Wednesday, December 8, 2021
Merle Haggard tells a story about a man who “turned 21 in prison, doin’ life without parole.” George Jones eulogizes a wretch who spent eighteen years in the slammer “and still has life to go.” And Porter Wagner sings about a guy rotting in a cell because he stabbed his wife and her lover in a fit of rage.
Heck, even Wanda Jackson, the queen of rockabilly, wails out a song about a riot in cell block number 9.
Student-loan debtors can empathize with these prison songs. Like the people Merle, George, Porter, and Wanda sang about, they made a big mistake when they were young and spent their adult lives dealing with the consequences.
Indeed, that is the great tragedy of the student-loan crisis. Young people borrow tons of money to pay for their college education when they are clueless about what they want to do with their lives.
Then they graduate from college (or drop out) and can’t pay back their loans. Interest and penalties accrue, causing their original loan balances to double or triple, and ultimately, they realize they’re facing a lifetime of debt, which they can’t discharge in bankruptcy.
College debtors got a break when the COVID pandemic hit in the spring of 2020. The Department of Education allowed them to skip their monthly loan payments without penalty and without interest accruing on their loans. But that reprieve comes to an end next month.
Senator Chuck Schumer and other progressive congressional leaders want President Biden to extend the student-debt moratorium yet again.
I think that’s a mistake, which will only prolong the misery.
No, Congress should face the fact that the federal student loan program is a catastrophe. Our national legislators need to amend the Bankruptcy Code to allow distressed student borrowers to discharge their student-loan debt in bankruptcy.
Also, the feds need to put severe pressure on the colleges and universities to lower their tuition prices.
Finally, we need to shut down the for-profit college sector and shut down dodgy graduate programs—the third-rate law degrees and vacuous MBAs.
Otherwise, we are just enlarging an enormous debtors prison that now holds more than 45 million inmates.
Wednesday, November 17, 2021
According to a recent report by the Institute for College Access and Success (TICAS), the 2020 class of college graduates has amassed $136 billion in private student debt. When this amount is added to the total student debt from federal student loans--about $1.8 trillion, Americans are on the hook for almost $2 trillion in student debt.
Interestingly, students in the District of Columbia had the highest average private-debt level: $51,738. Eight states in the Northeast were in the top ten for high private student debt. The average private student debt in Delaware for the class of 2020 was over $50,000.
As Cody Hounanian, Executive Director of the Student Debt Crisis Center, aptly noted, the TICAS report shows that the costs of higher education have "skyrocketed and are out of control."
But are colleges doing anything to control their costs? Not much. Higher Education thinks it should be congratulated because tuition costs rose less than the inflation rate--the first time in decades that tuition increases didn't exceed inflation. I suppose that's good news of a sort, but the critical fact is that tuition costs go up every year.
TICAS's report concluded with a list of policy recommendations, but they're nothing to write home about.
TICAS recommends more federal grant money for low-income students, more oversight of the private student-loan industry, more loan counselors, and better advertising of income-based repayment plans.
TICAS did not recommend bankruptcy relief for student-loan debtors who are overwhelmed by the college debt. It said nothing about cracking down on the private-college industry, other than a vague recommendation to "Tighten Institutional Accountability."
I've been writing about the student-loan crisis for 25 years, and I've read dozens of reports and policy papers by think tanks and policy centers.
Most of them recommend more money, more transparency, and more lenient income-based repayment programs. TICAS's recommendations added nothing new.
|Another snoozer report on the student-loan crisis!|
Sunday, October 17, 2021
Vista College chain closes its campuses and files for bankruptcy in Delaware: Bankruptcy relief for me but not for thee
Vista College, a chain of for-profit college campuses, closed and went bankrupt a few days ago. Most Vista campuses are in Texas, but the chain filed its bankruptcy proceedings in Delaware.
Who owns Vista College?
Education Futures Group (EFG), a Chicago-based private equity firm, holds a majority interest. Jim Tolbert, Vista's CEO, owns 16.7 percent.
EFG's website describes Vista College as "one of the most popular and recognized institutions of higher education in the south-central United States." Yup. Right up there with Rice, Tulane, and SMU.
Apparently, however, not everyone agrees with EFG's self puffery. A Texas law firm filed a class-action suit against Vista seeking damages on behalf of approximately 3,000 former Vista students.
Will students get any money out of Vista? I kinda doubt it. I'm sure EFG's lawyers know how to structure a bankruptcy action so that none of Vista's owners will miss any meals.
Vista College is the latest in a string of for-profit schools to go belly up in recent years. As far as I'm concerned, the more for-profits that close, the better.
