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).
Showing posts with label U.S. Department of Education. Show all posts
Showing posts with label U.S. Department of Education. Show all posts
Wednesday, July 18, 2018
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
Friday, April 21, 2017
Recent Navient and National Collegiate Student Loan Bankruptcy Rulings – March 2017: A Must-Read Article by Steve Rhode
If you are overwhelmed by your student loans and thinking about filing for bankruptcy, you should read this essay by Steve Rhode. Mr. Rhode examined recent bankruptcy court adversary proceedings in which student borrowers brought complaints against Navient or National Collegiate Student Loan Trust. As Mr. Rhode relates, debtors often won significant relief in these lawsuits--sometimes through settlement agreements.
Why is Mr. Rhode's article important to you?
First, his article contains links to adversary complaints that were drafted by attorneys. If you file your own adversary complaint against your student-loan creditor, you can use these complaints as templates to file your own complaint.
Second, the proceedings Mr. Rhode examined show various theories under which debtors sought to have their loans discharged. Some of those theories might work for you.
I am frankly surprised that debtors were so successful in the cases Mr. Rhode analyzed. I wonder whether Navient and National Collegiate Student Loan Trust are more amenable to settlement than Educational Credit Management Corporation and the U.S. Department of Education. ECMC and the Department of Education have opposed bankruptcy relief in a multitude of cases, even in cases where it was clear the debtor was desperate. (See for example, Roth v. ECMC and Abney v. U.S. Department of Education.)
Mr. Rhode has presented us with a very useful analysis of recent adversary proceedings against Navient and National Collegiate Student Loan Trust. A trend may be developing toward better bankruptcy outcomes for distressed student-loan debtors. Wouldn't that be a terrific development?
******
Out of curiosity I decided to take a look at recent bankruptcy Adversary Proceedings that had closed against Navient and National Collegiate Student Loan Trust. I looked at a number of cases and it appears people who filed their own Adversary Proceeding against their student loan holders had a less favorable outcome. Those people represented by an attorney, fair better.
Why is Mr. Rhode's article important to you?
First, his article contains links to adversary complaints that were drafted by attorneys. If you file your own adversary complaint against your student-loan creditor, you can use these complaints as templates to file your own complaint.
Second, the proceedings Mr. Rhode examined show various theories under which debtors sought to have their loans discharged. Some of those theories might work for you.
I am frankly surprised that debtors were so successful in the cases Mr. Rhode analyzed. I wonder whether Navient and National Collegiate Student Loan Trust are more amenable to settlement than Educational Credit Management Corporation and the U.S. Department of Education. ECMC and the Department of Education have opposed bankruptcy relief in a multitude of cases, even in cases where it was clear the debtor was desperate. (See for example, Roth v. ECMC and Abney v. U.S. Department of Education.)
Mr. Rhode has presented us with a very useful analysis of recent adversary proceedings against Navient and National Collegiate Student Loan Trust. A trend may be developing toward better bankruptcy outcomes for distressed student-loan debtors. Wouldn't that be a terrific development?
******
Out of curiosity I decided to take a look at recent bankruptcy Adversary Proceedings that had closed against Navient and National Collegiate Student Loan Trust. I looked at a number of cases and it appears people who filed their own Adversary Proceeding against their student loan holders had a less favorable outcome. Those people represented by an attorney, fair better.
At the very least, while the debt may not have been completely eliminated there were certainly some very deep discounts in the amount owed. Also the outcomes in all cases is not always apparent.
