Unlicensed medical doctor who owes $650,000 in student debt is directed to pay 80 bucks a month for 25 years: "The law is an ass"

 

"If the law supposes that," said Mr. Bumble, squeezing his hat emphatically in both hands, "the law is a ass - a idiot".

Charles Dickens, Oliver Twist 

About a year ago, I blogged on the bankruptcy case of Tamara Parvizi, a 51-year-old unlicensed medical doctor who sought to discharge $650,000 in student debt --most of it accumulated from going to medical school.

Actually, Ms. Parvizi attended two medical schools. First, she went to med school at the University of Rochester but dropped out. Later she enrolled at St. George's University School of Medicine, a for-profit medical school on the Caribbean island of Grenada.

Parvizi wasn't represented by a lawyer when she went to bankruptcy court. As an appellate court observed in a footnote, she didn't even file a proper complaint. She simply submitted a two-page letter asking to have her student loans forgiven.

Judge Elizabeth Katz, a Massachusetts bankruptcy judge, denied Parvizi's plea for relief, ruling in part that Parvizi had not made sufficient attempts to maximize her income.

Parvizi appealed, and a Bankruptcy Appellate Court affirmed Judge Katz's decision. The BAP court agreed with Judge Katz that Parvizi had failed to maximize her income, although it admitted that she would be unable to pay back such a mountainous debt even if she tried her best to get a better-paying job.

Judge Katz and the BAP court both said Parvizi should sign up for a REPAY income-based repayment plan. Based on her low income, her monthly payments would only be $80 a month. If she makes regular payments for 25 years, her student debt will be forgiven.

Of course, as the BAP court acknowledged, Ms. Parvizi's debt is negatively amortizing. In other words, her debt grows larger every month because her $80 payments aren't nearly large enough to cover accruing interest.

Indeed, Ms. Parvizi's debt has probably grown by $50,000 since the date of Judge Katz's 2021 decision. That's right--she must now owe around $700,000.

Does any of this make sense to you? It makes no sense to me. Why force a woman in her fifties to make token payments on a debt that will grow to well over a million dollars by the time she finishes her REPAYE plan?

Who benefits from this nonsense? Two medical schools benefited, and one of those schools is a for-profit shop located outside the United States.

And, of course, the four federal judges who reviewed Ms. Parvizi's debt are doing okay. They all make nice salaries and will get fat federal pensions.

The outcome of this litigation is insane. Perhaps Charles Dickens was right when he observed in one of his novels that "the law is an ass."

Our government loans people money to enroll at foreign medical schools

Insanity 101: Medical Doctor with $650,000 in Student Debt Will Pay $80 a Month Under Income-Based Repayment Plan

Tamara Parvizi, age 51, sought to discharge $653,743 in student-loan debt in a Massachusetts bankruptcy court. That's a lot of debt--just shy of two-thirds of a million dollars. 

For 15 years, Parvizi took out student loans to pursue several degrees, and she became fluent in at least four languages. Nevertheless, Parvizi never made a single payment on her student debt other than offsets to her income tax refunds--which totaled less than $4,000 (Parvizi v. U.S Department of Education, slip opinion, p. 4).

Parvizi obtained a bachelor's degree from Clark University in 1990. In 1991, she enrolled in medical school at the University of Rochester but dropped out in 1995 without getting a degree.

Later, Parvizi enrolled at the University of Massachusetts, where she received a master's degree in public health.

In 2006, Parvizi made a second attempt to become a medical doctor. She enrolled at St. George's University School of Medicine, located on the Caribbean island of Grenada.  This time, she completed the program and graduated with a medical degree in 2012.

After obtaining her M.D. degree, Parvizi began a psychiatric residency at the University of Vermont, which she did not complete. She left the residency program in 2013 after being put on a remediation plan (p. 2).

At the time of her adversary proceeding, Parvizi owed $478,000 in unpaid principal on her student loans plus $175,000 in interest. Her annual income was less than $29,000.

The Department of Education opposed Parvezi's request for bankruptcy relief. DOE argued that Parvezi was qualified for REPAYE, an income-based repayment program that would only require her to pay $80 a month over 25 years (based on her current income).

But Parvizi was unwilling to sign up for REPAYE, testifying that she had "suffered enough." She placed most of the blame for her financial predicament on personnel at the University of Vermont. "[W]hy should I pay for the mistakes of a residency program director whose behavior cost me my life, my pursuit of happiness," she asked (p. 4).

Based on Parvizi's eligibility for the REPAYE plan, Judge Elizabeth Katz denied Parvizi's request to discharge her student loans. However, the judge ruled that she would discharge any student-loan debt Parvizi might owe after completing a REPAYE plan.

Who would quarrel with Judge Katz's decision? It is hard to sympathize with a woman who ran up almost half a million dollars in student debt to get a master's degree and a medical degree and who never made a single voluntary payment on her student loans.

On the other hand, I have great sympathy for Dr. Tamara, who undoubtedly did her best to get an education and build a satisfying career. And she may well have been right when she argued that her financial predicament was mainly due to people who made unfair decisions while in her residency program.