America doesn't really need a for-profit college sector. We already have a surplus of public and non-profit institutions. Vista's headquarters is in Richardson, Texas, a suburb of Dallas. The Dallas metropolitan area has 38 colleges. Vista has a campus in Beaumont, Texas, home of Lamar University. It also has a campus in El Paso, home of the University of Texas at El Paso, and a campus in College Station, home of Texas A & M.
The for-profits built a niche based on the pitch that they offered online courses for working adults, but that line of patter doesn't work anymore. Public institutions have invested heavily in online learning. Students can now get a bachelor's degree, a master's degree, and even a doctoral degree from a public university without ever going on campus. So why would anyone want to enroll at a for-profit college, which will likely cost more than a similar public school?
The for-profits also tout the fact they offer vocational training, which the public universities don't provide. But publicly funded community colleges now offer vocational and technical programs, and community colleges are cheaper than for-profit schools.
Delaware is a friendly venue for corporations, and I feel sure Vista and its owners will zip right through bankruptcy. And I'm OK with that.
But many of Vista's former students will find themselves with a mountain of student-loan debt and no credential. Can they file for bankruptcy in Delaware and get the same cozy treatment that bankrupt corporations get?
No, they cannot. Texas students can file an adversary proceeding in a Texas bankruptcy court in an effort to get their federal student loans discharged.
But lawyers for the Department of Education or one of its debt-collection agencies will show up to fight a bankruptcy discharge of student debt.
In other words, the bankruptcy process works better for for-profit colleges than it does for their students. For a for-profit college, bankruptcy is relatively painless. But a for-profit college student will find it virtually impossible to get free of student loans that were taken out to attend a for-profit college--even one that is owned by a private equity firm and goes bust in mid-semester.
Thursday, September 16, 2021
A common saying when I was young (in the last century) was the old adage that lawyers are people who wish to make a lot of money but are risk-averse.
That observation certainly rang true when I went to law school in the 1970s. I graduated from the University of Texas School of Law with a class of 500 students, and nearly all of us found decent jobs as lawyers.
Even better, my classmates and I finished law school with little or no debt. Tuition was only $500 a semester. Working part-time as a law clerk for the Texas Attorney General's Office, I avoided student loans. I started my legal career debt-free, and I quickly found a good job practicing law.
But law school tuition has shot up dramatically since the days I went to law school. Tuition at UT's School of Law is now $36,000 for in-state students--36 times what I paid.
And the job market for lawyers is terrible. Many people now leave law school with enormous debt and little prospect of finding employment in their field.
And this brings me to the case of Nystrand v. Kingdom of Sweden, filed last spring in a Tallahassee bankruptcy court.
Anneli Nystrand, a Swedish immigrant, graduated from the University of Miami School of Law in 1995. In my opinion, she did everything right.
Nystrand attended a respectable law school and paid off her student loans, although it took her 15 years. She passed the Florida bar exam and landed a job with the Florida Department of Banking and Finance, probably a pretty good gig.
Unfortunately, as the years rolled by, Ms. Nystrand's financial situation deteriorated. In 2013-2014, approximately 18 years after graduating from law school, she was on the job market. Although she applied for more than 200 attorney positions, she did not get a single interview.
In 2016-2017, she found a law job that paid only $39,000 a year. In 2017-2018, she worked for a law firm and made $50,000 a year.
In 2019--more than 20 years after graduating from law school-- Ms. Nystrand began accepting court-assigned cases for a flat fee. If she took a juvenile delinquency client, for example, she only received $377, which is less than the hourly rate of a corporate lawyer in a top-flight firm.
Her total income for 2019 was only $20,000. In 2020, Nystrand did a little better, earning $46,000 before deducting expenses.
In April of this year, Ms. Nystrand filed an adversary complaint in a Florida bankruptcy court against the Kingdom of Sweden, seeking to discharge student loans owed to that Scandanavian country.
I have no idea what that is about. Nystrand's complaint does not state the amount of the debt or how it was incurred.
Nevertheless, I am on Ms. Nystrand's side. I hope she is successful in clearing her debt to Sweden.
Anneli Nystrand is one among hundreds of thousands of underemployed or unemployed attorneys who left law school with enormous debt. Now they are trying to build their careers in a soft job market--particularly for lawyers who attended second- or third-tier law schools.
Florida has 11 law schools--far too many. Ms. Nystrand is forced to compete in a job market for attorneys saturated with people looking for work.
All these unemployed or underemployed lawyers deserve reasonable access to bankruptcy courts. Senators Durbin and Cornyn's bill would allow distressed student-loan debtors to get bankruptcy relief ten years after their student loans become due.
If that bill becomes law, people like Anneli Nyastrand would immediately benefit.
But one more thing needs to be done. The American Bar Association, which allegedly regulates legal education, needs to get off its ass and close down some law schools.
