Tuesday, April 11, 2017

Why borrow money to get a college education? John Kenneth Galbraith, education and The Good Society

More than 40 million Americans are burdened by student loans; and collectively, they hold $1.4 trillion in student-loan debt. A great many of these people are finding it difficult to repay what they borrowed. Last year, Americans defaulted from the government's direct lending program at the rate of 3,000 a day. About 8 million people  are in default on their loans. Almost 6 million are unable to repay their loans over the standard 10-year repayment period and have enrolled in income-driven repayment plans that stretch their monthly payments over 20 or 25 years.

Why should Americans go into debt to get a college education? Is a college degree so valuable that it makes sense to borrow money to get one--even when it might take a person a quarter of a century to repay the debt?

The higher education industry argues ad nauseam that workers with college degrees make more money than people who have no degrees--about a million dollars on average over their working lifetimes. But of course, this bald statement does not explain why going to college has gotten so expensive or why a college degree is useful beyond its power to raise lifetime income.

John Kenneth Galbraith: Education and The Good Society

About 20 years ago, John Kenneth Galbraith wrote a book titled The Good Society. Galbraith defined the good society as a society in which  "all of its citizens . . .  have personal liberty, basic well-being, racial and ethnic equality,[and] the opportunity for a rewarding life" (p. 4).

Galbraith argued that the achievement and sustenance of a good society depends on education. He devoted a chapter of his book to education, which, Galbraith wrote, was valuable in three senses.

A. Economic value of education

First, Galbraith acknowledged that education has economic value not only for the individual but for society as a whole. At the personal level, education enables individuals to raise their economic status.

To make this point, Galbraith pointed to the upward mobility of European migrants during the late nineteenth and early twentieth century. Most of these immigrants arrived in the United States in utter poverty; yet by the second or third generation, their descendants had scrambled into the middle class.

This remarkable achievement was made possible, Galbraith argued, by education. "For upward escape, either by the individual or by his or her children, education is the decisive agent," Galbraith wrote.

But education is also critical to society as a whole, Galbraith continued, because it contributes to societal stability. "For one thing,' Galbraith wrote, "education has a vital bearing on social peace and tranquility; it is education that provides the hope and the reality of escape from the lower, less-favored social and economic strata to those above."

B. Intrinsic value of education

Galbraith then went on to articulate the intangible rewards of education:
Education is, most of all, for the enlargement and the enjoyment of life. It is education that opens the window for the individual on the pleasures of language, literature, art, music, the diversities and idiosyncrasies of the world scene. The well-educated over the years and centuries have never doubted their superior reward; it  is greater educational opportunity that makes general and widespread this reward.
In this passage, Galbraith summarized perhaps what academicians across the country have been saying for years--that higher education, and liberal arts education in particular, enhances the quality of our lives.

C. Education is an indispensable component of a modern and complex democratic society


 Finally, Galbraith argued persuasively that education is necessary to maintain a modern and complex democratic society. As societies advance economically and accept more and more responsibility for social welfare, Galbraith wrote, the problems of government become more complex and diverse.
There must then be either a knowledgeable electorate intellectually abreast of these issues and decisions or a more or less total delegation of them to the state and its bureaucracy. Or there must be surrender to the voices of ignorance and error. These, in turn, are destructive of the social and political structure itself.
Further, Galbraith wrote, education not only makes democracy possible, it also makes it necessary. Democracy "is the natural consequence of education and economic development," he argued, because there is no other practical design for governing people, who because of their educational attainments, expect to be heard and cannot be kept in silent subjugation."

American higher education today is eroding The Good Society

I think almost everyone would agree with Galbraith that education has both economic and intrinsically life-enriching  benefits. But let's look at the state of higher education today--20 years after Galbraith wrote The Good Society.

