Showing posts with label student loan bankruptcy. Show all posts
Showing posts with label student loan bankruptcy. Show all posts

Wednesday, August 11, 2021

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"




Monday, July 26, 2021

In re Standish: Should you be required to use your inheritance to pay off student debt?

 Martha Standish took out student loans when she was in her late 40s to get an undergraduate degree in accounting. Later she took out a Parent Plus Loan to help her daughter with college expenses.

Eleven years after graduating, Standish filed an adversary proceeding in a Kansas bankruptcy court seeking to discharge about $30,000 in student loans. By this time, she was 63 years old. She made $18.36 an hour working at an engineering firm, and her expenses slightly exceeded her income.

Bankruptcy Judge Robert Berger applied the Brunner test in deciding whether Ms. Standish qualified to have her student loans discharged under the Bankruptcy Code's "undue hardship" rule.  To be entitled to a student-loan discharge, Standish was required to make three showings:

1) "[S]he cannot maintain a minimal standard of living for herself and her dependents if forced to repay her student loans."

2)  "[A]dditional circumstances exist indicating that this state of affairs will persist [for] a significant portion of the repayment period . . . ."

3) "[S]he made good faith efforts to repay her loans."

After an extensive analysis, Judge Berger ruled in Standish's favor on two parts of the three-part Brunner test.  

First, he ruled that Standish could not maintain a minimal standard of living and make payments on her student loans. Thus, she met the first part of the Brunner test.

Second, Judge Berger ruled that Standish's dismal economic circumstances were unlikely to improve enough for her to pay off her student loans in the future. "As her age advances and her health deteriorates, she will soon reach a point at which her continuing employment is no longer possible," the judge observed. Moreover, Standish was unlikely to see her income go up. Based on these facts, Judge Berger ruled that Standish met the second part of the Brunner test.

Finally, regarding Brunner's "good faith" prong, Judge Brunner noted approvingly that Standish had "diligently minimized her expenses while maximizing the income she could earn with her degree." She also made payments on some of her loans while deferring others.

Nevertheless, Judge Berger ruled that Standish failed the good-faith prong of the Brunner test. 

Why? Because she received an inheritance and did not use the inheritance money to pay off her student loans. Instead, she used her inheritance to help pay for her daughter's education and other expenses. 

As Judge Berger explained:

[Standish's] decision to dedicate her inheritance to her daughter's education and other expenses prohibits the Court from finding that her pursuit of a discharge is in good faith. [Standish] received around $45,000 from her mother's estate. None of that money was used to pay the student loans. It is notable that this money would have been enough to pay off all or almost all her student loans.

Judge Berger clearly sympathized with Ms. Standish. He ruled in her favor on two parts of the Brunner test and only ruled against her on the good-faith standard because of her inheritance. "It is a tragic irony,' Judge Berger wrote, "that [Standish's] very efforts to relieve her daughter of the financial enserfment caused by student loan debt doomed her effort to discharge her own student loans."

Millions of Americans are burdened by student loans that prevent them from buying a home or saving for retirement. Some are probably counting on an inheritance to offset the catastrophe of their student debt.

But Judge Berger's decision--which is in harmony with current law--should be a wake-up call to student debtors who believe an inheritance will allow them to retire with dignity despite crushing student debt. As the Standish decision illustrates, an inheritance might foreclose bankruptcy relief for student borrowers even if they are otherwise qualified for relief under Brunner.

And--even more chilling to think about--the feds might try to garnish inheritance money from people who defaulted on their student loans. To my knowledge, this has not happened yet, but that possibility should not be discounted. 

Just another reason why Congress should amend the Bankruptcy Code and allow honest debtors to discharge their student loans in bankruptcy like any other nonsecured debt.

References

In re Standish, 628 B.R. 692 (Bankr. D. Kan. 2020).



Friday, January 15, 2021

Teaching wild hogs to dance: Brookings says for-profit college system is broken and thinks it know how to fix it

 The Brookings Institution published a report this week calling attention to the for-profit college system's enormous abuses. "For-profit colleges have a long history of engaging in manipulative behavior to preserve the flow of [federal money] to their schools while providing their students with a poor education," authorsAirel Gelrud Shiro and Richard Reeves wrote.

In this report (and in an earlier paper released last November), Brookings researchers ticked off a litany of problems in the for-profit college industry:

  • The for-profits only enroll 10 percent of postsecondary students, "but they account for half of all student-loan defaults."
  • For profit-schools are about four times more expensive than community colleges.
  • Black and Latino are overrepresented in this expensive college sector. Although they make up less than a third of all college students, "they represent nearly half of all who attend for-profit colleges."
  • Black students who take out student loans to attend a for-profit have very high default rates. "Almost 60 percent of Black students who took on student debt to attend a for-profit school in 2004 defaulted on their loans by 2016 . . ."
  • Research suggests a for-profit college education may be no better than no college at all. "Students may even incur net losses from for-profit attendance when debt is factored in."
OK, I'm convinced--the for-profit colleges are bad boys.  In fact, I was convinced back in  2012, when Senator Tom Harkin's committee released a scathing report on the for-profit college industry. 

But what are we going to do about it? 

Brookings researchers recommend more effective federal regulations. For example, Brookings wants to reinstate the "gainful employment" rule that the Obama administration introduced. Colleges whose students don't reach a certain debt-to-employment ratio would lose federal funds. And it wants a more transparent "College Scoreboard" for reporting the for-profits' student outcomes. 

But let's face facts.  Trying to reform the for-profit college industry is like trying to teach wild hogs to dance.  It ain't happening.

Postsecondary education should be inexpensive, and it should lead to good jobs.  Under that standard of measurement, the for-profits have failed.

So why doesn't Congress just shut them down?

Or failing that, why doesn't Congress at least allow the naive people who took out student loans to attend overpriced for-profit colleges and didn't benefit to discharge their student loans in bankruptcy?

How could anyone object to such a simple avenue of relief for the countless victims of the for-profit college scandal?

References

U.S. Senate Committee on Health, Education, Labor and Pensions. For-Profit Higher Education: The Failure to Safeguard the Federal Investment and Ensure Student Success. 112 Congress, 2d Session, July 30, 2012. 

Let's do the "Gainful Employment" dance!






Friday, March 6, 2020

Retirees with student-loan debt should ask elderly presidential candidates what they plan to do about the student-loan crisis

Last month, the New York Times ran a story about retirement-age Americans who are struggling to pay off student-loan debt. As reported by Times writer Tammy La Gorce, 2.8 million Americans in their 60s have student-loan obligations, a number that has quadrupled since 2005.

The average debt load for elderly student-loan debtors has nearly doubled between 2012 and 2017--from $12,100 to $23,500. And, according to the Times story, most student-loan debt held by older Americans was taken out to pay for for their children's education.

Many of these elderly student-loan debtors jeopardized their own retirement by borrowing money to get their kids through college. And these debts are virtually impossible to discharge in bankruptcy.

