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

Wednesday, January 21, 2015

Who turned on the gas at Auschwitz? Reflections on student-loan debtors in bankruptcy

Gas Chamber Door at Auschwitz--Looking Out
My father spent most of World War II as a a prisoner of war in Japanese concentration camps.

He was captured in the Philippines when the entire American army surrendered to Japanese forces in April 1942, and he survived the Bataan Death March. He remained a prisoner until August 1945, after atomic bombs were dropped on Hiroshima and Nagasaki.

Two thirds of the men who were captured with my father did not survive the War. Some were summarily executed during the Bataan Death March or later, some died of starvation or disease, and a number committed suicide. The experiences of the American prisoners of war in the Pacific are never compared to the Holocaust, but perhaps they should be.

In any event, my father's concentration camp experiences (which he often talked about when I was a child) have caused me to ponder again and again this question: How can people lose their humanity to the extent that they can kill defenseless people without remorse and even without thinking about it seriously? Who turned on the gas at Auschwitz day after day as all those Jews were gassed to death? And did those people go home to their families when their work days ended to eat a nice meal and perhaps listen to the radio?

Recently, I returned to this question  after reading several of the published bankruptcy decisions involving student-loan debtors.  In the Myhre case, for example, how could attorneys for the U.S. Department of Education oppose the discharge of student loans owed by a paraplegic man who was working full time and whose expenses exceeded his income?

And in the Stevenson case, how could lawyers for Educational Credit Management Corporation argue that a woman in her fifties who had a history of homelessness and was living on less than $1000 per month, be placed on a 25-year income-based repayment plan to pay off her student loans?

And in the Roth case, how could attorneys for the same company--headed at the time by a man who made more than $1 million dollars a year), stand before a bankruptcy judge and maintain that a woman in her sixties, who had chronic health problems and was living entirely off Social Security income of less than $800 a month, should not have her student loans discharged in bankruptcy?

I listened recently to the audio of a bankruptcy proceeding in California involving a man with more than a quarter million dollars of student-loan debt.  The man brought an adversary proceeding seeking to discharge his loans in bankruptcy.  His suit was opposed by two parties: the U.S. Department of Education and a private loan company.

Judging by their voices, the U.S Department of Education and the private company were both represented by young women.  Both argued that the man--in his 50s and making less than $2,000 a month, should not have his student-loan debts discharged.

I imagine both women graduated from good law schools, are kind to animals, and have progressive views on the political issues of the day--global warming, for example.

So how could these smart and presumably sensitive young women be working for a governmental entity and a private company engaged in the reprehensible business of stopping distressed student-loan debtors from bankruptcy relief?

I don't mean to compare these two young lawyers to the people who operated the Nazi death camps, but the insensitivity to the unjust suffering of others is somewhat similar. Millions of Americans are burdened by student-loan debt that is totally unmanageable and will never be paid off; and yet our government employs lawyers to prevent them from obtaining bankruptcy relief.

And, let us remind ourselves that the U.S. Department of Education, the agency that sought to deny bankruptcy relief to a paraplegic student-loan debtor in the Myhre case, answers to a president who won the Noble Peace Prize.

How long can the injustice and suffering spawned by the federal student loan program go on? A long time I fear. Slavery existed in this country for well over 200 years.

But ultimately, this trillion-dollar house of cards we call the federal student loan program will come tumbling down; and when it collapses it will take American higher education with it and perhaps the American economy.

That is something for American college presidents to think about as they fly around in their private jets and drink premium liquor with wealthy alumni.  University foundation board members should think about it as well before they execute multi-million dollar contracts with celebrity football coaches.

And mom and pop should think about it too before they encourage little Suzie and little Johnny to take out loans to go to an over-priced, pretentious East-Coast college.  Because when little Suzie and little Johnny take out those loans, they will live with them until they are payed off  in full or until little Suzie and Little Johnie are dead.

And if they try to discharge their loans in bankruptcy, a bright young lawyer who graduated from an elite law school--someone very much like the person who turned on the gas at Auschwitz--will be in federal bankruptcy court to keep that from happening.






