Hillary Clinton's plan to help student-loan debtors is baloney. Bernie's plan shows promise.

Bernie Sanders is breathing down Hillary Clinton's neck in the New Hampshire primary election, and suddenly she's become the college student's best friend.  But her plan to help college students pay for college falls far short.

Essentially, she has cobbled together a host of  small-ball ideas and plans to spend $350 billion over the next ten years, using most of the money to encourage state governments to offer more affordable college options. And she also wants to lower student-loan interest rates and expand long-term repayment programs.  Don't worry, Harvard and University of Phoenix. You'll still get your cut.

All the leading presidential candidates know that young people are worried about college costs and student loans, and they've all proposed plans that will supposedly help relieve the financial burden on  college students.

But no plan is worth anything unless it addresses the suffering that students and former students are experiencing right now.  A good reform plan must contain these elements:

• Kick the for-profit colleges out of the federal student loan program.
• Amend the Bankruptcy Code to allow distressed student-loan debtors who acted in good faith to discharge their loans in bankruptcy.
• Abolish unconscionable fees and penalties on student-loan debt.
• Stop garnishing Social Security checks of elderly people who defaulted on their student loans.
• Stop pushing borrowers into 20- and 25-year repayment plans.
• Stop lending money to allow people to enroll in overpriced postsecondary programs that will never pay off---law programs at third-rate schools, overpriced MBA programs, overpriced liberal arts degrees, overpriced online programs, etc.

Has Hillary talked about any of those things? No she has not. Her proposal takes care of her key constituents--the pompous, lazy, and overpriced college industry. It doesn't do anything for the  millions of  people who can't pay back their loans.

Bernie Sanders, on the other hand, has proposed a simple plan that will address at least some of the issues I identified. He basically proposes to offer everyone a free four-year college education at a public college. Vassar College president Catherine Hill said in a New York Times essay that  she opposes this idea, which she says will cost about $30 billion a year.

But that's cheaper than Hillary's plan.

And here's the beauty of Bernie's scheme. If everyone could go to college free, no one would enroll at a for-profit college; and these sleazy institutions would have to close their doors.  That's a big plus.

Moreover, private colleges like Vassar would probably have to lower their tuition. Few people would borrow a quarter of a million dollars to go to a fancy private school if they could enroll in a good state university and pay nothing. No wonder Vassar's president opposes the idea.

And if college is free, people won't be borrowing money to go to college. They won't run the risk of default, of paying huge default penalties, or of being driven into 25-year repayment plans.

So what's not to like?  Especially when you consider that the government is spending $165 billion a year right now on the federal student loan program, which is nothing but a train wreck.  Bernie's idea may seem hare-brained, but it is actually the only proposal put forward by any of the presidential candidates that makes sense.

Bernie's plan won't solve the student-loan crisis completely. About 40 percent of student-loan money is going for graduate education. We've got to get tuition costs down at the law schools, the business schools, and all the professional schools. We've got to quit turning out too many lawyers, veterinarians, and MBAs.  And we've got to forgive the student-loan debt that has buried millions of people.

But Bernie's plan is a start. It will at least deal with the student-loan crisis at the undergraduate level.

References

Mitchell D. Weiss. What's Missing From Clinton Student Loan Plan. USA Today, August 15, 2015. http://www.usatoday.com/story/money/personalfinance/2015/08/15/credit-dotcom-hillary-clinton-student-loan-plan/31456547/

Distressed Student-Loan Debtors in the Bankruptcy Courts: What Can You Do To Improve Your Odds of Obtaining A Discharge?

Federal bankruptcy courts have decided a number of cases over the years involving student-loan debtors seeking to wipe out their student loans by filing for bankruptcy. In some cases, the courts have discharged people's student loan debt;  and in other cases, the courts have refused a discharge. And the results aren't consistent.

For example, in the Hedlund case, the Ninth Circuit Court of Appeals granted partial relief to Michael Hedlund, a relatively young law-school  graduate who had failed to pass the bar exam. But recently, in the Tetzlaff case, the Eighth Circuit refused to grant relief to an older law-school graduate who had also failed the bar and who had a much larger student-loan debt than Mr. Hedlund.

Likewise, just last week, an Alabama bankruptcy court refused to discharge student loan debt owed by a grandfather who had borrowed money back in the 1990s for a degree program he never completed even though the man was living with his wife on $2,000 a month and was broke enough to have his other debts discharged. But another Alabama bankruptcy judge discharged the student-loan debt of a woman in her 40s who had a pretty good job.

In this essay, I am going to try to give at least some partial answers to two questions:

• First, when will the Department of Education and its loan collection agencies agree to allow a student-loan debtor to discharge student-loan debt in bankruptcy?  In other words, how bad does a debtor's financial situation need to be before DOE will tell a bankruptcy court that it will not oppose the discharge of student loan debt?