Nevertheless, Tamara Parvizi's case demonstrates the insanity of the federal student loan program. Why is the federal government loaning money to a person who left one medical school program without a degree and then pursued another program at a medical school outside the United States?

And what is the point of requiring Dr. Parvizi to pay $80 a month for 25 years while interest on her student loans continues to accrue--probably at a rate of at least $30,000 a year?

This is crazy. And who benefits from all the money the federal government loaned Tamara Parvizi? I suspect the primary beneficiaries are the people who own a private medical school in the Caribbean.

References

Parvizi v. U.S. Department of Education, Adversary Proceeding No. 19-3003 (Bankr. D. Mass. May 13, 2021).

St. George's University School of Medicine: A "Second-Chance Med School"

Schatz v. U.S. Department of Education: A 64-year-old student-loan debtor is denied bankruptcy relief because she has equity in her home

Audrey Eve Schatz, a 64-year-old single woman, attempted to discharge $110,000 in student-loans through bankruptcy, but Judge Elizabeth Katz, a Massachusetts bankruptcy judge, refused to give Ms. Schatz a discharge. Why?  Because Schatz had enough equity in her home to pay off all her student loans.

This is Ms. Schatz's sad story as laid out in Judge Katz's opinion.

Schatz graduated from the University of Massachusetts in 1977 with a bachelor's degree in psychology. Over the years, she held a variety of low-skill jobs: repairing used clothing, selling items at flea markets, working part-time for a school district, etc.  As Judge Katz acknowledged, none of these jobs were lucrative; and more than 25 years after completing her bachelor's degree, Schatz decided to go to law school.

Schatz studied law at Western New England College School of Law, a bottom-tier law school; and she took out student loans to finance her studies. She graduated with a J.D. degree in 2009, but she failed to find a high-paying job. According to the court, Schatz's net income after graduating from law school never exceeded $15,000.

The U.S. Department opposed Schatz's petition for relief on three grounds:

First, DOE argued that Schatz had not "maximized her skills to increase her earning potential." And in fact, Schatz worked as a volunteer at the Berkshire Center for Justice, a legal aid center she had founded while in law school. But Schatz explained she was working as a volunteer to gain experience as a lawyer while she looked for a paying job; and it seems unlikely she would have worked for free if she had been offered a good attorney's job.

Second, DOE argued that Schatz had not substantiated her claim that health issues hindered her job prospects. DOE said she should have called a medical doctor to testify about her health.

Finally, DOE pointed out that Schatz had equity in her home--enough equity, in fact, to completely pay off her six-figure student-loan debt.

Judge Katz  found DOE's last argument persuasive. By the judge's calculation, Schatz had at least $125,000 of equity in her home, more than enough to cover her student-loan debt.  According to Judge Katz, Schatz could sell her home, pay off her student loans, and still be able to maintain "a minimal standard of living." In Judge Katz's view, the burden was on Schatz to produce evidence that the home she lived in was necessary to maintain "a minimal standard of living," and that no alternative housing was available at a price similar to her current mortgage payment.

Given the facts of Audrey Schatz's financial circumstances, which Judge Katz verified in her opinion, I found the judge's decision to be shockingly callous.  Schatz is 64 years old--near the end of her working life. As Judge Katz noted in her opinion, Schatz had never made more than a modest wage even after she graduated from law school.

Moreover, Schatz testified at trial that she expected to get a Social Security check of less than $900 a month and that her retirement account contained only $1,800. And Judge Katz wants Ms. Schatz to sell her house!

The Schatz case illustrates just how much depends on the personal qualities of the bankruptcy judge who hears student-loan bankruptcy cases. Remember Judge Frank Bailey, another Massachusetts bankruptcy judge who decided a student-loan case earlier this year?

Judge Bailey expressed frustration with the traditional tests bankruptcy judges are using in student-loan cases: the Brunner test and the "totality-of-circumstances" test. "I pause to observe that both tests for 'undue hardship' are flawed," he wrote. In Judge Bailey's view, "[t]hese hard-hearted tests have no place in our bankruptcy system."

Judge Bailey then went on to articulate a more reasonable standard for determining when a debtor's student loans should be discharged in bankruptcy.  "If a debtor has suffered a personal, medical, or financial loss and cannot hope to pay now or in the reasonably reliable future," the judge reasoned, "that should be enough."

Unfortunately for Audrey Schatz, her bankruptcy case was assigned to Judge Elizabeth Katz and not Judge Frank Bailey. Had Judge Bailey been her judge, Ms. Schatz might have discharged her six-figure student-loan debt and kept her house. Surely this would have been some comfort to her when she enters old age and begins living on a Social Security check of $856.

References

Schatz v. U.S. Department of Education, 584 B.R. 1 (Bankr. D. Mass. 2018).

Smith v. U.S. Department of Education (In Re Smith), 582 B.R. 556 (Bankr. D. Mass 2018).