Tuesday, August 27, 2019

A disbarred lawyer is unable to discharge $250,000 in student loans in bankruptcy. Will he ever pay back those loans?

Paul Hurley obtained a law degree in 2004 and a master's degree in tax law in 2006. He took out student loans to fund his studies, and he was never in default on those loans.

About three years after getting his master's degree, Hurley took a job as a revenue agent for the Internal Revenue Service, which required him to audit taxpayers' federal tax returns. According to court documents, Hurley solicited a $20,000 bribe from a taxpayer in 2015, and he was convicted of two felonies: Receiving a bribe by a public official and receiving a gratuity by a public official. He was sentenced to 30 months in prison, and he lost his license to practice law in the state of Washington (601 B.R. at 532).

While still incarcerated, Hurley filed for bankruptcy and sought to discharge $256,000 in student loans. He was 45 years old at the time and had a three-year-old son. Hurley argued that it would be an undue hardship for him to pay back his student loans, given the fact that he could no longer practice law.

A bankruptcy court in the state of Washington denied Hurley's petition to discharge his student loans. In the court's opinion, Hurley failed the three-part Brunner test for determining whether repayment of his loans would constitute an undue hardship. 

In particular, the court ruled that Hurley failed the good faith prong of the Brunner test. In the court's view, Hurley's criminal conduct was "very significant' and outweighed his earlier, good-faith efforts to repay his student loans.

“As a lawyer,” the bankruptcy judge reasoned, “[Hurley] had to know that, if he committed the crime that he did, he would lose his ability to practice law. As such [Hurley] suffers from both failure to maximize his income and having willfully or negligently caused his financial condition” (601 B.R. at 533, appellate court quoting the bankruptcy court).

Hurley appealed the bankruptcy court’s decision to the Ninth Circuit Bankruptcy Appellate Panel, which affirmed the lower court’s opinion. The BAP court emphasized that it was not endorsing a bright-line rule that a criminal conviction always nullifies good faith. Nevertheless, the appellate court agreed with the bankruptcy judge that Hurley’s “willful criminal behavior tipped the balance against good faith”(601 B.R. at 536).

In addition, the BAP court agreed with the lower court that Hurley failed to maximize his income, which is a requirement for obtaining a student-loan discharge. Hurley maintained that he could not maximize his income because he lost his law license, but the BAP court pointed out that he lost his license “because of his willful conduct.”

Paul Hurley is not the most sympathetic person to seek student-loan relief in a bankruptcy court.  The BAP court and the bankruptcy court are clearly correct in concluding that Hurley’s financial predicament is the result of his own misbehavior.

But what did the BAP court accomplish when it ruled against Mr. Hurley? Will Hurley ever pay back the quarter of a million dollars he owes in student loans? No—I don’t think he will.

Hurley’s only hope now is to apply for an income-based repayment plan that will set his monthly loan payments based on his income. Such a plan will terminate in 20 or 25 years—when Hurley will be in his sixties. It seems virtually certain that his loan balance will keep growing with each passing month because interest will continue to accrue on his debt even if he makes his regular monthly loan payments.

Senator Bernie Sanders proposes student-loan forgiveness for everybodyeven Mr. Hurley. That may be going a bit far.

But people who are insolvent and unable to repay their student loans should be able to discharge those loans in bankruptcy like any other unsecured debt--even people who've made mistakes.

After all, what is the point of saddling Mr. Hurley with crushing student-loan debt he will never repay?




References

Hurley v. United States, 601 B.R. 529 (B.A.P. 9th Cir. 2019).



Friday, August 23, 2019

Warning: It can be dangerous to go to college if you are middle-aged

If you are 40 years old and don't have a college degree, you probably want one.  On average, people with college degrees make more money over the course of their lives than people without degrees.

Nevertheless, if you are in your  forties, fifties, or sixties, you must be careful about taking on debt, because you have fewer working years than a younger person to pay it back. And people in midlife or older need to be putting money away for their retirement.

That's why a report issued by the Department of Education earlier this month should be concerning to older Americans. The report is short--just two pages long, but it contains some interesting findings.

