Senator Elizabeth Warren and Senate progressives should press for hearings on Educational Credit Management Corporation and the student loan crisis

Senator Elizabeth Warren has had a brilliant career. She grew up in Oklahoma, went to law school, and wound up on the Harvard Law School faculty. Now she is in the U.S. Senate, and pundits say she may run for President in 2020. Impressive!

Somewhere along the way, Senator Warren represented that she had Cherokee blood, although she never provided a shred of evidence to support that assertion. Her claim may have been a factor in getting that cushy Harvard Law School job. But Harvard says no, and Harvard always tells the truth.

Nevertheless, Harvard Law School claimed it had a Native American professor while Warren was on the faculty, without identifying who it was. (To be fair, it may have been Alan Dershowitz).

If Warren misrepresented her heritage to advance her career, we can't be too hard on her. Higher education is a rough business, and Warren certainly played the game better than I did. And, as the song goes that Willie Nelson made famous, Liz only did what she had to do.

But Warren is a senator now, and she has an obligation to do some good for the American people. She claims to be an advocate for distressed student-loan debtors, but what has she done for them?

She's written letters to the Department of Education and spouted a lot of nonsense about the "obscene" profits the government makes off the student-loan program. More substantively, she co-sponsored a bill in 2015 to protect seniors from having their Social Security checks garnished, but the bill never became law.

In my view, Senator Warren could do more to address the student loan crisis than file bills and write letters. Specifically, she should join with other progressives in the Senate and press for Senate hearings on the student loan guaranty agencies and Educational Credit Management Corporation in particular. ECMC is perhaps the federal government's most ruthless debt collector and has amassed a billion dollars in unrestricted assets, at least partly from hounding destitute student debtors.

In the Bruner-Halteman case, for example, ECMC garnished the wages of a bankrupt Starbucks employee 37 times in violation of the Bankruptcy Code's automatic stay provision. A Texas bankruptcy slapped ECMC with $74,000 in punitive damages.

And in the Hann case, ECMC continued trying to collect on a woman's student loans even though a bankruptcy court had discharged those loans on the grounds that she had paid them off.  ECMC only got stung with a small penalty for that misbehavior.

Rafael Pardo and the Century Foundation both established that the federal government is paying ECMC's attorney fees, and ECMC is using its attorneys to ground down overburdened student borrowers in the bankruptcy courts. Many of these destitute people don't have the money to hire a lawyer, but ECMC is paying its lawyers as much as $300 an hour.

The public has no idea what ECMC has been up to, and Senate hearings could shine some light on this sleazy organization. How much is ECMC paying its CEO, Jan Hines, and its other senior executives? What is ECMC doing with its wealth? Why does the Department of Education pay ECMC's attorney fees to engage in what Rafael Pardo described as "pollutive litigation"?

Senator Warren could do a great deal of good if she would use her powers of persuasion to get the Senate Banking Committee to hold hearings on ECMC's shady activities. In fact, if Senator Warren got the opportunity to ask ECMC executives some tough questions, I'll bet she could bring this rotten outfit down.

Senator Warren needs to accomplish something tangible to address the student loan crisis if she wants people to regard her as a consumers' advocate. If she doesn't accomplish something soon, Americans will be forced to conclude she is not really a progressive, just as we know she's not really a Cherokee.

How much does ECMC pay its CEO, Jan Hines?

References

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

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

John Hechinger. Taxpayers Fund $454,000 Pay for Collector Chasing Student Loans. Bloomberg.com, May 15, 2013.

Joshua Hicks. Did Elizabeth Warren check the Native American box when she "applied" to Harvard and Penn? Washington Post, September 28, 2012.

Natalie Kitroeff. Loan Monitor is Accused of Ruthless Tactics on Student Debt. New York Times, January 1, 2014.

Rafael Pardo. The Undue Hardship Thicket: On Access to Justice, Procedural Noncompliance, and Pollutive Litigation in Bankruptcy. 66 Florida Law Review 2101 (2014).

Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. 

Brian Walsh. Elizabeth Warren is Rewriting American History. U.S. News & World Report, April 22, 2014.

The Department of Education Fumbles the Public Service Loan Forgiveness Program

The Public Service Loan Forgiveness Program: The Best Option for Student borrowers With Six-Figure Debt

A few years ago, law professor Paul Campos wrote an advice book for people thinking about going to law school. If you borrow a lot of money to go to a second- or third-tier law school and graduate in the bottom half of your class, Campos warned, you probably won't make enough money to pay back your loans.