Nystrand v. Kingdom of Sweden, Case No. 21-400006-KKS (Bankr. N.D. Fla. Apr. 16, 2021 (adversary complaint).
Tuesday, August 10, 2021
The Feds messed up the federal student loan program: And everything they do to fix it just makes things worse
Many years ago, when I was a fledgling attorney, my senior partner gave me some advice I never forgot.
He told me that a competent attorney won't make many errors, but all lawyers will make a mistake at some point in their careers.
When you realize you made an error, he advised me, admit it to yourself and immediately begin trying to repair the damage.
Why? Because the longer you ignore a blunder, the worse the consequences will be.
I have tried to follow my senior partner's advice throughout my career--first as a lawyer and then as a professor--and I have learned that this advice is always the right thing to do.
But Congress is not following my law partner's advice. Since it created the student loan program more than 50 years ago, it's made several colossal mistakes, but it muddles on--like a drunk driver who causes a multi-car pileup and then leaves the scene of the accident.
For example, Congress screwed up when it allowed for-profit colleges to participate in the student-loan program. The evidence of corruption, price gouging, and fraud in that sector is well documented.
But the for-profits are sort of like a deadbeat relative who asks you if he can crash on your couch. Once you let him in and give him a house key, you can't get the sonofabitch out.
Congress also made a mistake when it amended the Bankruptcy Code to make it almost impossible for distressed college borrowers to discharge their student loans in bankruptcy. We now have thousands of people who owe three or four times what they borrowed, but they can't free themselves from that debt in bankruptcy court.
And here's another screwup--the Public Service Loan Forgiveness program (PSLF). PSLF was intended to relieve the student-loan burden for people wanting to take public service jobs:--firefighters, school teachers, nurses, etc.
And then there are the various income-based repayment plans (IBRPs) that the brainy policy wonks said would relieve the debt burden on people who had taken out so many loans that they could not pay off the debt under ta standard 10-year repayment program.
How's that working out? We now have more than 8 million people in IBRPs that can last for a quarter of a century. And how many of these people have had their deads cleared? According to the National Consumer Law Center--only 32!
And the IRBP participants are making monthly payments that are not large enough to cover accruing interest. Virtually all these people will owe much more than they borrowed when they finish their 25-year repayment plans.
Do you want to talk about the Parent PLUS program, which preys on low-income families and has a ten percent default rate?
Let's face it, the federal student loan program and its toxic offshoots is a calamity--the mother of all calamities. Its impact on the economy and individual lives makes the 2009 home-mortgage scandal look like a Sunday school class.
And now, what has our government done? It has extended the pause on student loan payments until the end of January 2022. That's right, millions of student loan debtors are excused from making their monthly payments for almost two years!
Did that move solve anything? No, it did not. By extending the loan-payment pause, the Department of Education merely postponed the day it will have to admit that the student-loan program is a trillion-dollar screwup.
|It is always best to admit your mistakes and do your best to repair the damage.|
Wednesday, August 4, 2021
Bipartisan Senate Bill Would Permit Debtors to Cancel Student Loans in Bankruptcy After 10 years: Too Good To Be True?
Is this the year of Jubilee? Is this the year that distressed student-loan debtors finally get to shake off mountainous debt in the bankruptcy courts?
This week, Senator Richard Durbin, an Illinois Democrat, and Senator John Cornyn, a Texas Republican, filed a bill that would allow college-loan debtors to discharge their federal student loans in bankruptcy after a ten-year waiting period.
This bipartisan bill, titled the Fresh Start Through Bankruptcy Act, would also require colleges with high student-loan default rates to partially repay the government for the cost of discharged loans.
Will this bill make it through Congress? After all, Senators Elizabeth Warren and Claire McCaskill filed legislation to stop the Department of Education from garnishing the Social Security checks of elderly loan defaulters. That proposal went nowhere. And Representatives John Delaney and John Katko filed a bill to take the "undue hardship" language out of the Bankruptcy Code, and that bill died a quiet death.
I am enthusiastically in favor of the bill filed by Senators Durbin and Cornyn. I hope it passes.
But if it does, Congress will need to repeal the Grad PLUS Act, which allows students to borrow unlimited amounts of money for graduate school. We can't let someone run up a quarter of a million dollars in student-loan debt getting a doctoral degree in music theory, and then shed all that debt after ten years.
And we will undoubtedly need more bankruptcy judges. Approximately 45 million people are carrying student loans. Several million of them will be immediately eligible for bankruptcy relief if the Durbin-Cornyn bill passes. That's a lot of people showing up at the nation's federal courthouses.
Congress will also have to address the abusive for-profit college industry if overburdened student debtors get access to the bankruptcy courts. As student debt gets cleared through bankruptcy, it will quickly become evident that many bankrupt student borrowers acquired their debt at for-profit colleges.
