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

Friday, April 9, 2021

Tingling v. ECMC: 52-year old student-loan debtor with multiple degrees loses her case before Second Circuit Court of Appeals

Bankruptcy is intended to give honest but unfortunate debtors a fresh start in life. People who mismanage their finances, spend money improvidently or go broke through their own stupidity can shed their debts in a bankruptcy court.

That is a good thing. 

But the Bankruptcy Code contains an exception for insolvent student-loan borrowers. Unless they can show "undue hardship," they can't get free of their college loans. 

The Second Circuit Court of Appeals defined undue hardship in its Brunner decision, rendered in 1987.  To qualify for a discharge of their student loans, debtors must make three showings: 

1) They cannot pay off their loans and maintain a minimum standard of living.  

2) Their financial condition is unlikely to improve over the terms of the loans.

3) They handled their student loans in good faith.  

Some commentators (including me) hope the Second Circuit will reconsider the harsh Brunner test and perhaps overrule it or at least interpret it more humanely.

Unfortunately, Tingling v. ECMCdecided about a month ago, is a signal that the Second Circuit is not willing to abandon Brunner.

Janet Tingling, age 52, tried to discharge student debt accumulated to obtain multiple degrees (a B.S. and M.S. in biology, an M.B.A., and a Doctorate in Business Administration). Her adjusted gross income was about $50,000 before filing bankruptcy. Her total student-loan debt (including principal, interest, fees, and costs) was $59,000.

Tingling was initially represented by a lawyer in her bankruptcy proceedings, but she released her attorney and pursued her adversary action alone.

Bankruptcy Judge Alan S. Trust denied Ms. Tingling's application to shed her student loans, finding that she failed all three parts of the Brunner test. She appealed to U.S. District Court Judge Joanna Seybert, and she upheld Judge Trust's ruling.

Last month, a three-judge panel of the Second Circuit Court of Appeals (Judges Cabranes, Raggi, and Sullivan) upheld Judge Trust's bankruptcy opinion, ruling that he had applied the Brunner test correctly. The panel expressed no interest in modifying or overruling the Brunner standard.

I am not unduly disheartened by the Second Circuit's Tingling decision.  After all, Janet Tingling's situation was not as compelling as that of other more hard-pressed debtors who have wound up in a bankruptcy court. 

The Second Circuit pointed out that she "is of relatively young age (52 years old), in good health, possesses two graduate degrees in healthcare administration, lacks dependents, and, by all indications, is able to maintain her current level of income" (Tingling v. ECMC, 990 F.3d at 309).

I hope another debtor--someone in more desperate circumstances--takes her case to the Second Circuit and challenges the Brunner test.

 And I hope that person is represented by a competent and energetic lawyer.  Ms. Tingling was handicapped, no doubt, by the fact that she fought her case into the appellate courts on her own, without legal counsel to advise and assist her. 



References

Tingling v. Educational Credit Management Corporation, 900 F.3d 304 (2d Cir. 2021).











Tuesday, March 23, 2021

"This student loan case fits the definition of insanity": Bankruptcy judge grants 56-year-old Kansan partial relief from his student-loan debt

 In Goodvin v. Educational Credit Management Corporation, Judge Dale Somers, a Kansas bankruptcy judge, began his opinion with these words:  "This student loan case fits the definition of insanity."

Judge Somers went on to chronicle the story of Jeffrey Goodvin. 

Mr. Goodvin attended Wichita State University for four years (1982-1986) but did not obtain a degree. He enrolled at Brooks Institute of Photography in 1987 and got a bachelor's degree in fine arts in 1990. In 2007, he enrolled at Santa Barbara City College and obtained a certificate in multimedia studies. 

Goodvin made repeated attempts to find steady employment over many years, but he worked in an unstable industry.  Judge Somers summarized Mr. Goodvin's job history as being "marked by several relocations, intermittent job loss, layoffs, and periods of unemployment, through no apparent fault of his own." In 2018, Goodvin entered an apprentice program with the Plumbers and Pipefitters Union. 

By the time Goodvin filed for bankruptcy in 2019, he was 56 years old, and he owed $77,000 in student loans. Educational Credit Management Corporation (ECMC) held Goodvin's largest loan, a consolidated loan that Goodvin took out in 1992. 

And here is where Judge Somers found insanity. The principal of Goodvin's consolidated loan was only $12,077, and Goodvin had paid $19,527 on that loan--more than 150 percent of the amount that was disbursed. But interest on that loan accrued at 9 percent. By the time Mr. Goodvin filed for bankruptcy, he owed $49,000 on that $12,000 loan. 

Predictably, ECMC argued that Mr. Goodvin should be placed in the Department of Education's REPAYE plan, a 20-year income-based repayment plan that would end when he was 76 years old. ECMC did not contend, however, that Goodvin would ever pay off his student loans. In fact, Judge Somers noted dryly, "To argue otherwise would strain incredulity."

Naturally, Mr. Goodvin did not want to enroll in a repayment program that would not end until he was ten years into retirement. Moreover, as Judge Somers pointed out, Goodvin's payments under a REPAYE plan would not cover accruing interest. As Judge Somers observed, "Goodvin's reluctance to participate in the REPAYE plan for another twenty years is not a lack of good faith; it's called hopelessness."

Very sensibly, Judge Somers granted Mr. Goodvin partial relief from his student debt. The judge discharged the consolidated loan, which he described as "the elephant in the room."  That loan, accruing interest at 9 percent, amounted to 64 percent of Goodvin's total student-loan indebtedness. 

That leaves Mr. Goodvin with an obligation to pay back $27,689, an amount that he can probably manage.

Judge Somers' sensible and refreshing decision is a sign that the federal bankruptcy courts are recognizing the enormity of the student-loan crisis.  ECMC appealed to the U.S. district court, but Judge John Lungstrum upheld  Judge Somers' ruling.

This is the third bankruptcy court decision out of Kansas in recent years to grant a partial discharge of student loans. ECMC was a defendant in all three cases, and it appealed all three decisions. Remarkably, federal district courts, acting in their appellate capacity, upheld the bankruptcy judge in all three matters.