In such event, Campos advised, your only viable option is to get a job in the public sector and enroll in the Public Service Loan Forgiveness Program (PSLF). If you go that route, you will make monthly payments on your student loans for ten years based on a percentage of your income. When you've made 120 payments, the balance of your loan debt will be forgiven.

Campos's advice is good for anyone who is buried by student loans. If you racked up $100,000 or more in student loans and can't find a good job in the private sector, the PSLF program may be your only viable option. It is the financial equivalent of the last train out of Paris in the movie Casa Blanca. If Rick doesn't get on that train before the Nazis arrive, he's doomed.

The Department of Education Fumbles the PSLF Program: Is Betsy DeVos Out of Her Element?

Congress created the PSLF program in 2007, and the Department of Education has been promoting it ever since. DOE has instructed  PSLF participants to send their Employment Certification Forms (ECF) to FedLoan Servicing, DOE's approved PSLF processor, on an annual basis to verify they are in fact employed by a public service organization. More than half a million people are enrolled in the PSLF program, confident that their indebtedness will be cancelled after 10 years of public service employment..

But now it seems DOE may be reneging on its PSLF obligations. The American Bar Association sued DOE for not living up to its PSLF commitments, and DOE recently answered that law suit. In essence, DOE denied it had any obligation to honor FedLoan Servicing's decision to certify public service employment.

This is shocking. As Steve Rhode said in his blog about this development, "People who have worked ten years in jobs assuming their loans would be forgiven are potentially going to get some nasty surprises."

I don't know what to make of DOE's response to the ABA's lawsuit. If the PSLF program collapses, Betsy DeVos's credibility as the Secretary of Education, already compromised by her ties to the for-profit industry, will be completely destroyed.

To paraphrase  Walter Sobchak's remark to Donny in The Big Lebowski, "Betsy, you may be out of your element." DOE may come to its senses and straighten out the PSLF mess; in fact, I think that will probably happen.  But the political consequences of this episode will reverberate for a long time.

"Donny, you're out of your element."

References

Stacy Cowley. Student Loan Forgiveness Program Approval Letters May Be Invalid, Education Dept. Says. New York Times, March 30, 2017.

Steve Rhode. Public Service Loan Forgiveness Program Teeters With Unmitigated Disaster. Personal Finance Syndication Network, PFSyn.com, May 2, 2017.

Wild Pigs and Lazy Tenured Professors: Very Difficult to Trap or Eradicate

Texas is infested with feral hogs—2.5 million of them, according to a recent New York Times story. In some parts of Texas, wild pigs outnumber people. And they can show up when you least expect them. A few years ago, a captured hog escaped from a trailer and plowed through a Whataburger restaurant.

These pigs are nasty creatures. They dig up crops, destroy fences, and drive out more desirable wildlife. They can be big—400 pounds or more; and they can be dangerous. If you corner a feral hog or get between a sow and her piglets, you can get hurt.

Unfortunately, feral pigs are very hard to eradicate. They are nocturnal animals seldom seen during daylight hours. They are extremely wily and quite suspicious of baited traps.  Texas passed legislation permitting people to hunt them at night and even to shoot them from helicopters; but so far the pig population just keeps growing larger. 

The more I learn about feral hogs the more struck I am by the similarities between wild pigs and the unproductive tenured professors who prowl our nation’s university campuses. Like feral

hogs, unproductive tenured professors are generally reclusive creatures who are seldom seen. Nevertheless, although they shun human contact, lazy professors, like wild pigs, can be dangerous if confronted or cornered. And, very much like feral hogs, lazy tenured professors do pretty much whatever they please. Like wild pigs, they snuff along from one academic year to the next, skulking through the academic underbrush and doing the minimum amount of work required to avoid post-tenure review.

It is time for the higher education community to confront the lazy tenured professor--the academic equivalent of a wild Texas hog. It is not fair for America’s college students to take out student loans for their education while universities harbor slothful professors who avoid students, don’t publish, and do little productive work. Anyone who has taught in a public university knows that the unproductive faculty member—protected by tenure—is a serious problem that academia as a whole is afraid to face.