It is now inevitable that the United States will elect an old guy for President in November: Donald Trump, age 73; Joe Biden, age 77; or Bernie Sanders, who is 78.  Will they be sympathetic to senior Americans who are burdened by student debt?

Why don't we inquire? If we get an opportunity to question Bernie, Biden, or Trump, these are the questions we should ask.

First, do you support the bill that Congressman John Katko introduced in Congress to eliminate the "undue hardship" provision in the Bankruptcy Code so that insolvent Americans can discharge student debt in bankruptcy just like any other unsecured consumer debt? Yes or no.

Second, do you support the repeal of the so-called "Bankruptcy Reform Act" that made it more difficult and more expensive for financially distressed Americans to get bankruptcy relief? Yes or no?

Third,  do you support legislation that would prohibit the federal government from garnishing the Social Security checks of retired Americans who defaulted on their student loans? Again, yes or no?

And here are some candidate-specific questions to ask:

President Trump, you indicated that the Department of Education is looking at some options for relieving the suffering of college borrowers who are burdened by student-loan debt? Precisely what do you have in mind?

Senator Sanders, do you have any plan for addressing the student-loan crisis other than forgiving $1.6 trillion in student debt?  If you are elected President, and Congress refuses to approve your loan-forgiveness promise, do you have any other ideas about relieving the student-debt crisis?

Former VP Joe Biden, do you regret your role in passing the notorious Bankruptcy Reform Act of 2005? Would you work to repeal the law if you are elected President?  Would you at least repeal the provision that makes private student loans almost impossible to discharge in bankruptcy?

Curiously, although the student-loan program is totally out of control and burdens 45 million Americans, the media has not pressed any of the presidential candidates about the student-loan crisis.

College and university leaders have said almost nothing about this catastrophe, and they won't be asking the presidential candidates any awkward questions about the federal student-loan program. Harvard, for example, took in $4 billion in federal money between 2011 and 2015. The student-loan program works just fine for America's wealthiest university.

But ordinary Americans need to know what Bernie, Biden, and Trump plan to do if they are elected President. Ask those questions yourself because the press and the universities aren't interested.


Harvard University President Lawrence Bacow: Student-loan crisis? What student-loan crisis?


Friday, February 14, 2020

Davis v. U.S. Department of Education: Another law graduate is denied student-loan bankruptcy relief

Few overburdened student-loan debtors attempt to get their loans discharged in bankruptcy. Most believe their student loans are not dischargeable as a matter of law. But among the small number of people who file for bankruptcy and try to get their student loans forgiven, a fair number are law-school graduates.

A handful of law-school graduates have been successful in bankruptcy court: the Barrett case out of California, the Hedlund case out of the state of Washington, and, more recently, the Rosenberg decision out of New York are examples of good outcomes for law graduates. But most are unsuccessful.

Davis v. U.S. Department of Education is the latest in a string of decisions in which a J.D. graduate with crushing debt is denied relief by a federal bankruptcy judge. Jeffrey Michael Davis graduated from John Marshall Law School in 2008, Apparently, Davis "performed poorly in law school" (p. 706), but he obtained an LL.M. degree (an advanced law degree) from John Marshall in 2013. At the time his adversary case was decided, he was 41 years old.

After graduating from law school, Davis sought full-time employment but he was not able to find a steady job as a lawyer. After graduation, he worked as a document review attorney on a contract-to-contract basis.  In other words, in the 11 years since graduating from John Marshall Law School, he never secured a full-time job in the legal field.  His salary in 2018 was approximately $61,000, above the poverty level. Nevertheless, Davis was the father of a young child with disabilities, and his childcare expenses were significant.

Davis financed his law studies with student loans from both the federal government and a private lender. By the time he arrived in bankruptcy court, his total indebtedness was $351,000. According to Illinois Bankruptcy Judge Timothy Barnes, Davis made some payments on his DOE loans but had made no payments on his federal Stafford loans or his private loans.

Judge Barnes analyzed Davis's petition for relief under the three-part Brunner test and concluded that Davis did not meet even one of the three parts.

In Judge Barnes' opinion, Davis could not meet part one of the Brunner test because he could not show that he would be unable to maintain a minimal standard of living if forced to pay back his student loans.  In the judge's view, Davis had not lived frugally enough, noting disapprovingly that Davis subscribed to some streaming services.

The judge also pointed out that Davis had not applied for higher-paying jobs over the past four or five years. "In the absence of efforts to secure a higher-paying position, whether as an attorney or otherwise, and given the lack of other evidence regarding efforts to increase his income, [Davis] has failed to demonstrate that he has maximized or attempted to maximize his income" (p. 705).

Regarding part two of the Brunner test, Judge Barnes ruled that Davis "failed to demonstrate the existence of additional circumstances indicating that [he] will likely be unable to repay the Students Loans for a significant portion of the repayment period " (p. 707). The judge pointed out that Davis has at least 20 more years of earning potential.  The judge indicated that Davis had shown no unusual circumstances that would hinder him from finding a higher paying job.

Finally, Judge Barnes concluded that Davis had not been able to demonstrate that he had made good faith efforts to repay his loans. The fact that Davis had not made any payments on some of his loans "weighs against a finding of good faith" (p. 708). Judge Barnes ruled. And--as the judge had already indicated, he did not think Davis had tried to maximize his income, minimize his expenses, or look for a higher paying job.

I disagree with Judge Barnes' decision.  First, Judge Barnes is a lawyer himself. Surely he knows that the job market for lawyers in the U.S.  has been terrible since Davis graduated from law school in 2008. The judge should also know that the job possibilities for people who graduate from undistinguished law schools like John Marshall and who do not have stellar grades face particularly grim job prospects.

Finally, Judge Barnes should know that an L.L.M. degree from a lackluster law school like John Marshall often does not make a lawyer more marketable. In fact, for many J.D. graduates, an advanced degree in law merely adds to a lawyer's debt load.

In my view, the only question Judge Barnes should have considered when evaluating Mr. Davis's case is this: Can Mr. Davis repay $351,000 in student loans?

The answer to that question is undoubtedly no. Judge Barnes concluded that Barnes had not looked hard enough for a better job, but who would not look for better wages if a higher paying job was at least a remote possibility.

I doubt very much whether Davis--who has a law degree and an advanced law degree--likes working on a contract-to-contract basis for $61,000 a year. But I feel sure he is doing the best he can.  Apparently, he has worked consistently in the field of law for 11 years. He should get some credit for that.

If the Department of Education thinks it achieved something by opposing Mr. Davis's request for student-loan relief, it is deluding itself.  I think it is highly likely that Davis will be forced into an income-based repayment plan that will end when he is 66 years old and that accruing interest on his debt will prevent him from ever paying off his loans--now more than a third of a million dollars.

A compassionate ruling, a sensible ruling, and the right ruling would be for Judge Barnes to forgive all of Davis's crushing debt and give him the fresh start. That is the bankruptcy courts' duty, after all, to give honest but unfortunate debtors a fresh start.

References

Davis v. U.S. Department of Education (in re Davis), 608 B.R. 693 (Bkrtcy N.D. Ill. 2019).