But perhaps those are reforms for another day.
I have been arguing for bankruptcy relief for student-loan debtors for more than 20 years. If the Durbin-Cornyn bill passes, what will I write about?
I may have to say, as the Lone Ranger often observed at the end of his weekly television show, "My work here is done."
On the other hand, who really believes Congress will do the right thing?
|The Lone Ranger: "My work here is done."|
Friday, March 12, 2021
A little good news: COVID Relief Act includes tax relief for student debtors whose loans are forgiven
A little good news. The COVID relief bill that Congress passed a few days ago includes modest tax relief for student debtors whose college loans are forgiven.
Senators Bob Mendez and Elizabeth Warren introduced the Student Loan Tax Relief Act in the U.S. Senate as a provision of the $1.9 trillion COVID relief legislation.
Thanks to the passage of the Mendez-Warren bill, student debtors who complete income-driven repayment plans (IDRs) and have their college loans forgiven will not get a tax bill.
In most circumstances, the Internal Revenue Service considers a forgiven debt to be taxable income. Until the Mendez-Warren bill became law, this was a problem for student debtors in IDRs.
Indeed, most college-loan debtors in IDRs will have substantial loan balances when they finish making monthly payments under a 25-year IDR because their payments weren't large enough to cover accruing interest.
The U.S. Department forgives the remaining student-loan debt for individuals who complete IDRs, but the IRS has treated the forgiven debt as taxable income. Under the terms of the Mendez-Warren bill, that forgiven debt is no longer taxable.
This is a good development, but the Student Loan Tax Relief Act offers is only a modest reform.
First of all, the IRS does not tax forgiven debt if the debtor is insolvent when the debt is forgiven. Since most student debtors who complete 25-year IDRs will be insolvent, their forgiven debt would not have been taxable even before the Mendez-Warren bill became law.
Second, for reasons I do not understand, the tax-relief measure expires on January 1, 2026. After that date, forgiven debt will again be treated as income by the IRS.
Third, as the National Consumer Law Center reported earlier this month, only 32 people who completed IDRs have had their loan forgiven. If this low IDR-completion rate continues, the Mendez-Warren measure will impact very few people.
In short, the Mendez-Warren legislation is a welcome development but is no reason for student debtors to start popping the champagne corks. Save the champagne for the day Congress repeals the undue-hardship language in the Bankruptcy Code and allows distressed student debtors to discharge their student loans in bankruptcy.
|Don't pop the champagne corks over the Student Loan Tax Relief Act.|
Saturday, April 25, 2020
Laurina Bukovics v. ECMC: An Illinois woman took out $20,000 in student loans, paid back $29,000 and still owed $80,000
|Judge Jack Schmetterer: ECMC missed the point|
Wednesday, October 2, 2019
Shenk v. U.S. Department of Education: A bankruptcy judge denies student-loan discharge to 59-year-old army veteran
Timothy Shenk served 13 years in the U.S. Army (infantryman in the 82nd Airborne Division). He then enlisted in the National Guard in order to obtain the 20 years of military service that would make him eligible for full retirement. That was a good plan.
Shenk also planned to become a teacher and he obtained a bachelor's degree from SUNY Cortland in 1999. He then worked on a master's degree program in Adolescent Education, and he completed all the course work to obtain his degree. That also was a good plan.
Unfortunately, Shenk had unpaid student loans, and SUNY Cortland refused to award him his diploma. In addition, the university had a five-year time frame to meet program requirements and that time period elapsed years ago. Consequently, Mr. Shenk will never receive the degree he worked for, even though he met all program requirements.
Shenk married when he was a young man and he and his wife had four children. But the marriage ended in divorce, and he became liable for public assistance payments made to his ex-wife. By the time he filed for bankruptcy, he had paid off most of that obligation, which is commendable.
Bankruptcy Judge Margaret Cangilos-Ruiz expressed some sympathy for Mr. Shenk. She pointed out that his graduate studies were interrupted because the State of New York called him back for active military service after the terrorist attack on the World Trade Center in 2001. "The bitter irony is that when ordered by the Governor, [Shenk] assisted New York State at a time of dire need only later to have the State refuse to confer the degree that may have put him on a financial path to pay what he owed."
Nevertheless, Judge Cangilos-Ruiz denied Shenk's request for a student-loan discharge on the grounds that he did not meet the stringent standards of the three-part Brunner test. He was unemployed at the time of the bankruptcy proceedings and he could not pay back his student loans and maintain a minimal standard of living. Thus he met Brunner's first requirement. But the judge believed Shenk's financial circumstances would likely improve. He was employable, the judge pointed out, and he would soon be eligible for a small military pension and Social Security benefits. The judge also said that Shenk failed Brunner's good-faith test because he had made no payments on his student loans over a number of years.