• Second, what factors seem to weigh in the debtor's favor when trying to discharge student loans in a bankruptcy court proceeding?

I. DOE and Student-Loan Creditors Oppose Bankruptcy Relief For Nearly Everyone

Regarding the first question, DOE stated in a July 2015 letter that it would not oppose bankruptcy discharge in certain situations, and it listed 11 factors it would consider when deciding whether or not to agree to a discharge. Those factors are what you might suppose and include the debtor's age, health status and long-term economic prospects.  Supposedly, DOE won't oppose bankruptcy discharge for elderly people living on Social Security or people with very serious health problems.

In practice, however, DOE and its debt-collection agencies oppose bankruptcy relief for nearly everyone--even people who are ill and flat broke.  DOE's standard line is that everyone should be forced into a long-term income-based repayment plan, even when it is clear the debtor is so poor that that he or she will never be required to pay anything.

For example, in the Myhre case, DOE opposed bankruptcy relief for a quadriplegic man who was gainfully employed but whose expenses exceeded his income because he had to employ a full-time caregiver to feed and dress him and drive him back and forth to work.  A quadriplegic, for God's sake! Fortunately, the court rejected DOE's arguments and ruled for Mr. Myhre.

In the Roth case, Educational Credit Management Corporation (DOE's most ruthless collection agent) opposed bankruptcy relief for Jane Roth, a 68-year old woman with chronic health problems who was living on less than $800 a month.  Put her in a 25-year repayment plan, ECMC argued, even though it was apparent that Roth would never be able to pay back her student loans.  

In the Abney case, DOE opposed relief for Michael Abney, a 40-year old man who was so poor he couldn't afford a car and road a bicycle to work. Abney was living on $1200 a month, and the bankruptcy court ruled that his long-term economic prospects were not likely to improve any time soon.  Put him on a long-term repayment plan, DOE insisted; but the bankruptcy court sided with Mr. Abney and discharged his student-loan debt.

And just last week, ECMC persuaded an Illinois bankruptcy court to keep Brenda Butler in a 25-year repayment plan that she won't complete until 2037--42 years after she graduated from college! And by the way, Butler was unemployed at the time of her adversary proceeding.

So if you read DOE's July 2015 letter, just ignore it. In spite of representations by Deputy Assistant Secretary of Education Lynn Mahaffie that DOE won't oppose bankruptcy relief in some instances, in reality, DOE DOESN'T WANT ANYONE TO GET BANKRUPTCY RELIEF.  DOE wants virtually everyone in a 20- or 25-year repayment plan--even if that means people will be saddled with student-loan debt into their 90s.

II. What Can You Do To Increase Your Odds of Obtaining a Discharge of Your Student-Loan Debt?

Now let's turn to the second question: What factors weigh in a person's favor when trying to discharge student-loan debt in a bankruptcy court? There have been several scholarly articles on this topic--Rafael Pardo's work is especially helpful. By and large, the research tells us that people with serious long-term health issues are more likely to obtain relief than people in good health. And it helps to have a competent lawyer.

But a friend of mine has gone to the trouble of calling some of the people who have tried to discharge their student-loan debt in bankruptcy over the past two yeas, and he's briefed me on what he learned. This is what I've gleaned from these conversations:

First, it helps to prepare well in advance of filing your adversary complaint and to be able to document all student-loan payments that you made and all medical issues that are relevant. In my opinion, it makes sense to file a complaint that contains a lot of detail.  Filing a detailed complaint may help educate the bankruptcy judge about your circumstances early in the litigation instead of on the day of trial.

Second, if you are representing yourself and don't have an attorney, be wary of agreeing to anything the creditor's attorney suggests. For example, in a recent case, a Department of Education attorney persuaded a debtor to agree that it would not be an "undue hardship" to pay back his student loans, even though the guy was in bankruptcy for that very reason.  The debtor wasn't aware that by agreeing to what the attorney suggested, he had lost his case. And in fact, case law would have supported an argument that indeed it would have been an undue hardship to repay his student loans. 

Third, it is good to have an attorney, but your attorney must know the law--especially the recent cases that have ruled more compassionately toward student-loan debtors. In another recent case--a real heart breaker, an unemployed woman in her 40s, who had made good faith efforts to pay on her student loans for 20 years, got locked into a 25-year repayment plan that won't conclude until she is in her 60s. Apparently, the judge was never made aware that courts have granted relief to several people within the last 2 years whose financial situations were far better than hers.

Whether or not you have an attorney, you must know the law. Find out whether you are in a jurisdiction that follows the three-pronged Brunner test for determining whether it would be an undue hardship for a debtor to pay back student loans or whether you are in a jurisdiction that has adopted the "totality of circumstances" test.  