Judge Somers was right: The Goodvin case fits the definition of insanity. His decision, thank God, restores some sanity to Mr. Goodvin's life, which should hearten us all.


References

Goodvin v. Educ. Credit Mgmt. Corp., Case No. 19-10623, Adv. No. 19-3105, 2020 WL 6821867 (Bank. D. Kan. Sept. 9, 2020), aff'd, Educ. Credit Mgmt. Corp. v. Goodvin, Case No. 20-cv-147-JWL (D. Kan. March 17, 2021).





Monday, February 22, 2021

Politicians want $50,000 in student-debt relief: A good idea?

 Top Democrats, led by Senators Chuck Schumer and Elizabeth Warren, are calling on President Joe Biden to forgive student-loan debt up to $50,000 per person. 

According to the plan's proponents, $50,000 in debt relief would wipe out all college-loan debt for 36 million Americans. That would be an impressive achievement.

Moreover, forgiving $50,000 in student debt would particularly benefit women and people of color, who take on more debt on average than men and non-minority students. Under one interpretation of the proposal, parents who took out Parent Plus loans might also get relief.

Without a doubt,  student-loan forgiveness on this scale would be expensive. The federal government would be writing off  $1 trillion in student debt. But, as then Education Secretary Betsy Devos admitted more than two years ago, only one out of four federal-loan borrowers are "paying down both principal and interest" on the loans.  Writing all this debt off in one fell swoop would merely recognize reality.

Some policy experts argue that writing off all student debt--about $1.7 trillion--would be good for the American economy. In a 2018 report, researchers at the Levy Economics Institute of Bard College wrote that wholesale student-loan forgiveness would boost the Gross National Product by $86 billion to $108 billion a year over ten years. Released from their student loans, millions of Americans would see an immediate increase in their disposable income, permitting them to buy homes, save for retirement, purchase consumer goods, and start families.

So what's my take on the Schumer-Warren proposal? I think any action that gives meaningful relief to millions of struggling college borrowers is a good thing.  So if the choice is between the Schumer-Warren plan and no plan, I support the Schumer-Warren initiative.

But wiping $1 trillion of student debt off the government's books is no panacea for the student-loan crisis. 

First, there is the issue of fundamental fairness. Millions of Americans made enormous sacrifices to get through college with no debt--often working at part-time jobs to make ends meet. Millions more lived frugally in the years after graduation to pay off their student loans.

Somehow it seems unjust to reward people that borrowed to attend college when so many people worked extra hard to avoid debt or to pay it off quickly.

Second, for our government to wipe out a trillion dollars in college loans is an implicit admission that the college experience is not worth what the universities are charging. President Biden should not forgive a trillion dollars in student debt without insisting that the universities reform their operations.

What reforms are most urgent. In my view, colleges should stop grinding out expensive and often worthless graduate degrees. When Congress passed the GRAD Plus Act, it allowed people to borrow the entire cost of graduated education, no matter what the price.  As we might have expected, universities raised the price of their graduate degrees. They ginned out new programs: MBAs, Master's degrees in public administration, graduate degrees in gender and ethnic studies, and so on.

Second, we need to close down the Parent PLUS program, which has driven millions of moms and pops to the verge of poverty by taking out loans for their children's education that they can't discharge in bankruptcy.

In my view, it would be wiser to loosen the restrictions on bankruptcy relief for overburdened student debtors. People who took out student loans and obtained good jobs with their college degrees should pay back their loans. People whose lives were ruined by student debt could get a fresh start in the bankruptcy courts.

Surely all Americans can agree that postsecondary education should improve the quality of people's lives. College degrees that leave people with no job and massive student debt should not be subsidized by the federal government.

Let's forgive $1 trillion in student debt: The rubes will love us for it!



Thursday, January 28, 2021

The Parent Plus Program was a policy blunder that hurts low-income and African American families: Shut It down

Our government's Parent PLUS Program is an insidious scheme to lure low-income parents into taking out student loans so their kids can go to colleges they can't afford.

 Insider Higher Ed's Kery Murakami tells the story of Ewan Johnson, whose mother owes $150,000 in Parent PLUS loans--money she borrowed so her son could get a degree from Temple University in strategic communications and political science.

As Johnson related, he comes from "a low economic background." Will his mother will ever pay off her Parent PLUS loans? I doubt it.

Johnson's mother is one of 3.6 million parents who collectively owe more than $96 billion in Parent PLUS loans. For the most part, parents aren't taking out these loans so their kids can attend elite
private schools like Harvard. 
"Rather," as Wall Street Journal reporters Andrea Fuller and Josh Mitchell observed, "they include art schools, historically Black colleges and private colleges where parents are borrowing nearly six-figure amounts to fulfill their children's college dreams . . "

Indeed, African American parents are hurt the most by the Parent PLUS Program. The WSJ reported that 20 percent of African American parents who took out Parent PLUS program in 2003-2004 defaulted on their loans by 2015.  

Default rates for some colleges are exceptionally high. A New America study found that 30 percent of Parent PLUS borrowers at 15 institutions default within two years!

Should all this debt--nearly $100 billion--be forgiven? President Biden proposes to knock $10,000 off of every federal student loan, but it is unclear with his plan includes people with Parent PLUS loans. 

Policymakers worry that forgiving all Parent PLUS debt will unfairly benefit wealthy families who have the resources to pay back their loans.  Sandy Baum, a student-loan expert, said that forgiving all Parent PLUS debt would be "outrageous."

Hardly anyone suggests that we just eliminate this dodgy government boondoggle that exploits low-income and minority families.  

So why don't we just make one straightforward reform? Let's allow parents who wrecked their financial futures so their kids could attend the wrong college to discharge their Parent PLUS loans in bankruptcy




Wednesday, January 20, 2021

Immigrant obtains medical degree, can't find MD job. Bankruptcy judge discharges $400,000 in student-loan debt

Seth Koeut was born in Cambodia and came to the United States as a child. Like many immigrants, he applied himself energetically to obtain a better life. He graduated 6th in his high school class and went on to earn two bachelor's degrees from Duke University.