Perhaps higher education could take some lessons from the feral hog experts—who are doing their best to reduce the population of wild pigs. First, the experts say, communities have to admit they have a problem. As Brett Johnson, an urban biologist with the Texas Parks and Wildlife Department, noted a few years ago, some towns refuse to acknowledge they have a problem with feral hogs and are “sweeping it under the rug.” That is a mistake, Johnson said. “Once [feral hogs] get a foothold, the chance of getting control of the problem becomes really difficult,”

Second, the feral hog experts stress, it is important for communities to work together. Sergeant Mike Bedrich, a suburban public safety officer in the Dallas-Fort Worth area, pointed out awhile back that feral hogs cross community boundaries. “Those hogs are traveling back and forth between all of those areas,” Bedrich said, which means catching the hogs must be a collaborative effort. If one town has an aggressive hog control program and the neighboring town does not, “then you haven’t really dealt with the problem.”

Finally, the feral hog experts emphasize, the people trying to trap wild hogs must be as cunning as their prey. For example, the Fort Worth Nature Center uses traps to get rid of its porky interlopers. As the Fort Worth Star-Telegram explained in a 2010 article, the Nature Center’s staff lets the hogs “become comfortable entering the traps in the hope that more will follow.” Robert Denkhaus, the Center’s natural resource manager, stressed that it is very important not to spring the trap too soon. “If the trigger goes too quick and [the animal] gets away, that pig just learned what a trap is,” Denkhaus said.

So what can higher education learn from the feral hog experts? First, like Texas towns annoyed by wild pigs, we in the academic community must admit that lazy tenured professors are a serious problem. Most colleges and universities have a significant number of unproductive faculty members and they contribute to driving up the cost of higher education.

Second, everyone in the academic community must work together to identify and confront the lazy tenured professor. It is not just the provost’s job to maintain academic standards. All professors must do their part to hold their colleagues accountable. That means the departmental compensation committee must stop giving unproductive professors a satisfactory rating when they make their merit pay recommendations.

And—like feral hog trappers, department chairs and college deans must become wilier in documenting the lazy professor’s shortcomings. At a minimum, that means college administrators must stop taking lazy professors' annual activity reports at face value. A professor may list an impressive number of committee assignments on his or her annual activity report. But did the professor attend any committee meetings or do any productive work? 

 And college administrators need to scrutinize publication records with a bit of skepticism. That one-page article in the annual newsletter of the Oklahoma Association of Medieval Literature Professors —is that really a peer-reviewed scholarly publication? And the book that a faculty member miraculously produces from a dust-covered dissertation—was it published by a reputable academic publishing house or was it ginned out by a vanity press?

I write this not as a university administrator but as a tenured professor myself. Higher education in the United States is under a severe financial strain. Professors in some states are already experiencing salary cuts, furloughs, and layoffs. It is in the interest of everyone in the higher education community—administrators, faculty members and staff—to operate our institutions with maximum efficiency. There is no room in today’s universities for unproductive professors, whether tenured or untenured.

Of course, we shouldn’t take the feral hog analogy too far. Lazy faculty members and wild pigs are not entirely similar. For one thing, feral hogs are incredibly fertile; a sow can produce two litters of piglets in twelve months, and each litter can have as many as ten piglets. Our nation's lazy professors don't have that kind of energy.

You're paying 60 grand a year to be taught by this guy?

References

Gene Hall. Feral hog uninvited guest at South Texas Whataburger. Texas Agriculture Talks, September 29, 2011.

B. Hanna. Feral hogs prove to be a nuisance across Tarrant County. Fort Worth Star-Telegram, January 27, 2011.

Mark Mapston. Feral hogs in Texas. College Station, TX: Texas A & M University.

Kate Murphy. A Plan to Poison the Wild Hogs of Texas. New York Times, April 29, 2017. 

Parents Plus Loans can be a nightmare: "Teach your children well . . ."

Teach your children well,

Their father's hell did slowly go by.

Teach the Children Well

Lyrics by Graham Nash

More than three million parents have taken out student loans for their children's college education. Eleven percent are in default, and another 180,000 are delinquent in their payments.

Congress created the Parent Plus program in 1980, which allows parents to obtain student loans to supplement the loans their children take out to finance their college studies. As Josh Mitchell reported in the Wall Street Journal last week, outstanding indebtedness on Parent Plus loans now tops $77 billion. 