You should be aware that most judges won't require you to have lived on bread and water in order to qualify for a discharge of your student loans. For example, several courts have rejected creditors' arguments that student-loan debtors are not living frugally if they have a cell phone, an Internet account, or a pet. If your creditor makes that argument (and it will), it would be good to be able to cite those cases.  

You should be able to tell the judge that several courts in the Brunner jurisdictions have refused to interpret the Brunner test harshly and some have even criticized the test. You should point out those cases to your judge in your trial brief.

Finally, you should know the cases in which judges have refused to force distressed student-loan debtors into 25-year repayment plans. A couple of courts have pointed out the psychological stress that a long-term repayment plan can have on a person. It is essential for you to be able to educate your judge about court decisions that have rejected the creditors' stock argument, which is to force everyone into long-term repayment plans.

III. Remember--Your Judge May Be Sympathetic

Finally, you should know that there factors at work that are beyond a student-loan debtor's control--the temperament of the bankruptcy judge.  I think many of these judges are inclined to be sympathetic toward student-loan debtors--many of whom have been crushed not by their loans but by the creditors' collection fees and accruing interest. I believe many of these judges want to help you. After all, the bankruptcy judges know that the bankruptcy courts exist in order to give honest but unfortunate debtors a fresh start.

And it is also evident that some bankruptcy judges are willing to do a lot of research and to write impressively reasoned decisions in favor of student-loan debtors. The judge in Acosta-Coniff v. ECMC , the judge in Johnson v. Sallie Mae, and the judge in Abney v. Department of Education went to a lot of trouble to write decisions in favor of student-loan debtors that will have a good chance of being upheld by the appellate courts if a creditor appeals. But you can help your judge tremendously if you can point out recent cases in your trial brief that have been decided recently in favor of student-loan debtors whose cases are similar to yours. 

Trying to discharge your student loans in bankruptcy is a daunting challenge. You will be opposed by squadrons of creditors' attorneys who know the law and who show no mercy.  And if you win, the creditors are likely to appeal, hoping they will wear you down and you will simply give up.

But I believe in my heart that the winds of justice are blowing through the bankruptcy courts and that many bankruptcy judges are willing to help you if you have a good case.  But, to repeat myself,  you will help your judge tremendously if you educate the judges to the recent favorable decisions--Roth, Krieger, and more than a dozen others.  

If you are a distressed student-loan debtor with a reasonable case for discharge, go to the bankruptcy court and plead for  justice. You have a good chance of getting the justice you deserve. 

As they sometimes say in the Southwest, vaya con Dios.

Brenda Butler,"poster child" for the student-loan crisis, will be done with her student loans in 2037--42 years after she graduated from college

You load sixteen tons, what do you get?
Another day older and deeper in debt
Saint Peter don't you call me 'cause I can't go
I owe my soul to the company store

Tennessee Ernie Ford

If the student-loan crisis had a poster child, it might well be Brenda Butler, who lost her bankruptcy case last week in Illinois. Butler borrowed about $14,000 to get a degree in English and creative writing from Chapman University, which she received in 1995. Over the next 20 years, she made loan payments totally $15,000--more than the amount she borrowed.

Unfortunately, she was unable to make payments from time to time, and her debt grew due to accrued interest and penalties. When she filed for bankruptcy in 2014, Butler's debt had grown to almost $33,000, more than twice what she borrowed!

Did Butler get rich in the 21 years that passed since she graduated from college? No, she didn't. When she filed for bankruptcy she owned no real property and drove a 2001 Saturn that had logged 147,000 miles. According to the bankruptcy court, Butler never made more than about $35,000 a year, and her monthly income at the time of her bankruptcy filing was only $1,879, about $300 less than her expenses.

In spite of her bleak financial situation and an employment history of relatively low wages, a bankruptcy judge refused to discharge Ms. Butler's student loans. In fact, in applying the three-prong Brunner test, the court ruled that she failed to meet two of the prongs.

First, the court concluded that Butler was able to maintain a minimum standard of living, in spite of the fact that she was living on unemployment benefits at the time of her hearing and these benefits were about to run out. Indeed, the court admitted that Butler "had virtually no resources to support herself."

Nevertheless, in the court's view, Butler would likely find employment soon, which would enable her to maintain a minimum standard of living and make payments under an income-base repayment plan. Thus, Butler failed the first prong of the Brunner test.

Brunner's second prong required Butler to show that additional circumstances existed that prevented her from paying on her student loans in the future. Here again, the judge ruled against her. The judge found Butler to be "capable and intelligent with no health problems or other impediments to being gainfully employed." The court acknowledged that Butler had "an unfortunate employment history through no apparent fault of her own," but she could show no exceptional circumstances that would indicate that she could not pay back her student loans in the coming years.

