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

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

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

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

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

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

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

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

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

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

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

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

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

*****

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

References

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

Thomas M. Cooley Law School

Jamie Mudd v. U.S. Department of Education: A Nebraska bankruptcy court discharges a grandmother's student loans

 Between 2006 and 2015, Jamie Mudd took out 41 student loans to attend Heald College, a for-profit institution, and San Joaquin Delta College, a public institution. In 2015, she rolled these loans into two consolidated federal loans, totally about $72,000. 

Mudd put her student loans into an income-based repayment plan (IBRP) that established her monthly payments at zero due to her low income.  Under this plan, she was obligated to certify her income on an annual basis. Evidently, she forgot to do this because the U.S. Department of Education (DOE) removed her from the IBRP and reset her monthly payments at almost $800 per month. 

Mudd was readmitted into an IBRP, but she again failed to certify her income, and DOE set her new monthly payment at $963.

According to Bankruptcy Judge Shon Hastings, Mudd never earned more than $13 an hour, and she often worked two jobs to make ends meet. She lived in a one-bedroom apartment and incurred regular expenses caring for a grandson with disabilities. She also suffered from significant health problems.

Ms. Mudd filed an adversary proceeding, hoping to discharge her student loans, but DOE objected. First, DOE said Mudd's financial circumstances would probably improve, enabling her to make modest payments in an IBRP.  Second, Mudd was a smoker, and DOE said she should save her cigarette money and use it to pay down her student loans. DOE also claimed that Mudd's expenses for her grandson's video streaming were unnecessary.  Indeed, DOE disapproved of any money Mudd spent on her grandson.

Fortunately, Bankruptcy Judge Shon Hastings was considerably more compassionate than DOE. In a decision issued last month, Judge Hastings discharged all of Mudd's student-loan debt.

In ruling in Mudd's favor, Judge Hastings applied the "totality of circumstances" test approved by the Eighth Circuit Court of Appeals. This is a summary of his reasoning:

Mudd has made a good faith effort to maximize her income. Mudd works approximately 53 hours per week at two jobs. . . . Overall, Mudd's expenses are necessary and reasonable and consistent with a minimal standard of living. . . . She has no savings, owns no assets of significant value (except her used car in which she holds no equity), lives in a one-bedroom apartment and obtains food and toiletries from local nonprofit organizations to make ends met. Her medical expenses are higher than budgeted, and she anticipates that her health care costs will continue to rise due to her high cholesterol and diabetes.  

In short, Judge Hastings concluded, Mudd did not have sufficient disposable income to pay on her student loans. Thus, the judge discharged all of this debt.

Judge Hastings specifically rejected DOE's suggestion that Mudd should not be credited for the expenses she incurred for her grandson. "[T]he Court finds it entirely inappropriate to find or suggest that Mudd should not care for her grandson or to weigh undue burden factors against her for doing so." 

Judge Hasting's ruling should not surprise us. Clearly, Jamie Mudd was in dire financial straits and entitled to discharge her student loans in bankruptcy.

What is shocking is the fact that DOE objected. Mudd v. U.S. Department of Education is just one more example of the federal government's heartlessness toward college-loan debtors, heartlessness that borders on viciousness

References

Mudd v. U.S. Department of Education, Adversary No. 19-04048, 2020 WL 7330054 (Bank. D. Neb. Dec. 9, 2020).

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

In September 2020, Bankruptcy Judge Martin Glen slapped a huge contempt penalty on Great Lakes Educational Loan Servicers--$378,629.62! Why? Because Great Lakes repeatedly refused to comply with Judge Glen's directives in a student-loan bankruptcy case.

Leary v. Great Lakes Educational Loan Servicers: The facts

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

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

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

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

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

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

Finally, Great Lakes argued that sanctions were not warranted because Great Lake’s noncompliance had no impact on Leary’s litigation costs or his indebtedness. 

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

Judge Glen:  Great Lakes was "grossly negligent"

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

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

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

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

Judge Glen finds DOE’s conduct “highly questionable”

Judge Glen's decision fingered Great Lakes as the bad guy in the Leary case, but he found DOE's conduct to be "highly questionable." Obviously, DOE's lawyers knew what Great Lakes was doing and made no objection. It is hard to escape the conclusion that DOE deliberately allowed Great Lakes to flout Judge Glen's orders in order to sabotage Mr. Leary's attempt to discharge his student loans in bankruptcy.

References

Leary v. Great Lakes Educational Loan Services, 620 B.R. 39 (Bankr. S.D.N.Y 2020).