Sunday, January 19, 2020

Trump Administration is "woke" to the student-loan crisis: What can it do in 2020?

Love 'em or hate 'em, student-loan debtors owe a debt of gratitude to Bernie Sanders and Elizabeth Warren for putting the student-loan crisis on the front burner of national politics. Liz proposes to forgive the first $50,000 of student debt if she is elected President. Bernie says--what the hell--let's forgive it all.  That's $1.6 trillion!

Meanwhile, as the Democrats offer to help college borrowers, Trump’s Department of Education (DOE), led by Education Secretary Betsy DeVos, is doing everything it can to alienate a very large constituency--45 million student-loan debtors.  

But last month, the Trumpers became "woke" to the student-loan catastrophe.  As reported by the Wall Street Journal's Josh Mitchell and Andrew Restuccia, the Trump administration is considering some relief options, including allowing borrowers to shed their student-loan debt in bankruptcy.

According to the WSJ, the Trump administration is mulling a policy adjustment whereby DOE "would essentially decline to contest borrowers’ requests before [bankruptcy] judges to have their student loans canceled.” The beauty of this proposal is Trump could make this adjustment without congressional approval.

Better than that, Trump could claim that he is only following the policy announced by the Obama administration in 2015 when DOE's Lynn Mahaffie said in a letter that DOE would not oppose bankruptcy relief for student borrowers if it did not make economic sense to do so.

Of course, DOE never followed that policy. Instead, it has allowed Educational Credit Management Corporation to oppose virtually every student debtor’s petition to shed student-loan debt in the bankruptcy courts.  And this has been DOE’s practice under both the Obama and the Trump administration.

All President Trump needs to do to grant significant relief to college debtors is tell ECMC to fire its battalions of lawyers and file formal non-opposition documents when worthy student debtors seek to discharge their student loans in bankruptcy.

Undoubtedly, a few unscrupulous people would try to use the bankruptcy courts to shed debt they have the means to repay and which they should repay. But filing a fraudulent bankruptcy claim is a federal crime, and the bankruptcy judges know how to sniff out deceitful claims.

If Trump were to follow through with this proposal, we will need a lot more bankruptcy judges because millions of people would be entitled to bankruptcy relief.  Where will we get the money?  Let’s take the cash that DOE is funneling to ECMC and its lawyers and use it to hire some judges. 

Pretty simple really.  

"What do you say, Betsy? Let's tell ECMC to piss up a rope."




Monday, January 13, 2020

Rosenberg v. ECMC: A NY bankruptcy judge cuts through the crap and discharges $221,000 in student-loan debt

Less than a week ago, Bankruptcy Judge Cecelia G. Morris cut through the crap and granted a student-loan discharge to Kevin Rosenberg, a Yeshiva University law graduate. Judge Morris's opinion was so compassionate and surprising that the lyrics of a traditional Christmas carol come to mind: "A thrill of hope, the weary world rejoices, for yonder breaks a new and glorious morn."

Judge Morris's decision may be appealed. If so, and her ruling is affirmed by the Second Circuit Court of Appeals, it will have enormous implications for millions of student loan debtors.

As even the nation's politicians now realize, the federal student-loan program has run amok like a crazed bull in Pamplona. Millions of distressed but honest student debtors need bankruptcy relief from crushing student debt, which now totals $1.6 trillion.

Unfortunately, many bankruptcy judges have denied student-loan debt relief even under the most heartwrenching circumstances. In most cases, these harsh judges have relied on the famous Brunner test to plunge the knife into the hearts of desperate student-loan borrowers.

The Brunner test, first articulated by the Second Circuit Court of Appeals in 1987, requires the debtor to show three things to discharge student-loan debt: 1) The Debtor cannot pay off the loan and maintain a minimal standard of living, 2) The debtor's precarious financial circumstances are likely to persist over the term of the repayment period, and 3) The debtor made good faith efforts to repay the student loans.

Educational Credit Management Corporation (ECMC), the Department of Education's designated assassin in the bankruptcy courts, almost always takes the position that the debtor cannot meet even one of the Brunner test's three prongs. The debtor is often forced to defend against ECMC's tactics without a lawyer; standing like Christ before Pontius Pilate--depicted by ECMC almost like a common criminal who deserves a public flogging.

Again and again, ECMC has argued to the courts that a debtor is unworthy of bankruptcy relief because the debtor lived above a minimal lifestyle. Maybe a debtor eats at fast-food restaurants a few times a month--what a spendthrift! Maybe the debtor has a pet-- an outrageous extravagance! Maybe the debtor rents an apartment with an extra bedroom or makes modest deposits into a retirement account--how recklessly irresponsible!

A summary of Judge Morris' opinion

And then--just a few days ago--a remarkable thing happened: Judge Morris cut through ECMC's crap and applied the Brunner test the way it was originally meant to be applied.  Applying a correct and well-reasoned interpretation of Brunner, she concluded that Kevin Rosenberg was entitled to relief from his student debt--about $221,000.

Here is a summary of Judge Morris's reasoning.

First, to determine whether Rosenberg can maintain a minimal standard of living if forced to repay his student loans, Judge Morris simply looked at the schedule of income and obligations that Rosenberg filed when he applied for bankruptcy. That schedule attested that Rosenberg's net monthly income was $2,456 and his expenses amounted to $4,005. Clearly, Rosenberg met the first prong of the Brunner test.

Second, the judge applied the Brunner test's second prong, which asks whether Rosenberg's financial circumstances were likely to persist over the "repayment period" of the student loans. Judge Morris pointed out that Rosenberg's repayment period had ended after his creditor accelerated his loan and demanded payment in full. Thus, it was evident that Rosenberg passed the second prong of the Brunner test.

Finally, Judge Morris ruled that Roseberg met Brunner's third prong; he had made good faith efforts to repay his student loans. According to the Judge's analysis, Rosenberg had only missed six payments over a 13-year period.  Indeed, for 10 of those 13 years, his loan was in forbearance or deferment and he wasn't required to make any payments.

Judge Morris ruled in favor of Mr. Rosenberg by interpreting the Brunner test as it was originally meant to be interpreted. Brunner, she noted, dealt with a debtor who filed for bankruptcy only a few months after graduating from college. Over the years, however, courts have incorrectly applied punitive standards to Brunner, making it almost impossible for worthy student-loan borrowers to obtain bankruptcy discharges.

"This Court will not participate in perpetuating these myths," Juge Morris wrote. She then applied Brunner to Mr. Rosenberg's situation as she believed the Second Circuit meant for the test to be applied.

What does the Rosenberg decision mean for 45 million student-loan debtors?

As I stated above, if Judge Morris's Rosenberg opinion is appealed and upheld by the Second Circuit, the implications are enormous.  A majority of federal circuits rely on the Brunner test to determine whether a debtor's student loans constitute an undue hardship and are dischargeable. Most federal courts have misinterpreted Brunner so harshly that many legal commentators maintain that student loans are never dischargeable in bankruptcy.