Interestingly, the judge ruled in Butler's favor regarding one prong of the Brunner test. In the judge's view, Butler had met her burden of showing she had made good faith efforts to pay back her loans. As the judge acknowledged, Butler had made payments totally more than the original principal on her loans, and she had made diligent efforts to improve her financial status. "This is not a case of a recent graduate trying to escape student loan debts before beginning a lucrative career," the judge admitted. On the contrary, Butler had made "substantial, though futile, efforts to pay down her student loan debt."

So why did Butler lose her case? This is the bankruptcy judge's summary:

[Butler's] financial situation is unfortunate, but more than that is required for a finding of undue hardship under the demanding Brunner test. [Butler] has shown good faith in her efforts to remain employed and pay down her student loan debt. But as a healthy, intelligent, relatively young worker with a proven ability to secure productive employment, [she] is unable to prove that her student loan obligations prevent her from maintaining a minimum standard of living, now or in the foreseeable future. Thus. . ., [Butler's] student loan debt will not be discharged.

The Butler decision is particularly unfortunate because her situation is not untypical. Like a lot of people, she obtained a liberal arts degree from a private college that never led to a well-paying job. In spite of good faith efforts to pay back her loans, she was dragged down by exorbitant penalties and accruing interest, like thousands of other Americans.

And here is the final outcome. Brenda Butler will continue in a long-term income-based repayment plan that will not conclude until 2037--42 years after she graduated from college! 

Surely this is not what Brenda Butler envisioned when she enrolled at Chapman University in 1991 with bright hopes for a future as a writer.  And surely this is not what Congress envisioned when it passed the Higher Education Act more than 50 years ago.

And that is why Brenda Butler would make a good poster child for the student-loan crisis. A good person, who went to college in good faith and made good faith efforts to pay back her student loans, will be burdened with student-loan debt--mostly penalties and interest--until she reaches retirement age.

References

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

If I Had a Hammer! With great courage, distressed student-loan debtors all over America are going into the bankruptcy courts and petitioning for justice

If I had a hammer,

I'd hammer in the morning,
I'd hammer in the evening,
All over this land,
I'd hammer out danger,
I'd hammer out a warning,
I'd hammer out love between,
My brothers and my sisters,
All over this land.

It's the hammer of Justice,
It's the bell of Freedom,
It's the song about Love between my brothers and my sisters,
All over this land.

Peter, Paul & Mary

Our government has committed a grave injustice on working Americans--young and old--by dispensing student-money recklessly to millions of people who accepted the money in good faith in the hope that they could use their student-loan funds to educate themselves and have better lives.

In effect, the government has engaged in predatory lending--something you and I would go to jail for. It has spewed billions of dollars around the United States for the benefit of sleazy colleges--public, private, and for-profit--knowing that nearly half the people who got the loan dollars would not be able to pay off their student loans. And this money got sucked up by the college industry. 

After lending the money like a benevolent grandmother giving out Christmas checks to her grandkids, the government then morphed into a heartless monster. In fact, all three branches of our federal government have conspired to grind student-loan debtors into the dust.

• Congress passed laws making it extremely difficult for people to discharge their student-loan debt in bankruptcy.

• Congress enacted legislation that wiped out the statute of limitations for collection lawsuits against student-loan debtors--essentially destroying a key principle of the common law of equity.

• The Department of Education allows for-profit colleges to insert "you can't sue me" clauses in their college-admissions materials.

• The Supreme Court, an assembly of nine old geezers, upheld a federal law that allows the Department of Education to garnish Social Security checks of elderly people who defaulted on their student loans.

More than 40 million people carry student-loan debt, and 20 million can't pay it back. They are trapped like rats while the government and its collection agencies conspire to drive student-loan debtors out of the economy and out of the middle class into a dark world of hopelessness.  

Our government leaders pretend to be sympathetic. Senator Elizabeth Warren and Senator Charles Schumer coo soothingly about lower interest rates. President Obama spins out one long-term repayment plan after another.  Secretary of Education Arne Duncan issues press releases announcing lower default rates, knowing that DOE is cooking the books.

This scheme--driven by the greed and indifference of higher-education leaders--cries out for justice, for a return to common decency.

And a few people, like Peter Finch's character in the movie Network, have stood up and said, "I'm mad as hell, and I'm not going to take it anymore."  Going into the bankruptcy courts, often without attorneys, a few intrepid souls have applied to have their student loans discharged in bankruptcy. Not all of them have been successful, but all have shown great courage.