Mr. Koeut then went to medical school and received an MD from Ponce School of Medicine in Puerto Rico. Somewhere along the way, he learned to speak English, Cambodian, Spanish, French, and Italian.

Although he passed his Medical Board exams, Koeut could not obtain a residency, which is a prerequisite to obtaining a medical license. After applying for residencies for five years, he gave up hope of becoming a licensed physician in the United States.

Over the years, Koeut held various jobs, including sales clerk at Banana Republic, a dishwasher at a Mexican restaurant, and parking lot signaler.

Finally, Koeut filed for bankruptcy and asked Bankruptcy Juge Margaret Mann to discharge his student-loan debt, which totaled $440,000. A vocational evaluation expert assessed Koeut's job prospects and said Koeut would need additional training to meet his employment potential.

The U.S. Department of Education (DOE) opposed Koeut's application for a student-loan discharge and argued that he should be put in a long-term, income-based repayment plan (IBR). DOE also said Koeut failed to reach his employment potential because of a lack of initiative.

But Judge Mann disagreed. "A medical school graduate who works as a parking attendant and dishwasher cannot be described as lazy," she observed. She approved of Koeut's decision not to sign up for an IBR, which he rejected "because he could not carry the burden of his student debt without harming his opportunities for advancement."

In the end, Judge Mann discharged almost all of Koeut's student debt, finding that his current income and expenses did not permit him to maintain a minimum standard of living--even without making loan payments.

The Koeut case may be a sign that the bankruptcy judges are weary of DOE's incessant demands to put distressed student-loan debtors into IBRs. And perhaps they have grown tired of DOE's insistence that every bankrupt debtor's financial distress is entirely the debtor's fault.

Indeed, one cannot read Judge Mann's opinion without concluding that Seth Koeut had done everything possible to improve his standard of living and had handled his massive student-loan debt in good faith. Let us hope for more bankruptcy court decisions like Koeut v. U.S. Department of Education.


References

Koeut v. U.S. Department of Education, 622 B.R. 72 (Bankr. S.D. Cal. 2020).




Wednesday, January 13, 2021

Woman enrolls in low-ranked law school, accumulates massive debt, and is academically dismissed only three credit hours from getting her degree: Is that fair?

 Jill Stevenson enrolled at Thomas M. Cooley Law School in 2002. She completed 87 credit hours toward completing her degree, but she was "academically dismissed" because her GPA dropped in her last year of study.

Stevenson took out student loans to pay for her legal education and entered an income-based repayment plan (IBRP) in 2006. This plan required her to make monthly payments on her student debt for 25 years. She made her payments faithfully for 14 years--a remarkable achievement. But her loan balance grew larger with each passing month because of accruing interest.

By the time she filed for bankruptcy and tried to get her student loans discharged, she owed the U.S. Department of Education $116,000, and the debt would continue growing until she finished her IBRP in 1931.  At that time, her student loans would be forgiven, but the forgiven amount is considered taxable income. Thus, when she is in her sixties, Miss Stevenson will face a huge tax bill.

This is a sad outcome, made sadder perhaps because Thomas M. Cooley has been ranked as one of the worst law schools in the United States.  Don't take my word for it.

Garrett Parker, writing for Money Inc., ranked Cooley as one of the 20 worst law schools in the United States in 2019. Parker said Cooley made the worst-law-school list "with flying colors."

Staci Zaretsky, writing for Above the Law (a terrific blog site) in 2018, listed Cooley as one of the ten worst law schools in the nation. In 2018, Zaretsky reported, Cooley admitted 86 percent of its applicants, including 135 students who scored in the bottom 12 percent on their LSAT tests. Cooley was the 2017 defending champion for worst law school, Zaretsky noted drily.

You want another take? David Frakt, "who serve[d] as chair of the National Advisory Council for Law School Transparency, [wrote] that 2017 defending champion Western Michigan University Thomas Cooley Law School repeats for 2018, claiming the number 1 spot on the list of bottom 10 schools."

My point is not to knock Cooley Law School--other people are doing an excellent job of that without my help. But let's think about Jill Stevenson.

Even if she graduated from Cooley, her prospects in the legal field would not have been bright. She made a smart decision to take a job as a paralegal. 

Nevertheless, Cooley dismissed her when she was three credit hours short of graduation. And all that student-loan money Stevenson paid the law school--Cooley kept that money.

And then the U.S. Department of Education shows up to fight her plea for bankruptcy relief, claiming she shouldn't have her student loans forgiven because she smokes cigarettes and cares for a disabled grandson.

This is the way Great Britain treated debtors in Charles Dickens's time. I thought America was better than that.

*****

Note: According to Inside Higher Ed, Thomas M. Cooley Law School affiliated with Western Michigan University in 2013 and changed its name to "Western Michigan University Cooley Law School. In November 2020, Western Michigan University's board of trustees voted to end its affiliation with the Cooley Law School. The disassociation will take three years to finalize. 






Tuesday, January 12, 2021

Attention Student Loan Debtors: The Department of Education may want a piece of your inheritance!

Jill Stevenson enrolled at Thomas M. Cooley Law School in 2002, but she never graduated. Although she completed 87 of the 90 credit hours she needed to get a law degree, she was academically dismissed because of her low GPA. Subsequently, Stevenson obtained work as a paralegal in New Mexico.

Stevenson borrowed $90,000 to fund her law studies. In 2006, she enrolled in an income-based repayment plan (IBRP), and she made regular payments under that plan for 14 years. Nevertheless, due to accruing interest, her loan balance grew to $116,000.

In 2019, Stevenson filed an adversary proceeding to discharge her student loans in bankruptcy. At the time of filing, her monthly payment under the IBRP was $259.

Educational Credit Management (ECMC) opposed Stevenson’s plea for bankruptcy relief. ECMC sent Stevenson a formal request for admission asking her to admit that she could make her IBRP monthly payments and still maintain a minimal standard of living.