The government issues Parent Plus loans with little regard to whether the parents can pay them back. Many parents who take out Parent Plus loans have subprime credit scores, which means they run a high risk of default. As Mitchell pointed out,  the Parent Plus default rate is higher than the home mortgage default rate during the 2008 housing crisis.

Without question, Parent Plus loans are being issued recklessly. "This credit is being extended on terms that specifically, willfully ignore their ability to repay," a spokesperson for Harvard Law School's Legal Services Center charged. "You can't avoid that we're targeting high-cost, high-dollar-amount loans to people who we know can't afford them."

To its credit, the Obama administration recognized that lending standards for Parent Plus loans were too lax. In 2011, the Department of Education introduced modest underwriting rules to prevent parents with low credit ratings from taking out Parent Plus loans.

But the higher education industry protested, arguing that tighter underwriting standards for Parent Plus loans would reduce college access for low-income and minority students. In response to this pressure, the Department of Education withdrew the new rules.

Obviously, people who are taking out student loans for their children are older; two thirds of Parent Plus borrowers are between the ages of 50 and 64. Many of them have student loans of their own. Some parents took out Parent Plus loans expecting their children to get good jobs and take over the loan payments.  But sometimes that doesn't happen, and the parents find themselves responsible for paying off loans they can't afford to repay.

Parents who default on Parent Plus loans risk having their income-tax refunds seized and their Social Security checks garnished. And bankruptcy is rarely an option. Parents who default on their children's student loans will find it difficult to discharge those loans in bankruptcy even if they are unemployed or in ill health.

In an NPR podcast, Michelle Singletary, a finance columnist, pointed out that many parents take out Parent Plus loans to help their children attend expensive colleges their families can't afford. It is difficult, Singletary acknowledged, for parents to tell their children that a particular elite college is simply out of financial reach.

The child might say, "But this is my dream college." If that happens, Singletary advised, the parent must have the wisdom and fortitude to say, "Honey, you need to find another dream."

Or, as songwriter Graham Nash might put it, "Teach your children well" regarding their college choices because if you borrow money for your child to go to college and can't pay it back, you will enter financial hell, a hell that will go by slowly.

References

Tom Ashbrook. Parents On the Hook for Student Loans. NPR Onpoint (podcast), April 26, 2017.

Josh Mitchell. The U.S. Makes It Easy for Parents to Get College Loans--Repaying Them Is Another Story. Wall Street Journal, April 24, 2017. 

Note: Quotations in this essay come from the sources cited in the reference list.

Whittier Law School is closing: "They shoot horses,don't they?"

Whittier Law School is closing. And well it should.

Whittier Law School, which a Daily Caller writer described as "one of America’s crappiest law schools," has a crummy record by almost any measurement. In 2016, 174 Whittier graduates took the California Bar Exam, and only 40 passed. That's a 22 percent pass rate, compared to a 62 percent pass rate among California law-school graduates as a whole.

And Whittier Law graduates are having a hell of a time finding jobs as lawyers. Less than 30 percent of Whittier's class of 2016 landed long-term jobs as attorneys ten months after graduating, according to an article published in abovethelaw.com. And only 2 percent found jobs in large law firms, which generally pay the highest salaries.

Yet, in spite of low employment rates and  a dismal bar-passage record, Whittier charges its students a lot of money. It cost $45,000 a year to attend Whittier Law School in 2016, not including books and living expenses. On average, Whittier's 2016 graduates left school owing $179,000 in student-loan debt.

Clearly it was time to put Whittier Law School out of its misery before it attracted another class of students who would graduate with massive debt and little chance of getting an attorney's job that would pay enough to justify $179,000 in student loans.

Of course, the law-school faculty objected. In fact some of them filed a lawsuit in an unsuccessful effort to persuade a judge to stop the law school from closing.

Law-school dissenters even trotted out that old bromide about the law school's commitment to diversity. The law school's web site avowed that it sought to provide "a high quality education to students of diverse backgrounds and abilities--students who might not otherwise have been able to receive a legal education and who are now serving justice and enterprise around the world."

What a load of bull!

It is true that U.S. News & World Report recently ranked Whittier as the nation's second most diverse law school. A majority of its students are nonwhite and a majority are women. But a law school that leaves its graduates with an average of $179,000 in student loans and little prospect of a lawyer's job is not doing anything positive toward promoting diversity.