If the Second Circuit endorses Judge Morris's opinion, then bankruptcy courts across the country that have relied on Brunner for the past three decades will feel pressure to abandon their misinterpretation of Brunner in order to harmonize with Judge Morris' ruling.  Hundreds of thousands of student-loan debtors who do not qualify for student-loan relief under the bastardized Brunner standard will be eligible under the Rosenburg ruling.

Additionally, and perhaps most importantly, Judge Morris's Rosenburg decision undercuts a central argument made by both the U.S. Department of Education (DOE) and ECMC.  Both maintain that virtually all student debtors should be required to sign up for long-term, income-based repayment plans (IBRP) in lieu of getting bankruptcy relief.

Many courts have bought this specious (and I might say vicious) argument, which has led to absurd results. For example, in Butler v. ECMC, a bankruptcy judge refused to discharge Brenda Butler's student-loan debt in spite of the fact that the judge explicitly ruled that she had made good faith efforts to repay her student loans over a period of 20 years. Bankruptcy Judge Mary Gorman ruled that Ms. Butler should sign up for an IBRP, a plan that would end in 2037--42 years after Ms. Butler graduated from college!

Judge Morris pointed out that the Brunner test asks whether the debtor's financial circumstances are likely to improve over the "repayment period" of the loan, not whether the debtor can make token loan payments for 25 years. This simple change in the interpretation of the Brunner standard obliterates arguments made by DOE and ECMC that all distressed student debtors should sign up for repayment plans that last as long as a quarter-century.

So let's watch the Rosenberg litigation closely. If the Second Circuit puts its seal of approval of Judge Morris's ruling, the federal government will need to hire a lot more bankruptcy judges. And ECMC, which has made a nice living hounding student debtors in the bankruptcy courts, will have to look for another line of work.

References

Butler v. Educational Credit Management Corporation, Case No. 14-71585, Chapter 7, Adv. No. 14-07069 (Bankr. C.D. Ill. Jan. 27, 2016).
Rosenberg v. Educational Credit Management Corporation, Adv. No. 18-09023 (Bank. S.D.N.Y. Jan. 7, 2019).









Wednesday, December 18, 2019

College leaders are the new Marlboro Man--touting dangerous products to gullible Americans

I'm old enough to remember when a lot of Americans smoked cigarettes.

People smoked on buses and airplanes, they smoked in restaurants and bars, they smoked in movie theatres. People even smoked in hospitals and grocery stores. I remember seeing a guy pick up a head of lettuce in the produce section of my local supermarket, and he had a cigarette wedged between the fingers of the same hand that grabbed the lettuce. Hey, no problem!

It's not like people didn't know that cigarettes were dangerous to our health. We all knew people who died slow, painful deaths from lung cancer and emphysema. We all saw elderly people who were basically living skeletons with sunken chests, yellowish skin, and discolored teeth. We knew why cigarettes were called coffin nails. But we ignored all that to appear cool.

Meanwhile, the cigarette industry advertised their products on television. I must have seen the Marlboro Man a thousand times on TV--that rugged, ruddy-faced cowboy with a viral cigarette clamped in his perfect teeth. But the Marlboro Man was a cynical, vicious lie.  Robert Norris, the original Marlboro Man, didn't smoke.

America's college presidents are like the cigarette industry in the 1950s. Just as Madison Avenue pitched cigarettes as sexy,  university leaders blather on and on about the value of higher education, how American graduate schools are the envy of the world, and about the big income bonus that comes with a college degree. They dress up in clown suits (academic regalia) on commencement day as if they were bestowing a high honor on the rubes by handing them diplomas.

But for millions of Americans, higher education's cheery bullshit about the benefits of a college degree are lies. More than 45 million Americans are student-loan debtors; collectively they owe $1.6 trillion. Eight million people are in income-based repayment plans that can last as long as 25 years. Millions have defaulted on student loans that they can't discharge in bankruptcy. College debt hampers Americans from buying homes, getting married, and having children.

Pompous college presidents, administrators, and professors think of themselves as superior individuals with keenly attuned social consciences and highly developed intellects. But they are lying to themselves and the world at large. In reality, they're the new Marlboro Man, selling products that they know are often dangerous.

Cigarettes are sexy and American higher education is the envy of the world.

Wednesday, August 28, 2019

“A noose around her economic neck”: A young lawyer wins a partial discharge of her private student loans

Nitcher v. National Collegiate Student Loan Trust, decided a few days ago, is another story of a heavily indebted lawyer who attempted to have her student loans discharged in bankruptcy. 

Leslie Taiko Nitcher is a 38-year-old attorney who graduated from Willamette University School of Law and passed the Oregon State Bar in 2008. She found it difficult to find steady work, but she finally landed a law job that paid her $69,000 in 2018.

Nitcher took out federal student loans and private student loans while she was in school. Although she made some payments on her student-loan debt, she owed a quarter of a million dollars on her loans ten years after she graduated. About $200,000 of that debt consisted of federal student loans, which she managed by enrolling in an income-based repayment plan (REPAYE). She pays $479 a month under that plan, which obligates her to make monthly payments for 25 years.

Nitcher also owed $51,000 in private student loans and she attempted to discharge these loans in bankruptcy. Bankruptcy Judge Peter C. McKittrick was sympathetic to her plight and granted Nitcher a partial discharge that requires her to pay only $16,500 on that debt, payable in 110 monthly payments.

Here is how Judge McKittrick began his opinion :
This adversary proceeding tells a far too common story of the plight of a professional swallowed by massive student loan debt, much of which she has no hope of repaying during her lifetime. In 2005, when Leslie Nitcher . . . enrolled in law school, it was with the hope and expectation her advanced degree would lead to a legal career at a level of compensation commensurate with the standard of living that lawyers historically have enjoyed. Instead, she faced a bleak job market when she graduated from law school in 2008. 
The question before the court, Judge McKittrick wrote, was "to what extent her student loan debt will remain a noose around her economic neck for the remainder of her economically productive years."

Judge McKittrick finished his opinion by explaining why he ruled as he did. "The reason I have concluded that the Student Loans should be discharged is largely because Nitcher cannot survive if [her private-loan creditor] garnishes her wages." 

The Nitcher decision is important because it is one of a growing number of bankruptcy-court decisions in which judges acknowledge the heavy burden that many law graduates face due to the tremendous amount of student-loan debt they accumulate during their studies. In many instances, they simply cannot pay it back.

As Judge McKittrick put the matter, Nitcher had “a noose around her economic neck." Unfortunately, Nitcher is still obligated to make monthly payments of $479 a month under REPAYE, which will not terminate until she is in her 60s. Thus, Judge McKittrick loosened the noose around Ms. Nitcher's neck, but she will continue standing on the scaffold for the next quarter of a century.

References

Nitcher v. National Collegiate Student Loan Trust, Bankr. Casse No. 18-31729-pem7 (August 23, 2019).




Saturday, June 29, 2019

Bernie Sanders wants to cancel $1.6 trillion in student debt: A bridge too far?

Senator Bernie Sanders is running for President a second time. Last week he made the news with his proposal to cancel all federal student-loan debt-- $1.6 trillion.  If Bernie makes good on this pledge, he will certainly make 45 million student-loan borrowers very happy.