For example in Medina v. National Collegiate Student Loan Trust there was an apparent settlement agreement that contained a “release of liability. The Adversary Proceeding was then dismissed. – Source
Medina had asserted in his lawyer prepared complaint that his student loans should be discharged because his flight school was a “sham,” the loans were not used for a qualified educational purpose, and the school was not properly certified. These are issues raised over in this article. – Source
In the case Ard-Kelly v Sallie Mae the debtor owed $913,997 in loans. Of those loans all but $250,595 could be included in a $0 monthly Income Contingent Repayment plan. – Source
It appears all but $219,070 was found to be dischargeable in bankruptcy. While $219,070 is still a lot of money, it’s only 24% of the original balance stated. – Source
In Cotter v. Navient, the debtor had filed a Chapter 13 bankruptcy but was said to have still owed about $29,000 in student loan debt. Cotter stated, “Plaintiff incurred this student loan attending a school named ComputerTraining.com. The campus was located at 550 Polaris Parkway Westerville Ohio 43082. The Plaintiff started classes at said school on November 16, 2007 and was able to finish however the education he received was substandard, outdated and useless to him. Furthermore the school promised lifetime job placement assistance along with assistance with interviewing and resumes. The school he attended closed soon after he finished. The school in question is currently part of a class action lawsuit for fraud.” – Source
Following the court action regarding this debt the $29,000 balance was reduced to $2,500 with payments of $35.79 per month at 1% interest. This is about a 92% reduction in the amount owed. The debt will be fully repaid in 72 months. – Source
In Proctor v. Navient the debtor had co-signed for student loans for someone who was not a relative or dependent and said to not be qualified student loans protected in bankruptcy. – Source
The $188,787 balance was reduced to $15,535 at 3% interest and payments of $107.28 per month for 180 months. This is about a 92% reduction in the amount owed. – Source
So as you can see, recent closed bankruptcy Adversary Proceeding cases do result generally in some significant reductions in debt owed.
This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.
Monday, April 3, 2017
Sara Fern v. FedLoan Servicing: A single mother of three discharges her student loans in bankruptcy over the objections of the U.S. Department of Education
Student loans cannot be discharged in bankruptcy, right? WRONG! Distressed student borrowers have won a string of victories in the bankruptcy courts over the past few years. And Fern v. FedLoan Servicing is another case for the win column.
Fern v. FedLoan Servicing: A single mother of three children discharges her student loans in bankruptcy
In 2016, Sarah Fern, a 35-year-old mother of three children, discharged about $27,000 in student loans in an Iowa bankruptcy court. And last February, her victory was affirmed by the Bankruptcy Appellate Panel of the Eighth Circuit Court of Appeals.
Over the years, Fern had not made a single payment on her student loans. Nevertheless, she had never been in default because her loans had always been in deferment or forbearance due to her economic circumstances.
At the time of her bankruptcy trial, Fern was raising three children on take-home pay of about $1,500 a month, which she supplemented with food stamps and public housing assistance. Fern drove an old car in need of repair, and she could not afford to buy a more reliable vehicle.
Although Fern attempted to improve her income status by taking out student loans to enroll in two postsecondary programs, neither program led to a higher paying job. As the bankruptcy court noted, Fern had never earned more than $25,000 a year.
The Department of Education opposed Fern's effort to shed her student loans in bankruptcy. DOE produced an expert witness who testified that Fern qualified for various income-based repayment plans. According to the expert, Fern's income was so low that her monthly payments would be zero if she entered one of these plans.
But Judge Thad Collins, an Iowa bankruptcy judge, rejected DOE's arguments and discharged Fern's student loans in their entirety. In Judge Collins' view, Fern would probably never be in a financial position to pay back her loans.
Under an income-based repayment plan, Judge Collins noted, Fern's monthly payments would be zero, but her debt would continue to grow as interest accrued on the unpaid balance. Although the government would forgive any unpaid portion of Fern's loans at the end of the repayment period (20 or 25 years in the future), the cancelled loan debt might be taxable to her. In addition, if Fern's student loans were not discharged, they would be a blot on her credit record.
Judge Collins recognizes emotional stress from long-term indebtedness
Judge Collins also considered the emotional distress that comes from long-term indebtedness, Fern's loans had already caused her emotional stress, Collins observed, and she would continue to suffer from emotional stress if she were forced into a long-term repayment plan:
Department of Education appeals Judge Collins' decision
The Department of Education appealed Judge Collins' decision; and last February. the Bankruptcy Appellate Panel of the Eighth Circuit Court of Appeals affirmed Collins' ruling. According to DOE, Judge Collins erred by taking Fern's emotional burdens into account, by considering the tax consequences of a long-term repayment plan, and by recognizing that Fern's debt would grow over the years because her monthly payments under a long-term plan (zero), would cause interest on her loans to continue accumulating.
