Higher Education as a criminal enterprise: The U.S. Department of Education (or its agents) is trying to collect on a student loan debt 37 years old!

In Clusterfuck Nation, James Howard Kunstler has argued that many sectors of our economy have descended into criminal enterprises: banking, medicine and higher education in particular. And by God, he has convinced me.

Kunstler concluded his latest essay with these words: "It is getting to the point where we have to ask ourselves if we are even capable of being a serious people anymore." I am beginning to think the answer is no.

A few days ago a retired man in California contacted me through my blog site and asked for help with a student-loan problem. As I understand it, he took out a small student loan back in the 1970s and allowed it to go into default.

In 1980, the federal government or one of its agents obtained a default judgment against the guy, and he paid the judgment in full sometime thereafter.

Now, 37 years later, a government debt collector is trying to collect on the loan. You may think the debt is uncollectable.  All states have statutes of limitations for lawsuits to collect a debt. Generally, the statute of limitations on a promissory note is six years. So the guy has nothing to worry about, right?

Wrong. Congress passed the Higher Education Technical Amendments of 1991, which abolished all statutes of limitations on student loans, and some courts have ruled that the law applies retroactively. Thus, even if the statute of limitations on my correspondent's debt expired before the federal law was passed in 1991 (and I think it did), the government can still collect on it--at least according to some courts' interpretation.

Now that is fundamentally wrong and violates an ancient principle of equity known as laches. As explained in Black's Law Dictionary, "The doctrine of laches is based on the maxim that "equity aids the vigilant and not those who slumber on their rights." Thus, as a matter of fundamental fairness, claimants must pursue their remedies within a reasonable time. After all, it is unfair to start collection activities on a debt long after most reasonable people would have discarded documents that would prove the debt had been paid.

In fact, I'm sure millions of student debtors who paid of their students loans do not now have documents to prove their loans were paid.  In fact, in a lawsuit decided a few years ago, a woman obtained a court order finding she had paid off her student loans, and Educational Credit Management Corporation continued its collection efforts against her in spite of that fact.

As I write this, the U.S. Department of Education's debt collectors are pursuing desperate student-loan borrowers into the bankruptcy courts and arguing to federal judges that these hapless debtors should be put in 25-year repayment plans. These people are as heartless as the mob characters in the movie Godfather II.

So yes, higher education has become a criminal enterprise, and the Department of Education is basically a racketeer, which Congress and the courts show no inclination toward trying to control.   As Mr. Kunstler put it, "It is getting to the point where we have to ask ourselves if we are even capable of being a serious people anymore."

There may be an argument that the Higher Education Technical Amendments of 1991 is unconstitutional when applied against people long after they can reasonably defend themselves. Perhaps some starving law graduate, also burdened by student loans, could do some research on the constitutionality of this pernicious law.

It's not personal. It's only business.

References

Hann v. Educational Credit Management Corporation, 711 F.3d 235 (1st Cir. 2013).

James Howard Kunstler. Racket of Rackets. Clusterfuck Nation, March 31, 2017.

United States v. Hodges, 999 F.2d 341 (8th Cir. 1993).

No Statute of Limitations on Student Loan Debt: How Can That Be Justified?



Abandon hope, all ye who enter here. 

                                 Dante Alighieri 

Awhile back, Governor Jerry Brown vetoed a bill passed by the California legislature  that would have expanded the statute of limitations for bringing sexual abuse lawsuits against private schools, including schools operated by the Catholic Church. The law did not apply to sexual abuse claims against public school teachers.


Cartoon Credit: Carol Simpson

In vetoing the statute, Governor Brown invoked ancient principles of fairness that put time limitations on lawsuits. "Statutes of limitation reach back to Roman law and were specifically enshrined in the English common law by the Limitations Act of 1623," Governor Brown wrote in his veto message. "Ever since, and in every state, including California, various limits have been imposed on the time when lawsuits may still be initiated. Even though valid and profoundly important claims are at stake, all jurisdictions have seen fit to bar actions after a lapse of years."

Statutes of Limitations Invoke Ancient Principles of Fairness

Governor Brown correctly stated the law regarding statutes of limitations. It is not fair, as the courts sometimes put it, for aggrieved parties to “sleep on their rights” and then file a lawsuit long after a claim has grown stale, when memories and witnesses may have faded away and critical documents may have been lost. Thus, all states give claimants a specific time limit for filing a lawsuit. If the claimant fails to file within the time limit, the claimant irrevocably loses the right to seek a remedy in court.