Bernie also proposes to make a four-year college education tuition-free at public universities. If he can pull that off, millions of Americans will be delighted. A free college education! What's not to like?

I have supported student-loan reform for more than 20 years, and I applaud Senator Sanders for putting the student-loan crisis on the front burner of national politics. But in my view, Bernie's proposals may have gone a bridge too far.

First of all, the federal student loan program, which Congress inaugurated 50 years ago, has morphed into a giant Improvised Explosive Device (IUD). As we saw in the movie Hurt Locker, an IUD must be defused very carefully or it will blow up in our faces. No one really knows what the impact would be on the national fisc if the federal government were to write off $1.6 trillion in student-loan debt. Bernie says he will pay for this bonanza by taxing Wall Street, but that tax would fall heavily on retirees, who have most of their savings in mutual funds tied to the stock market.

Even if Bernie could cancel all student debt tomorrow, most students would still have to take out additional student loans to pay for their next semester's tuition, fees, and living expenses. Of course, Bernie's solution to that problem is to simply make a college education at a public institution tuition-free.

But let's think about Bernie's tuition-free college proposal for a moment. All public colleges receive some kind of financial support from the 50 individual states. Any plan for a tuition-free college education at a public institution must involve some coordination with 50 state governments. Is it realistic to think a Sanders administration could successfully negotiate with California, Illinois, New Jersey, and 47 other states to provide tuition-free college from sea to shining sea? I doubt it.

As for Bernie's proposal to forgive all student-loan debt, that notion seems unwise. Although it is true that millions of student-borrowers are unable to pay back their loans, some portion of the 45 million student debtors received fair value for their student-loan dollars. Do we really want to forgive student-loan debt taken out by people who attended Harvard Law School and landed high-paying jobs?

In my view, the best way to resolve the student-loan crisis is to reform the Bankruptcy Code and allow insolvent student-loan debtors to discharge their student loans through bankruptcy. People who took out student loans in good faith and cannot pay them back should get relief from their debts like any other insolvent debtor.

After all, the bankruptcy judges have the expertise and experience to determine who is entitled to bankruptcy relief from their student loans. All that needs to be done is simply to strike the "undue hardship" clause from the Bankruptcy Code.

In fact, Senator Sanders and several other presidential aspirants in Congress are co-sponsoring just such a bill. Titled the Student Borrower Bankruptcy Relief Act of 2019,  the bill has been filed in both the Senate and the House of Representatives. Rather than forgive $1.6 trillion in student debt in one fell swoop, Congress needs to pass this bill so that distressed student-loan debtors can obtain relief in bankruptcy.


Bernie Sanders: We can have our cake and eat it too!





Thursday, July 26, 2018

Betsy DeVos, the for-profit college industry's best pal, rolls back regulatory protections for students who were defrauded by for-profit colleges

This week, Betsy DeVos, President Trump's lamentable Secretary of Education, proposed new rules for implementing the Department of Education's Borrower Defense to Repayment Program.

The new rules--433 pages long--outline the DeVos regime's procedures for processing fraud claims filed by students who took out federal loans to attend for-profit colleges and were swindled.  The New York Times and Steve Rhode of Get Out of Debt Guy reported on this development, but Rhode's analysis is more comprehensive and insightful than the Times story. Rhode's essay is the one to read.

Millions of Americans have been defrauded by for-profit colleges--literally millions. Corinthian Colleges and ITT Tech filed for bankruptcy, brought down by regulatory pressures and fraud allegations. Those two institutions alone had a half million former students.

Globe University and Minnesota School of Business both lost their authority to operate in Minnesota after a Minnesota trial court ruled they had misrepresented their criminal justice programs.  Last month, the Minnesota Court of Appeals partially upheld the trial court's judgment, finding sufficient evidence to support a fraud verdict on behalf of 15 former students who testified at trial.

In California, DeVry University agreed to pay $100 million to settle claims brought by the Federal Trade Commission that it had advertised its programs deceptively. In the wake of that scandal, the company owning DeVry changed its name from DeVry Education Group to Adtalem Global Education.

The Art Institute, which charged students as much as $90,000 for a two-year associates' degree,
agreed to pay $95 million to settle fraud claims brought against it by the Justice Department, but the settlement is paltry compared to the amount of money borrowed by 80,000 former students.  And there have been numerous small for-profits that have been found liable for fraud, misrepresentation, or operating shoddy programs.

The for-profit scandal is a huge mess. If every student who was defrauded or victimized in some way by a for-profit college were to receive monetary restitution, it would probably cost taxpayers a half trillion dollars.

So how do we fix this problem? The Obama Administration approved rules that would have streamlined the process for resolving student-fraud claims, but Betsy DeVos pulled back those rules just before they were to have been implemented.

The new DeVos rules, summarized by Steve Rhode, put most of the blame on students for enrolling in these fraudulent and deceptive for-profit colleges. According to DeVos' DOE, "students have a responsibility when enrolling at an institution or taking student loans to be sure they have explored their options carefully and weighed the available information to make an informed choice."

DeVos' janky new rules forces fraud victims to continue paying on their student loans while they process their damned-near hopeless fraud claims, while DOE processes those claims--if at all--at a snail's pace.

DeVos nixed the Obama administration's ban against mandatory arbitration clauses that the for-profits have forced students to sign as a condition of enrollment. Sometimes these clauses also bar class action suits. So under Betsy DeVos' administration, many defrauded students will be barred from suing the institutions that cheated them.

Betsy and her for-profit cronies want struggling student debtors to enroll in long-term income-based repayment plans (IBRPs) that last from 20 to 25 years. Payments under those plans are generally so low that student debtors' loan balances are negatively amortizing. Borrowers in IBRPs will see their loan balances go up month by month even if they make regular monthly payments. In other words, most IBRP participants will never pay off their loans.

Some people are predicting the student-loan scandal will eventually lead to a national economic crisis similar to the one triggered by the home-mortgages meltdown. I am beginning to think these doomsday predictors are right. Already we see that student loans have impacted home ownership and may even be a factor in the nation's declining birth rates--now so low that the American population is not replacing itself.

Two things must be done to destroy the for-profit college cancer that is destroying the hopes of millions for a decent, middle-class life:

1) First, the for-profit college industry must be shut down. No more University of Phoenixes, no more DeVrys, no more Florida Coastal Universities.

2) Second, everyone who was swindled by a for-profit school should have easy access to the bankruptcy courts, so they can shed the debt they acquired due to fraud or misrepresentations and get a fresh start in life.

And there is a third thing we need to do. Congress should impeach Betsy DeVos for reckless dereliction of duty and blatant misconduct against the public interest.  Let's send her back to Michigan, where she can enjoy her family fortune as a private citizen and not as a so-called public servant.



References

Mark Brunswick. Globe U and Minn. School of Business must close, state says after fraud rulingStar Tribune, September 9, 2016. 

