pay back those loans?

Paul Hurley obtained a law degree in 2004 and a master's degree in tax law in 2006. He took out student loans to fund his studies, and he was never in default on those loans.

About three years after getting his master's degree, Hurley took a job as a revenue agent for the Internal Revenue Service, which required him to audit taxpayers' federal tax returns. According to court documents, Hurley solicited a $20,000 bribe from a taxpayer in 2015, and he was convicted of two felonies: Receiving a bribe by a public official and receiving a gratuity by a public official. He was sentenced to 30 months in prison, and he lost his license to practice law in the state of Washington (601 B.R. at 532).

While still incarcerated, Hurley filed for bankruptcy and sought to discharge $256,000 in student loans. He was 45 years old at the time and had a three-year-old son. Hurley argued that it would be an undue hardship for him to pay back his student loans, given the fact that he could no longer practice law.

A bankruptcy court in the state of Washington denied Hurley's petition to discharge his student loans. In the court's opinion, Hurley failed the three-part Brunner test for determining whether repayment of his loans would constitute an undue hardship. 

In particular, the court ruled that Hurley failed the good faith prong of the Brunner test. In the court's view, Hurley's criminal conduct was "very significant' and outweighed his earlier, good-faith efforts to repay his student loans.

“As a lawyer,” the bankruptcy judge reasoned, “[Hurley] had to know that, if he committed the crime that he did, he would lose his ability to practice law. As such [Hurley] suffers from both failure to maximize his income and having willfully or negligently caused his financial condition” (601 B.R. at 533, appellate court quoting the bankruptcy court).

Hurley appealed the bankruptcy court’s decision to the Ninth Circuit Bankruptcy Appellate Panel, which affirmed the lower court’s opinion. The BAP court emphasized that it was not endorsing a bright-line rule that a criminal conviction always nullifies good faith. Nevertheless, the appellate court agreed with the bankruptcy judge that Hurley’s “willful criminal behavior tipped the balance against good faith”(601 B.R. at 536).

In addition, the BAP court agreed with the lower court that Hurley failed to maximize his income, which is a requirement for obtaining a student-loan discharge. Hurley maintained that he could not maximize his income because he lost his law license, but the BAP court pointed out that he lost his license “because of his willful conduct.”

Paul Hurley is not the most sympathetic person to seek student-loan relief in a bankruptcy court.  The BAP court and the bankruptcy court are clearly correct in concluding that Hurley’s financial predicament is the result of his own misbehavior.

But what did the BAP court accomplish when it ruled against Mr. Hurley? Will Hurley ever pay back the quarter of a million dollars he owes in student loans? No—I don’t think he will.

Hurley’s only hope now is to apply for an income-based repayment plan that will set his monthly loan payments based on his income. Such a plan will terminate in 20 or 25 years—when Hurley will be in his sixties. It seems virtually certain that his loan balance will keep growing with each passing month because interest will continue to accrue on his debt even if he makes his regular monthly loan payments.

Senator Bernie Sanders proposes student-loan forgiveness for everybodyeven Mr. Hurley. That may be going a bit far.

But people who are insolvent and unable to repay their student loans should be able to discharge those loans in bankruptcy like any other unsecured debt--even people who've made mistakes.

After all, what is the point of saddling Mr. Hurley with crushing student-loan debt he will never repay?




References

Hurley v. United States, 601 B.R. 529 (B.A.P. 9th Cir. 2019).



Friday, August 23, 2019

Warning: It can be dangerous to go to college if you are middle-aged

If you are 40 years old and don't have a college degree, you probably want one.  On average, people with college degrees make more money over the course of their lives than people without degrees.

Nevertheless, if you are in your  forties, fifties, or sixties, you must be careful about taking on debt, because you have fewer working years than a younger person to pay it back. And people in midlife or older need to be putting money away for their retirement.

That's why a report issued by the Department of Education earlier this month should be concerning to older Americans. The report is short--just two pages long, but it contains some interesting findings.

Twenty-five years ago, 60 percent of college completers in their twenties (age 24-29), took out student loans to pay for their education. Older graduates borrowed less. Only  about a third of graduates in their forties left college with student debt. Among people aged 50 or older, only 19 percent graduated with student debt.

But student-borrowing patterns have changed. In 2015-2016, 66 percent of college graduates in their twenties had taken out student loans. And among people in their forties, 71 percent had student debt when they graduated. In other words, for people who graduated college in their forties, the percentage who carried debt has doubled over 25 years (from 35 percent to 71 percent).