But the Eighth Circuit's BAP disagreed. "These additional observations identified by the Bankruptcy Court simply served to supplement its determination of undue hardship under the totality of circumstances test," the BAP court wrote.
The Fern decision is a big win for student-loan debtors. This is the latest federal appellate court decision to reject creditors' arguments that bankrupt student borrowers should be pushed into 20- or 25-year repayment plans instead of getting a fresh start.
There is justice in the world (sometimes)
As one of Cormac McCarthy's fictional characters said in the novel, The Crossing, "Hay justicia en el mundo!"
Yes, there is justice in the world, but justice is not distributed evenly and sometimes it arrives too late to do us any good. Sara Fern was very fortunate to have obtained justice from Judge Thad Collins, who wrote a remarkably sensible and compassionate decision. And she was even more fortunate to have Judge Collins' decision affirmed on appeal by the Eighth Circuit's Bankruptcy Appellate Panel.
References
Fern v. FedLoan Servicing, 563 B.R. 1 (8th Cir. BAP 2017).
Fern v. FedLoan Servicing, 553 B.R. 362 (Bankr. N.D. Iowa 2016).
Fern v. FedLoan Servicing: A single mother of three children discharges her student loans in bankruptcy
In 2016, Sarah Fern, a 35-year-old mother of three children, discharged about $27,000 in student loans in an Iowa bankruptcy court. And last February, her victory was affirmed by the Bankruptcy Appellate Panel of the Eighth Circuit Court of Appeals.
Over the years, Fern had not made a single payment on her student loans. Nevertheless, she had never been in default because her loans had always been in deferment or forbearance due to her economic circumstances.
At the time of her bankruptcy trial, Fern was raising three children on take-home pay of about $1,500 a month, which she supplemented with food stamps and public housing assistance. Fern drove an old car in need of repair, and she could not afford to buy a more reliable vehicle.
Although Fern attempted to improve her income status by taking out student loans to enroll in two postsecondary programs, neither program led to a higher paying job. As the bankruptcy court noted, Fern had never earned more than $25,000 a year.
The Department of Education opposed Fern's effort to shed her student loans in bankruptcy. DOE produced an expert witness who testified that Fern qualified for various income-based repayment plans. According to the expert, Fern's income was so low that her monthly payments would be zero if she entered one of these plans.
But Judge Thad Collins, an Iowa bankruptcy judge, rejected DOE's arguments and discharged Fern's student loans in their entirety. In Judge Collins' view, Fern would probably never be in a financial position to pay back her loans.
Under an income-based repayment plan, Judge Collins noted, Fern's monthly payments would be zero, but her debt would continue to grow as interest accrued on the unpaid balance. Although the government would forgive any unpaid portion of Fern's loans at the end of the repayment period (20 or 25 years in the future), the cancelled loan debt might be taxable to her. In addition, if Fern's student loans were not discharged, they would be a blot on her credit record.
Judge Collins recognizes emotional stress from long-term indebtedness
Judge Collins also considered the emotional distress that comes from long-term indebtedness, Fern's loans had already caused her emotional stress, Collins observed, and she would continue to suffer from emotional stress if she were forced into a long-term repayment plan:
This mounting indebtedness has also indisputably been an emotional burden on [Fern]. [She] testified that knowing that the debt is hanging over her, constantly growing, and that she will never be able to repay this debt, is distressing to her. [Fern] testified that she feels like she will never be able to get ahead because she will always have this debt.In Judge Collins' opinion, the emotional burden of long-term indebtedness was a hardship that weighed in favor of discharging Fern's student loans, even though this burden could not be quantified. "The Court will not ignore a hardship," Collins wrote, "simply because it is not reflected on a balance sheet."
Department of Education appeals Judge Collins' decision
The Department of Education appealed Judge Collins' decision; and last February. the Bankruptcy Appellate Panel of the Eighth Circuit Court of Appeals affirmed Collins' ruling. According to DOE, Judge Collins erred by taking Fern's emotional burdens into account, by considering the tax consequences of a long-term repayment plan, and by recognizing that Fern's debt would grow over the years because her monthly payments under a long-term plan (zero), would cause interest on her loans to continue accumulating.