Monday, September 8, 2014

There's No Fool Like an Old Fool: The New York Times Just Doesn't Get It When It Comes to the Student Loan Crisis

Today, the New York Times published an editorial on the Obama administration's efforts to encourage student-loan  servicers to be less rapacious.  According to the Times, the government is changing the incentive structures so that loan-collection companies have a financial incentive to help rehabilitate student loans that are delinquent instead of pushing borrowers into default.

The Times approves of reforms that will encourage students to sign up for Income-Based Repayment Plans, plans that will have borrowers paying a percentage of their income for the next 25 years. Some reform!  The Times also likes the new rule that will give more weight to customer satisfaction surveys "in determining how well servicers do their jobs."  That idea is about as radical as Aunt Sadie's Buick Regal.

The Times editorial then goes on to say that Obama's reform efforts don't go far enough. So what does the Times suggest? "More should be done to improve competition and transparency [among loan servicers]," the Times recommends.  Borrowers should be able to jump from one loan servicer to another, the Times adds, and "set significant penalties for poor practices and create a portal where borrowers can get information about their accounts and report abuses to the Education Department instead of to the abusers."

This is the kind of timid advice you would expect from a newspaper that gets a lot of its revenue from advertising luxury goods that are targeted at its fat cat readers. I'm glad the Times wasn't in charge of negotiating with Adolph Hitler during World War II. It probably would have editorialized that Hitler needed to paint the concentration-camp barracks a more soothing color.

The Times does not seem to realize that people who fall into the hands of the student-loan servicers are dealing with truly heartless entities.  Here are some examples:

  •  Educational Credit Management Corporation (ECMC) opposed bankruptcy relief for a 63-year old man who had been unemployed for 12 years, whose home was going into foreclosure, and who had been living with his wife below the poverty level.  This man had accumulated student-loan debt in the neighborhood of $240,000. Murphy v. Educational Credit Management Corporation (2014). 
  •  ECMC opposed bankruptcy relief for an elderly student-loan defaulter who had chronic health problems and who was living solely on Social Security checks of less than $800 a month. Roth v. Educational Credit Management Corporation (2013). 
  •  ECMC opposed bankruptcy relief for another elderly woman with student-loan debt that was more than twenty years old and who had a salary of about $500 per month and a history of homelessness. Stevenson v. Educational Credit Management Corporation (2011).

How much do ECMC executives pay themselves to chase down poor and elderly student-loan debtors? A lot. Bloomberg reported in 2012 that Richard Boyle, ECMC's Chief Executive at the time, made $1.1 million  in 2010. I could not find more recent compensation information on Educational Credit Management Corporation's new CEO, a guy named Dave Hawn, but I'll bet that Hawn is making at least as much as Boyle made four years ago.

So, New York Times editorialists, take your tepid and inadequate editorial recommendations and stick them "where the sun don't shine"--which is within your timid and obsequious little hearts.

You want to clean up the student-loan collection business? Here are some suggestions:

1) First, President Obama and Secretary of Education Arne Duncan should instruct all the student-loan servicers not to oppose bankruptcy relief for any elderly student-loan debtor who is living solely on Social Security, who has suffered long-term unemployment, or who has no real prospect of every paying off student-loan debt.  And they should follow up with regulations or legislation that would make those instructions stick.

2)  The government needs to put an upper-limit on fees and accrued interest that get tacked on to student-loan defaulters' total loan obligations.  Several bankruptcy decisions have documented that debtors' original student loan balances had more than doubled by the time they filed for bankruptcy due to accrued interest, penalties and fees.

3) The Obama administration should propose amendments to the bankruptcy laws that will allow distressed student-loan debtors who took out loans in good faith to discharge their student loans in the bankruptcy process without going through expensive and traumatic adversary proceedings.

4) Obama should propose legislation to reinstate a reasonable statute of limitation on the collection of delinquent student-loan debt--say six years, which is the same time period that applies to the collection of most monetary obligations.

5) The President should demand legislation that would stop the federal government from garnishing the Social Security checks of elderly student-loan defaulters who are totally dependent on their Social Security pensions.

6) All the companies participating in the student-loan servicing industry should be required to post the compensation of all its senior executives online so that Americans can see just how much money so-called non-profit agencies are making on the suffering of student-loan debtors.