Twenty-five years ago, 60 percent of college completers in their twenties (age 24-29), took out student loans to pay for their education. Older graduates borrowed less. Only  about a third of graduates in their forties left college with student debt. Among people aged 50 or older, only 19 percent graduated with student debt.

But student-borrowing patterns have changed. In 2015-2016, 66 percent of college graduates in their twenties had taken out student loans. And among people in their forties, 71 percent had student debt when they graduated. In other words, for people who graduated college in their forties, the percentage who carried debt has doubled over 25 years (from 35 percent to 71 percent).

Moreover, the amount of student-loan debt taken out by students in their forties quadrupled between 1995-1996 and 2015-2016. Twenty-five years ago, people in their forties graduated with an average student-loan debt of $4,400. In 2016, this same age group graduated with $18,800 in student-loan debt (in constant dollars).

The DOE report's findings don't suggest that middle-aged people should not seek a college degree. It is probably a good idea for nearly everyone. But the report contains an implicit warning to older college students: Don't take out more student loans than absolutely necessary because you may have a very difficult time paying it back.

Already, millions of student debtors are enrolled in 25-year income-based repayment plans. A 25-year-old in such a plan will be 50 years old before he or she makes the last loan payment. But a person who graduates at age 50 and is forced into a 25-year repayment plan will be 75 years old. before the plan ends.

Who wants to be making student-loan payments during their retirement years? And remember, elderly people who default on their student loans can see their Social Security checks garnished. Bummer!

Did I make my monthly student-loan payment this month?


References

U.S. Department of Education (2019, August). Changes in Undergraduate Program Completers' Borrowing Rates and Loan Amounts by Age: 1995-1996 Through 2015-2016.

Monday, August 19, 2019

Trump hires a fox to run the chicken house: Former student-loan servicing exec named as new Student-Loan Ombudsman

President Trump and Education Secretary Betsy DeVos remind me of the two bullies in The Christmas Story: Scott Farkus and Grover Dill, who spend their days terrorizing elementary-school kids.

Since Trump was elected, his administration has aggressively signaled that it does it not give a goddamn about student-loan debtors. In fact,  his people seem to be looking for ways to demean them and increase their misery. Here's the latest:

The Trump administration recently announced that it is appointing Robert G. Cameron, a former executive of a student-loan servicing company as the Student Loan Ombudsman for the Consumer Financial Protection Bureau. Cameron is a former senior executive of the Pennsylvania Higher Education Assistance Agency (PHEAA), which operates nationally under the name of Fedloan Servicing, the outfit that royally screwed up the Public Service Loan Forgiveness program.

There's good money in being a student-loan servicing company. According to Mother Jones, PHEAA gave out $2.5 million in bonuses to executives in 2007 and spent hundreds of thousands of dollars a year on board retreats that included $150 cigars and falconry lessons.

As the Government Accountability Office reported last year, Fedloan Servicing (which GAO did not identify by name) processed more than one million people's applications to have their employment certified as eligible for student-loan forgiveness. Fedloan approved 75 percent of those applications.

Then when the borrowers filed to have their student loans forgiven, the Department of Education denied more than 90 percent of their claims. Fedloan Servicing has been sued for giving student borrowers inaccurate information, and the Department of Education has been sued for arbitrarily and capriciously denying public-service loan forgiveness claims.

So why would the Trump administration appoint an executive from a thoroughly discredited student-loan servicing outfit to be the Student Loan Ombudsman? Obviously, they don't care about the optics.

Trump and DeVos are blithely indifferent to the fact that there are 45 million student-loan borrowers in the United States, and most of them will vote in the 2020 election. They're "screwing over" an important constituency while Democratic presidential nominees are promising student-loan forgiveness.

By appointing Robert Cameron as Student Loan Ombudsman, Trump hired a fox to run the chicken house. But Trump forgot one important fact-- these chickens can vote.


Donald Trump and Betsy Devos: Modern-day bullies 

Friday, August 16, 2019

College life in the 1960s: Seven idiots in a 1960 Chrysler Imperial


I ain't hurtin' nobody. I ain't hurtin' no one.