 Initially, Stevenson admitted that she could maintain a minimal standard of living while making monthly payments of $259. She argued, however, that her loan balance was growing and she would face a substantial tax burden when her IBRP obligations ended 11 years in the future because the forgiven debt would be taxable to her as income.

She maintained this tax liability constituted an undue hardship in itself and entitled her to discharge her student debt in bankruptcy.

Later, Stevenson moved to revise her answer to ECMC’s request for admission to state that her expenses exceeded her income even if she was relieved of her student-loan debt.

ECMC asked Bankruptcy Judge David Thuma to dismiss Stevenson's case based on her admission that she could make her IBRP payments and still maintain a minimum standard of living. ECMC also objected to Stevenson’s attempt to amend her answer to its request for admission.

This is how Judge Thuma ruled. First, he said Stevenson was entitled to change her answer to ECMC’s request for admission. Second, he ruled that there was a factual dispute about whether Stevenson would suffer undue hardship if forced to repay her loans.

However, Judge Thuma ruled that Stevenson was not entitled to discharge her student loans in bankruptcy simply because she could face tax consequences when she completed her IBRP. “If  borrowers can pay some amount each month," Judge Thuma reasoned, "it would shortchange the government to discharge the debt before the end of the IBRP.”

Nevertheless, Judge Thuma added, the tax bill that Stevenson potentially faced in 11 years could be considered when determining whether it would be an undue burden to require Stevenson to repay her student loans.

Stevenson v. ECMC is significant for two reasons. First, the case demonstrates ECMC’s chief litigation strategy in student-loan bankruptcy cases.  ECMC almost always argues that it is never an undue hardship for a student borrower to make monthly payments under an IBRP.  In other words, from ECMC’s perspective, no one is entitled to discharge student loans in bankruptcy because income-based payments never constitute an undue hardship.

Second, and more disturbing, Judge Thuma took note of the fact that Stevenson’s elderly parents own valuable real estate—a strip mall. “If [Stevenson’s] financial situation changes (e.g., if she receives an inheritance), she might be able to repay her student loans."

Ms. Stevenson is 53 years old, and her parents are in their 80s. Unless her loans are discharged in Judge Thuma’s bankruptcy court, she will be required to make IBRP payments for 11 more years only to see her loan balance get larger.

Suppose Stevenson's parents die, and she receives an inheritance before paying off her student loans. In that case, Stevenson might find the Department of Education standing at her parents’ graveside (figuratively speaking), demanding to be paid. 

Does that seem fair to you? It does not seem fair to me.

References

Stevenson v. Educational Credit Management Corporation, Adv. No. 19-1085, 2020 WL 6122749 (Bankr. D.N.M. Oct. 16, 2020).


Thomas M. Cooley Law School




Wednesday, December 9, 2020

Three professors propose a complicated plan to protect private student-loan debtors: But isn't there a simple solution?

 Leaves of Grass,  director Tim Blake Nelson's cinematic paean to Oklahoma culture, tells a story about  Bill and Brady Kincaid, twin brothers who grew up in Little Dixie (southeastern Oklahoma). Edward Norton brilliantly plays both parts. 

Bill Kincaid escapes his redneck upbringing, improves his diction, and becomes a philosophy professor at Brown University. Brady, his twin brother, remains in Oklahoma, where he retains his Oklahoma accent and grows hydroponic marijuana.

When Professor Bill reluctantly returns to his roots, Brady, the stay-at-home brother, tells Bill that he reads all of Bill's scholarly publications.  Brady observes that Bill and his colleagues never write about a topic; instead, they write about what other scholars have written.  Professor Bill admits this is true.

"Well," Brady says with a perfect Oklahoma twang, "Why don't I write a book for all y'all, and I'll title it What's the F-cking Point?

I thought about this line from Leaves of Grass after perusing a scholarly article written by Professors Prentis Cox, Judith Fox, and Stacey Tutt.  The three wrote about a serious public policy problem: private student-loan borrowers' lack of consumer protection from fraud and abuse.

Cox, Fox, and Tutt are right.  Students have taken out about $150 billion in private student loans, and these loans do not have the consumer protections afforded to federal-loan borrowers.

 Besides, most private lenders require students to get a co-signer on their loans---usually mom or dad. Students and their parents who run into financial trouble can't discharge these loans in bankruptcy unless they can show "undue hardship"--a standard that is almost impossible to meet.

These scholars examined this problem in great detail; their law review article is 59 pages long, comprises 27,000 words, and is buttressed by 323 footnotes.  What do they recommend?

The authors propose the passage of two model statutes by all 50 state legislatures that would correct the evils they identified.  The first statute is titled the Private Student Borrowers Protection Act, and the second law is labeled the Private Student Loan Mediation Act.

I have a couple of questions about the Cox, Fox, and Tutt proposal:

First, what are the chances that even one state legislature will pass either of these laws? I would say zero.

Second, how many people will even read the professors' turgid, footnote-studded article?  And by reading, I don't mean skimming over the introduction and conclusion as I did.  How many people will read the whole damn thing--all 59 pages, all 27,000 words, all 323 footnotes?  I would say about two dozen.

I don't mean to denigrate academic endeavors. Some scholarly topics are complicated; I understand that. But--let's not overthink things. 

Private student loans are onerous and predatory for two reasons: 1) the banks require co-signers for these loans, and 2) the student borrower and the co-signer are virtually barred from bankruptcy relief--even if they are insolvent.

I have a proposal for addressing these problems, and it is only nine words long: Delete the "undue hardship" language from the Bankruptcy Code.

Virtually everyone agrees that the federal student loan program and the private student-loan industry have created a shit show for people who just want to get a college degree.  Federal and private student loans have saddled millions of Americans with massive student-loan debt they can't repay. Politicians, professors, and public-policy wonks all have solutions, but most of these solutions protect the status quo. 