So in this posting, I pay tribute to the grit and the bravery of the people who filed adversary actions in the bankruptcy courts to throw off their student-loan debt:

Alethea Lamento, single mother of two, who was working full time but who was forced to live with relatives because she did not make enough money to house her family. A bankruptcy court discharged her student loans over the objection of the Department of Education.

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

George and Melanie Johnson, a married couple with two children who lost their home in foreclosure and who defeated Educational Credit Management Corporation in an adversary proceeding in Kansas. And they did it without a lawyer!

Johnson v. ECMC, Case No. 11-23108, Adv. No. 11-6250 (Bankr. D. Kan. 2015)

Bradley Myhre, a quadriplegic working full time but did not make enough money to support himself because he was required to pay a fulltime caregiver just to feed and dress him and transport him back and forth to work. The Department of Education refused to forgive his student loans, but Myhre beat DOE in an adversary proceeding.

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

Alexandra Acosta-Conniff, an Alabama school teacher and single mother of two, who went into the bankruptcy court without a lawyer and discharged student-loan debt over the opposition of Educational Credit Management Corporation.  

Acosta-Conniff v. ECMC, 536 B.R. 326 (Bankr. M.D. Ala. 2015)

Ronald Joe Johnson, a grandfather in his early 50s who took out student loans in the early 1990s to pursue a college degree he was unable to complete and is now living with his wife on about $2,000 a month. Unfortunately, Johnson did not have a lawyer, and the Department of Education persuaded a bankruptcy judge not to discharge Johnson's student loans. 

Johnson v. U.S. Department of Education, 541 B.R. 759 (N.D. Ala. 2015)

Michael Abney, a single father of two with a record of homelessness who is living on less than $1200 a month, in spite of the fact he is working fulltime as a delivery driver. Acting as his own attorney, he defeated the U.S. Department of Education in a Missouri bankruptcy court.

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

All these people are heroes, as brave in their own way as the farmers who defied the British army on Concord bridge in 1775, as brave as the heroes of the Alamo, as brave as the Okies who were driven off their farms during the Great Depression and took their families to Oklahoma in search of a better life.

Let us hope these heroes will inspire others to take the brave step of going into the bankruptcy courts to throw off their student-loan debt.  With each pasisng months, the bankruptcy courts are growing more sympathetic. 

Bear Baiters: Creditors' Lawyers Make Sport of Distressed Student-Loan Debtors Who Stumble Into the Bankruptcy Courts

Bear-baiting is a blood sport  involving the worrying or tormenting (baiting) of bears. 

Wikipedia

Bear baiting is an ancient sport in which spectators sit in an arena and watch dogs attack a chained bear. Traditional bear baiting is outlawed in the United States, but a modern variation is still legal and practiced all over America.

In the new format, student-loan debtors substitute for the bear, lawyers and judges take the place of vicious dogs, and the venue has been changed from sporting arenas to the bankruptcy courts.

Here are some bear-bating examples. Jane Roth, a 68-year old woman with chronic health problems, filed for bankruptcy to discharge more than $90,000 in student-loan debt--almost three times more than she actually borrowed. At the time of her bankruptcy filing, Roth was living on $774 a month, and it was clear she would never pay back the 90 grand she owed. 

Educational Credit Management (ECMC), her main creditor, opposed a bankruptcy discharge and litigated the matter all the way to the Ninth Circuit's Bankruptcy Appellate Panel. It must have been great fun for the lawyers, and I'm sure they were well paid for harrying Ms. Roth. Unfortunately for ECMC, the Ninth Circuit's BAP put an end to the fun, and discharged Ms. Roth's student-loan debt, ruling it would be futile to put her in a long-term loan repayment plan.

And here is another example. Janice Stevenson, a woman in her 50s, filed for bankruptcy to discharge $114,000 in student-loan debt, far more than she originally borrowed. Stevenson had a record of homelessness, and at the time of her bankruptcy proceeding, she was living in publicly-subsidized housing on an income of $1,000 a month, which included short-term unemployment benefits.

Judge Joan Feeney, a Massachusetts bankruptcy judge, refused to discharge Ms. Stevenson's student loans in bankruptcy. Instead, the judge concluded that Ms. Stevenson was a candidate for a long-term income-based repayment plan, a plan that would obligate her to make student-loan payments for 25 years--a half century after she took our her first student loan!

In my view, the attorneys in the Roth case, the Stevenson case, and dozens of other student-loan bankruptcy cases, are bear baiters. Debtors stand utterly defenseless in the bankruptcy courts--many without  lawyers--like chained bears, while heartless attorneys for the Department of Education, ECMC, or another student-loan creditor make sport of their plight. The creditors' attorneys get paid and go home to eat nice dinners and dream of their next exotic vacation.  And all too often, student-loan debtors walk out of the bankruptcy courts facing almost a lifetime of indebtedness that they cannot discharge.