But the Eighth Circuit's BAP disagreed. "These additional observations identified by the Bankruptcy Court simply served to supplement its determination of undue hardship under the totality of circumstances test," the BAP court wrote.
The Fern decision is a big win for student-loan debtors. This is the latest federal appellate court decision to reject creditors' arguments that bankrupt student borrowers should be pushed into 20- or 25-year repayment plans instead of getting a fresh start.
There is justice in the world (sometimes)
As one of Cormac McCarthy's fictional characters said in the novel, The Crossing, "Hay justicia en el mundo!"
Yes, there is justice in the world, but justice is not distributed evenly and sometimes it arrives too late to do us any good. Sara Fern was very fortunate to have obtained justice from Judge Thad Collins, who wrote a remarkably sensible and compassionate decision. And she was even more fortunate to have Judge Collins' decision affirmed on appeal by the Eighth Circuit's Bankruptcy Appellate Panel.
References
Fern v. FedLoan Servicing, 563 B.R. 1 (8th Cir. BAP 2017).
Fern v. FedLoan Servicing, 553 B.R. 362 (Bankr. N.D. Iowa 2016).
Tuesday, September 20, 2016
ITT Tech files for bankruptcy, leaving more than 35,000 students in the lurch. 23 Democrat Senators ask the Department of Education to give ITT students special assistance
ITT Educational Services, a for-profit corporation operating more than 130 vocational and technical training schools, filed for bankruptcy earlier this month. The Department of Education shut off student aid money to ITT in late August, and the corporation quickly collapsed.
ITT's bankruptcy left about 35,000 students in the lurch. Most of them took out federal student loans to pay ITT's extraordinarily high tuition, and none of them will be able to complete their studies. DOE Secretary John King sent a message to these students telling them they had just two options: transfer their credits to other institutions or file for loan forgiveness under DOE's "closed school"forgiveness regulations.
On September 15, 23 Democratic Senators sent Secretary King a letter asking DOE to grant ITT's former students special assistance. The letter is slightly incoherent, which is understandable given the fact that 23 politicians had to agree on the text. Nevertheless, the Senators articulated several specific requests for relief.
Extending the eligibility guidelines for total student-debt relief for ITT's former students. First, the Senators want DOE to loosen the eligibility requirements for ITT students who file for total loan forgiveness under DOE's "closed school" relief regulations. Under current DOE guidelines, ITT's former students can apply for debt relief under DOE's "closed school" procedures if they were enrolled at ITT at the time it closed or withdrew from ITT up to 120 days prior to closure.
The Democrats asked Secretary King to expand the 120-day window to a little more than two years. If King grants this request, any student who withdrew from ITT on or after March 1, 2014 will qualify to have their ITT student loans forgiven under DOE's "closed school" discharge process.
Preservation of ITT's student records. The Senators also asked DOE to preserve all of ITT's documents and records that might be relevant to an ongoing investigation of ITT's activities or that could be helpful to students seeking to get their loans discharged..
Explore legal authority to automatically discharge ITT students' federal loans. Finally, the Senators urged DOE to determine its authority to automatically discharge student loans of ITT students and to consider discharging loans of all students who don't transfer their ITT credits to another institution within three years and who are otherwise eligible for a "closed school" discharge.
All these recommendations are commendable but they are far too timid. After all, as the Senators attested in their letter, DOE shut off ITT's funding based on serious concerns about "ITT Tech's deceptive practices, dubious educational quality, and financial integrity."
As reported in Bloomberg News, the U.S. Securities and Exchange Commission sued ITT for fraud in 2015, and the Consumer Financial Protection Bureau sued the company in in 2014, "accusing it of overstating students' job prospects and potential salaries and then pushing them into high-cost private loans that were likely to default." Both suits are still pending.
ITT has enrolled thousands of students over the years. Many of these students--my guess is most of them--received little or no economic benefit for their ITT tuition dollars.
I'm sure ITT can point to some students who completed their ITT studies and found good paying jobs, but I think for every success story there is surely one or more students who got no economic benefit from their ITT studies and wound up heavily in debt.