First, the federal government allows for-profit colleges and schools to prey on unsophisticated young Americans, particularly those who are socioeconomically disadvantaged.  Millions have taken out student loans to pay for educational experiences that are overpriced and often do not lead to good jobs.  Consequently, students who attended for-profit schools have a five-year default rate of 47 percent. Meanwhile, many of the schools themselves have been charged with fraud.

Even reputable private liberal arts colleges are charging more for a liberal arts degree than the degree is worth in economic terms. It is simply indefensible for someone to pay $150,000 to $200,000 to get a four-year degree in history, English, sociology or philosophy.  People who borrow to attend these expensive institutions are often unable to pay off their loans over 10 years and are forced into income-driven repayment plans that obligate them to make loan payments for 20 and even 25 years. For these people, higher education was not a liberating experience; rather it became the instrument by which they became economically enslaved.

Perhaps more importantly, contemporary higher education has morphed into a distorted version of its former character. Today, students shout down speakers who espouse disfavored points of view on political or social issues. Our civilization's heritage of literature, history and philosophy are disparaged and dismissed as irrelevant and even racist.

Indeed, students now think they are more qualified to decide what is important to study than their professors.  At the University of Pennsylvania, for example, students took down an image of Shakespeare and replaced it with the photo of Audre Lorde an obscure black female writer.

Will Lorde's photo remain in a place of honor indefinitely? Not likely. The incoming freshman class may decide that another writer is more important than Shakespeare or Lorde.  

And if the freshman class chooses to discard Lorde's photo for another writer--perhaps someone who has more "likes" on Facebook--who are the faculty to demure? After all, students at some colleges are paying about $5,000 a seat to attend an undergraduate class. Shouldn't they have the absolute right to dictate what it is they want to study?

Tragically, education and the good society have become uncoupled. In fact, in some sort of bizarre reversal, education may now be eroding the Good Society rather than nurturing it.


John Kenneth Galbraith: some old white guy whose work you need not read


References

John Kenneth Galbraith. The Good Society: The Humane Agenda. Boston: Houghton Mifflin, 1996.

Olivia Sylvester. Students remove Shakespeare portrait in English dept., aiming for inclusivityDaily Pennsylvanian, December 11, 2016.






Monday, April 10, 2017

The New York Times rightly criticizes Betsy Devos for rescinding DOE directive forbidding lenders from gouging student-loan defaulters: But the Times ignores the harm caused by income-driven repayment plans

A few days ago, the New York Times criticized Secretary of Education Betsy DeVos for rescinding a Department of Education directive forbidding student-loan debt collectors from gouging borrowers who default on their  student loans. Under President Obama, DOE directed the debt collectors not to assess 16 percent penalties on defaulters who quickly agreed to payment plans that would bring their loans back into good standing.

The Time is right to Criticize DeVos. As the Times pointed out in its editorial, student borrowers in the government's direct student-loan program are now defaulting at the rate of 3,000 a day. It is unjust to assess penalties against defaulters that far exceed the administrative cost of bring defaulted loans back into good standing.

But the Times rebuke went off the rails when it touted the virtues of long-term income-driven repayment plans for distressed debtors. The Times cited allegations that the lenders were not telling loan defaulters about "affordable" income-driven repayment plans (IDRs) that might cost borrowers as little as zero a month.

The Times is simply wrong to tout IDRs as "affordable." It is true that people who enter these plans may only be obligated to make token payments and perhaps no payment at all if they are unemployed or live below the poverty line.

But many people in IDRs are making monthly payments so small that the payments do not cover accruing interest. Thus their loan balances grow larger with each passing month. People in 20- and 25-year repayment plans will find they owe much  more than they borrowed when their payment obligations come to an end.

It is true that the unpaid portion of their loans will be forgiven for people who successfully complete these IDRs, but the amount of the cancelled debt is considered income by the IRS.  Under current IRS regulations, the only people who can escape that tax bill are people who are insolvent at the time the debt is forgiven.

Does that sound affordable to you?