Christopher Magan. Globe U. and Minnesota School of Business to start closing campusesTwin Cities Pioneer Press, December 21, 2016.

State of Minnesota v. Minnesota School of Business, A17-1740, 2018 Minn. App. LEXIS 277 (Minn. Ct. App. June 4, 2018).

Sarah Cascone, Debt-Ridden Students Claim For-Profit Art Institutes Defrauded Them With Predatory Lending Practices.  Artnet.com, July 23, 2018.

Erica L. Green. DeVos Proposes to Curtail Debt Relief for Defrauded StudentsNew York Times, July 5, 2018.

Claire Cain Miller. Americans Are Having Fewer Babies. They Told Us Why. New York Times, July 5, 2018.

Steve Rhode. A Deep Dive Into the Debtor Blaming 2018 Borrower Defense to Repayment Program. Get Out of Debt Guy (blog), July 25, 2018.

Thursday, July 12, 2018

Parents join their children in Student-Loan Siberia, taking out bigger and bigger Parent PLUS loans to finance their children's bad college choices

Remember the movie Fiddler on the Roof? Perhaps the most poignant scene is the one in which Tevye waits with his daughter Hodel for the train that will take Hodel to Siberia. As you recall, Hodel married Perchik, a Russian revolutionary, without her father's permission. Perchik then got himself arrested and exiled to the Siberian wilderness.

Did Hodel say: "Good luck, honey!" "Don't forget to write!"  Or, "I told you not to become a revolutionary, but you didn't listen!"

No, she didn't. Instead, Hodel hopped a train and joined Perchik in Siberia.

Something similar is happening with Parent PLUS loans. Students are taking out more and more federal loans to finance their college studies, and many are taking out the maximum amount they are allowed to borrow for their undergraduate education--$31,000. In fact, 40 percent of undergraduate borrowers have loans totally $31,000 before they begin their senior year.

What to do? Many are turning to their parents to fill the gap. In 2015-2016, Parent PLUS loans averaged $33,291, up 14 percent in just four years. In fact, two thirds of parents who took out Parent PLUS loans in 2015-2016 did so to finance their children's undergraduate education.

As Mark Kantrowitz explained in a New York Times interview, "Parents are a pressure-relief valve for when students hit the Stafford loan limits."

I suppose that's one way of putting it. But really, the rise in Parent PLUS loans means some parents are bearing bigger student-debt loads than their children. And remember--Parent PLUS loans are as difficult to discharge in bankruptcy as student loans. No student loan can be discharged unless the debtor can show "undue hardship," a very tough standard to meet.

Some parents who take out Parent PLUS loans will find them very difficult to repay. In fact, the lending standards for issuing these loans are very low.  Parent debtors who lose their jobs, develop serious illnesses, or have various kinds of family emergencies may find it almost impossible to make payments on their Parent PLUS loans.  And bankruptcy will probably not be an option.

And let's face facts. If students cannot finance their college choices without pushing their parents into debt, they chose the wrong college.

So Mom and Dad, think of Hodel before you take out Parent PLUS loans to finance your children's college education. If your children cannot pay back their own student loans, they may be forced into long-term income-based repayment plans that last 20 or even 25 years. In which case, your children will be entering Student-Loan Siberia--saddled by debt for most of their working lives.

And, Mom and Dad, if you take out Parent PLUS loans, you may wind up like Hodel--headed for Student-Loan Siberia as well. If that happens it will be because your darling child made a bad choice about where to go to college and you foolishly agreed to help foot the bill.

Goodbye, Dad. Perchik made a dumb decision and I'm going to join him in Siberia.

References

Tara Siegel Bernard and Karl Russell. The New Toll of Student Debt in 3 Charts. New York Times, July 11, 2018.


Thursday, June 21, 2018

Smith v. U.S. Department of Education: A severely stressed student-loan debtor gets bankruptcy relief and the judge questions harsh interpretation of "undue hardship"

Kirt Francisco Smith, a 39-year-old unemployed man with severe health problems, won a bankruptcy discharge of his student-loan debt--almost $50,000.

 Every student-loan debtor's victory in bankruptcy court is something to celebrate; we don't see enough of them. Smith's victory, however, is especially cheering because the judge explicitly challenged the harsh standards the federal courts are using when determining whether student-loan debt is an "undue hardship" eligible for bankruptcy discharge.

Here's Mr. Smith's story as as chronicled by Bankruptcy Judge Frank Bailey. Smith took out $29,000 in student loans to enroll in a computer drafting program at ITT Tech. He completed the program in 2008  but was unable to find a job in the computer drafting field. By the time he filed for bankruptcy his debt had grown to $50,000 due to accumulated interest and fees.

Smith suffers from major health problems. He is afflicted with intractable epilepsy, which prevents him from having a driver's license. In addition, Smith has been diagnosed with affective disorders, including anxiety and depression leading to suicidal ideation. In 2006, he was hospitalized at McLean Psychiatric Hospital; and he has not been employed since that hospitalization. He began receiving Social Security Disability payments in 2007.

During the trial, which stretched out over five days, Smith argued that he could not pay back his student loans and maintain a minimal standard of living for himself and his dependent mother.  And indeed, Smith and his mother lived on the brink of utter poverty.

Smith received $1369 a month in Social Security income and his mother received $792.26 in Social Security. The two also receive food stamps, which the judge included as income. Altogether then, Smith and his mother lived on $2265.26 a month, which is about $80 less than their expenses.

The U.S. Department of Education opposed a discharge of Smith's student loans, dragging out its usual objections. Smith never made a single payment on his loans, DOE argued, and therefor did not handle his loans in good faith. Smith did not renew his paperwork to stay in an income-based repayment plan--another sign of bad faith.  Finally, DOE objected to the modest sums Smith spent on travel and entertainment.

Fortunately for Smith, Judge Bailey rejected all DOE's arguments and discharged Smith's student loans. The judge utilized the "totality-of-circumstances" test for determining whether Smith's student loans constituted an undue hardship rather then the harsher Brunner test.

Remarkably, Judge Bailey criticized both the Brunner test and the totality-of-circumstances tests. "I pause to observe that both tests for 'undue hardship' are flawed," he wrote (p. 565). In the judge'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 can 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" (p. 565).

In particular, Judge Bailey criticized other courts' focus on the debtor's good faith.
[A]ny test that allows for the court to determine a student debtor's good or bad faith while living at a subsistence level, virtually strait-jacketed by circumstances, displaces the focus from where the statute would have it: the hardship. It also imposes on courts the virtually impossible task of evaluating good or bath faith in debtors whose range of options is exceedingly limited and includes no realistic hope of repaying their loans to any appreciable extent.. (p. 566)
What an astonishing decision! To my knowledge, Judge Bailey is the first bankruptcy judge to explicitly attack both the Brunner test and the totality-of-circumstances test. (Judge Jim Pappas criticized the Brunner test in Roth v. ECMC.) Just think how many suffering student-loan debtors would qualify for bankruptcy relief if every judge reasoned like Judge Bailey.