Unfortunately for student loan debtors, these ancient principles of fairness do not apply to student loans. In 1991, Congress passed 20 U.S.C. § 1091a, a statute that abolished all limitation periods that might otherwise apply against specified lenders and governmental entities that seek to collect on student loans. As one scholar succinctly summarized the law, “[O]nce a student contracts for a student loan, the student cannot use a statute of limitations as a defense against collection on that loan by the entities listed in the statute—ever” (Roper, 2005, p. 37, emphasis supplied).

The Fabrizio case: Student-Loan Guarantor Attempts to Collect a 25-Year-Old Judgment

In 2010, this harsh federal law was applied in a case against Anthony Fabrizio, who borrowed about $9,000 in the early 1970s to help pay for his postsecondary education (New York State Higher Education Services Corporation v. Fabrizio, 2010). Apparently, Fabrizio did not pay back the money, and the lender obtained a default judgment against him in 1983 for $9,664.63. In 2008, twenty-five years after the debt had been reduced to judgment, the New York State Higher Education Services Corporation, which (through a predecessor agency) had guaranteed Fabrizio’s loan, told Fabrizio to begin paying off the debt or the agency would start garnishing his wages.

Fabrizio tried to persuade a New York court to enter an order declaring that his debt was deemed paid under a New York law stating that a money judgment is presumed to have been paid after 20 years from when the creditor was first entitled to enforce it.

Unhappily for Mr. Fabrizio, a New York appellate court ruled against him, finding that 20 U.S.C. 1091a, abolishing all statutes of limitation that might otherwise protect a defaulted student-loan debtor, overrode the New York statute of limitation.  Fabrizio can still be made to pay back the loan. Presumably, he is also liable for collection fees and more than 30 years of accumulated interest.

Defaulting Student Loan Debtors Have No Place to Hide

Today, there are millions of people who have defaulted on their student loans, and some of those loans are now quite old. Nevertheless, student-loan defaulters are never off the hook for their debt--no matter how old that debt might be.

As the Fabrizio case illustrates, statutes of limitation do not apply to student-loan debts that are guaranteed by the federal government, and a lender can pursue collection at any time, even if the lender took no action for a quarter of a century.

Moreover, unlike most other overburdened debtors, student-loan debtors cannot discharge student loans in bankruptcy unless they can show that failure to discharge their student loans will cause them “undue hardship”  (11. U.S.C. § 523(a)(8)(B)). As several scholars have observed, it is very difficult for student-loan debtors to discharge their student loans in bankruptcy--even in heart-rending circumstances (Pardo & Lacey, 2009, Fossey, 1997). 

In fact, student-loan debtors who fail to repay their loans can have their Social Security checks garnished, a practice that the Supreme Court approved in the 2005 decision of Lockhart v. United States.  People who took out student loans in their early twenties and never paid them back can see their Social Security income diminished by their failure to discharge their student-loan obligations (Cloud, 2006).

Abandon Hope, All Ye Who Enter Here

For millions of college students, the federal student loan program has become a nightmare. Over the years, Congress has passed harsh legislation that has stripped student-loan debtors of traditional legal protections like statutes of limitation and unfettered access to the bankruptcy courts.  As a result, for individuals who default on their student loans, even those who took out their loans in good faith, the famous passage from Dante seems chillingly appropriate: “Abandon hope, all ye who enter here.”  

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Note: Parts of this essay were taken from an essay originally published in 2010 in Teachers College Record.  The citation for the original article is Richard Fossey & Robert C. Cloud, Abandon Hope, All Ye Who Enter Here: Defaulting Student Loan Debtors Have No Place to Hide. Teachers College Record, October 12, 2010 at http://www.tcrecord.org, ID Number: 16195.

References

Chae v. SLM Corporation, 593 F.3d 936 (9th Cir. 2010).

Cloud, R.C. (2006). Offsetting Social Security benefits to repay student loans: Pay us now or pay us later, Education Law Reporter, 208, 11-21.

Fossey, R. (1997).  "The certainty of hopelessness:" Are courts too harsh toward bankrupt student loan debtors?  Journal of Law and Education, 26, 29-48. 

Garner, B. A. (Ed.). (9^th ed. 2009). Black’s Law Dictionary. St. Paul, Minn.: West Publishing Company.

Lockhart v. United States, 546 U.S. 142 (2005).

Joseph Mack (2006). Nullum Tempus: Governmental immunity to statutes of limitation, laches, and statutes of repose. Defense Counsel Journal, 73, 180-196.

New York Higher Education Services Corporation v. Fabrizio, 900 N.Y.S.2d (A.D. 3 Dept. 2010).

Raphael I. Pardo & Michelle R. Lacey (2009).  The real student-loan scandal: Undue hardship discharge litigation.  American Bankruptcy Law Journal, 83, 179-235.

Glen E. Roper (2005). Eternal student loan liability: Who can sue under 20 U.S.C. 1091a? Brigham Young University Journal of Public Law, 20, 35-78.