I think Judge Cangilos-Ruiz erred when she refused to discharge Mr. Shenk's student loans. First of all, universities should not be allowed to withhold a diploma simply because the would-be graduate has unpaid student loans. Such a policy amounts to putting student borrowers in debtor's prison--they cannot pay back their debts because their credentials are being withheld.
Moreover, Judge Cangilos-Ruiz denied Mr. Shenk a discharge partly due to the fact that he would eventually receive Social Security benefits and a modest military pension. In my view, no one who is nearing retirement age should be required to devote one penny of meager retirement income to paying back student loans.
In short, the equities of this case favored Mr. Shenk. Perhaps he made some mistakes in planning his finances but he served his country for 20 years in the U.S. military and he worked to obtain a graduate degree that his university refused to give him.
In any event, Mr. Shenk will probably never be able to repay $110,000 in student-loan debt. His only recourse now is to sign up for a long-term income-based repayment plan that could stretch out for as long as 25 years--when he will be 85 years old!
Isn't it ironic that presidential candidates are calling for a college education to be free to everyone while a man who served his country for 20 years is burdened by enormous student-loan debt? Thanks for your service, Mr. Shenk.
Shenk v. U.S. Department of Education, 603 B.R. 671 (Bankr. N.D.N.Y. 2019).
Thursday, April 11, 2019
Rep. Maxine Waters didn't ask mega-bank executives a stupid question at a congressional hearing; She asked them the wrong question
|Megabank CEOs: "We don't know nothin' bout no student loan program."|
Thursday, March 7, 2019
I know more about farting cows than Alexandria Ocasio-Cortez. What does AOC know about the student-loan crisis?
The planet is heating up, we observed--not a political statement, just an acknowledgement of fact. Some of us naively believed global warming might even be a good thing. Alaska is such a great place to live, we told ourselves, but it would be so much nicer if the winters were just a wee bit warmer.
I also know a whole lot more about farting cows than AOC. My father was a cattle raiser, and I saw a lot of flatulent bovines in the stock pens. In fact, I admit that my father's Angus herd is at least partly responsible for a rise in global temperatures. Mea friggin' culpa.
But will AOC reverse global warming with her Green New Deal? No she won't. Everybody knows that--even the wax-museum Democrats in Congress.
Better questions to ask are these: What does AOC know about the student-loan crisis, and what will she do about it?
I think the answer to both questions is "Not much." Our national politicians--with AOC in the forefront--bray on and on about problems they know they will not fix. Meanwhile millions of Americans--more than 20 million--have had their lives ruined by student loans that enriched the venal and corrupt higher education industry.
The student-loan crisis is complicated; I acknowledge that. But there are some small things Congress can do that would alleviate the suffering. For example:
Congress could pass Representative Katko's bill to allow distressed debtors to discharge their student loans in bankruptcy. Or if that lift is too heavy, Congress could at least allow parents who cosigned their children's student loans to shed those debts in bankruptcy if they are insolvent.
Congress could also pass legislation barring the Department of Education from garnishing elderly student-loan defaulters' Social Security checks, which Senator Elizabeth Warren proposed in a bill that got nowhere in the U.S. Senate. AOC could endorse that bill, and it would probably be passed in the House of Representatives.
And here is another thing Congress could do. It could pass legislation requiring Betsy DeVos' Department of Education to streamline the process for forgiving student loans owed by people in the Public Service Loan Forgiveness program.
I suspect AOC has never thought about the student-loan crisis, even though a lot of the sufferers reside in her congressional district. And I will close by saying again that politicians who won't do something tangible toward solving the student-loan crisis don't deserve our votes.
|It's farting cows, stupid!|
Tuesday, November 28, 2017
Wednesday, October 11, 2017
Bloomberg reports that student-loan delinquencies have ticked upward: Another sign of growing misery among student debtors
The Department of Education's June report showed a slight uptick from the delinquency rate one year earlier, when 18.6 percent of student debtors were a month late on their loan payments.
What does this mean?
Yelena Shulyatyeva, a senior economist for Bloomberg Intelligence, professed to be mystified. "There's no fundamental reason for that to be happening," Shulyatyeva said.
James Kvaal, who was President Obama's Deputy Director of White House Domestic Policy, also seemed stumped by rising delinquency rates. "That the trend has stalled," Kvaal said, "is not yet a warning sign, but it is a question mark."
Nasiripour, who has done some fine reporting on the student loan crisis, summarized why this development is puzzling to many policy experts. "After all," she wrote, "the U.S. economy has improved since June of last year, with lower unemployment, higher household incomes and increased wealth, federal data show." Moreover, Nasiripour pointed out "Consumers are more confident about the economy, and their own personal finances, too, according to Bloomberg Consumer Comfort data."