Everyone wants to fix the student-loan program, but most reformers don't want to stem the flow of federal and private-loan money into college coffers. Like drug addicts, the universities must get their regular infusions of borrowed cash--even if they ruin their students' lives.

But if Congress would just strike the undue hardship language from the Bankruptcy Code, then student loans would be treated like any other consumer debt.  That single change would allow distressed student debtors to get relief from onerous loans in the bankruptcy courts.  

But nobody wants to do the obvious and straightforward thing. Most reformers just want to add elaborate, bureaucratic trappings to a con game that keeps the student-loan scam alive for a few more years.  

But isn't it time for Americans to ask the question Brady Kincaid asked his philosopher brother: "What's the f-cking point?

Redneck Brady, to his twin brother, Professor Bill: "What's the f-cking point?"

References

Prentiss Cox, Judith Fox, & Stacy Tutt. Forgotten Borrowers: Protecting Private Student Loan Borrowers Through State Law.  11 University of California-Irvine Law Review 43 (2020).

Tuesday, November 24, 2020

Parent Plus Loans: A despicable government program cruelly drives mom and pop into poverty so their kids can go to college

If you are not outraged by the federal government's Parent Plus student-loan program, you have a heart of stone.

According to The Hechinger Report, 3.5 million parents have taken out federal student loans to help their kids pay for college. Collectively, these parents owe almost $100 billion in outstanding debt, and about 12 percent have gone into default.

In other words, if you take out a Parent Plus loan to help finance your child's college education, you are running about a 1 in 8 chance of having your life ruined by debt you can't repay—pretty grim statistics.

Nevertheless, colleges and universities still offer Parent Plus loans as part of their individual student aid packages, and parents continue to take them out. Often parents do not realize that these loans are almost impossible to discharge in bankruptcy.  Even if mom and pop lose their jobs or are hit with significant hospital bills, they are still obligated to send Uncle Sam a monthly check.

The Hechinger Report tells the story of Jay and Tina Rife, who borrowed $40,000 so their son and daughter could attend public universities in Indiana. The loan balance has grown over 20 years, and they now owe $100,000. Their Parent Plus loan payment is bigger than their mortgage payment.

The Rifes' daughter, Stacy, is 41 years old and has her own student-loan payments. Meanwhile, Stacy's mother goes without health insurance so that she and her husband can make their Parent Plus payments.

The Hechinger Report quoted Amy Laitinen, a policy expert at New America, regarding Parent Plus loans.  "I don't think these loans should be presented with the financial aid offer at all," Laitinen said. "I think it speaks more to the school's desire to bring in the student than to what's best for the family . . . .To present [a Parent Plus Loan] as if it's really a way for paying for college when there's no way for those parents to pay it back is shameful and harmful."

Exactly. 

There is only one way to deal with this reprehensible government program, and it's a two-part response.  The Parent Plus program should be shut down immediately, and every parent who has been trapped by this despicable sham should be able to shed their Parent Plus debt in bankruptcy. 





Saturday, October 3, 2020

Leary v. Great Lakes Educational Loan Services: Bankruptcy judge slaps student-loan servicer with a $378,000 contempt sanction

 A few weeks ago, Bankruptcy Judge Martin Glen slapped a huge contempt penalty on Great Lakes Educational Loan Servicers--$378,629.62! Why? Because Great Lakes repeatedly refused to comply with Judge Glen's directives in a student-loan bankruptcy case.  

Leary v. Great Lakes Educational Loan Servicers: The facts

In 2015, Sheldon Leary filed an adversary action in a New York bankruptcy court, seeking to discharge over $350,000 in student-loan debt. He amassed this debt to pay for his three children's college education (p. 1). 

 Mr. Leary represented himself and properly served Great Lakes, his student-loan servicer. He didn't know, however, that he needed to sue the U.S. Department of Education as well. Great Lakes passed Mr. Leary's complaint on to DOE, but neither DOE nor Great Lakes answered Mr. Leary's lawsuit. In fact, Great Lakes forwarded fifteen pleadings to DOE, but neither DOE nor Great Lakes made an appearance in Judge Martin's court for quite some time (p. 3).

In 2016, Mr. Leary obtained a default judgment against Great Lakes for failing to respond to his lawsuit, and Judge Glen discharged Leary's student-loan debt.  DOE ignored this judgment and sent Mr. Leary two letters threatening to garnish his wages (p. 5).

More than four years after filing his lawsuit, Leary moved to reopen his adversary proceeding and asked Judge Glen to find Great Lakes in contempt. Great Lakes still did not respond, and on April 29, 2020, Judge Glen held the loan servicer in contempt and assessed sanctions against it for $123,000.

Great Lakes did not pay this assessment, and Judge Glen held a second contempt hearing last August. At this hearing, Great Lakes made several arguments to avoid sanctions. First, it argued that it could not be held in contempt because it had not acted in bad faith. Judge Glen rejected this defense. Whether or not Great Lakes had acted in bad faith, the judge reasoned, it had ignored "clear and unambiguous" court orders and had not diligently tried to comply with them (p. 9). 

Great Lakes also argued that it transferred its loan processing job to another collection agent after Mr. Leary's lawsuit was filed, thus relieving itself of the obligation to respond to court pleadings. But that fact, the judge ruled, did not relieve Great Lakes from its duty to comply with court orders in Mr. Leary's lawsuit (p. 5).

Finally, Great Lakes argued that sanctions were not warranted because Mr. Leary had not been hurt by its five years of noncompliance with court orders.

But Judge Glen didn't buy that argument either. In fact, he pointed out, Great Lakes' inaction had significantly injured Mr. Leary by causing him to suffer "aggravation, pain and suffering, negative credit ratings, loss of sleep, worry and marital strain" (footnote 11).

Judge Glen:  Great Lakes was "grossly negligent"

In short, Judge Glen ruled, Great Lakes' inaction had been "grossly negligent" and "really much worse" (p. 1). As for Great Lakes' claim that its legal department was unaware that it was a named party in Mr. Leary's lawsuit, the judge found this argument "unbelievable[e]" (p. 11).