The pitfalls of IDRs are illustrated in Murray v. Educational Credit Management Corporation, a 2016 bankruptcy court decision out of Kansas. The Murrays borrowed $77,000 in the 1990s to get undergraduate and graduate degrees, and they consolidated their debt in 1996 at 9 percent interest. Over the years, they made substantial payments. According to the bankruptcy judge, they paid $54,000 on their loans--about 70 percent of the amount borrowed.

But the Murrays' loans were put into deferment for some period of time when the couple could not afford to make their monthly payments. Meanwhile, interest accrued, and by 2015, their $77,000 debt had ballooned to $311,000--four times what they borrowed!

ECMC argued that the Murrays should be put into an IDR. The most generous plan called for monthly payments set at 10 percent of the Murrays' adjusted gross income.  Their monthly payment would then be only $635 a month, quite manageable for a couple whose joint income was approximately $95,000 a year.

But the bankruptcy judge rejected ECMC's proposal.  The judge pointed out that interest was growing at $65 a day--around $2,000 a month. Thus, the Murrays' monthly payments would amount to less than half of the monthly accruing interest. The Murrays' debt would grow to well over half a million dollars over the 20-year repayment period.

Thus, if the Murrays signed up for a 20-year IDR, one of two fates awaited them: either they would be faced with an enormous tax bill or they would be so broke their tax liability would be extinguished on the grounds of insolvency. In any event, the Murrays would be in their late 60s and in no financial shape to retire.

The Obama administration promoted IDRs and even rolled out new ones: PAYE and REPAYE. These plans give struggling debtors short-term relief, but a majority of the people who sign up for an IDR will never pay off their student loans.

Almost 6 million people are currently enrolled in one IDR or another, and most are not making payments large enough to cover accruing interest. Although  IDR enrollees are not technically in default, few will ever pay back their loans.

What is the solution for these people? There is only one solution: a discharge of their loan obligations in bankruptcy.  DOE will not admit this stark fact, and neither will the New York Times. But the bankruptcy courts are beginning to figure out that IDRs do not provide the "fresh start" that the bankruptcy process is intended to provide..  We should look for some blockbuster bankruptcy court decisions in the near future as the judges wake up to the charade of IDRs.

References

Editorial, The Wrong Move on Student Loans. New York Times, April 76, 2017.

ECMC and the Department of Education are a couple of bullies: The Scott Farkus affair that never ends

Fortunately, we only see Scott Farkus once a year. He comes around every Christmas eve, when TBS runs The Christmas Story for 24 hours. Farkus, you remember, is the yellow-eyed bully that picks on Ralphie Parker and his little brother Randy. Farkus is always accompanied by his pint-sized sidekick, Grover Dill.


ECMC & DOE are real-life bullies for student debtors.

Scott Farkus, of course, is a fictional bully, but destitute student borrower are tormented by a real-life bully--Educational Credit Management Corporation. ECMC,a so-called fiduciary of the U.S Department of Education, gets well paid to hound student-loan debtors who naively try to shed their student loans in bankruptcy to get a fresh start.

Would you like some examples of ECMC's bullying behavior? Here are a few:
  • ECMC opposed bankruptcy relief for Janet Roth, a woman in her 60s with chronic health problems, who was living on Social Security income of $774 a month. 
  • ECMC successfully blocked Janice Stephenson, a woman in her fifties, from discharging her student loans in bankruptcy--loans that were almost 25 years old. At the time Stephenson filed for bankruptcy, she was living on about $1,000 a month and had a history of homelessness.
  • Last year, a bankruptcy judge slapped ECMC with punitive damages for repeatedly garnishing the wages of Kristin Bruner-Halteman, a bankrupt student debtor who worked at Starbucks. ECMC violated the automatic stay provision more than 30 times, the bankruptcy court ruled. And how much money was at stake? Ms. Bruner-Halteman only owed about $5,000.
So Scott Farkus, in a corporate form, is alive and well in American bankruptcy courts.