Moreover, the amount of student-loan debt taken out by students in their forties quadrupled between 1995-1996 and 2015-2016. Twenty-five years ago, people in their forties graduated with an average student-loan debt of $4,400. In 2016, this same age group graduated with $18,800 in student-loan debt (in constant dollars).

The DOE report's findings don't suggest that middle-aged people should not seek a college degree. It is probably a good idea for nearly everyone. But the report contains an implicit warning to older college students: Don't take out more student loans than absolutely necessary because you may have a very difficult time paying it back.

Already, millions of student debtors are enrolled in 25-year income-based repayment plans. A 25-year-old in such a plan will be 50 years old before he or she makes the last loan payment. But a person who graduates at age 50 and is forced into a 25-year repayment plan will be 75 years old. before the plan ends.

Who wants to be making student-loan payments during their retirement years? And remember, elderly people who default on their student loans can see their Social Security checks garnished. Bummer!

Did I make my monthly student-loan payment this month?


References

U.S. Department of Education (2019, August). Changes in Undergraduate Program Completers' Borrowing Rates and Loan Amounts by Age: 1995-1996 Through 2015-2016.

Monday, August 19, 2019

Trump hires a fox to run the chicken house: Former student-loan servicing exec named as new Student-Loan Ombudsman

President Trump and Education Secretary Betsy DeVos remind me of the two bullies in The Christmas Story: Scott Farkus and Grover Dill, who spend their days terrorizing elementary-school kids.

Since Trump was elected, his administration has aggressively signaled that it does it not give a goddamn about student-loan debtors. In fact,  his people seem to be looking for ways to demean them and increase their misery. Here's the latest:

The Trump administration recently announced that it is appointing Robert G. Cameron, a former executive of a student-loan servicing company as the Student Loan Ombudsman for the Consumer Financial Protection Bureau. Cameron is a former senior executive of the Pennsylvania Higher Education Assistance Agency (PHEAA), which operates nationally under the name of Fedloan Servicing, the outfit that royally screwed up the Public Service Loan Forgiveness program.

There's good money in being a student-loan servicing company. According to Mother Jones, PHEAA gave out $2.5 million in bonuses to executives in 2007 and spent hundreds of thousands of dollars a year on board retreats that included $150 cigars and falconry lessons.

As the Government Accountability Office reported last year, Fedloan Servicing (which GAO did not identify by name) processed more than one million people's applications to have their employment certified as eligible for student-loan forgiveness. Fedloan approved 75 percent of those applications.

Then when the borrowers filed to have their student loans forgiven, the Department of Education denied more than 90 percent of their claims. Fedloan Servicing has been sued for giving student borrowers inaccurate information, and the Department of Education has been sued for arbitrarily and capriciously denying public-service loan forgiveness claims.

So why would the Trump administration appoint an executive from a thoroughly discredited student-loan servicing outfit to be the Student Loan Ombudsman? Obviously, they don't care about the optics.

Trump and DeVos are blithely indifferent to the fact that there are 45 million student-loan borrowers in the United States, and most of them will vote in the 2020 election. They're "screwing over" an important constituency while Democratic presidential nominees are promising student-loan forgiveness.

By appointing Robert Cameron as Student Loan Ombudsman, Trump hired a fox to run the chicken house. But Trump forgot one important fact-- these chickens can vote.


Donald Trump and Betsy Devos: Modern-day bullies 

Thursday, August 15, 2019

"Luxury" apartments for college students: How will the kids pay the rent?

Bloomberg Businessweek carried a story recently about the emergence of luxury housing for college students. In recent years, real estate developers have been building "amenity-rich luxury apartments" near universities. These new apartment complexes are very attractive to students, especially when compared to the often run-down dormitories that the universities operate.

But these so-called luxury apartments are expensive, and they've contributed to the rising cost of student housing. As Bloomberg writer Ali Breland reported, "the estimated cost of on- and off-campus room and board at a four-year public university climbed by more than 82 percent, adjusted for inflation." During the same time period, rents across the nation as a whole only rose 19 percent.

How are students paying for their fancy digs? Many of them are paying the rent with student loans. The average college graduate now leaves school with $35,000 in student debt, and for many students, a significant chunk of that money was spent on housing.

So what's the problem?

First of all, a lot of students are taking out student loans for housing they really can't afford. When their student-loan bills come due, a lot of them will wish they had lived more modestly while they were working on their degrees in medieval literature.