All these recommendations are reasonable and all are more humane than the puny little recommendations the Times made in its editorial page.  If the Times can't offer any suggestions more robust than it offered in its September 8th issue, then it should keep its mouth shut about the student-loan crisis and admit that all it is really concerned about when it comes to domestic economic issues is supporting Barack Obama and maintaining Democratic control of the White House.

References

A Fairer Shot for Student Debtors. New York Times, September 8, 2014, p. A16. 

John Hechinger. Taxpayers Fund $454,000 Pay for Collector Chasing Student Loans. Bloomberg.com, May 15, 2013. Accessible at: http://www.bloomberg.com/news/2012-05-15/taxpayers-fund-454-000-pay-for-collector-chasing-student-loans.html

Brown, M., Haughwout, A., Lee, D., Mabutas, M., and van der Klaauw, W. (2012). Grading student loans. New York: Federal Reserve Bank of New York. Accessible at: http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (7th Cir. 2013).
Lockhart v. United States, 546 U.S. 142, 126 S. Ct. 699 (2005).

Murphy v. Educational Credit Management Corporation, 511 B.R. 1 (D. Mass. 2014).

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).

Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011). 

Tuesday, November 19, 2013

"Naked to mine enemies": A modest proposal to help destitute student-loan debtors get attorneys to represent them in bankruptcy court

A great many destitute student-loan debtors file for bankruptcy without the aid of an attorney. This is not surprising since the only reason these poor people are in a bankruptcy court is because they're broke.

For example, Janet Roth, whose case I discussed in an earlier blog, appeared before the Ninth Circuit's Bankruptcy Appellate Panel without a lawyer.  At the time of the bankruptcy proceedings, Ms. Roth was living on her monthly Social Security check--only $774 a month. Obviously, she had no money to pay an attorney to  represent her in bankruptcy.


Bankrupt student-loan debtors need lawyers
Photo credit: carinsurancecomparison.org
On the other hand, student-loan creditors--agencies like Educational Credit Management Corporation and Sallie Mae--always appear in bankruptcy court with excellent attorneys. The creditors' lawyers know bankruptcy law inside and out, and they typically argue that the poor saps who enter bankruptcy are not entitled to a discharge of their student-loan debts. I don't know how these lawyers sleep at night, but I hope they sleep badly.

This inequity of legal resources obviously works to the student-loan debtor's disadvantage. Indeed, a study by Pardo and Lacy (2009) found that student-loan debtors got better outcomes in bankruptcy if they were represented by experienced bankruptcy lawyers.

Occasionally, indigent student-loan debtors obtain informal legal support from attorneys or non-lawyers with bankruptcy expertise. These people may "ghost write"  a debtor's pleadings without formally representing the debtor in court.

But some courts frown on this practice. In a bankruptcy decision filed this year, a federal court in Virginia strongly condemned the practice of ghost writing. "The Court emphasizes that the practice of ghost-writing is in no way permissible in the Eastern District of Virginia, or any federal court for that matter," the court wrote. In the court's view, such conduct amounted to "the unauthorized practice of law" (Greene v. U.S. Department of Education, 2013, *26-27).

I would like to make a modest proposal for getting better legal representation for bankrupt student-loan debtors. Currently, the law schools are turning out far more lawyers than the job market needs. In fact, a few law schools have been sued by their alumni for allegedly making false representations about their  graduates' job prospects.

Why don't these law schools organize legal aid clinics that specialize in representing bankrupt student-loan debtors?  There are certainly enough unemployed lawyers to staff these clinics. The clinics would employ lawyers who would otherwise be unemployed and give them some legal experience that would later help them obtain permanent employment.

Law schools might consider the sponsorship of legal aid clinics for student-loan debtors as a sort of penance for their hubris.  It is now well established that third- and fourth-tier law schools charged high tuition rates to students who had only dim prospects of ever getting jobs that would pay well enough to allow them to comfortably pay back their student loans. Wouldn't it be a good thing for these law schools to do something positive to ease the plight of overburdened student-loan debtors?


References

Greene v. United States Department of Education, 2013 U.S. Dist. LEXIS 143678 (E.D. Va. Oct. 1 2013)

In re Roth, 490 B.R. 908 (9th Cir. BAP 2013).