But rising delinquency rates are just one more sign that the student loan program is in meltdown. Let's tick off some more disaster indicators:
- Last year, 1.1 million Americans defaulted on their student loans at an average rate of 3,000 defaults a day.
- A recent report released by the National Center for Education Statics revealed that almost 6 people in ten who first enrolled for postsecondary education in 1995-96 had not paid off their student loans 20 years later.
- As reported by the Wall Street Journal, more than half the students at a thousand colleges and schools had not reduced their student-loan debt by one penny seven years into repayment.
- According to a 2016 report from the Government Accounting Office, half the people who entered income-driven repayment plans to lower their monthly loan payments were removed from their IDRs for failing to recertify their income.
- A Brookings Institution report noted that more than one out of four people (28 percent) in a recent cohort of student borrowers defaulted on their loans within five years of beginning repayment. The default rate among students who attended for-profit colleges was 47 percent.
And collapse it will. In the meantime, millions of student-loan debtors are buried under a mountain of debt.
I believe the federal bankruptcy courts are slowly awakening to this crisis and that they are increasingly willing to rule compassionately toward distressed student debtors who seek bankruptcy relief. The Murray decision out of Kansas, which was affirmed on appeal last month, is a heartening sign.
The Murrays were fortunate enough to have been represented by an able attorney, and they also received assistance in the form of an amicus brief filed by the National Consumer Law Center and the National Association of Consumer Bankruptcy Attorneys.
Unfortunately, few insolvent student debtors are able to find attorneys to take their cases. If American lawyers understood the student-loan crisis for what it is--a human rights issue, they might take up some of these cases as volunteers, much as the civil rights lawyers did in the 1960s, when attorneys from across the United States came South at the risk of their lives to represent civil rights activists.
I am convinced that the solution to the student-loan catastrophe lies with the federal bankruptcy courts. Congress does not have the collective courage to address this problem legislatively, and the higher education industry--like a cocaine addict--survives from day to day on regular infusions of federal student-aid money.
|American colleges, like drug addicts, survive from day to day on regular infusions of federal student-aid money.|
Andrea Fuller. Student Debt Payback Far Worse Than Believed. Wall Street Journal, January 18, 2017.
Shahien Nasiripour. More Americans Are Falling Behind on Student Loans, and Nobody Quite Knows Why. Bloomberg.com, September 28, 2017.
The Wrong Move on Student Loans. New York Times, April 6, 2017.
US. Government Accounting Office. Federal Student Loans: Education Needs to Improve Its Income-Driven Repayment Plan Budget Estimates. Washington, DC: U.S. Government Accounting Office, November, 2016.
Jennie H. Woo, Alexander H. Bentz, Stephen Lew, Erin Dunlop Velez, Nichole Smith, RTI International, (2017, October). Repayment of Student Loans as of 2015 Among 1995-96 and 2003-04 First-Time Beginning Students. First Look (NCES 2018-410). U.S. Department of Education. Washington DC; National Center for Education Statistics. [Sean A Simone, Project Officer]
Wednesday, September 27, 2017
Historically, people accumulated wealth through homeownership and savings. When reaching the age of retirement the home could be sold and the equity created could be withdrawn. With less access to this type of wealth accumulation and the inability to save for retirement due to growing student loan debt, tragedy is on the horizon.
Student loan debt is hurting an entire generation of consumers who are setup for financial failure at this point.
The easy access to student loans has led to a growing for-profit private student loan industry that since 2009 has been drawing in many through loans and co-signing. Private student loans exploded with the advent of the for-profit schools. As an example, read Navient Knew Loans Were Garbage When They Saddled Students With Them. Yet the current Department of Education under Secretary Betsy DeVos seems resistant to crack down on protections from these schools.
Federal government student loans have been a blessing for many to obtain funds to attend higher education but they have been a curse as well. Schools who were qualified to receive federal funds looked at that easy money as a way to make an easy sale of a student into a seat regardless of the ability of the student to benefit from the loan and school.
Data published by the Federal Reserve Bank said, ” findings are consistent with American youth having accommodated tuition shocks not by forgoing schooling, but instead by amassing more debt.”
The Federal Reserve Bank of New York goes on to say, “Further analysis demonstrates that the tuition hike and student debt increase, despite leaving higher educational attainment unchanged, can explain between 11 and 35 percent of the observed approximate eight percentage-point decline in homeownership for 28-to-30-year-olds over 2007-15 for these same nine cohorts. The results suggest that states that increase college costs for current student cohorts can expect to see a response not through a decline in workforce skills, but instead through weaker spending and wealth accumulation among young consumers in the years to come.”