Second, by borrowing money to pay for "luxury" living, students are living a lifestyle they can't sustain after they finish their studies and go looking for a job. It is hard for college students to accept the reality that their standard of living will go down once they've obtained their college degrees.

The upscale student-housing boom imposes a cost on college communities as well.  A lot of this so-called luxury student housing isn't luxurious at all.  Student-housing complexes may have swimming pools, clubhouses, and shiny appliances, but many of them are shoddily constructed, with plastic interior doors and particle-board cabinets.

I live just a few blocks from some of these student-oriented apartment complexes, and even the newer ones are beginning to look the worse for wear.  The day is fast approaching when these faux-luxury apartment buildings will just be slums.

But the real estate developers don't care. These complexes are being packaged and sold to investors as commercial real-estate-backed securities--very similar to the mortgage-backed securities that were being peddled before the housing crisis of 2008.

In my view, the luxury student-housing boom is a bubble. Too many of them are being built. No wonder the default rate on student-oriented housing mortgages has rocketed up to 9 percent!

Luxury student housing: Living the good life while still in college

Wednesday, August 14, 2019

Oklahoma State University's great snowball riot of 1968: A tale of my misspent youth

When I think back
On all the crap I learned in high school
It's a wonder
I can think at all.

Paul Simon

I graduated from Oklahoma State University almost 50 years ago, and I can say with no exaggeration that I didn't learn a goddamn thing.

But I had one thrilling experience at OSU, which I am going to tell you about. During my sophomore year, I had a friend named Paul who was a radio-television major and worked as a DJ in the evenings at the campus radio station.

One snowy night during the winter of 1968, Paul made an on-air announcement that the Sigma Nu fraternity house had challenged Scott Hall, a men's dorm, to a snowball fight. This simple statement--totally false--electrified the OSU campus.

Like most male OSU undergraduates, I was a GDI--a goddamn independent; I hated the fraternity boys, with their starched oxford-cloth shirts, their pretty girlfriends, and the nice cars their parents gave them. A chance to throw snowballs at these arrogant, rich boys? Who could say no?

Shortly after Paul made his bogus announcement, phone calls came flooding into the radio station. Someone from Bennett Hall said the dorm was pledging 50 men to the snowball fight.  The Sigma Chi fraternity reported that its entire membership was headed to the Sigma Nu house to join the fight.

I recall looking out the window of my dorm room and seeing my friends streaming out the door, scrambling into their winter coats as they ran toward fraternity row. Obviously, I had to be there.

Within a few minutes, I had joined a mob of GDIs in the university's formal gardens. It was like the battle scene in Dr. Zivago, when the Red Guards stormed over the ice to fight the White Russians. Hundreds of young men, wild with excitement, were charging toward the Sigma Nu house.

And then we threw some snowballs. In about 15 minutes we had broken out most of the windows on the front side of the Sigma Nu house. The Sigma Nus tried to defend their turf, aided by their allies from other fraternities. But we had them outnumbered. They was a riot goin' on!

Meanwhile, Paul, still broadcasting from the radio station, decided to report the fracas over the state newswire service. That report alerted the Oklahoma Highway Patrol, and the state troopers called for police backup from the surrounding towns of northcentral Oklahoma.  

After all, why should college kids have all the fun?

Oklahoma's law enforcement community had always suspected that OSU was a nest of commie sympathizers and Russian stooges, and this riot proved that their suspicions were right.  Patrol cars rolled in from all directions, and every officer was equipped with a sawed-off shotgun and plenty of double-ought buckshot. 

Who knew what glittering opportunities awaited the cops when they got to the OSU campus? If they were lucky, maybe they'd get a chance to kill a few anarchists.

And so--about an hour after the snowball fight began, the state troopers had formed a skirmish line in front of the Sigma Nu house. Some pompous Highway Patrol guy with a buzz haircut and a bullhorn told the independents they would be arrested if they didn't disperse immediately.

For a few minutes, we paid no attention to this warning, and I myself threw a snowball at the guy with the bullhorn. But the GDIs were no fools. We knew the Oklahoma Highway Patrol was not to be messed with. And so we melted away through OSU's beloved formal gardens--which we had dishonored by our lawlessness--and slunk back to our cell-like dorm rooms.

That evening in February 1968 was my most memorable experience from my OSU years. I still recall the satisfying sound of breaking glass after I lobbed an iceball at the Sigma Nu house--my feeble contribution to class warfare.