Raphael Pardo & Michelle Lacey. The Real Student-Loan Scandal: Undue Hardship Litigation. 83 American Bankruptcy Law Journal 179 (2009). The American Bankruptcy Law Journal



Friday, November 15, 2013

Educational Credit Management Corporation makes good money chasing destitute student-loan debtors: The Obama Administration should take action

Richard Boyle, CEO of ECMC
He made $1.1 million in 2010
Educational Credit Management Corporation is a nonprofit company that collects on defaulted student loans for the federal government. Just because it is nonprofit, however, doesn't mean its employees don't make a lot of money. According to a news story posted on Bloomberg.com, Richard Boyle, ECMC's chief executive officer, made $1.1 million in 2010.

Other ECMC employees are also making good money.  Dave Hawn, ECMC's chief operating officer, made about half a million dollars in 2010. Joshua Mandelman, an ECMC debt collector, made $454,000. And ECMC directors also do pretty well. According to the Bloomberg story, they make as much as $90,000 a year.

How does ECMC make its money? It gets a small fee for helping distressed student-loan borrowers avoid default. But it makes much more money when it collects money from student borrowers who defaulted. By law, ECMC (and other similar companies) "can receive as much as 37 percent of a borrower's entire loan amount, half in collection costs and half in taxpayer-funded commissions" (Bloomberg.com).

What a sleazy business.  People are getting rich chasing down student-loan defaulters, many of whom are unemployed and destitute.

But perhaps the most disturbing aspect of ECMC's business is the position it takes when student-loan debtors file for bankruptcy. In several cases, ECMC has argued that bankrupt student-loan debtors should not have their loans discharged in bankruptcy. Instead, ECMC has argued, these debtors should be placed in income-based repayment plans that can last as long as 25 years.

Roth case: Elderly woman with health problems seeks bankruptcy relief from student loans

For example, in a recent case, Janet Roth, a 64-year old woman, filed for bankruptcy, seeking to discharge $95,000 in student loan debt.  Actually, she only borrowed $33,000, but her debt tripled due to fees and accrued interest.

At the time of the bankruptcy proceedings, Roth was unemployed and living entirely on her monthly Social Security check--only $774.  In addition, she suffered from several serious health conditions, including diabetes, macular degeneration, and depression.

Now most people would think that Ms. Roth was a good candidate for bankruptcy. But in court proceedings, ECMC challenged her request for bankruptcy relief from her student loans. ECMC argued she should have signed up for a 25-year income-based repayment plan, a plan that would have ended when she was almost 90 years old!

Fortunately, the Bankruptcy Appellate Panel for the Ninth Circuit Court of Appeals was sympathetic to Ms. Roth's plight. The court said Ms. Roth had acted in good faith regarding her student-loan obligations, and it discharged her of the debt.

Can you imagine? A company run by a guy who makes more than a million dollars a year argued that an elderly woman with health issues and living on her Social Security check should make monthly payments on her student loans for 25 years! These ECMC guys make Ebenezer Scrooge look like Mother Teresa.

Want another example? In In re Stevenson (2011), an elderly woman with a history of homelessness  and who was living on less than $1,000 a month, was denied relief from her student-loan debt by a bankruptcy court in Massachusetts. ECMC opposed her effort to have her student loans discharged, and a court essentially forced Ms. Stevenson into a 25-year income-based repayment plan. Like Ms. Roth, Ms. Stevenson will be nearly 90 years old when her student-loan debt is discharged.

And take a look at the Krieger case. In Krieger v. Educational Credit Management Corporation (2013), ECMC opposed the discharge of a 53 year old woman's student-loan debt even though she was unemployed and had never made more than $12,000 a year during her entire working life.

President Obama Should Take Executive Action to Aid Elderly Student Loan Debtors

Ms. Roth, Ms. Stevenson and Ms. Krieger are not alone. According to a report prepared for the Federal Reserve Bank of New York, about five percent of people who are behind on their student-loan payments are 60 years old or older. Undoubtedly, many of these people are living almost solely on their Social Security checks or are destitute.

Surely, elderly student-loan defaulters are entitled to some relief. Unfortunately, their Social Security checks are subject to garnishment, and some of them are running into opposition when they file for bankruptcy.