Brenda Butler,  for example, who handled her student loans in good faith only to see her loan balance double over a 20 year period, would have obtained relief if Judge Bailey had been her judge. Ronald Joe Johnson, a bankrupt student-loan debtor who made $24,000 a year by working two jobs, would be free of his student loans if he had appeared in Judge Bailey's court instead of a bankrkuptcy court in Alabama. Janice Stevenson, a woman in her mid-fifties who had a record of homelessness and who lived in rent-subsidized housing and had an income of less than $1,000 a month, would have won a bankruptcy discharge of more than $100,000 in student debt if only Judge Bailey's standard had been applied rather than the harsh rule applied by Judge Joan Feeney.

Today, Judge Bailey's decision in the Smith case is just a straw in the wind, but the day will come when bankruptcy courts will apply his standard universally. After all, as some wise person observed, if a debt cannot be paid back, it won't be.  Right now, about 20 million people are unable to pay back their student loans.  Almost all of them are entitled to bankruptcy relief under the rule articulated by Judge Frankk Bailey.

References

Butler v. Educational Credit Management Corporation, No. 14-71585, Adv. No. 14-07069 (Bankr. C.D. Ill. Jan. 27, 2016).

Johnson v. U.S. Department of Education, 541 B.R. 750 (N.D. Ala. 2015).

Roth v. Educational Credit Management Corporation490 B.R. 908 (9th Cir. B.A.P. 2013). 

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

Stevenson v. ECMC, Case No. 08-14084-JNF, Adv. P. No. 08-1245 (Bankr. D. Mass. August 2, 2011)

Wednesday, March 21, 2018

Betsy DeVos is shilling for debt-collectors and for-profit colleges: The destruction of Americas's middle class

The New York Times published an editorial this week strongly criticizing Secretary of Education Betsy DeVos, whom the Times accurately describe as a "shill" for the student-loan industry.

As the Times reported, DeVos' Department of Education has issued a new policy statement that says federal law can preempt state consumer-protection laws aimed at curbing abuses in the loan-servicing and debt-collection business.  DeVos' Department argues that state consumer-protection laws can undermine uniform administration of the student loan program.

The Times also criticized the Republican-sponsored bill to reauthorize the Higher Education Act. This bill, if it becomes law, will preempt the right of the states to regulate the student-loan business--including student-loan debt collectors and loan servicers.

Betsy DeVos' craven and servile pandering to the student-loan industry is a scandal; and DeVos--not the Russians--should be the focus of Democratic attacks on the Trump administration.  DeVos' behavior belies all the blather coming out of the White House about how Trump policies benefit the middle class. DeVos apparently hopes to remove all restraints on the venal and corrupt student-loan business, which is doing a pretty good job of dismantling the middle class.

In fact, the federal student-loan program is a disaster, with millions of casualties as student borrowers are pushed into default or into long-term repayment plans that never pay off borrowers' loan balances.

Here's what can be done to stop DeVos' mad-dog scheme to line the pockets of her debt-collector cronies:

1) The state attorney generals should sue Betsy DeVos and DOE every time they attempt to dismantle the states' proper role of protecting consumers from fraud.  As the Times noted, this is what the state AGs are doing.

2) Other states should follow the example of the Massachusetts Bar Association and the Massachusetts Attorney General  and organize teams of volunteer lawyers to represent distressed student-loan debtors in the bankruptcy courts.  If just a few more state AGs joined the Bay State--California, Florida, Illinois, and Texas, for example--I believe the bankruptcy courts would begin revising their harsh attitude toward college borrowers in the bankruptcy courts.

3) The Democrats should take every opportunity to question Trump administration officials under oath about the activities of the student-loan guarantee companies who act as DOE's debt collectors. Why do four of these agencies--nonprofit organizations--individually hold $1 billion in assets while they hound elderly debtors in the bankruptcy courts.  Let's see a breakdown of the attorney fees these agencies are paying to hire asshole lawyers to crush student-loan debtors.

Everyone of good will should take heart at Fed Reserve Chair Jerome Powell's candid admission that he could not explain why the Bankruptcy Code treats student-loan debtors so harshly--basically putting them in the same category as criminals.

As someone once said, when a thing can't go on forever, it won't. The abuses of the federal student loan program can't go on forever. More than 40 million borrowers collectively owe $1.5 trillion in student loans (including private loans); and about half of these borrowers will never repay their debt.

The Federal Reserve Bank of New York and other agencies have documented that student-loan debt is hurting the economy--preventing people from buying homes and saving for retirement.

The time has come for American society to decide: Do we want to continue enriching a bunch of crooks in the for-profit college business and the debt-collecting racket or do we want a middle class?

We know Betsy DeVos' answer: she wants to enrich her corrupt buddies even if she helps destroy the middle class.


References

The Student Loan Industry Finds Friends in Washington. New York Times, March 18, 2018.

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016.

Thursday, January 18, 2018

America's harsh treatment of student-loan debtors: Greed, corruption and heartlessness reach Dickensian proportions

That old wheel is gonna roll around once more
When it does it will even up the score
Don't be weak, as they sew, they will reap
Turn the other cheek and don't give in
That old wheel will roll around again

This Old Wheel
Jennifer Ember Pierce, songwriter
Sung best by Johnny Cash

If you haven't read Charles Dickens by now, just skip it. 
Dickens is well worth reading for his descriptions of injustice in Victorian England: the workhouses, the brutal schools, debtors prisons, and the mercilessness of English law. But  contemporary America is descending to the depths of social injustice every bit as sordid as conditions in Dickens' England. If you don't believe me, read Matthew Desmond's Evicted, published less than two years ago.  
In particular, millions of student-loan debtors are suffering just as much as the characters in Oliver Twist, David Copperfield or Pickwick Papers.  College debtors are defaulting at the rate of 3,000 a day. The U.S. Department reports a three-year default rate of 11 percent, but that figure is meaningless. The five-year default rate for a recent cohort of student debtors is 28 percent, for students attending for-profit schools it's 47 percent.
And the default rate only tells part of the story. Millions of people are in the economic-hardship deferment program--excused from making monthly loan payments while interest piles up. Now we see people stumble into the bankruptcy courts owing three and even four times what they borrowed.

Our government treats all student-loan defaulters like criminals. We aren't hanging and deporting debtors like the English did back in the nineteenth century, but they are treated pretty rough.

For starters, there is no statute of limitations on an unpaid federal student loan. Even if you borrowed the money so long ago you can't remember the school you attended, the government's debt collectors can come after you. 

In Lockhart v. United States, our lovely Supreme Court upheld the law permitting the government to garnish the social checks of elderly student-loan defaulters. The vote was  9 to 0. There were no liberals on the Court the day the Lockhart decision came down. 

And Congress and the courts have conspired to deprive distressed student-loan debtors access to the bankruptcy courts. Under the "undue hardship" standard nestled in 11 U.S.C. sec. 523(a)(8),  debtors cannot discharge their student loans unless they can show undue hardship, which the courts have interpreted harshly.

In recent years, there have been some compassionate and sensible decisions by the bankruptcy courts: the Abney case, the Lamento decision, and the Acosta-Conniff decision out of Alabama (which was reversed on appeal).

