Showing posts with label bankruptcy relief for student loans. Show all posts
Showing posts with label bankruptcy relief for student loans. Show all posts

Wednesday, August 25, 2021

LSU uses COVID money to clear student debt: "What a good boy am I!"

 Louisiana State University announced this week that it will use $7 million in COVID relief money to clear debts that students owe the university. About 4,000 students will benefit.

That's wonderful!

But before we stand up and cheer, let's recognize that LSU is not spending $7 million to help students pay off their federal student loans. LSU is using COVID relief money to clear debts that students owe LSU--including outstanding balances on tuition, fees, and debt owed LSU for housing, meal plans, and parking.

Much of that debt is probably uncollectible. Students who dropped out of LSU in mid-semester may have left owing unpaid balances on meal plans, dorm rent, and parking tickets. But how can the university collect on that debt unless it sues the former student in court?

Do you think a student who dropped out of LSU in April 2020 and went back to his home in Dry Prong, Louisiana, is going to pay the university the 200 bucks he owes for parking violations? I would guess not.

By clearing that debt with federal money, LSU is simply paying itself.  All that is well and good, but should LSU and the other universities that adopt this strategy pat themselves on the back?  

LSU describes its actions as student-centered, but it is really acting in its own self-interest. Students who leave LSU owing unpaid bills can't get their transcripts and can be barred from registering for more classes. By paying off student debts with federal money, LSU enables former students to re-enroll.

I would be more impressed with universities following LSU's path if even one elite college president would speak out about the student loan crisis.  Approximately 45 million Americans owe $1.7 trillion in federal loans, and a high percentage can't pay those loans back.

I haven't heard a single college president call for bankruptcy reform to allow distressed college borrowers to shed their oppressive student loans in bankruptcy. I haven't heard one college CEO speak out about abuses in the for-profit college sector. And no college leader will admit that tuition costs are too high. 

No, universities are taking their cue from Little Jack Horner. They use fed money to pay themselves and say, "What a good boy am I!"






Saturday, January 9, 2021

Jamie Mudd v. U.S. Department of Education: A Nebraska bankruptcy court discharges a grandmother's student loans

 Between 2006 and 2015, Jamie Mudd took out 41 student loans to attend Heald College, a for-profit institution, and San Joaquin Delta College, a public institution. In 2015, she rolled these loans into two consolidated federal loans, totally about $72,000. 

Mudd put her student loans into an income-based repayment plan (IBRP) that established her monthly payments at zero due to her low income.  Under this plan, she was obligated to certify her income on an annual basis. Evidently, she forgot to do this because the U.S. Department of Education (DOE) removed her from the IBRP and reset her monthly payments at almost $800 per month. 

Mudd was readmitted into an IBRP, but she again failed to certify her income, and DOE set her new monthly payment at $963.

According to Bankruptcy Judge Shon Hastings, Mudd never earned more than $13 an hour, and she often worked two jobs to make ends meet. She lived in a one-bedroom apartment and incurred regular expenses caring for a grandson with disabilities. She also suffered from significant health problems.

Ms. Mudd filed an adversary proceeding, hoping to discharge her student loans, but DOE objected. First, DOE said Mudd's financial circumstances would probably improve, enabling her to make modest payments in an IBRP.  Second, Mudd was a smoker, and DOE said she should save her cigarette money and use it to pay down her student loans. DOE also claimed that Mudd's expenses for her grandson's video streaming were unnecessary.  Indeed, DOE disapproved of any money Mudd spent on her grandson.

Fortunately, Bankruptcy Judge Shon Hastings was considerably more compassionate than DOE. In a decision issued last month, Judge Hastings discharged all of Mudd's student-loan debt.

In ruling in Mudd's favor, Judge Hastings applied the "totality of circumstances" test approved by the Eighth Circuit Court of Appeals. This is a summary of his reasoning:

Mudd has made a good faith effort to maximize her income. Mudd works approximately 53 hours per week at two jobs. . . . Overall, Mudd's expenses are necessary and reasonable and consistent with a minimal standard of living. . . . She has no savings, owns no assets of significant value (except her used car in which she holds no equity), lives in a one-bedroom apartment and obtains food and toiletries from local nonprofit organizations to make ends met. Her medical expenses are higher than budgeted, and she anticipates that her health care costs will continue to rise due to her high cholesterol and diabetes.  

In short, Judge Hastings concluded, Mudd did not have sufficient disposable income to pay on her student loans. Thus, the judge discharged all of this debt.

Judge Hastings specifically rejected DOE's suggestion that Mudd should not be credited for the expenses she incurred for her grandson. "[T]he Court finds it entirely inappropriate to find or suggest that Mudd should not care for her grandson or to weigh undue burden factors against her for doing so." 

Judge Hasting's ruling should not surprise us. Clearly, Jamie Mudd was in dire financial straits and entitled to discharge her student loans in bankruptcy.

What is shocking is the fact that DOE objected. Mudd v. U.S. Department of Education is just one more example of the federal government's heartlessness toward college-loan debtors, heartlessness that borders on viciousness

References

Mudd v. U.S. Department of Education, Adversary No. 19-04048, 2020 WL 7330054 (Bank. D. Neb. Dec. 9, 2020).