John Prine

I enrolled at Oklahoma State University in 1966, just as the Vietnam War was heating up. The rules were quite clear. Boys could avoid the draft for four years if they kept their grades up. But if they flunked out, they’d be drafted and probably go to Vietnam.

I still remember some of my dorm buddies who lived with me in Cordell Hall, a four-story neo-Georgian monstrosity located near the ROTC drill field. No air conditioning. Most of us were poor or nearly poor or we wouldn’t have been living there.

I remember Delmar and Bobby, two freshmen from southwestern Oklahoma. Delmar was from the little town of Amber; Bobby was from the nearby village of Pocasset.  If you asked them where they were from, they both would say Ampo, expecting you to know that they were referring to the Amber-Pocasset Metropolitan Area.

And there was another kid whose name I’ve forgotten who was clinically shy and morbidly frail. His skin was almost translucent, which gave him the appearance of a young girl. I’m ashamed to saythe guys in the dorm nicknamed him Elsie. He never objected.

Everyone liked Elsie, partly because he had something most of us didn’t have: a car. His parents loaned him their 1960 Chrysler Imperial, perhaps the ugliest car ever made. It had all sorts of buttons and gadgets, including power windows, which I had never seen before.

Elsie was incredibly generous with his car and loaned it to just about anyone who asked. One Saturday during the fall semester, Delmar wanted to go to Oklahoma City to see his girlfriend, and he asked Elsie if he could borrow the Chrysler. Oklahoma City was 120 miles away, but Elsie offered to drive him there. Several bored freshmen joined the expedition, and six or seven of us piled into the Imperial for the run to OKC.

But Elsie didn’t drive us. Delmar insisted on taking the wheel, and when we got out on Interstate 35, he said, “Let’s see how fast this baby will go.” In an instant, we were hurtling south at 120 miles an hour. No seat belts.

I was terrified but I didn’t have the courage to tell Delmar to slow down. Then I looked through the rear window, and I saw a Highway Patrol cruiser closing in on us--siren wailing.

Delmar panicked when he heard the siren. In a desperate attempt to get his speed down to double digits, he stomped down on the brake pedal and jerked up the hand brake. That definitely slowed us down.

Delmar laid down about 100 feet of skid marks, which you can probably still see on Interstate 35. In an instant, the whole car was filled with smoke and the smell of burning rubber and fried brake pads.

We’re in big trouble now, I thought. But the cop didn’t seem concerned about the fact that seven idiot teenagers were apparently trying to kill themselves in a Chrysler. The cop said hardly a word; he just wrote Delmar a speeding ticket and drove away in his cruiser.

Ampo Bobby also had a car, an old Chevy Nova; and every Monday night he chauffeured a bunch of freshmen to Griff’s Drive-In. Griff’s sold tiny hamburgers for 15 cents apiece, and on Monday nights it sold them for a dime. Pooling our resources, we could usually scrape up three bucks, which would buy us 30 hamburgers. We all ate four apiece, and a couple of big eaters would eat five. Oh, we were living high!

One Monday night, we were waiting in Griff’s drive-through lane and Bobby notice a metal gasoline can behind Griff’s back door. Bobby got out of the car, shook the can, and confirmed there was fuel in it. Free gas! Bobby put the gas can in the backseat of his car, and we picked up our 30 burgers at the drive-through window.

Unfortunately for Bobby, an alert Griff’s employee witnessed the theft and called the Stillwater police. A cruiser arrived immediately, and an elderly officer gave us all a lecture on stealing. He confiscated the gas can and then walked to the back of Bobby’s car to jot down the license plate number.

And what did Stillwater’s finest see on the rear bumper? A sticker that said, “Support Your Local Fuzz.” Now we’re really in trouble, I thought. We’re going to be arrested, OSU will kick us out of school, and we’ll all wind up in Vietnam.

But the officer had seen moron college students before and knew we were basically harmless. He just shook his head when he saw the bumper sticker and drove off without even giving us a citation.

The 1960 Chrysler Imperial: Power windows!


Oklahoma Highway Patrol: "Let's be careful out there."


Griff's Hamburgers: 10 burgers for a dollar (but only on Mondays)


Thursday, August 15, 2019

"Luxury" apartments for college students: How will the kids pay the rent?

