In the 1990s, Wendi LaBorde took out student loans totaling about $75,000, but she could not repay those loans. Over time, interest accrued on the debt.
In 2010, the Department of Education obtained a judgment against Ms. LaBorde for approximately $395,000--five times what she borrowed.
In 2014, LeBorde received the proceeds from her late mother's life insurance--$485,902, which was enough money to pay off the judgment on her student debt.
LaBorde didn't use the insurance money to pay off her student loans. Instead, she created a trust that named Connie Christine LeBorde, her daughter, the beneficiary. The trust bought a condo in California and then sold the condo and purchased a home in Riverside County, California, for $403,000.
In 2020, the federal government sued LaBorde, accusing her of making a fraudulent transfer to avoid paying the judgment against her for her unpaid student loans. The feds pointed out that LaBorde's daughter, the trust beneficiary, lived in Arkansas and LaBorde lived in the Riverside County house.
A federal court agreed with the federal government. Late last month, the court ruled that Laborde's transfer of life insurance money to the trust was fraudulent. It ordered that LaBorde be named the owner of the Riverside County house, making it subject to the government's lien for $437,000--the amount of her unpaid student loans plus accrued interest.
What happens next? The federal government will enforce its lien on the California home where LaBorde was living. Ultimately, the house will probably be sold, and most of the proceeds will go to Uncle Sam.
Millions of Americans are burdened by college loans they can't repay. Many have given up even trying to pay off their student debt. Meanwhile, interest continues to accrue. It is not uncommon for people to owe three, four, or even five times the amount of their student loans due to penalties and accrued interest.
Undoubtedly, many of these debtors are counting on an inheritance from their parents or life insurance benefits to bail them out. Perhaps they intend to use inheritance money or life insurance proceeds to help prepare for retirement or purchase a modest home.
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ReplyDeleteI totally agree that life insurance proceeds and similar 'windfalls' should not be captured by student loan creditors.
ReplyDeleteNot that it matters a lot, but the numbers in this story are puzzling. Per the article, a debt of $75,000 ballooned to $395,000 between 1997 roughly and 2010.
That kind of growth requires an interest rate of about 12%. I am not an expert here but was the Dept of Education charging 12% on student loans, ever?
That kind of growth necessitates a 12-percent interest rate. I'm not an expert, but has the Department of Education ever charged 12% interest on student loans? Life insurance proceeds and other 'windfalls' should not be taken by student loan creditors, in my opinion. It's not that it matters, but the figures in this narrative are perplexing. According to the article, a $75,000 debt swelled to $395,000 between 1997 and 2010.
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