The judge ordered Great Lakes to pay most of its sanction to DOE, in an amount sufficient to pay off Mr. Leary's student-loan obligations. Thus, in the end, Leary got the relief he sought in 2015.  

Judge Glen did not find it necessary to hold DOE in contempt, but he did not find the agency blameless. As he noted in a footnote:

It should not be lost on anyone . . . that DOE's inaction with respect to Mr. Leary--especially when DOE had knowledge at multiple steps along the way that Great Lakes was ignoring its obligations to Mr. Leary as a named defendant in the adversary proceeding--is disappointing to say the least.

Another example of DOE arrogance and heartlessness

Judge Glen's decision fingered Great Lakes as the bad guy in the Leary case, but he found DOE's conduct to be "highly questionable" (footnote 4). As the judge pointed out, Great Lakes "sat by, regularly monitoring Mr. Leary's bankruptcy docket until his case was closed and Great Lakes could return his student loans to normal servicing status" (p. 10).

Obviously, DOE's lawyers knew what Great Lakes was doing and made no objection. It is hard to escape the conclusion that DOE allowed Great Lakes to flout Judge Glen's orders and thereby circumvent Mr. Leary's bankruptcy action.

 Great Lakes' behavior and DOE's complicity are despicable. All this shameful conduct must have been approved at the top levels of Betsy DeVos's administration. I say again, Secretary DeVos should be impeached.


References

Leary v. Great Lakes Educational Loan Services, Case No. 15-11583, Adv. Proc. No. 15-01295, 2020 WL 5357812 (S.D.N.Y. Sept. 8, 2020).

Friday, October 2, 2020

If You Have Problem Debt and Student Loans – Do Not Vote for Trump--Essay by Steve Rhode

 


Written by Steve Rhode

The 2016 election is a cantankerous event. What surprises me most are the people that want to decide who to vote for based on what they see on social media or one political learning media outlet.

Strictly speaking from a consumer debt point of view, who to vote for isn’t even close.

And frankly, if you care about creditors being responsible for abusing consumers or you are drowning under student loan debt then there is only one candidate to vote for.

Under Trump--Student Loans

The DeVos Department of Education has gone out of its way to punish student loan debtors at every opportunity. In fact, the level of aggressiveness by the Department has made it look like they want to punish all debtors and go back on the word of the government to help people to see light at the end of the tunnel.

Abusive Schools – The Department has removed or eliminated rules that require schools to be responsible for abusive practices and fraud that let to enrolling students who are then on the hook for federal student loans.

The Department of Education all but stopped processing valid claims for the elimination of federal student loans under the government policy that is known as the Borrower Defense to Repayment.

Student Loan Servicers

Student loan servicers have been allowed to give debtors poor advice, bad advice, or self-serving advice with little consequences. The Department has asserted that States can’t go after student loan servicers for abusive and deceptive practices. Since the servicers are acting on behalf of the federal government.

Public Service Loan Forgiveness

The first wave of debtors eligible to have their student loans forgiven under the President Bush initiated the Public Service Loan Forgiveness program, which came due under the current Department of Education.

Secretary DeVos has done a lot to prevent people from getting the promised forgiveness. Roadblocks and hurdles have been artificially created to prevent people from getting the forgiveness they worked towards for ten years. One of the more ridiculous measures was the position that even though a person is eligible for loan forgiveness after 120 payments, it was stated the person must continue in eligible employment for however long afterward it takes for the Department to review the application for forgiveness. Given the current delays, that could be a year or more stuck in a lower-paying job.

Another person ran into an issue where they made the payment the monthly statement from the loan servicer said to make and it was found the servicer statement was off by less than a dollar so none of the 120 payments were eligible to be counted towards forgiveness.

You can see the crazy things the Department has done in these past posts.

Sliding Scale Forgiveness

Even when a school was found to be fraudulent or deceptive and the Department of Education was supposed to forgive the debt, the Department came up with an arbitrary sliding scale of forgiveness that left students harmed by the school, to hold a life of debt. And these are for schools that the courts determined were fraudulent scams. The previous position of the Department of Education was to grant full forgiveness.

Bankruptcy Discharge for Federal Student Loans

The Department of Education has fought bankruptcy discharge for debtors that are clearly in hardship and distress. Even though they have a policy to not do this.

Instead, the current administration has wanted people to enroll in Income-Driven repayment plans that will never repay the debt but make it continue to grow. For more articles on this, see these posts.

A Bankruptcy Judge even said the lifetime of unpayable student loans creates a prison of emotional confinement. While students are left to struggle the schools that enrolled them face little to no consequences for putting the student in federal student loan debt.

The Judge said, “It is this Court’s opinion that many consumer bankruptcies are filed by desperate individuals who are financially, emotionally, and physically exhausted. Sometimes lost in the discussion that the bankruptcy discharge provides a fresh start to honest but unfortunate debtors is that, perhaps as importantly, it provides a commensurate benefit to society and the economy. People are freed from emotional and financial burdens to become more energetic, healthy participants.”

CFPB

Through the Trump presidency, the Consumer Financial Protection Bureau has been under assault to gut their abilities, power, and protection of consumers. Efforts had been put forward to restrict the protection of consumers.

For example, the CFPB terminated the consumer advisory board members and then made meetings secret.

The CFPB Financial Law Taskforce claimed “to have established the Taskforce to obtain recommendations about how to improve and strengthen consumer financial laws and regulations. The Taskforce’s objective therefore goes to the heart of the Bureau’s mission—and positions the Taskforce to provide a blueprint for the CFPB to revise the laws that protect financial consumers across the United States.” – Source

“None of the selected Taskforce members has a background advocating for consumers, nor does any appear to believe that the CFPB should vigorously protect consumers from dangerous and confusing financial products.”

The meetings led by creditor representatives are closed and secret. Who knows what is going on.

Trump: F-

If you want to see people go further in debt, live lives of student loan financial slavery, and have fewer protections against the interest of creditors and banks, vote Trump.