I am older today of course. But I only reside about half a mile from LSU's Sigma Nu house. If conditions were just right and snow fell on Baton Rouge, and if I were to receive a call to storm fraternity row, well I might just join the fray.



Oklahoma State University's formal gardens--sullied by lawlessness





Tuesday, August 13, 2019

Michigan State prez Lou Anna Simon--charged with lying to police--gets $2.45 million retirement package!

Lou Anna Simon was president of Michigan State University when the Larry Nassar sex-abuse scandal broke. Nassar, an MSU faculty member and team physician for the Olympics USA gymnastics team, pleaded guilty to sexual abuse charges and will spend the rest of his life in prison.

There is substantial evidence that several senior MSU administrators were aware of what Nassar was doing to young women and did nothing about it. Lou Anna Simon herself faces felony charges for allegedly lying to police about what she knew about Nassar's shenanigans.

Before police discovered that Larry Nasser had been molesting MSU students, President Simon had a good gig. She made $750,000 a year when she resigned as MSU's president in 2018. MSU allowed her to remain on the MSU faculty at the paltry salary of only half a million.

Now, with criminal charges still hanging over her head, Simon is retiring with a nice little parting gift: $2.45 million!

Obviously, the MSU trustees were aware that Simon might be convicted of a felony when they cut the retirement deal, and the separation agreement makes provision for that possibility. If she is convicted, the trustees will take down her official presidential photo. But of course, she will still get to keep the retirement money.

As for victims of Larry Nassar's sexual assaults, MSU has set aside a half-billion dollars to pay claims to an estimated 332 victims. Hey, that's just pocket change for this mega university.  Moody's Investors Service, a credit rating agency, assured investors that "t]he university has the financial strength to absorb the proposed settlement within its strong credit profile." After all, MSU generates more than a quarter of a billion dollars a year in operating revenue and has "ample ability to absorb debt service related to the settlement amount."

One might think Lou Anna Simon's compensation package is an aberration, but it is not.   Simon ranks 44 among the nation's top-paid university presidents. In fact, 17 university presidents make over $1 million a year in total compensation.

You might imagine college presidents as bookish men and women who spend their days strolling through the groves of academe and thinking noble thoughts about the ancient virtues.  But in fact, they are raking in a lot of cash, and many of them are pretty mediocre individuals.

And some of them are not minding the store. Michigan State, Penn State, Baylor, and the University of Southern California are a few of the once noble universities that have been wracked by sexual abuse scandals, which are costing them billions in settlement payouts and attorney fees.

So think about Lou Anna Simon, boys and girls, when you take out student loans to finance your college education. You may be saddled with student debt for the rest of your lives, but the people who run the universities that are taking your money are making out like bandits.

Lou Anna Simon
Photo credit: Cory Morse, Grand Rapids Press







Thursday, August 8, 2019

The Baby Boomers did not ruin America: They too are victims of our bandit economy

This year, for the first time, the Social Security Administration paid out more to retirees than it received in Social Security contributions from working Americans.

That's really bad news; and, as journalist David Shribman recently observed, no one running for President is even talking about this problem.

Some pundits think the Baby Boomers brought this crisis on themselves through greed and improvidence. Lyman Stone, writing for the American Enterprise Institute, began his report on aging with these words: "The Baby Boomers have ruined America."

But that is bullshit.

As Shribman pointed out, the average Social Security check is only $1,413 a month--a chicken shit reward for people who worked 40 years at one of our nation's dead-end jobs.

Nevertheless, social critics say, the Baby Boomers should have been building a nest egg for their golden years, and their median savings only amount to about $100,000. But just how were the Baby Boomers supposed to have saved more money?

When I was a kid, most families were supported by one wage earner. Now almost every family has two people in the workforce. When I was a kid, many students worked their way through college and graduated with no debt. Now the average college student takes six years to get a four-year degree and graduates with $30,000 in student loans. And mom and pop may have taken out a Parent Plus loan to help get their child get through college.

Years ago, many Americans enjoyed good pension plans, but corporate America scrapped those plans and pushed everyone into 401Ks. This move forced workers to put their retirement savings in the stock market. But most Americans do not have the financial sophistication to invest in stocks and bonds. And the average Joe is not doing as well as the investment broker who is "managing" his retirement accounts.

There is a fix for this crisis, and I will tell you what it is. All Americans should be paying Social Security taxes on every dime of their wages, and people enjoying retirement income of half a million dollars or more should not get a Social Security check.