But the Department of Education, Educational Credit Management Corporation, and other debt collection agencies have appealed many of these decisions; and few student debtors have the financial or emotional resources for court fights that stretch on for years.  In the Hedlund case, for example, a graduate of Whittier Law School fought in the federal courts for ten years before he finally won a partial bankruptcy relief from his student loans.

Several federal appellate courts have softened the "undue hardship" standard somewhat: the Roth decision by the Ninth Circuit Bankruptcy Appellate Panel, the Seventh Circuit's Krieger decision, and the Eighth Circuit BAP Court's Fern opinion.

By and large, however, the bankruptcy courts have abdicated their role of providing honest but unfortunate debtors a fresh start. No wonder the myth prevails that it is impossible to discharge student loans in bankruptcy. And the Department of Education perpetuates this myth by opposing bankruptcy for people who are in severe distress, like the quadriplegic in the Myhre case.

Now we are enduring the Trump presidency. Betsy DeVos, Trump's Secretary of Education, has a nasty disposition toward student-loan debtors. She is busily dismantling the Obama administration's modest initiatives to rein in the corrupt for-profit college industry. The Republican dominated House Education Committee recently released a bill that would do away with all student--loan forgiveness programs. And a bill has just been introduced to protect attorneys from being sued for engaging in unfair debt collection.

America's financial industry, cheered on by the business news channels, chirp the Panglossian notion that Americans are living in the best of all possible worlds. The stock market soars ever skyward, and the economist says we have virtually reached full employment. The economy is growing at a healthy rate, and everyone is becoming wealthier.

But that's bullshit. The reality is this: millions of Americans are living day to day, burdened by consumer debt they can't repay. Student-loan indebtedness now exceeds accumulated credit card debt and car loans. Our Congress, our President, our Secretary of Education, and our courts are indifferent to the stark reality that we are constructing a society very much like Dickensian England.

Justice, Johnny Cash assures us, will eventually be restored. "That old wheel is gonna roll around once more. When it does it will even up the score." I hope Johnny is right. It will be a good sign if DeVos is forced from the Education Secretary's job and publicly disgraced. 

Don't give in; that old wheel is gonna roll around again.

References

Abney v. U.S. Department of Education, 540 B.R. 681 (Bankr. W.D. Mo. 2015).

Matthew Desmond. Evicted: Poverty and Profit in the American City. New York: Broadway Books, 2016.

Fern v. Fedloan Servicing563 B.R. 1 (8th Cir. BAP 2017).

Lamento v. U.S. Department of Education, 520 B.R. 667 (N.D. Ohio 2014).

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

Krieger v. Educational Credit Management Corporation713 F.3d 882 (9th Cir. B.A.P 2013).


Myhre v. U.S. Department of Education, 503 B.R. 698 (W.D. Wis. 2013).

Steve Rhode. Proposed Law Will Make it More Likely Debtors Will be Sued Faster if in n Collections. Get Out of Debt Guy (blog), January 18, 2018.
Roth v. Educational Credit Management Corporation490 B.R. 908 (B.A.P. 9th Cir. 2013).

The Wrong Move on Student LoansNew York Times, April 6, 2017.


Tuesday, December 12, 2017

Coplin v. U.S. Dep't of Education: Bankruptcy court orders single mother of 4 disabled children to repay $222,000 in student loans

Heather Coplin graduated from University of Pacific's McGeorge law school in 2009 and gave birth to triplets that same year. The infants were born prematurely and all three suffer from profound disabilities. At age 8, one triplet is incontinent and requires an electric wheelchair for mobility. The other two triplets have muscular issues that impair their mobility. Two triplets have required shunts to drain spinal fluid.

Coplin also has a 15-year-old child who suffers from autism. He is six feet tall, weighs 340 pounds and engages in "anxiety-induced acting-out behavior." Coplin has called the police on several occasions to deal with her son's aggressiveness.

Coplin herself is bipolar and has made several suicide attempts.

Although Coplin graduated law school in 2009, she was unable to pass the state bar exam until 2012. She practiced law for a time and even established her own firm. She found, however, that family issues prevented her from working as an attorney. At time of trial, Coplin was a night-shift waitress at the Muckleshoot Casino

Coplin filed an adversary proceeding in bankruptcy court to discharge almost half a million dollars in student-loan debt, some of it accruing interest at the rate of 10 percent. Navient, one of her creditors, agreed to discharge part of the debt, but three creditors opposed a discharge: ECMC, the U.S. Department of Education and University of the Pacific.

In a decision entered a few days ago, Judge Mary Jo Heston granted Coplin a partial discharge. Utilizing the three-pronged  Brunner test, Judge Heston concluded Coplin only met two prongs.

First, Coplin met the first prong, which required her to show she could not pay back her student loans and maintain a minimal standard of living.  She also met a second prong, requiring her to show she had handled her student loans in good faith.

Nevertheless, Judge Heston did not grant Coplin a full discharge. Coplin had about $1850 in discretionary monthly income, the judge pointed out.  She could put that amount toward paying off her student loans. Judge Heston ruled that Coplin could pay back $222,000 over a ten-year period; and thus she only granted Coplin a partial discharge.

It should be pointed out that the only reason Coplin had any discretionary income was that she was living in her fiancee's home rent free. In addition, I don't think the bankruptcy judge accurately estimated Coplin's ongoing medical expenses. Coplin said she visited doctors 6 or 7 times a week due to her children's medical issues.

These are my reflections on the Coplin decision:

First, I was struck by Coplin's strong work ethic. As Judge Heston noted, Coplin had worked continuously at a variety of jobs since graduating from law school. She practiced law, sold real estate, worked as a delivery driver, and finally wound up working the night shift as a casino waitress.  No one can say she didn't do her best to feed her family.

Second, I was shocked by the ruthlessness of Coplin's creditors. The creditors--including the U.S. Department of Education--argued Coplin should be denied a discharge because she had not lived frugally.  They pointed to the fact that she occasionally dined at fast food restaurants, had cable television, and had taken a modest vacation.

Is Betsy DeVos' Department of Education saying that a casino waitress with four disabled children is living extravagantly because she occasionally eats at McDonald's? Yes, it is.

Finally, I was astonished by the arrogance of University of the Pacific, where Coplin went to law school. One would think the university would be embarrassed by the fact that one of its law graduates racked up half a million dollars in student-loan debt (including accrued interest), took three years to pass the bar exam and was working as a waitress 8 years after obtaining her law degree. But no--UP wants its money--at 10 percent interest.

In sum, I found the Coplin decision disheartening. If a waitress with four disabled children can't obtain a complete discharge of her student loans in a bankruptcy court then it is difficult to see how any student-loan debtor is entitled to bankruptcy relief. God help us.

Muckleshoot Casino, where attorney Heather Coplin works as a waitress

References

Coplin v. U.S. Department of Education,  Case No. 13-46108, Adversary No. 16-04122, 2017 WL 6061580 (Bankr. W.D. Wash. December 6, 2017).