And Grover Dill, Farkus's little toadie, is also alive and well. The Department of Education itself bullies student borrowers in bankruptcy, almost as cruelly as ECMC.  And here are a few examples:
  • In Myhre v. Department of Education, DOE fought Bradley Myhre, an insolvent quadriplegic who tried to discharge a modest student loan in bankruptcy. DOE lost that one. The court commended Mhyre for his courage: he was working full time but he had to employ a caregiver to feed and dress him and drive him to work. 
  • DOE tried unsuccessfully to persuade a Missouri  bankruptcy court to deny bankruptcy relief to Michael Abney, a single father in his 40s who was living on $1,300 a month and was so poor he rode a bicycle to work because couldn't afford a car. 
  • Just a few months ago, the Eighth Circuit Bankruptcy Appellate Panel ruled against DOE, which had tried to keep Sara Fern from discharging her student debt in bankruptcy. Fern is a single mother of three children who takes home $1,500 a month from her job and supplements her income with food stamps and public rent assistance.
Have I described bullying behavior by ECMC and DOE? Of course I have. Every single time DOE or ECMC shows up in bankruptcy court, the argument is the same: "This deadbeat doesn't deserve bankruptcy relief, your honor. Put the worthless son of a b-tch in a 20- or 25-year income-based repayment plan."

In the past, bankruptcy courts were persuaded by these callous arguments, but judges are beginning to return to their duty. I predict the day is soon coming when a federal appellate court will overrule the precedents that have favored ECMC and DOE--most notably the harsh Brunner ruling that most federal circuits have adopted.

But for now, the bullying goes on.  Just like Scott Farkus and Grover Dill, ECMC and DOE lie in wait for hapless debtors who stagger into bankruptcy court. ECMC has accumulated $1 billion in unrestricted assets while engaging in this shameful behavior, and the federal government pays ECMC's legal fees. 

References

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



Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).

Fern v. FedLoan Servicing, 563 B.R. 1 (8th Cir. BAP 2017).


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


Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/


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


Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011). aff'd, 475 B.R. 286 (D. Mass. 2012).













Friday, April 7, 2017

3,000 people a day are defaulting on student loans and Betsy DeVos rewards the student loan indusry. You broke our hearts, Betsy!

Yesterday, the New York Times published an editorial scolding Secretary of Education Betsy DeVos for allowing the student-loan servicers to slap a 16 percent penalty on student borrowers who default on their loans.

 And let's remember this: That 16 percent penalty is not 16 percent on the amount borrowed; its 16 percent on the unpaid balance plus accumulated interest.  Millions of debtors have their student loans in forbearance or deferment for years while their debt grows due to accruing interest. Thus, when they default, they may owe double, triple, or even quadruple what they borrowed. The 16 percent penalty is calculated by the total debt--not just the original loan amount.

And the lenders apply that penalty even when debtors immediately start the process of bringing their loans back into good standing. That stinks.

Secretary of Education DeVos made a big mistake when she caved in to the student-loan industry at the expense of struggling student debtors. I can think of only two explanations. Either she doesn't know what she's doing or she's in the pocket of student loan guaranty agencies and their collection agents.

But it doesn't really matter why she did it. After all, Fredo Corleone didn't know what he was doing when he betrayed his brother Michael in Godfather II. But Michael didn't cut Fredo any slack. Remember what Michael said? "I know it was you, Fredo – you broke my heart – you broke my heart!"

 As the Times noted in its editorial, 3,000 people a day in the government's direct lending program defaulted on their student loans last year--about a million people. That's a lot of people having penalties slapped on their loan balances--that's a lot of suffering that Betsy DeVos could have stopped.

It is now clear: student debtors can't look to the Trump administration for assistance. The bankruptcy courts are their only hope.

I know it was you, Betsy--you broke my hear, you broke my heart!

References

Editorial. The Wrong Move on Student Loans. New York Times, April 6, 2017.