Mitt Romney, the arrogant corporate raider and oily politician from Massachusetts (or is it Utah?) pays a smaller percentage of his income in taxes than the average factory worker. Romney should be paying Social Security taxes to the max. And President Trump, who gets a Social Security check, should maybe send it back to the government.


Mitt can help solve the Social Security crisis.






Wednesday, August 7, 2019

It's a comfort to have a shotgun in the closet: The guv'ment ain't never gonna round up all them guns!

My father came back from World War II with a pocket full of money. He'd been a prisoner of the Japanese for most of the war, and he received three years in back pay when he got back to the States.

One of the first things my father did when he returned to Oklahoma was to buy a Browning automatic shotgun, a beautiful gun with a dark walnut stock and the famous Browning humpback design. He promptly took up quail hunting and it became his only recreation.

Quail were in abundance in northwestern Oklahoma during the 1940s. The quail hunters had all gone off to war, and the countryside had been depopulated during the Great Depression when a lot of my father's relatives became Okies and went to California down old Route 66. There were literally millions of bobwhite quail in the brushy country on the Kansas border, and you could kick up a hundred or more just by wading into a random plum thicket.

My father was a minimalist when it came to upland game hunting. No fancy Gortex rain gear, no Orvis sportswear, no pricey equipment from Cabella's. When my dad went quail hunting, he took his shotgun and a cardboard box, which contained a cheap, faded hunting vest and two or three boxes of shotgun shells.

When I was about twelve I began to go quail hunting with my father, and I saved up my paper-route money and bought my own shotgun--a used Remington Model 11, another beautiful firearm made in the pattern of my father's Browning. I kept my shotgun in the closet with my Dad's.

For my dad and me, shotguns were not weapons; they were sporting goods--something like a fishing rod or golf clubs. Many of my teenage friends had shotguns, and it never occurred to any of them to take a gun into a school and start shooting people.

But times have changed, and now people can buy assault rifles with extra-large magazines. And these guns are fairly cheap. You can purchase a new assault rifle for anywhere between $500 to $1500. And the sporting goods stores sell assault-rifle ammunition in plastic tubs that hold a couple hundred rounds.

Now the politicians are talking about a nationwide gun buyback program designed to get firearms out of private hands--assault rifles mostly. Senator Joe Biden and some other presidential contenders endorse this idea.

I hate to be the one to break it to you, Senator Biden, but the guvment ain't never going to get all them guns out of people's closets. We now have more guns in the United States than we have people. There's a gun for everybody, even the little babies and toddlers.  And people are not going to give those guns to the federal government.

Senator Joe, Beto O'Rourke and Senator Warren might get people to sell their dusty old shotguns rusting away in the attic: their bolt-action .410s, their single-shot, 16 gauge Savages. But if they bought an assault rifle or a 9 mm pistol, they are going to keep it.

And any politician who does not understand that is not smart enough to be President.

The Browning automatic shotgun: A beautiful thing to behold


Note: The title of this essay was partly inspired by a passage from a book by James Howard Kunstler.

Monday, August 5, 2019

The Baby Boomers are Toast: Massive Suffering is Right Around the Corner

I never liked the term "Baby Boomer"--an infantilizing appellation if ever there was one.

I am a Baby Boomer myself, having been born in 1948, almost exactly three years after my father was liberated from a Japanese prison camp in Korea. My birthday, August 9, marked the third anniversary of the day Nagasaki was obliterated by an atomic bomb. And my birthday also fell on the sixth anniversary of the day the Nazis killed St. Edith Stein at Auschwitz.

I was raised to believe that life for my generation would be better than it was for my parents' generation. And for a long time, that expectation looked like it would be fulfilled. My father owned one suit. When I practiced law, I owned seven. My parents' house had one bathroom. For years, I have lived in houses that have two or even three bathrooms.

But when I reached my 50s, I could see that my generation's rise to greater prosperity had stalled. My father and my wife's father retired when they were in their mid-50s. I will retire at the age of 71; and my closest friends, all in their early 70s, are still working.

And many of my contemporaries are frightened. One-third of senior Americans live entirely on Social Security, and the average payout is only $1,220 a month. That's 19 million retirees living near or below the poverty line.

The experts say people need to have $1 million in savings to retire, but most don't have near that amount. And even if they did, how would they invest that money? This morning, the interest rate on the 10-year note dropped to 1.75 percent--1.75 percent! So if you invested your million dollars in Treasury notes, you would have an income of $17,500 a year.