Bloomberg Businessweek carried a story recently about the emergence of luxury housing for college students. In recent years, real estate developers have been building "amenity-rich luxury apartments" near universities. These new apartment complexes are very attractive to students, especially when compared to the often run-down dormitories that the universities operate.

But these so-called luxury apartments are expensive, and they've contributed to the rising cost of student housing. As Bloomberg writer Ali Breland reported, "the estimated cost of on- and off-campus room and board at a four-year public university climbed by more than 82 percent, adjusted for inflation." During the same time period, rents across the nation as a whole only rose 19 percent.

How are students paying for their fancy digs? Many of them are paying the rent with student loans. The average college graduate now leaves school with $35,000 in student debt, and for many students, a significant chunk of that money was spent on housing.

So what's the problem?

First of all, a lot of students are taking out student loans for housing they really can't afford. When their student-loan bills come due, a lot of them will wish they had lived more modestly while they were working on their degrees in medieval literature.

Second, by borrowing money to pay for "luxury" living, students are living a lifestyle they can't sustain after they finish their studies and go looking for a job. It is hard for college students to accept the reality that their standard of living will go down once they've obtained their college degrees.

The upscale student-housing boom imposes a cost on college communities as well.  A lot of this so-called luxury student housing isn't luxurious at all.  Student-housing complexes may have swimming pools, clubhouses, and shiny appliances, but many of them are shoddily constructed, with plastic interior doors and particle-board cabinets.

I live just a few blocks from some of these student-oriented apartment complexes, and even the newer ones are beginning to look the worse for wear.  The day is fast approaching when these faux-luxury apartment buildings will just be slums.

But the real estate developers don't care. These complexes are being packaged and sold to investors as commercial real-estate-backed securities--very similar to the mortgage-backed securities that were being peddled before the housing crisis of 2008.

In my view, the luxury student-housing boom is a bubble. Too many of them are being built. No wonder the default rate on student-oriented housing mortgages has rocketed up to 9 percent!

Luxury student housing: Living the good life while still in college

Wednesday, August 14, 2019

Oklahoma State University's great snowball riot of 1968: A tale of my misspent youth

When I think back
On all the crap I learned in high school
It's a wonder
I can think at all.

Paul Simon

I graduated from Oklahoma State University almost 50 years ago, and I can say with no exaggeration that I didn't learn a goddamn thing.

But I had one thrilling experience at OSU, which I am going to tell you about. During my sophomore year, I had a friend named Paul who was a radio-television major and worked as a DJ in the evenings at the campus radio station.

One snowy night during the winter of 1968, Paul made an on-air announcement that the Sigma Nu fraternity house had challenged Scott Hall, a men's dorm, to a snowball fight. This simple statement--totally false--electrified the OSU campus.

Like most male OSU undergraduates, I was a GDI--a goddamn independent; I hated the fraternity boys, with their starched oxford-cloth shirts, their pretty girlfriends, and the nice cars their parents gave them. A chance to throw snowballs at these arrogant, rich boys? Who could say no?

Shortly after Paul made his bogus announcement, phone calls came flooding into the radio station. Someone from Bennett Hall said the dorm was pledging 50 men to the snowball fight.  The Sigma Chi fraternity reported that its entire membership was headed to the Sigma Nu house to join the fight.

I recall looking out the window of my dorm room and seeing my friends streaming out the door, scrambling into their winter coats as they ran toward fraternity row. Obviously, I had to be there.

Within a few minutes, I had joined a mob of GDIs in the university's formal gardens. It was like the battle scene in Dr. Zivago, when the Red Guards stormed over the ice to fight the White Russians. Hundreds of young men, wild with excitement, were charging toward the Sigma Nu house.

And then we threw some snowballs. In about 15 minutes we had broken out most of the windows on the front side of the Sigma Nu house. The Sigma Nus tried to defend their turf, aided by their allies from other fraternities. But we had them outnumbered. They was a riot goin' on!