Thursday, April 6, 2017

The Student Loan Crisis is WORSE than the 2008 Housing Crisis: The Return of "The Big Short"

As everyone knows, the housing market collapsed in 2008, triggering a major economic crisis in the United States. The nation descended into recession, and the national economy is still recovering from this catastrophe.

Steve Rhode and others have described a student loan "bubble," and I share these commentators' view that the federal student loan program as it functions now is unsustainable.  Approximately 42 million borrowers collectively owe $1.4 trillion in student-loan debt, and families are beginning to experience sticker shock. Enrollments are declining at the for-profit schools, and nonprofit liberal arts colleges are desperately scrambling to maintain their enrollments.

Many people may think the student-loan crisis--no matter how bad it is--is just a small tremor compared to the 2008 housing crisis, which was an earthquake.

But in fact, the student loan crisis has produced more casualties in terms of human suffering than the housing collapse ten years ago.

Earlier this week, Alan White of Credit Slip, an online news source on economic matters, commented on a housing-data report released recently by the Urban Institute. Based on the Urban Institute's data, White assessed the total damage from the subprime housing crisis. From 2007 to 2016, 6.7 million homes went into foreclosure and another 2 million homes were lost through short sales or deeds-in lieu of foreclosure. Thus the total number of homeowners who lost their homes in the subprime housing debacle is about 8.7 million. If we assume a majority of those homes were owned by married couples, then the total number of individuals who were injured in the housing crisis is about 16 million.

That's a lot of people, but the casualty list from the student loan crisis is larger. 

As the New York Times reported in 2015, about 10 million student borrowers have defaulted on their loans or have loans in delinquency. Almost 6 million debtors are now in income-driven repayment programs (IDRs), and those people are locked into repayment plans that last from 20 to 25 years. A majority of those people are making payments so low they are not servicing accruing interest, which means their student loans balances are growing larger (negatively amortizing) with each passing month.

So we're talking about 16 million people who defaulted, have delinquent loans, or who are in IDRs. And millions more have student loans in forbearance or deferment, which means they are not making payments on their loans but are not counted as defaulters. For most of those people, interest is accruing, which means their student loan balances are growing. The Consumer Financial Protection Bureau reported a total of about 9 million people in deferment or forbearance in its 2013 report titled A Closer Look at the Trillion

All these numbers are fluid. Some delinquent student-loan borrowers will bring their loans current, and some defaulters will rehabilitate their loans. And some people will move from deferment status to some form of IDR.

But it is safe to say--indeed conservative to say--that about 20 million Americans have outstanding student loans they can't pay back. That's 4 million more people that were injured by the housing crisis. It's The Big Short all over again.

Alan and Catherine Murray, who received a partial discharge of their student loans in a Kansas bankruptcy court last year, are the poster children for this calamity. They borrowed $77,000 to finance their studies, and both obtained a bachelor's degree and a master's degree. They paid back $54,000--about 70 percent of what they borrowed. 

But the Murrays experienced hard times and put their loans into deferment for a few years while interest accrued at the rate of 9 percent. They now owe $311,000! Will they ever pay that back? No, they won't.

Yes, the federal loan program is in a bubble, and the suffering has already begun. The federal government is propping up this house of cards and disguising the real default rate. Congress doesn't have the courage to address the problem, and the Trump administration appears to be clueless

We must look to the federal bankruptcy courts for relief. The Murrays obtained a partial dischage of their their loans from a Kansas bankruptcy judge last year, but their case is now on appeal.  

Stay tuned for further developments.

The Big Short


References

Rohit Chopra. A closer look at the trillion. Consumer Financial Protection Bureau, August 5, 2013.

Editorial, "Why Student Debtors Go Unrescued." New York Times, October 7, 2015, A 26.

Murray v. Educational Credit Management Corporation, Case No. 14-22253, ADV. No. 15-6099, 2016 Banrk. LEXIS 4229 (Bankr. D. Kansas, December 8, 2016).

Steve Rhode. The Student Bubble That Many Don't Want To See. Get Out Of Debt Guy, July 15, 2016.