President Obama likes to get things done through executive orders.  So how about this for a plan? President Obama should direct all student-loan collection agencies not to oppose elderly people's efforts to discharge their student loans in bankruptcy.  And he should stop the garnishment of elderly people's Social Security checks for the purpose of collecting on student loans.

President Obama can talk all he wants about how he wants to ease the burden on people who borrow money to attend college. But there are things he can do--simple things--that would ease the burden on elderly student-loan defaulters. So why doesn't he take action?

References

John Hechinger. Taxpayers Fund $454,000 Pay for Collector Chasing Student Loans. Bloomberg.com, May 15, 2013. Accessible at: http://www.bloomberg.com/news/2012-05-15/taxpayers-fund-454-000-pay-for-collector-chasing-student-loans.html

Brown, M., Haughwout, A., Lee, D., Mabutas, M., and van der Klaauw, W. (2012). Grading student loans. New York: Federal Reserve Bank of New York. Accessible at: http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (7th Cir. 2013).
Lockhart v. United States, 546 U.S. 142, 126 S. Ct. 699 (2005).

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).

Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011). 






Wednesday, April 4, 2012

Student-Loan Defaulters: Not All of Them are Young


What is your image of the typical person who defaults on college student loans? Do you envision a young and irresponsible college graduate—someone who ripped off the federal student loan program by borrowing money to get a fancy college degree and then refused to pay it back? If so, your image would be inaccurate. A great many defaulters are from low-income families. Often they attended a for-profit institution that provided them with little value. And—this may come as a surprise—many student-loan defaulters are not young.
Researchers for the Federal Reserve Bank of New York examined the loan status of 37 million student-loan borrowers. Fourteen percent of these borrowers—approximately 5.4 million people, have at least one past-due student loan account. According to the Federal Reserve Bank report, only about 25 percent of student-loan borrowers with past due balances are under the age of 30. Forty percent of the student loan borrowers with payments in arrears are at least 40 years old. Almost one delinquent borrower in six (17.7 percent) are fifty years old or older. And about five percent of the people who are behind on their student loan payments are at least 60 years old (Brown, Haughwout, Lee, Mabutas, and van der Klaauw, 2012).
Why are so many people falling behind on their student loans in midlife or late in life? There are several explanations.
First, some of the older student-loan borrowers are people who borrowed money in midlife, expecting to increase their income potential. Then—due a variety of life circumstances, these borrowers did not earn the income they expected.  Maybe they became ill, lost their job, or were the victims of the recent economic downturn. As a consequence, some of these older student-loan borrowers fell behind on their loans.
Second, some of the nation’s older delinquent borrowers obtained economic hardship deferments on their loans, which temporarily exempted them from making regular student-loan payments. For a majority of these people, interest continued to accrue on their loans during the deferment period, causing their loan balances to grow.  Consequently, when these borrowers began making loan payments again after their deferments expired, they sometimes had a swollen loan balance that they simply could not repay.
Finally, I suspect some of the older people who are behind on their student-loan payments are people who had previously elected to pay off their loans under the income-contingent repayment option, which extends the loan repayment period out to 25 years. For some older people, the prospect of making student-loan payments during their retirement years may have seemed too daunting, causing them to stop making payments on their loans.
Older people who default on their student loans receive no dispensation from their loan obligations due to their age. In fact, in Lockhart v. United States (2005), the Supreme Court has ruled that a student-loan defaulter’s Social Security checks can be garnished.  Thus, some elderly people who failed to pay back their student loans will face severe financial hardship if they are totally dependent on Social Security income during their so-called “golden years.”
Obviously, no one would recommend a government policy that would make it easier for people to default on their student loans. Nevertheless, garnishing the Social Security checks of elderly student loan defaulters is an overly harsh measure. Congress needs to pass legislation that bars lenders and collection agencies from garnishing a student-loan defaulter’s Social Security check.
References
Brown, M., Haughwout, A., Lee, D., Mabutas, M., and van der Klaauw, W. (2012). Grading student loans. New York: Federal Reserve Bank of New York. Accessible at: http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

Lockhart v. United States, 546 U.S. 142, 126 S. Ct. 699 (2005).