One thing is certain. The for-profit college industry is imploding, and DOE needs a comprehensive process for assisting students who attended one of the collapsing for-profit schools. Several years ago, Professor Robert C. Cloud and I proposed a change in the Bankruptcy Code that would allow anyone who accumulated student-loan debt from attending a for-profit college and who is insolvent to receive a bankruptcy discharge of student-loan debt without having to show "undue hardship."
In other words, we argued that student debt acquired to attend a for-profit college should be treated like any other unsecured debt, which would make it readily dischargeable in bankruptcy. In my view, this proposal makes more sense than for DOE to deal with each collapsing for-profit college on an ad hoc basis.
Let's see if our U.S. Senators have the courage to offer broader relief for for-profit college students than the tepid proposals contained in the Democratic Senators' recent letter.
References
Secretary of Education John B. King Jr. A Message from the Secretary of Education to ITT Students. Accessible at http://blog.ed.gov/2016/09/message-secretary-education-itt-students/
Letter to the Honorable John King, Secretary of Education, from 23 Democratic Senators, September 15,2016. https://www.insidehighered.com/sites/default/server_files/files/9_15_16%20ITT%20Tech%20ED%20Letter%20(1).pdf
Dawn McCarty and Shahien Nasirpour. ITT Educational Services Files for Bankruptcy After Shutdown. Bloomberg, September 16, 2016. Accessible at http://www.bloomberg.com/news/articles/2016-09-16/itt-educational-services-files-for-bankruptcy-after-shutdown-it6byu6t
Reuters. ITT Educational Services Files for Bankruptcy After Aid Crackdown. International New York Times, September 17, 2016. Accessible at http://www.nytimes.com/2016/09/18/business/itt-educational-services-files-for-bankruptcy-after-aid-crackdown.html?_r=0
ITT's bankruptcy left about 35,000 students in the lurch. Most of them took out federal student loans to pay ITT's extraordinarily high tuition, and none of them will be able to complete their studies. DOE Secretary John King sent a message to these students telling them they had just two options: transfer their credits to other institutions or file for loan forgiveness under DOE's "closed school"forgiveness regulations.
On September 15, 23 Democratic Senators sent Secretary King a letter asking DOE to grant ITT's former students special assistance. The letter is slightly incoherent, which is understandable given the fact that 23 politicians had to agree on the text. Nevertheless, the Senators articulated several specific requests for relief.
Extending the eligibility guidelines for total student-debt relief for ITT's former students. First, the Senators want DOE to loosen the eligibility requirements for ITT students who file for total loan forgiveness under DOE's "closed school" relief regulations. Under current DOE guidelines, ITT's former students can apply for debt relief under DOE's "closed school" procedures if they were enrolled at ITT at the time it closed or withdrew from ITT up to 120 days prior to closure.
The Democrats asked Secretary King to expand the 120-day window to a little more than two years. If King grants this request, any student who withdrew from ITT on or after March 1, 2014 will qualify to have their ITT student loans forgiven under DOE's "closed school" discharge process.
Preservation of ITT's student records. The Senators also asked DOE to preserve all of ITT's documents and records that might be relevant to an ongoing investigation of ITT's activities or that could be helpful to students seeking to get their loans discharged..
Explore legal authority to automatically discharge ITT students' federal loans. Finally, the Senators urged DOE to determine its authority to automatically discharge student loans of ITT students and to consider discharging loans of all students who don't transfer their ITT credits to another institution within three years and who are otherwise eligible for a "closed school" discharge.
All these recommendations are commendable but they are far too timid. After all, as the Senators attested in their letter, DOE shut off ITT's funding based on serious concerns about "ITT Tech's deceptive practices, dubious educational quality, and financial integrity."
As reported in Bloomberg News, the U.S. Securities and Exchange Commission sued ITT for fraud in 2015, and the Consumer Financial Protection Bureau sued the company in in 2014, "accusing it of overstating students' job prospects and potential salaries and then pushing them into high-cost private loans that were likely to default." Both suits are still pending.
ITT has enrolled thousands of students over the years. Many of these students--my guess is most of them--received little or no economic benefit for their ITT tuition dollars.
I'm sure ITT can point to some students who completed their ITT studies and found good paying jobs, but I think for every success story there is surely one or more students who got no economic benefit from their ITT studies and wound up heavily in debt.