Meanwhile, Paul, still broadcasting from the radio station, decided to report the fracas over the state newswire service. That report alerted the Oklahoma Highway Patrol, and the state troopers called for police backup from the surrounding towns of northcentral Oklahoma.  

After all, why should college kids have all the fun?

Oklahoma's law enforcement community had always suspected that OSU was a nest of commie sympathizers and Russian stooges, and this riot proved that their suspicions were right.  Patrol cars rolled in from all directions, and every officer was equipped with a sawed-off shotgun and plenty of double-ought buckshot. 

Who knew what glittering opportunities awaited the cops when they got to the OSU campus? If they were lucky, maybe they'd get a chance to kill a few anarchists.

And so--about an hour after the snowball fight began, the state troopers had formed a skirmish line in front of the Sigma Nu house. Some pompous Highway Patrol guy with a buzz haircut and a bullhorn told the independents they would be arrested if they didn't disperse immediately.

For a few minutes, we paid no attention to this warning, and I myself threw a snowball at the guy with the bullhorn. But the GDIs were no fools. We knew the Oklahoma Highway Patrol was not to be messed with. And so we melted away through OSU's beloved formal gardens--which we had dishonored by our lawlessness--and slunk back to our cell-like dorm rooms.

That evening in February 1968 was my most memorable experience from my OSU years. I still recall the satisfying sound of breaking glass after I lobbed an iceball at the Sigma Nu house--my feeble contribution to class warfare.

I am older today of course. But I only reside about half a mile from LSU's Sigma Nu house. If conditions were just right and snow fell on Baton Rouge, and if I were to receive a call to storm fraternity row, well I might just join the fray.



Oklahoma State University's formal gardens--sullied by lawlessness





Tuesday, August 13, 2019

Michigan State prez Lou Anna Simon--charged with lying to police--gets $2.45 million retirement package!

Lou Anna Simon was president of Michigan State University when the Larry Nassar sex-abuse scandal broke. Nassar, an MSU faculty member and team physician for the Olympics USA gymnastics team, pleaded guilty to sexual abuse charges and will spend the rest of his life in prison.

There is substantial evidence that several senior MSU administrators were aware of what Nassar was doing to young women and did nothing about it. Lou Anna Simon herself faces felony charges for allegedly lying to police about what she knew about Nassar's shenanigans.

Before police discovered that Larry Nasser had been molesting MSU students, President Simon had a good gig. She made $750,000 a year when she resigned as MSU's president in 2018. MSU allowed her to remain on the MSU faculty at the paltry salary of only half a million.

Now, with criminal charges still hanging over her head, Simon is retiring with a nice little parting gift: $2.45 million!

Obviously, the MSU trustees were aware that Simon might be convicted of a felony when they cut the retirement deal, and the separation agreement makes provision for that possibility. If she is convicted, the trustees will take down her official presidential photo. But of course, she will still get to keep the retirement money.

As for victims of Larry Nassar's sexual assaults, MSU has set aside a half-billion dollars to pay claims to an estimated 332 victims. Hey, that's just pocket change for this mega university.  Moody's Investors Service, a credit rating agency, assured investors that "t]he university has the financial strength to absorb the proposed settlement within its strong credit profile." After all, MSU generates more than a quarter of a billion dollars a year in operating revenue and has "ample ability to absorb debt service related to the settlement amount."

One might think Lou Anna Simon's compensation package is an aberration, but it is not.   Simon ranks 44 among the nation's top-paid university presidents. In fact, 17 university presidents make over $1 million a year in total compensation.

You might imagine college presidents as bookish men and women who spend their days strolling through the groves of academe and thinking noble thoughts about the ancient virtues.  But in fact, they are raking in a lot of cash, and many of them are pretty mediocre individuals.

And some of them are not minding the store. Michigan State, Penn State, Baylor, and the University of Southern California are a few of the once noble universities that have been wracked by sexual abuse scandals, which are costing them billions in settlement payouts and attorney fees.

So think about Lou Anna Simon, boys and girls, when you take out student loans to finance your college education. You may be saddled with student debt for the rest of your lives, but the people who run the universities that are taking your money are making out like bandits.

Lou Anna Simon
Photo credit: Cory Morse, Grand Rapids Press