I commend the Whittier Board of Trustees for having the courage to close Whittier Law School. Other universities need to do the same--at least two dozen by my reading of data compiled by Law School Transparency.

There are simply not enough law jobs for people who graduate from second- and third-tier law schools, and the cost of attending these schools is more likely to leave graduates with a lifetime of indebtedness than a lucrative career as an attorney.

After all, as Jane Fonda's character said in an old movie about endurance dancing, "They shoot horses, don't they?"

"They shoot horses, don't they?"

References

Sonali Kohli, Rosanna Xia, and Teresa Watanabe. Whittier Law School is closing, due in part to low studentachievement. Los Angeles Times, April 20, 2017.

Elizabeth Olsen. Whittier LawSchool Says It Will Shut Down. New York Times, April 19, 2017.

Eric Owens. FINALLY! One ofAmerica's Crappiest Law Schools Is Closing Its Doors. Daily Caller, April 23, 2017.

Staci Zaretsky. Whittier Law School Will Close, Leaving Disaster In Its Wake. abovethelaw, April 20, 2017.

Recent Navient and National Collegiate Student Loan Bankruptcy Rulings – March 2017: A Must-Read Article by Steve Rhode

If you are overwhelmed by your student loans and thinking about filing for bankruptcy, you should read this essay by Steve Rhode. Mr. Rhode examined recent bankruptcy court adversary proceedings in which student borrowers brought complaints against Navient or National Collegiate Student Loan Trust. As Mr. Rhode relates, debtors often won significant relief in these lawsuits--sometimes through settlement agreements.

Why is Mr. Rhode's article important to you?

First, his article contains links to adversary complaints that were drafted by attorneys. If you file your own adversary complaint against your student-loan creditor, you can use these complaints as templates to file your own complaint.

Second, the proceedings Mr. Rhode examined show various theories under which debtors sought to have their loans discharged. Some of those theories might work for you.

I am frankly surprised that debtors were so successful in the cases Mr. Rhode analyzed. I wonder whether Navient and National Collegiate Student Loan Trust are more amenable to settlement than Educational Credit Management Corporation and the U.S. Department of Education. ECMC and the Department of Education have opposed bankruptcy relief in a multitude of cases, even in cases where it was clear the debtor was desperate. (See for example, Roth v. ECMC and Abney v. U.S. Department of Education.)

Mr. Rhode has presented us with a very useful analysis of recent adversary proceedings against Navient and National Collegiate Student Loan Trust. A trend may be developing toward better bankruptcy outcomes for distressed student-loan debtors. Wouldn't that be a terrific development?

******

Out of curiosity I decided to take a look at recent bankruptcy Adversary Proceedings that had closed against Navient and National Collegiate Student Loan Trust. I looked at a number of cases and it appears people who filed their own Adversary Proceeding against their student loan holders had a less favorable outcome. Those people represented by an attorney, fair better.

At the very least, while the debt may not have been completely eliminated there were certainly some very deep discounts in the amount owed. Also the outcomes in all cases is not always apparent.

For example in Medina v. National Collegiate Student Loan Trust there was an apparent settlement agreement that contained a “release of liability. The Adversary Proceeding was then dismissed. – Source

Medina had asserted in his lawyer prepared complaint that his student loans should be discharged because his flight school was a “sham,” the loans were not used for a qualified educational purpose, and the school was not properly certified. These are issues raised over in this article. – Source

In the case Ard-Kelly v Sallie Mae the debtor owed $913,997 in loans. Of those loans all but $250,595 could be included in a $0 monthly Income Contingent Repayment plan. – Source

It appears all but $219,070 was found to be dischargeable in bankruptcy. While $219,070 is still a lot of money, it’s only 24% of the original balance stated. – Source

In Cotter v. Navient, the debtor had filed a Chapter 13 bankruptcy but was said to have still owed about $29,000 in student loan debt. Cotter stated, “Plaintiff incurred this student loan attending a school named ComputerTraining.com. The campus was located at 550 Polaris Parkway Westerville Ohio 43082. The Plaintiff started classes at said school on November 16, 2007 and was able to finish however the education he received was substandard, outdated and useless to him. Furthermore the school promised lifetime job placement assistance along with assistance with interviewing and resumes. The school he attended closed soon after he finished. The school in question is currently part of a class action lawsuit for fraud.” – Source

Following the court action regarding this debt the $29,000 balance was reduced to $2,500 with payments of $35.79 per month at 1% interest. This is about a 92% reduction in the amount owed. The debt will be fully repaid in 72 months. – Source

In Proctor v. Navient the debtor had co-signed for student loans for someone who was not a relative or dependent and said to not be qualified student loans protected in bankruptcy. – Source

The $188,787 balance was reduced to $15,535 at 3% interest and payments of $107.28 per month for 180 months. This is about a 92% reduction in the amount owed. – Source

So as you can see, recent closed bankruptcy Adversary Proceeding cases do result generally in some significant reductions in debt owed.