So this is the national situation:  Over 40 million people owe money on student loans, and at least 20 million are unable to pay it back. Seven million have defaulted, while others are delinquent or in deferment plans or long-term income-based repayment plans.

Millions of people are their seeing loan balances grow due to accruing interest, penalties, and collection fees. In fact, it is not uncommon for people to owe two or even three times what they borrowed. Most of these people deserve relief, and the only place they will find it is in the bankruptcy courts.

Fortunately, a few compassionate bankruptcy judges and federal appellate courts are ruling in favor of student-loan debtors and granting them relief from their crushing debt.  The Roth case, in particular, is hugely important, because the Ninth Circuit's Bankruptcy Appellate Panel applied principles of equity to discharge Jane Roth's debt.

But only time will tell whether the bankruptcy courts will be places where honest but unfortunate debtors can find relief or whether they will continue to be bear-baiting arenas. 

References

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

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

Close, But No Cigar: Presidential Candidate Jeb Bush's Plan For Funding Higher Education Will Not Fix the Student Loan Crisis

"Close, but no cigar," a Google search tells me, means an attempt that is not quite successful. This should be our response to presidential candidate Jeb Bush's plan to fix the student loan crisis.

Briefly, here is Governor Jeb Bush's plan:

• He proposes to scrap the present student-loan scheme and replace it with a new program whereby all high-school graduates will be given a $50,000 line of credit that they can draw on for postsecondary education.  Students will pay back the loan by paying 1 percent of their income for every $10,000 borrowed, to be paid back over 25 years. Borrowers would make their loan payments on their federal income tax forms.

• Second, Mr.  Bush proposes to make it easier for students to discharge their private student loans in bankruptcy, although the details aren't specified. This idea has also been endorsed by President Obama and several scholarly commentators.

• Third, Mr. Bush wants to improve information about higher education outcomes at colleges and universities, and he will encourage innovation and flexibility in postsecondary programs to help bring down tuition costs.

• Finally, Bush's plan proposes to require colleges to pay back some of the loan money their students borrow if the students default.  He believes requiring colleges to have "some skin in the game," will make them operate more responsibly and give them an incentive for their students to be successful.

So what's not to like about Jeb Bush's plan? Several things.

 For-Profit Institutions Must Be Reined In. First, Governor Bush's plan does nothing to rein in the for-profit college sector, where the worst student-loan abuses are taking place. Indeed, Governor Bush's own state of Florida is notorious for allowing for-profit colleges to operate without proper regulation. Investigative reporters revealed that the Florida for-profit industry has gotten legislation passed to favor their interests by making strategic campaign contributions.  Dade Medical College, which recently closed, is one of the most notorious examples of a for-profit college industry gone wild.  Dade Medical College was run by a high school dropout with a criminal record and received more than 80 percent of its revenues from the federal student-aid program.

Bankruptcy Relief Must Be Made Available to All Student Debtors, Including Those Who Participated in the Federal Student Loan Program.  Mr. Bush's proposal to make it easier for private student-loan debtors to file bankruptcy is a good one, but federal-student-loan borrowers must also have reasonable access to the bankruptcy courts. Millions of people have defaulted on their federal student-loans, and those who took out student loans in good faith and fell on hard times are entitled to a fresh start through the bankruptcy process.

We've Got To Stop Garnishing Social Security Checks of Elderly Student-Loan Defaulters.  Currently, the federal government is garnishing Social Security checks of 155,000 elderly student-loan defaulters, which federal law empowers it to do.  No one who is totally dependent on Social Security should have his or her Social Security check garnished because of a defaulted student loan.

Let's say no to all long-term repayment plans. Personally, I believe the American people should say no to all proposals that require students to pay back their loans over 20 or 25 years.  These plans are designed to lower students' monthly loan payments but they require student-loan borrowers to make payments for the majority of their working lives. And I feel quite sure  that any long-term income-based repayment plan--whether it is crafted by President Obama or Governor Bush, will mean that a majority of student-loan debtors will never pay back the principal on their loans.

Close, but no cigar.

Governor Bush is to be commended for presenting a proposal to fix the student-loan crisis. At least he admits that the federal student-loan program needs fixing. But no proposal will get my approval that doesn't rein in the for-profit college sector, which has exploited low-income and unsophisticated students all over the United States, including Florida.  No proposal is adequate that does not provide reasonable bankruptcy relief for all categories of student debtors. No proposal passes muster for me that doesn't cease garnishing elderly people's Social Security checks,

Finally, the American people should vote no on any student-loan reform plan that pushes student-loan borrowers into long-term repayment plans.  Who would have believed just 20 years ago that our national leaders are so inept at managing the student-loan crisis that they think it is a good idea to push young Americans into plans that force them to pay on their student loans for 20 or 25 years.