Jill Schlesinger. Looking for the next bubble. Chicago Tribune, August 24, 2016.

Alan White, Foreclosure Crisis Update. Credit Slip, April 5, 2017.

Monday, April 3, 2017

Sara Fern v. FedLoan Servicing: A single mother of three discharges her student loans in bankruptcy over the objections of the U.S. Department of Education

Student loans cannot be discharged in bankruptcy, right? WRONG! Distressed student borrowers have won a string of victories in the bankruptcy courts over the past few years. And Fern v. FedLoan Servicing is another case for the win column. 

Fern v. FedLoan Servicing: A single mother of three children discharges her student loans in bankruptcy

In 2016, Sarah Fern, a 35-year-old mother of three children, discharged about $27,000 in student loans in an Iowa bankruptcy court. And last February, her victory was affirmed by the Bankruptcy Appellate Panel of the Eighth Circuit Court of Appeals.

Over the years, Fern had not made a single payment on her student loans. Nevertheless, she had never been in default because her loans had always been in deferment or forbearance due to her economic circumstances.

At the time of her bankruptcy trial, Fern was raising three children on take-home pay of about $1,500 a month, which she supplemented with food stamps and public housing assistance. Fern drove an old car in need of repair, and she could not afford to buy a more reliable vehicle.

Although Fern attempted to improve her income status by taking out student loans to enroll in two postsecondary programs, neither program led to a higher paying job. As the bankruptcy court noted, Fern had never earned more than $25,000 a year.

The Department of Education opposed Fern's effort to shed her student loans in bankruptcy. DOE produced an expert witness who testified that Fern qualified for various income-based repayment plans. According to the expert, Fern's income was so low that her monthly payments would be zero if she entered one of these plans.

But Judge Thad Collins, an Iowa bankruptcy judge, rejected DOE's arguments and discharged Fern's student loans in their entirety. In Judge Collins' view, Fern would probably never be in a financial position to pay back her loans.

Under an income-based repayment plan, Judge Collins noted, Fern's monthly payments would be zero, but her debt would continue to grow as interest accrued on the unpaid balance. Although the government would forgive any unpaid portion of Fern's loans at the end of the repayment period (20 or 25 years in the future), the cancelled loan debt might be taxable to her. In addition, if Fern's student loans were not discharged, they would be a blot on her credit record.


Judge Collins recognizes emotional stress from long-term indebtedness

Judge Collins also considered the emotional distress that comes from long-term indebtedness, Fern's loans had already caused her emotional stress, Collins observed, and she would continue to suffer from emotional stress if she were forced into a long-term repayment plan:

This mounting indebtedness has also indisputably been an emotional burden on [Fern]. [She] testified that knowing that the debt is hanging over her, constantly growing, and that she will never be able to repay this debt, is distressing to her. [Fern] testified that she feels like she will never be able to get ahead because she will always have this debt.
In Judge Collins' opinion, the emotional burden of long-term indebtedness was a hardship that weighed in favor of discharging Fern's student loans, even though this burden could not be quantified. "The Court will not ignore a hardship," Collins wrote, "simply because it is not reflected on a balance sheet."

Department of Education appeals Judge Collins' decision

The Department of Education appealed Judge Collins' decision; and last February. the Bankruptcy Appellate Panel of the Eighth Circuit Court of Appeals affirmed Collins' ruling. According to DOE, Judge Collins erred by taking Fern's emotional burdens into account, by considering the tax consequences of a long-term repayment plan, and by recognizing that Fern's debt would grow over the years because her monthly payments under a long-term plan (zero), would cause interest on her loans to continue accumulating.

But the Eighth Circuit's BAP disagreed. "These additional observations identified by the Bankruptcy Court simply served to supplement its determination of undue hardship under the totality of circumstances test," the BAP court wrote.

The Fern decision is a big win for student-loan debtors. This is the latest federal appellate court decision to reject creditors' arguments that bankrupt student borrowers should be pushed into 20- or 25-year repayment plans instead of getting a fresh start. 