At the same time as homeownership has been declining, kids are living with their parents at an increasing rate.
As a society nothing good is going to come from lower amounts of wealth accumulation, and weaker spending.
Unless we tackle the growing problem of excessive student loan debt and allow those with unmanageable student loan debt to have access to a fresh start in bankruptcy, the economic future of the days ahead is going to be less than it could have been.
This article appeared on the Personal Finance Syndication Network web site and also on The Get Out of Debt Guy site. Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve here.
Tuesday, May 30, 2017
So if you are a distressed student borrower who will never pay back your student loans, why not attempt to discharge your college loans through bankruptcy? What have you got to lose?
You say you don't have money to pay a lawyer to represent you in bankruptcy court? Then represent yourself. Again--what have you got to lose?
This essay is a field guide for struggling debtors who are thinking about filing for bankruptcy to discharge their student loans. This is a difficult process, and not everyone will be successful. In fact, much depends upon drawing a sympathetic bankruptcy judge. But you will not know whether your college debt is dischargeable through bankruptcy unless you make the effort. So let's get started.
I. The standard for discharging student loans in bankruptcy--the "undue hardship" rule.
Section 523(a)(8) of the Bankruptcy Code states that a student loan cannot be discharged in bankruptcy unless the debtor can show that paying the loan would pose an "undue hardship" on the debtor and his or her dependents.
Congress did not define undue hardship when it adopted this provision, so it has been left to the courts to define it. Most federal circuits have adopted the Brunner test, named for a 1987 federal court decision. The Brunner test contains three parts:
Although most bankruptcy courts and federal appellate courts utilize the Brunner test when deciding student-loan bankruptcy cases, there is a remarkable variations among the courts about how the Brunner test is interpreted, with some courts interpreting it more favorably for debtors than others.
II. Filing an adversary complaint
Filing for bankruptcy is a relatively straightforward process--particularly for people who have no assets. Many lawyers will walk you through a Chapter 7 bankruptcy for a flat fee.
But discharging your federal student loans requires you to file an adversary action--a separate lawsuit--against your student loan creditors, which may be the U.S. Department of Education, a student loan guaranty agency, or one of the government's approved debt collectors. And if you have private student loans you will need to sue your private creditor as well.
Drafting a complaint for your adversary action is not difficult; you can find forms on the web or in published bankruptcy guides.
III. Gather your evidence before you filed your adversary complaint
In my view, you should gather all your documentary evidence before you file your adversary complaint. That evidence should include:
- all the records you have of payments you made,
- correspondence with your creditor,
- documents supporting efforts you made to find employment,
- evidence of health problems, disability status, and any other documents that support your claim that paying off your student loans would be an undue hardship.
If relevant, you should also gather evidence showing the job market for your profession is bad. People who attended law school, for example, should provide evidence of the bad job market for newly graduated lawyers. If you failed the bar exam or another pertinent licensing exam, you should gather evidence establishing that fact.
If you attended a for-profit school that has been found guilty of fraud or misrepresentation, you should obtain documents to educate the bankruptcy judge about your school's misbehavior.
Why is it important to gather your evidence before you file your adversary complaint? Two reasons:
First, one of the first things your creditor will do after you file your lawsuit is send you discovery requests: 1) interrogatories (questions) about your financial status and your expenses,
2) requests for production of your documents, and
3) requests for admissions (more about requests for admissions later.)
Having your documents prepared in advance will enable you to respond to your creditor's requests for documents in a timely manner and will subtly communicate that you are prepared to have your case go to trial.
Secondly, assembling your documents early will help you determine the strengths and weaknesses of your case before you file your adversary complaint. For example, if you are disabled or have medical problems, evidence about your health status will be helpful in establishing undue hardship.
On the other hand, if you made few or no payments on your student loans over the years, that is a negative fact for you because the creditor will argue that you did not manage your loans in good faith. Courts have discharged student loans in several cases in which the student debtor made no voluntary loan payments, but you will want to be able to argue you that you meet the good faith test in spite of your spotty payment history.
IV. Know the case law about student loans and bankruptcy in your jurisdiction.
It is also important that you know how courts have ruled in student-loan cases in your jurisdiction. If you live within the boundaries of the Ninth Circuit, you will want to be familiar with the Roth decision, Hedlund, Scott and Nyes. If you live in the Tenth Circuit, you will want to know about the Polleys decision. If you are in the Seventh Circuit, the Krieger decision is important to you.
V. Be psychologically prepared for a long court battle.
Published court decisions show that the Department of Education and the student loan guaranty agencies are sometimes willing to fight student debtors in the courts for a long time. In the Hedlund case, for example, involving a law graduate who failed to pass the bar exam, the creditor fought Mr. Hedlund in the federal courts for ten years.