One thing is certain. The for-profit college industry is imploding, and DOE needs a comprehensive process for assisting students who attended one of the collapsing for-profit schools. Several years ago, Professor Robert C. Cloud and I proposed a change in the Bankruptcy Code that would allow anyone who accumulated student-loan debt from attending a for-profit college and who is insolvent to receive a bankruptcy discharge of student-loan debt without having to show "undue hardship."
In other words, we argued that student debt acquired to attend a for-profit college should be treated like any other unsecured debt, which would make it readily dischargeable in bankruptcy. In my view, this proposal makes more sense than for DOE to deal with each collapsing for-profit college on an ad hoc basis.
Let's see if our U.S. Senators have the courage to offer broader relief for for-profit college students than the tepid proposals contained in the Democratic Senators' recent letter.
References
Richard Fossey, Robert C. Cloud, R.
(2011). From the cone of uncertainty to the dirty side of the storm: A proposal
to provide student-loan debtors who attended for-profit colleges with
reasonable access to the bankruptcy courts. Education
Law Reporter, 272, 1-18.
Secretary of Education John B. King Jr. A Message from the Secretary of Education to ITT Students. Accessible at http://blog.ed.gov/2016/09/message-secretary-education-itt-students/
Letter to the Honorable John King, Secretary of Education, from 23 Democratic Senators, September 15,2016. https://www.insidehighered.com/sites/default/server_files/files/9_15_16%20ITT%20Tech%20ED%20Letter%20(1).pdf
Dawn McCarty and Shahien Nasirpour. ITT Educational Services Files for Bankruptcy After Shutdown. Bloomberg, September 16, 2016. Accessible at http://www.bloomberg.com/news/articles/2016-09-16/itt-educational-services-files-for-bankruptcy-after-shutdown-it6byu6t
Reuters. ITT Educational Services Files for Bankruptcy After Aid Crackdown. International New York Times, September 17, 2016. Accessible at http://www.nytimes.com/2016/09/18/business/itt-educational-services-files-for-bankruptcy-after-aid-crackdown.html?_r=0
Wednesday, February 24, 2016
Arbitration and For-Profit Colleges: Public Citizen, a consumer group, asks the Department of Education to bar for-profits from forcing students to arbitrate their fraud claims. What a good idea!
Public Citizen, a consumer rights group, formally petitioned the U.S. Department of Education to cut off federal student-aid money to for-profit colleges that force their students to sign arbitration agreements that bar students from suing the colleges for fraud or misrepresentation or from filing class-action lawsuits. Julie Murray, spokesperson for the group, explained Public Citizen's position. "Taxpayers should not have to subsidize predatory schools that deny their students a day in court," Murray said in a press release.
What a good idea! Everyone knows that thousands of low-income and minority students have been lured into enrolling at expensive for-profit colleges by misrepresentations and high-pressure recruiting tactics. The for-profits have very high student-loan default rates, high dropout rates, and high percentages of students who are seeing their loan debt growing larger because they are forced into economic-hardship deferment programs due to the fact that their post-studies income is not high enough to pay off their student loans.
In fact, as Stephen Burd pointed out in an Inside Higher Ed essay, a for-profit institution's shareholders can sue a for-profit college for misrepresenting job-placement figures while the students themselves cannot.
Arbitration clauses always favor the for-profit industry because the for-profits pick the arbitration company, which gives the arbitrators an incentive to rule in favor of the colleges or at least to go easy on them in order to get "repeat business." Discovery is often limited in arbitration proceedings, and arbitration can be expensive, since the student must bear part of the arbitrator's cost.
I agree with Mr. Burd, who wrote:
References
Stephen Burd. Signing Away Rights. Inside Higher Ed, December 17, 2013. Available at https://www.insidehighered.com/views/2013/12/17/essay-questions-mandatory-arbitration-clauses-students-profit-higher-education
Ashley A. Smith. U.S. Urged to Deny Aid to For-Profits That Force Arbitration. Inside Higher Ed, February 24, 2016. Available at: https://www.insidehighered.com/quicktakes/2016/02/24/us-urged-deny-aid-profits-force-arbitration?utm_source=Inside+Higher+Ed&utm_campaign=183bc9e3a3-DNU20160224&utm_medium=email&utm_term=0_1fcbc04421-183bc9e3a3-198565653
What a good idea! Everyone knows that thousands of low-income and minority students have been lured into enrolling at expensive for-profit colleges by misrepresentations and high-pressure recruiting tactics. The for-profits have very high student-loan default rates, high dropout rates, and high percentages of students who are seeing their loan debt growing larger because they are forced into economic-hardship deferment programs due to the fact that their post-studies income is not high enough to pay off their student loans.