There is justice in the world (sometimes)

As one of Cormac McCarthy's fictional characters said in the novel, The Crossing, "Hay justicia en el mundo!"

Yes, there is justice in the world, but justice is not distributed evenly and sometimes it arrives too late to do us any good. Sara Fern was very fortunate to have obtained justice from Judge Thad Collins, who wrote a remarkably sensible and compassionate decision. And she was even more fortunate to have Judge Collins' decision affirmed on appeal by the Eighth Circuit's Bankruptcy Appellate Panel.

References

Fern v. FedLoan Servicing, 563 B.R. 1 (8th Cir. BAP 2017).

Fern v. FedLoan Servicing, 553 B.R. 362 (Bankr. N.D. Iowa 2016).

















Saturday, April 1, 2017

Higher Education as a criminal enterprise: The U.S. Department of Education (or its agents) is trying to collect on a student loan debt 37 years old!

In Clusterfuck Nation, James Howard Kunstler has argued that many sectors of our economy have descended into criminal enterprises: banking, medicine and higher education in particular. And by God, he has convinced me.

Kunstler concluded his latest essay with these words: "It is getting to the point where we have to ask ourselves if we are even capable of being a serious people anymore." I am beginning to think the answer is no.

A few days ago a retired man in California contacted me through my blog site and asked for help with a student-loan problem. As I understand it, he took out a small student loan back in the 1970s and allowed it to go into default.

In 1980, the federal government or one of its agents obtained a default judgment against the guy, and he paid the judgment in full sometime thereafter.

Now, 37 years later, a government debt collector is trying to collect on the loan. You may think the debt is uncollectable.  All states have statutes of limitations for lawsuits to collect a debt. Generally, the statute of limitations on a promissory note is six years. So the guy has nothing to worry about, right?

Wrong. Congress passed the Higher Education Technical Amendments of 1991, which abolished all statutes of limitations on student loans, and some courts have ruled that the law applies retroactively. Thus, even if the statute of limitations on my correspondent's debt expired before the federal law was passed in 1991 (and I think it did), the government can still collect on it--at least according to some courts' interpretation.

Now that is fundamentally wrong and violates an ancient principle of equity known as laches. As explained in Black's Law Dictionary, "The doctrine of laches is based on the maxim that "equity aids the vigilant and not those who slumber on their rights." Thus, as a matter of fundamental fairness, claimants must pursue their remedies within a reasonable time. After all, it is unfair to start collection activities on a debt long after most reasonable people would have discarded documents that would prove the debt had been paid.

In fact, I'm sure millions of student debtors who paid of their students loans do not now have documents to prove their loans were paid.  In fact, in a lawsuit decided a few years ago, a woman obtained a court order finding she had paid off her student loans, and Educational Credit Management Corporation continued its collection efforts against her in spite of that fact.

As I write this, the U.S. Department of Education's debt collectors are pursuing desperate student-loan borrowers into the bankruptcy courts and arguing to federal judges that these hapless debtors should be put in 25-year repayment plans. These people are as heartless as the mob characters in the movie Godfather II.

So yes, higher education has become a criminal enterprise, and the Department of Education is basically a racketeer, which Congress and the courts show no inclination toward trying to control.   As Mr. Kunstler put it, "It is getting to the point where we have to ask ourselves if we are even capable of being a serious people anymore."

There may be an argument that the Higher Education Technical Amendments of 1991 is unconstitutional when applied against people long after they can reasonably defend themselves. Perhaps some starving law graduate, also burdened by student loans, could do some research on the constitutionality of this pernicious law.

It's not personal. It's only business.


References

Hann v. Educational Credit Management Corporation, 711 F.3d 235 (1st Cir. 2013).

James Howard Kunstler. Racket of Rackets. Clusterfuck Nation, March 31, 2017.

United States v. Hodges, 999 F.2d 341 (8th Cir. 1993).