References

Francisco Alvarado. Dade Medical College Has Powerful Friends but Struggling Students.  Broward/Palm Beach  New Times, August 29, 2013.  Accessible at: http://www.browardpalmbeach.com/2013-08-29/news/dade-medical-college-has-powerful-friends-but-struggling-students/

Read more here: http://www.miamiherald.com/2013/06/08/v-fullstory/3441091/homestead-mayors-ties-to-downtown.html#storylink=c

Fred Grimm. Before his fall, Ernesto Perez bought himself lots of friends. Miami  Herald, November 4, 2015. Accessible at: http://www.miamiherald.com/news/local/news-columns-blogs/fred-grimm/article42988848.html

David Halperin. For-Profit Colleges Spend Big on Lobbyists to Fight Obama Regulation. Huffington Post, April 28, 2015. Accessible at: http://www.huffingtonpost.com/davidhalperin/for-profit-colleges-spend_b_5221407.html

David Halperin. $33 Million Per Year of Your Tax Money to For-Profit College Whose CEO Hid Criminal Record. Huffington Post, October 21, 2013. Accessible at: http://www.huffingtonpost.com/davidhalperin/33-million-per-year-of-yo_b_4136451.html

Jon Hartley. Jeb Bush's Plan To Fix The Student Loan Crisis. Forbes.com, January 19,2016. Accessile at: http://www.forbes.com/sites/jonhartley/2016/01/19/jeb-bushs-plan-to-fix-the-student-loan-crisis/#12c2800f3e724a82f8d33e72

Trouble in Paradise: Thomas Jefferson Law School is sued by one of its graduates, who accuses the school of "fraudulent business practices"

Law school, it has been said, is the best option for people who want to make a lot of money but are risk adverse.

Once, there was once a lot of truth in that observation. Twenty-five years ago, law-school graduates had great employment opportunities.  People graduating from the most prestigious law schools commanded very high salaries, and even people who graduated from second-tier schools and had mediocre grades had a fair chance at earning a decent living.

But that is no longer true. The job market for attorneys has collapsed. There is a massive glut of lawyers in the United States, and there is now only about one job available for every two law-school graduates.

At the same time, tuition rates at the nation's law schools has shot up.  To cite one example, it now costs 36 times more to attend the University of Texas School of Law than it did when I was a student there 35 years ago (from $1,000 a year to $36,000 a year).

Today, most people can't attend law school without borrowing a lot of money, and job prospects for people who graduated from second- and third-tier law schools are not good. Thousands of law-school graduates are carrying student-loan debt that they can't repay.

Unfortunately, some law schools continued to tout high employment rates for their graduates--rates that bore no resemblance to reality in a falling job market. Some graduates are claiming they were enticed into attending law school by false representations that there were good jobs awaiting them when they graduated.

Clark Moffatt sues his alma mater for "fraudulant and deceptive business practices."

This brings me to the case of Moffatt v. Thomas Jefferson School of Law. Clark Moffatt, a 2009 graduate of TJSL,  filed a lawsuit against his alma mater in 2014, alleging "fraudulent and deceptive business practices."

Moffatt claims he decided to enroll in TJSL based on the school's representation that a high percentage of its graduates got jobs. The law school's employment statistics were published in U.S. News & World Report. Reasonably relying on TJSL's representations, Moffatt says, he borrowed about $100,000 to pay TJSL's tuition.

TJSL's representations, Moffatt alleged, were "false, misleading, inflated, and inaccurate." According to Moffatt, TJSL claimed that 92.1 percent of its 2009 graduating class were employed nine months after graduation, which suggested that more than 90  percent of its graduates were working in full-time, law-related positions.

In fact, Moffatt charges, those employment figures included people who were working part time or in non-law related jobs. "In other words, if graduates accept part-time employment working as a waiter or a clerk at a convenience store, they are considered to be 'employed nine months after graduation.'"

Moffatt claimed that TJSL categorized many people who were not working in law jobs as being employed in "business/industry," including people working in unskilled positions. "TJSL admits that its policy is to categorize all unskilled labor positions as 'business/industry,' including TJSL graduates who are employed as a stripper, cocktail waitresses, and restaurant servers."

In spite of a plummeting job market for lawyers, Moffatt said in his complaint, TJSL increased the number of students it enrolled each year, and it also lowered its admission standards. In 2005, the law school accepted only about one applicant out of four. By 2012, "TJSL's acceptance rate jumped to 73 percent. In 2013, according to Moffatt, TJSL accepted more than 4 out of 5 applicants.