So my generation is still in the stock market--a rigged casino where the croupier (Goldman Sachs and their cronies) can push the hidden button under the roulette table any time they want to make the stock market go up or down. We all know this is going to end badly.

Incredibly, many people my age still have student loans hanging over their heads--loans they will never repay. The federal government is pushing millions of distressed debtors into 25-year income-driven repayment plans that are designed never to be paid off.

More and more television advertising is targeted toward seniors--new medications, financial services, reverse mortgages, etc. All these commercials show prosperous, silvered-haired couples in radiant health, and the wife always looks about 15 years younger than the husband. These couples are shown surfing, skiing, hiking, and fishing with their adorable grandchildren off the docks of their lakeside retirement homes.

But we all know those advertisements are a lie. The reality is this: millions of baby boomers are going to live out their last years in starkly reduced circumstances. In short, the baby boomers are toast.
Put your retirement savings in the stock market. What have you got to lose?







Friday, August 2, 2019

Lone Star Blues: Vera Thomas is 60 years old and suffers from diabetic neuropathy, but she lost her bid to discharge student loans in bankruptcy

Vera Thomas is more than 60 years old and suffers from diabetic neuropathy, "a degenerative condition that causes pain in her lower extremities." Unemployed and suffering from a chronic illness, she filed for bankruptcy in 2017 in the hope that she could discharge her student loans in bankruptcy. 

 At the time of her bankruptcy proceedings, Thomas was living in dire poverty. Her monthly income was less than $200 a month and she was surviving on "a combination of public assistance and private charity." 

How much did Ms. Thomas owe on her student loans? She borrowed $7,000 back in 2012 and she used her loan money to attend community college for two semesters. Thomas didn't return for a third semester, and she only paid loan payments totally less than $85. 

Judge Harlin Hale, aTexas bankruptcy judge, applied the three-part Brunner test to determine whether Thomas would suffer an "undue hardship" if forced to pay off her student loans. Part one required her to show that she could not pay back her student loans and maintain a minimal standard of living. Thomas clearly met this part of the test.

Brunner's second part required Thomas to establish that circumstances beyond her control made it unlikely that she would ever be able to repay her student loans. The U.S. Department of Education argued that Thomas could not meet this part of the Brunner test and Judge Hale agreed. In spite of her debilitating illness,  he concluded, Thomas could not show that she was "completely incapable of employment now or in the future." Surely there was some sedentary work she was capable of doing, Judge Hale reasoned.

In short, Judge Hale denied Thomas's request for bankruptcy relief from her student loans. He expressed sympathy for Ms. Thomas's situation, but he said that during his entire time on the bench, he had never granted student-loan bankruptcy relief over the objection of the lender (the U.S. Department of Education or its contracted debt collectors).

Thomas appealed to a U.S. District Court, which affirmed Judge Hale's decision; and then she appealed to the Fifth Circuit Court of Appeals. Two public interest groups came to her aid by filing an amicus brief. The National Consumer Bankruptcy Rights Center and the National Association of Consumer Bankruptcy Attorneys argued that the Brunner test was no longer an appropriate standard for determining whether a student-loan debtor is entitled to bankruptcy relief and should be overruled. 

But the Fifth Circuit refused to abandon the Brunner test or even to soften the way it is interpreted.  Unless the Supreme Court or an en banc panel of the Fifth Circuit overrules Brunner, the Fifth Circuit panel stated, it was bound by that decision.

The Fifth Circuit decision  implicitly acknowledged that the federal student-loan program poses an enormous public-policy problem, but in the court’s view, it was not the judiciary’s job to fix it: "[T]he fact that student loans are now mountainous in quantity poses systematic issues far beyond the capacity or authority of courts, which can only interpret the written law. . . Ultimate policy issues raised by Ms. Thomas and the amicus are for Congress, not the courts."


So what does the future hold for Vera Thomas? Her student-loan debt is undoubtedly far larger today than it was when she initially borrowed $7,000 to enroll at a community college back in 2012. Over the years, interest has accrued and perhaps penalties and fees. In the aftermath of the Fifth Circuit's decision, it seems likely that Vera Thomas’s only viable option is to sign up for an income-driven repayment plan, which will terminate when she is 85 years old. 



References

Thomas v. U.S. Department of Education, No 18-11091 (5th Cir. July 30, 2019).