Why do the student-loan creditors drag out litigation with bankrupt student borrowers? Two reasons: First, the student loan guaranty agencies are reimbursed by the federal government for their attorneys fees, so they have little incentive to stop litigating. And of course, the Department of Education has free government attorneys to represent its interests.
Secondly, by filing appeals and driving up litigation costs, the Department of Education and the student loan guaranty agencies know they are demoralizing student debtors, making it more likely they will abandon their lawsuits. And of course, by imposing heavy financial and psychological costs on people who file adversary actions, the Department of Education knows that it is discouraging distressed debtors from even trying to discharge their student loans in bankruptcy.
VI. Be appropriately suspicious of any document a creditor's attorney asks you to sign.
Once you file your lawsuit, be aware of two potential dangers. First, the Department of Education or one its debt collectors will probably send you a "Request for Admissions." Do not ignore that document. If you fail to respond to a Request for Admissions, the statement you are asked to admit is deemed admitted. It is very important to remember that.
Second, it is improper for a party to ask an opposing party to admit a principle of law. For example, it would be improper for a Request for Admission to ask you to admit that it would not be an undue hardship for you to repay your student loans.
Obviously, you should answer all interrogatories and requests for admissions truthfully, but do not admit to propositions that you are unclear about or which you do not understand. If you do not know the answer to a question, it is permissible to state that you do not know.
Similarly, don't sign a stipulations of facts that a creditors' attorneys asks you to sign unless you are very clear that signing a stipulation won't prejudice your case in court. And remember--when a government attorney waves a stipulation in your face and asks you to sign it, the attorney is not making that request to help you. The lawyer drafted that stipulation to help the government.
VII. What do you do if you win your adversary action and the creditor appeals?
In several instances, student-loan debtors have gone to court without an attorney and won their case. It has been my observation that some bankruptcy judges are sympathetic to people who are overwhelmed by student loan debt, and these judges have written remarkably thorough decisions ruling in the debtor's favor.
But sometimes the creditor appeals, forcing the debtor to figure out how to file a strong appellate brief. For example, Alexandra Acosta-Conniff won a student-loan discharge in an Alabama bankruptcy court, and George and Melanie Johnson won their case before a Kansas bankruptcy judge. In both cases, the debtors were opposed by Educational Credit Management Corporation (ECMC); and in both cases, ECMC appealed.
In my view, debtors need an attorney to represent them in appellate proceedings, so debtors who win their cases at the bankruptcy-court level without lawyers need to find an appellate lawyer to help them if their bankruptcy court victory is appealed.
If it is absolutely impossible to hire an appellate attorney and you are forced to file an appellate brief without an attorney, then you should at least try to find appellate briefs filed in other cases to help you file your own appellate brief. You can contact me, and I will be happy to help you find pleadings that will be helpful to you.
VIII. A few words about private student loans
Thanks to the deceptively named "Bankruptcy Abuse Prevention and Consumer Protection Act of 2005," private student loans are as difficult to discharge in bankruptcy as federal student loans. For both types of loans, the "undue hardship" rule applies.
To protect their own interests, the banks and other private student-loan defenders (Sallie Mae, etc.) usually require student borrowers to find a co-signer to guarantee the loan. Generally, the co-signer is a parent or other relative.
So remember, even if you discharge a private student loan in bankruptcy, your co-signer is still liable to pay back the loan. And the co-signer, like you, must meet the "undue hardship" test if he or she tries to cancel the debt in bankruptcy.
The student loan crisis grows worse with each passing month. As the New York Times noted recently, 1.1 million student borrowers defaulted on their student loans in 2016--that is an average of 3,000 defaults a day!
Bankruptcy judges read the newspapers, and many of them have children or relatives who are overwhelmed by their student loans. I think the judges are beginning to be more sympathetic to "honest but unfortunate" student-loan debtors who acted in good faith and simply cannot pay back their student loans.
Some student borrowers have a better case for a bankruptcy discharge than others, but hundreds of thousands of people have a decent shot at getting their student loans cancelled through bankruptcy if they just make the effort.
Filing an adversary complaint in a bankruptcy court takes courage, fortitude and hard work--particularly in gathering evidence necessary to show a bankruptcy judge that repaying your student loans truly constitutes an undue hardship. And not everyone who seeks relief from student loans through bankruptcy will be successful
Nevertheless, if you are a student debtor with crushing student loans, you should consider filing for bankruptcy. If, after careful thought, you determine that you have nothing to lose by filing, then you should file an adversary complaint and fight for relief from oppressive student debt. Others have been successful, and you too might be victorious in a federal bankruptcy court.
The Wrong Move on Student Loans. New York Times, April 6, 2017.