In fact, as Stephen Burd pointed out in an Inside Higher Ed essay, a for-profit institution's shareholders can sue a for-profit college for misrepresenting job-placement figures while the students themselves cannot.
Arbitration clauses always favor the for-profit industry because the for-profits pick the arbitration company, which gives the arbitrators an incentive to rule in favor of the colleges or at least to go easy on them in order to get "repeat business." Discovery is often limited in arbitration proceedings, and arbitration can be expensive, since the student must bear part of the arbitrator's cost.
I agree with Mr. Burd, who wrote:
Congress should eliminate this injustice by barring colleges that participate in the federal student aid program from including binding arbitration clauses in enrollment agreements, just as Senators Tom Harkin of Iowa and Al Franken of Minnesota proposed . . . . As [the senators] wrote, "Colleges and universities should not be able to insulate themselves from liability by forcing students to preemptively give up their right to be protected by our nation's laws.Student-loan debtors--and there are 42 million of you--should ask presidential candidates if they are willing to cut off federal student-aid funding to for-profit colleges that force their students to sign arbitration agreements. What would Hillary's answer be? Donald Trump's? Bernie Sanders?
References
Stephen Burd. Signing Away Rights. Inside Higher Ed, December 17, 2013. Available at https://www.insidehighered.com/views/2013/12/17/essay-questions-mandatory-arbitration-clauses-students-profit-higher-education
Ashley A. Smith. U.S. Urged to Deny Aid to For-Profits That Force Arbitration. Inside Higher Ed, February 24, 2016. Available at: https://www.insidehighered.com/quicktakes/2016/02/24/us-urged-deny-aid-profits-force-arbitration?utm_source=Inside+Higher+Ed&utm_campaign=183bc9e3a3-DNU20160224&utm_medium=email&utm_term=0_1fcbc04421-183bc9e3a3-198565653
Sunday, May 3, 2015
An episode of The Walking Dead: Why did the U.S. Department of Education oppose bankruptcy relief for a quadriplegic student-loan debtor?
America's insolvent student-loan debtors are the walking dead
America's student-loan crisis is beginning to resemble an episode of The Walking Dead. Like zombies, millions of distressed student-loan debtors stumble around the American landscape, basically pushed out of the economy and suffering in silence.
Just as Deputy Sheriff Rick tries to elude the zombies in Walking Dead, President Obama treads lightly, hoping to avoid encountering the millions of student-loan defaulters. Deputy Sheriff Rick doesn't have enough shotgun shells to dispatch all "the walkers" if they show up en masse; and the Obama administration doesn't have the intellectual or moral resources to deal with the masses of people whose lives were destroyed by their student loans.
Insolvent student-loan debtors: The Walking Dead |
Basically the culprits who created the student-loan crisis or helped hide its magnitude--Congress, colleges and universities, think tanks like the Brookings Institution, the Department of Education, the College Board--are huddled in their bastions much like the characters in The Walking Dead, who holed up in an abandoned department store for awhile, hoping someone with a little courage and intelligence would come to their rescue.
Of course, if the United States was a humane society--which it isn't--people who were overwhelmed by student-loan debt could discharge their loans in bankruptcy. But Congress passed several laws making it quite difficult for insolvent student-loan debtors to get relief from the bankruptcy courts.
Still--a few brave souls make the effort, filing adversary actions in the bankruptcy courts, often without lawyers. And recently, the bankruptcy courts have begun to take notice of the nightmare that the student-loan program has become; and the courts have been discharging some student loans.
But every time an intrepid spirit tries to get relief from oppressive student loans in a bankruptcy court, lawyers for the Department of Education or one of the government's private debt-collection agencies show up to oppose relief. In fact, it is fair to say that the official position of the U.S. government--President Obama's government--is that no one should be relieved of student-loan debt in bankruptcy.