Biden

Since former Vice President Biden is not currently in office, I have to turn to what his policies state.

Student Loans

  • Stop for-profit education programs from profiteering off of students. Students who started their education at for-profit colleges default on their student loans at a rate three times higher than those who start at non-profit colleges. These for-profit programs are often predatory – devoted to high-pressure and misleading recruiting practices and charging higher costs for lower quality education that leaves graduates with mountains of debt and without good job opportunities. The Biden Administration will require for-profits to first prove their value to the U.S. Department of Education before gaining eligibility for federal aid.
  • The Biden Administration will also return to the Obama-Biden Borrower’s Defense Rule, forgiving the debt held by individuals who were deceived by the worst for-profit college or career profiteers.

    Finally, President Biden will enact legislation eliminating the so-called 90/10 loophole that gives for-profit schools an incentive to enroll veterans and servicemembers in programs that aren’t delivering results.


  • Crack down on private lenders profiteering off of students and allow individuals holding private loans to discharge them in bankruptcy. In 2015, the Obama-Biden Administration called for Congress to pass a law permitting the discharge of private student loans in bankruptcy. As president, Biden will enact this legislation. In addition, the Biden Administration will empower the Consumer Financial Protection Bureau – established during the Obama-Biden Administration – to take action against private lenders who are misleading students about their options and do not provide an affordable payment plan when individuals are experiencing acute periods of financial hardship. – Source

More than halve payments on undergraduate federal student loans by simplifying and increasing the generosity of today’s income-based repayment program. Under the Biden plan, individuals making $25,000 or less per year will not owe any payments on their undergraduate federal student loans and also won’t accrue any interest on those loans. Everyone else will pay 5% of their discretionary income (income minus taxes and essential spending like housing and food) over $25,000 toward their loans. This plan will save millions of Americans thousands of dollars a year. After 20 years, the remainder of the loans for people who have responsibly made payments through the program will be 100% forgiven. Individuals with new and existing loans will all be automatically enrolled in the income-based repayment program, with the opportunity to opt out if they wish. In addition to relieving some of the burden of student debt, this will enable graduates to pursue careers in public service and other fields without high levels of compensation. Biden will also change the tax code so that debt forgiven through the income-based repayment plan won’t be taxed. Americans shouldn’t have to take out a loan to pay their taxes when they finally are free from their student loans.

Affordable Education

For too many, earning a degree or other credential after high school is unaffordable today. For others, their education saddles them with so much debt it prevents them from buying a home or saving for retirement, or their parents or grandparents take on some of the financial burden.

  • Providing two years of community college or other high-quality training program without debt for any hard-working individual looking to learn and improve their skills to keep up with the changing nature of work.
  • Creating a new grant program to assist community colleges in improving their students’ success.
  • Tackling the barriers that prevent students from completing their community college degree or training credential.
  • Invest in community college facilities and technology.

We have a student debt crisis in this country, with roughly more than 44 million American individuals now holding a total of $1.5 trillion in student loans. One in five adults who hold student loans are behind on payments, a disproportionate number of whom are black. Thus, student debt both exacerbates and results from the racial wealth gap.

This challenge is also intergenerational. Almost one in ten Americans in their 40s and 50s still hold student loan debt. But, college debt has especially impacted Millennials who pursued educational opportunities during the height of the Great Recession and now struggle to pay down their student loans instead of buying a house, opening their own business, or setting money aside for retirement.

There are several drivers of this problem. The cost of higher education has skyrocketed, roughly doubling since the mid-1990s. States have dramatically decreased investments in higher education, leaving students and their families with the bill. And, too often individuals have been swindled into paying for credentials that don’t provide value to graduates in the job market. As president, Biden will address all of these challenges.

Biden’s plan to make two years of community college without debt will immediately offer individuals a way to become work-ready with a two-year degree or an industry certification. It will also halve their tuition costs for obtaining a four-year degree, by earning an associate’s degree and then transferring those credits to a four-year college or university. And, as a federal-state partnership, it will ensure states both invest in community colleges and give states some flexibility to also invest in college readiness or affordability at four-year institutions.

Public Service Loan Forgiveness

Make loan forgiveness work for public servants. Public servants do the hard work that is essential to our country’s success – protecting us, teaching our children, keeping our streets clean and our lights on, and so much more. But the program designed to help these individuals serve without having to worry about the burden of their student loans – the Public Service Loan Forgiveness Program – is broken. Biden will create a new, simple program which offers $10,000 of undergraduate or graduate student debt relief for every year of national or community service, up to five years. Individuals working in schools, government, and other non-profit settings will be automatically enrolled in this forgiveness program; up to five years of prior national or community service will also qualify. Additionally, Biden will fix the existing Public Service Loan Forgiveness program by securing passage of the What You Can Do For Your Country Act of 2019. Biden will ensure adjunct professors are eligible for this loan forgiveness, depending on the amount of time devoted to teaching. – Source

I would expect a Biden Department of Education to honor the promise of Public Service Loan Forgiveness for people under the past program.

Bankruptcy

  • Make it easier for people being crushed by debt to obtain relief through bankruptcy.
  • Expand people’s rights to take care of themselves and their children while they are in the bankruptcy process.
  • End the absurd rules that make it nearly impossible to discharge student loan debt in bankruptcy.
  • Let more people protect their homes and cars in bankruptcy so they can start from a firm foundation when they start to pick up the pieces and rebuild their financial lives.
  • Help address shameful racial and gender disparities that plague our bankruptcy system.
  • Close loopholes that allow the wealthy and corporate creditors to abuse the bankruptcy system at the expense of everyone else. – Source

Biden: You Give Him the Grade

So if student loan debt and consumer protections are important to you and if facts matter, then I welcome you to make your own informed decision based on the information above. But given what the positions and policies are, clearly, Biden would be the logical choice if these issues matter to you.

But here is the bottom line, if you vote for Trump, don’t complain later when your student loan servicer lies to you, your loans aren’t dealt with as promised, and you find yourself stuck in a life of debt without consumer protections.

You get what you vote for.

