Biden's Student-Loan Forgiveness Application Lacks Adequate Fraud Protection: But Does That Really Matter?

Honoring a campaign promise, President Biden will forgive $10,000 in personal student-loan debt owed by about 40 million college borrowers. The only people ineligible for this bonanza will be single persons who make more than $125,000 a year or married people making more than $250,000.

Biden's Department of Education released its loan-forgiveness application a few days ago, which is incredibly simple. Applicants must state their annual income to determine eligibility, and most will not be required to verify their income with tax returns or other supporting documents.

Critics say Biden's distribution plan lacks adequate protections against fraud. People who make $129,000 a year may falsely claim they make less than $125,000 in order to receive $10,000 in debt relief.

Although President Biden's loan forgiveness scheme has plenty of flaws, I'm in favor of it. Millions of Americans took out modest student loans to enroll in college and then dropped out without getting any benefit from their educational experience. Wiping out $10,000 in student-loan debt (or $20,000 for Pell Grant recipients) will free many borrowers from all their student debt. I'm okay with that.

Moreover, I'm not too concerned about fraud. The only student borrowers who might scam the program are single individuals making over $125,000 or married couples making over $250,000. 

These high-income individuals are not likely to fraudulently mispresent their income to get a paltry ten grand in student-loan forgiveness. In any event, the Biden administration promises to ask about 5 million loan-forgiveness applicants to verify their income--targeting people with six-figure salaries.

Let's face it. The feds don't really care if student borrowers pay back their loans. The Department of Education paused student-loan payments for nearly three years.  The suckers who made their monthly student-loan payments anyway are eligible for a refund.

About nine million people are enrolled in income-based repayment plans (IBRPs), allowing them to make modest loan payments so low they don't even cover accruing interest.  Virtually all those people will never pay back their student loans.

And as generous as the present IBRPs are, the Biden administration is working on an even more munificent IBRP program that will require monthly loan payments so low that the Brookings Institution estimates DOE will only get back about 50 percent of the money it loans.

So here's where we are. About 40 million people owe a total of $1.7 trillion in student loans, and many of these borrowers will never pay off their debt. As Steve Rhode wrote in a recent essay, the sensible thing for Congress to do is to revise the Bankruptcy Code so that honest but unfortunate debtors can discharge their student loans in bankruptcy.

But apparently, that suggestion makes too much friggin' sense. 

Thus we see people like Tamara Parvizi, who owes $650,000 in student-loan debt, which she can't pay back and can't discharge in bankruptcy. When she went to bankruptcy court, DOE insisted that she be put in an IBRP. A federal bankruptcy judge agreed.  Under this IBRP, Ms. Parvizi will pay $80 monthly for twenty-five years.

The only relief Ms. Parvizi will get is $10,000 in loan forgiveness on almost two-thirds of a million dollars in student debt.

 In essence, our government behaves like an alcoholic who runs up a tab drinking Jack Daniel's at his neighborhood tavern.  Every so often, the drunk comes in and pays off his tab, but he keeps drinking. 

That's nuts, and everybody knows it.

Just put it on my tab.

 

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"