In virtually every student-loan bankruptcy case, the lawyers for DOE and the debt-collection companies argue that student-loan debtors should be put in 25-year income-based repayment plans (IBRPs) rather than have their loans discharged. Of course, this is a heartless position to take, and in some cases it is downright ridiculous.
In Stevenson v. Educational Credit Management Corporation, for example, Educational Credit Management Corporation argued that a woman in her 50s, who had a record of homelessness and was living on less than $1000 a month, should be put in a 25-year IBRP in spite of her record of poverty and in spite of the fact that this woman didn't file for bankruptcy until 25 years after she took out her first student loan. And the bankruptcy judge agreed! I don't know what ultimately happened to this poor woman, but apparently she was forced into a repayment plan that would not end until a half century after she first borrowed money to go to college.
Myhre v. U.S. Department of Education: DOE opposes bankruptcy relief for a quadriplegic student-loan debtor
But for utter, depraved heartlessness, my nomination goes to the bankruptcy case of Myrhe v. U.S. Department of Education, in which the Department of Education opposed bankruptcy relief for Bradley Myhre, a quadriplegic student-loan debtor who had no muscle control below his neck. Myhre had suffered a catastrophic spinal injury in a swimming-pool accident, but he borrowed money to attend college and was able to work full-time. Unfortunately, his salary wasn't enough to cover the cost of paying his full-time caregiver--the person Myhre employed to feed, dress and bathe him and drive him back and forth to work.
Incredibly, DOE--Arne Duncan's DOE--opposed bankruptcy relief for Myhre and argued that he shouldn't have spent money for cable television since that was money he could have applied to paying off his student loans.
Fortunately for Mr. Myhre, the bankruptcy court rejected DOE's arguments and granted him relief from his student loans. In fact, the court praised him for his courage. "Mr, Myhre is an articulate and personable young man," the court observed, "whose mobility is determined by his wheelchair and dexterity is only sufficient to operate a directional stick control." Myhre's daily life required "bravery and tenacity," the court wrote," and Myhre had "made a truly admirable effort to return to work in order to support himself financially rather than remain reliant on government aid" (Myhre v. U.S. Department of Education, 2013, p. 704).
The Department of Education's lawyers are like Daryl in The Walking Dead
Why did the Department of Education take such a heartless position regarding Mr. Myhre's student loans? I'll tell you why. DOE is driven to stop every student-loan bankruptcy because if the bankruptcy courts ever begin reviewing the plight of insolvent student-loan debtors from a humane perspective, the judges would start granting bankruptcy relief to these unfortunate souls. And if that ever happenes, millions of honest but unfortunate people--and I mean literally millions--will be filing for bankruptcy, which would topple the entire corrupt and putrid student-loan program. DOE simply can't let that happen.
Much like a DOE lawyer opposing bankruptcy relief for student-loan debtors, Daryl quietly dispatches zombies |
The metaphor isn't perfect, of course. The "walkers" that Daryl drills through the brain with his arrows are frightening creatures, while the poor folks dispatched by DOE's lawyers are decent human beings entirely deserving of our pity and our aid. And of course, I would be slandering Daryl to compare him to a DOE attorney!
But overall, I like the metaphor. Our insolvent student-loan debtors are very much like the zombies in The Walking Debt, and the Department of Education's lawyers are quite like Daryl, quietly picking off the "walkers" who make their way into the bankruptcy courts.
I don't know how this series will end, but I feel pretty sure some scary episodes lie ahead. If there is any justice in the world, distressed student-loan debtors will rise up one day by the millions; and America's cowardly politicians, college presidents, and policy wonks will wind up eating stale canned goods while holed up in the real-life equivalent of The Walking Dead's abandoned Center for Disease Control.
Quiet! Don't let the walkers hear you. |
Myhre v. U.S. Department of Education,
503 B.R. 698 (Bankr. W.D. Wis. 2013).
Roth v. Educational Credit Management
Corporation, 490 B.R. 908 (9th Cir. BAP 2013).
Stevenson v. Educational Credit
Management Corporation, 436 B.R. 586 (Mass. Bankr. 2011).
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