******

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.  You can read this essay on Mr. Rhode's web site at https://getoutofdebt.org/153979/if-you-have-problem-debt-and-student-loans-do-not-vote-for-this-candidate#respond.

Sunday, May 3, 2020

Rodger Love v. U.S. Department of Education: Betsy DeVos wears no clothes (metaphorically speaking)

According to Urban Dictionary, "The Emperor Wears No Clothes," is a phrase "often used in political or social contexts for any obvious truth denied by the majority despite the evidence of their eyes, especially when proclaimed by the government."

This metaphor came to mind as I read the adversary complaint filed in Love v. U.S. Department of Education.  Rodger Love is asking a Kansas bankruptcy court to discharge his student loans--both federal and private.

As Mr. Love said in his complaint, he "has no hope of paying back the loans, and they have created a noose around [his] neck for the remainder of his economically productive years."

Mr. Love is clearly right. He is 47 years old. Although he is employed full-time, he "does not anticipate receiving substantial raises or promotions in the future." Nevertheless, Love is saddled with $167,000 in student loan debt, apparently to study at Washburn University, where he did not obtain a degree.

He now owes far more than he actually borrowed.  Love took out $29,000 in federal loans and $68,000 in private loans--totally just $97,000. The balance of his debt--about $70,000--is mostly accumulated interest.

Indubitably, Betsy DeVos's Department of Education will oppose a student-loan discharge for Mr. Love. DOE will probably argue that Mr. Love has not done enough to maximize his income--no matter what he has done to improve his financial circumstances. 

If Mr. Love eats a hamburger at McDonald's twice a month, DOE will say he hasn't been frugal.  And no matter what the court records reveal, DOE will almost certainly argue that Mr. Love has not handled his student loans in good faith.

But that will be government bullshit, already packaged in DOE lawyers' canned legal briefs.

I'll bet you dollars to donuts that DOE will tell the bankruptcy judge that Mr. Love should sign up for a 25-year repayment plan.  But, as he pointed out in his complaint, he will be 72 years old before he finishes a 25-year plan.  And since the payments won't cover accruing interest, he will owe more than he owes right now when the plan terminates in 2045.  And whatever amount is forgiven will be taxable to him as earned income.

That's nuts. Why does DOE continue, year after year, to oppose bankruptcy relief for student-loan debtors who are clearly at the end of their rope?

One reason.  DOE forces desperate debtors into long-term repayment plans so it can pretend that mountains of student debt are loans in good standing. But that is not true. Billions of dollars in outstanding student loans is not collectable.

If Education Secretary Betsy Devos believes DOE's opposition to student-loan bankruptcy helps maintain the solvency of the federal student loan program, she is the emperor who wears no clothes.  That stance defies the naked truth, which is this: Forty-five million Americans have outstanding student loans, and at least half of it will never be paid back.

References

Love v. U.S. Department of Education, Case No. 13-41680 (Bankr. D. Kan. Jan. 28, 2020) (complaint).

Hey, Betsy--put some clothes on!


Saturday, March 14, 2020

President Trump waives interest on student loans "until further notice": Woefully inadequate relief for distressed student-loan borrowers

In yesterday's speech on the coronavirus crisis, President Trump announced he is temporarily waiving interest on all federal student loans.

"I've waived interest on all student loans held by federal government agencies ... until further notice," Trump said in his speech "That's a big thing for a lot of students that are left in the middle right now. Many of those schools have been closed."

I appreciate President Trump's effort to assist distressed student borrowers, but yesterday's action is totally inadequate.  Millions of distressed student borrowers need broad and immediate relief, and a temporary waiver of interest offers almost no help at all. 

Around 45 million Americans have outstanding student loans totaling $1.6 trillion.  For many college-loan debtors, interest has already accrued, causing their loan balances to double, triple, and even quadruple.  Temporarily waiving interest on that debt is almost meaningless.

Besides, I think President Trump may have overestimated the Department of Education's ability to implement his moratorium.  Adjusting interest costs for 45 million student borrowers is no small task. Many student debtors have more than one student loan, and these loans have varying interest rates. (In fact, I met a woman yesterday who has five separate student loans.)We're probably talking about interest adjustments on more than 100 million individual loan agreements.

Frankly, I don't think Betsy DeVos's DOE is up to the job. DOE completely botched the Public Service Loan Forgiveness Program, denying 99 percent of the applications for PSLF debt relief. Last year, a federal judge ruled that DOE had managed the program arbitrarily and capriciously and in violation of the Administrative Procedure Act.

Also last year, a California federal judge held Secretary DeVos and DOE in contempt for not abiding by the judge's order to stop trying to collect on student loans taken out by people who had attended schools operated by the now-defunct Corinthian Colleges. I don't think DeVos and her crew intentionally disregarded the judge's order. I think they simply don't know what they are doing.

If DOE cannot manage its routine responsibilities, how can it manage adjustments on student loans held by 45 million people?

As Steve Rhode wrote a few days ago, "People in denial about the impact of COVID-19 may be adequately protected with emergency savings, good health insurance, and paid time off of work. But those of us who work in hourly paid jobs are at a very high risk of having finances slaughtered by this virus."

Mr. Rhode's observation is particularly applicable to college students and former college students.  A lot of people with substantial student-loan burdens are working in temporary jobs that pay low wages. In the coming weeks, these jobs are going to be lost as the public stops eating out, shopping, and traveling. The people who held these lost jobs are going to be unable to service their student loans, and many of them will default.

Giving overburdened student debtors a temporary break from the interest on their loans is like putting a bandaid on a compound fracture (a hackneyed analogy, I admit).  President Trump and Congress need to take far more drastic action.

Specifically, Congress must revise the Bankruptcy Code to allow insolvent student-loan debtors to discharge their student loans in bankruptcy.  

Ultimately, our politicians will be forced to confront the fact that the student-loan program is a colossal disaster, and the coronavirus epidemic is going to make it worse. Now is a good time to do what needs to be done. And what needs to be done is bankruptcy reform.