Most of TJSL's students borrowed money. Indeed, Moffatt's complaint alleges, the New York Times reported in 2011 that TJSL led the nation's law schools in student indebtedness, with 95 percent of students graduating with debt.  The average debt load for TJSL graduates, Moffatt said in his complaint, is $180,000!

Moffatt's complaint in Moffatt v. Thomas Jefferson School of Law is 18 pages long and well worth reading. Its description of TJSL's policies, if accurate, shows a a mediocre law school with very high tuition and high levels of student debt increasing its enrollment and dropping its admission standards during a falling job market for lawyers. Not a pretty picture.

Will Clark Moffatt win his law suit?

The Moffatt case is scheduled for trial in March of this year. It may be settled before trial; and in fact, the case may already have been settled under terms that were not publicly disclosed.  It is common for institutions to settle high-profile litigation like the Moffatt case under terms that forbid the parties from disclosing any details. This is how the Catholic Church settled many of the priest abuse lawsuits that were filed against it.

Even if the case goes to trial, Clark Moffatt may lose. Graduates of Thomas M. Cooley Law School lost their fraud case against a Michigan non-profit law school. The Sixth Circuit Court of Appeals ruled that it was unreasonable for the law school's graduates to rely on the school's salary statistics. And a student at Arizona Summit Law School lost her fraud claim against a for-profit law school operated by Infilaw Corporation.

Judges may be reluctant to rule against law schools in cases like Mr. Moffatt's. If he wins, then hundreds of Thomas Jefferson law graduates might also have valid claims. And a fraud judgment against a law school would open the door for former students to petition the Department of Education for student-loan forgiveness. One judgement against a law school based on facts like those Moffatt alleged could have cascading financial consequences.

Why is Moffatt v. Thomas Jefferson School of Law significant?

Regardless of the outcome, Moffatt v. Thomas Jefferson School of Law is a significant case because it illustrates the high risks that students run when they borrow money to enroll in law school--particularly second- and third-tier schools like Thomas Jefferson, Arizona Summit, and Thomas M. Cooley.

Tuition at all these schools is extremely high, and most students must take out student loans in order to pay their tuition bills. Obviously, people who attend these schools hope they will find a good job after graduation that will justify six-figure debt loads. As Clark Moffatt said in his complaint, "Nobody attends law school to get a job as a convenience store clerk."

Nationwide, law-school enrollment levels are dropping as many intelligent individuals conclude that going to law school is not longer a good financial bet.  But law schools have not lowered their enrollments enough to match the falling demand for lawyers.

Instead, many have kept their enrollment-levels high while lowering their admission standards.  Some law schools have admission standards so low that a majority of their graduates are at high risk of failing the bar exam.

The law schools have not been responsible in addressing the imploding job market for lawyers.  They admit too many students, and their tuition rates are too high. In my view, there is no justification for the stratospheric rise in law-school tuition.

Some law-school graduates who were unable to find well-paying legal jobs have filed for bankruptcy, but the courts have not always been sympathetic.  In Tetzlaff v Educational Credit Management Corporation, for example, the Seventh Circuit Court of Appeals refused to discharge the student-loan debt of a law-school graduate who graduated from a bottom-tier law school with mountains of debt and who had failed the bar exam twice.

In my opinion, American law schools have put revenues ahead of their students' welfare, and the American Bar Association has not policed legal education in a responsible way. Thus far, unemployed and underemployed lawyers who are swamped by student-loan debt have only two options for relief. They can file for bankruptcy, hoping to discharge their debts in the bankruptcy courts. Or they can do what Clark Moffatt did and sue their alma maters for misrepresentation.

References

Steven J. Harper. Too Many Law Students, Too Few Legal Jobs, New York Times, August 25, 2015. Accessible at: http://www.nytimes.com/2015/08/25/opinion/too-many-law-students-too-few-legal-jobs.html

Lorona v. Arizona Summit Law School, No. CV-15-00972-PHX-NVW, 2015 U.S. Dist. LEXIS 168862 (D. Ariz. Dec. 16, 2015).

McDonald v. Thomas M. Cooley Law School, 724 F.3d 654 (6th Cir. 2013).

Moffatt v. Thomas Jefferson Law School, No. 37-2014-00033723-CU-PN-CTL, filed in California Superior Court for the County of San Diego, Oct. 2, 2014.

David Segal, Is Law School A Losing Game? New York Times, January 8, 2011. Accessible at: http://www.nytimes.com/2011/01/09/business/09law.html?_r=0

Joshua Wright. The Oversaturated Job Market for Lawyers Continues and On-the-Side Legal Work Grows. EMSI blog, January 10, 2014. Accessible at: http://www.economicmodeling.com/2014/01/10/the-oversatured-job-market-for-lawyers-continues/