Steve Rhode
Get Out of Debt Guy – Twitter, G+, Facebook

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

Income-Driven Repayment Plans for Managing Crushing Levels of Student-Loan Debt: Financial Suicide

By the end of his first term in office, President Obama knew the federal student loan program was out of control. Default rates were up and millions of student borrowers had put their loans into forbearance or deferment because they were unable to make their monthly payments. Then in 2013, early in Obama's second term, The Consumer Financial Protection Bureau issued a comprehensive report titled A Closer Look at the Trillion that sketched out the magnitude of the crisis.

What to do? President Obama chose to promote income-driven repayment plans (IDRs) to give borrowers short-term relief from oppressive monthly loan payments. Obama's Department of Education rolled out two generous income-driven repayment plans:  the PAYE program, which was announced in 2012;  and REPAYE, introduced in 2016.

PAYE and REPAYE both require borrowers to make monthly payments equal to 10 percent of their adjusted gross income for 20 years: 240 payments in all.  Borrowers who make regular payments but do not pay off their loans by the end of the repayment period will have their loans forgiven, but the cancelled debt is taxable to them as income.

The higher education industry loves PAYE and REPAYE, and what's not to like? Neither plan requires colleges and universities to keep their costs in line or operate more efficiently. Students will continue borrowing more and more money  to pay exorbitant tuition prices, but  monthly payments will be manageable because they will be spread out over 20 years rather than ten.

But most people enrolling in PAYE or REPAYE are signing their own financial death warrants. By shifting to long-term, income-driven repayment plans, they become indentured servants to the government, paying a percentage of their income for the majority of their working lives.

And, as illustrated in an ongoing bankruptcy action, a lot of people who sign up for IDRs will be stone broke on the date they make their final payment.

In Murray v. Educational Credit Management Corporation, a Kansas bankruptcy judge granted a partial discharge of student-loan debt to Alan and Catherine Murray.  The Murrays borrowed $77,000 to get bachelor's and master's degrees, and paid back 70 percent of what they borrowed.

Unfortunately, the Murrays were unable to make their monthly payments for a time, and they put their loans into deferment.  Interest accrued over the years, and by the time they filed for bankruptcy, their student-loan indebtedness had grown to $311,000--four times what they borrowed.

A bankruptcy judge concluded that the Murrays had handled their loans in good faith but would never pay back their enormous debt--debt which was growing at the rate of $2,000 a month due to accruing interest.  Thus, the judge discharged the interest on their debt, requiring them only to pay back the original amount they borrowed.

Educational Credit Management Corporation, the Murrays' student-loan creditor, argued unsuccessfully that the Murrays should be place in a 20- or 25-year income-driven repayment plan. The bankruptcy judge rejected ECMC's demand, pointing out that the Murrays would never pay back the amount they owed and would be faced with a huge tax bill 20 years from now when their loan balance would be forgiven.

ECMC appealed, arguing that the bankruptcy judge erred when he took tax consequences into account when he granted the Murrays a partial discharge of their student loans. Tax consequences are speculative, ECMC insisted; and in event, the Murrays would almost certainly be insolvent at the end of the 20-year repayment term, and therefore they would not have to pay taxes on the forgiven loan balance.

What an astonishing admission! ECMC basically conceded that the Murrays would be broke at the end of a 20-year repayment plan, when they would be in their late sixties.

So if you are a struggling student-loan borrower who is considering an IDR, the Murray case is a cautionary tale. If you elect this option, you almost certainly will never pay off your student loans because your monthly payments won't cover accumulating interest.

Thus at the end of your repayment period--20 or 25 years from now--one of two things will happen. Either you will be faced with a huge tax bill because the amount of your forgiven loan is considered income by the IRS; or--as ECMC disarmingly admitted in the Murray case--you will be broke.

References

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

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