Pro quarterback Tom Brady gets $1 million in PPE money plus tax break, but no tax breaks for distressed student loan debtors

 According to CNBC, Tom Brady, the Tampa Bay Buccaneers' highly-paid quarterback, got a check for $960,00 from the Smal Business Administration's Payroll Protection Plan. Why? Because, besides playing football, Mr. Brady owns a sports and nutrition company.

Does Mr. Brady need the money? Earlier this year, he signed a $50 million two-year deal to play football for the Buccaneers.

And Mr. Brady gets a tax break that goes with that $960,000 check.  Brady and everyone who received a PPP check can deduct their business expenses for the year, even if they paid those expenses with the federal government's free money.

Is this a great country or what!

Meanwhile, nine million student-loan debtors who are enrolled in long-term income-based repayment plans (IBRPs) have enormous tax bills hanging over their heads.  

IBRPs allow college-loan borrowers to make monthly payments on their loans based on their income. If they make regular payments for 20 or 25 years, the balance on their loans is forgiven. However, the amount of forgiveness is considered taxable income by the IRS.

I do not quarrel with Congress's COVID-relief legislation. Perhaps it is good public policy to give Tom Brady a million bucks while my relatives get a lousy $600.

I just hope my children and grandchildren will become rich enough someday to qualify for government handouts.

Every Person in Debt Deserves to Be Treated With Dignity, essay by Steve Rhode

 Written by Steve Rhode

 Originally published at Get Out of Debt Guy

We assume that it is wrong not to treat others with kindness in all corners of life. For example, in the U.S., we no longer have separate entrances based on your skin color. Buildings make allowances for physical limitations, and a recent news story said that more people had developed a tolerance for others’ religion.

But we could make some advances in learning to treat people in debt with dignity. I’d have to say that currently, society treats debtors as losers and if debtors were on a ledge getting ready to leap, a crowd below would be yelling “Jump!”

The majority of people without financial problems love a little debtor voyeurism and witness others’ financial misery. It’s like watching the train wreck through cracks in your fingers as you hold your hand over your eyes. You don’t want to watch, but you do.

Imagine if suicide was like debt, and when you were contemplating killing yourself, your creditors kept calling you and say things like “you are a loser” or “just do it and good riddance”? That’s some pretty cruel mojo. Maybe we should call the overweight kid that is depressed and yell, “fatty, fatty” into the phone. Now that is some intense and insensitive cruelty.

Why is it when people are in financial trouble that we can’t wrap our arms around them and treat them with care, compassion, and respect? We should. We all should.

If you’ve never been deep in debt and afraid, unable to sleep, on the verge of an anxiety attack, and depressed, it might be hard for you to imagine what life is like during those dark days of debt. While some might put on a mask, most people are ashamed, unhappy, and afraid inside.

Being in debt is modern-day leprosy.

When you can’t spend money as you used to, and people don’t seem to be around as much, your life changes in a way that you perceive to be for the worse and when you’ve got to move because you can’t afford the rent, it’s like being hustled off to the leper colony. You’re now isolated for all the wrong reasons.

I can’t think of any time that I’ve ever seen someone post a sign in their front yard that says, “Hi Y’all, we’re so broke we can’t afford to live here anymore, and we are getting kicked out.” Actually, what I’ve seen more of are foreclosed homes with everything left behind, including wedding pictures and the belongings of evicted people left by the side of the road for passerby’s to pick through. Ashamed people flee.

Debtors deserve dignity. I’m not saying that we need to give anyone a free ride in life. I’m just saying that people in debt are wounded and deserve to be treated as you would anyone in a difficult time or a fragile moment.

Being in debt is a mathematical position with emotional manifestations. Being unable to pay your bills is not a casual reality for most debtors. People in debt want to pay their bills, they do, but they can’t see a way, or they are not emotionally ready to make those hard lifestyle changes to meet their new obligations.

Being unready or unprepared to make changes to get the numbers to line up does not make you a bad person. It just makes you someone that, for some reason, is unwilling to make some difficult choices right then.

Being in debt is about managing depression, despair, and loneliness. I’m not saying that all debtors feel that way, but most do. Being in debt is about a loss of self-esteem and self-confidence. It’s about being unable to make a plan, stick to it, and make it happen.

The emotional pain of being in debt robs us of our own dignity. The rest of society does almost nothing to help cradle the debtor with love and compassion to soften the blow and ease the journey.

Debtors are losers. Debtors are rejects. Debtors are liars. Debtors are a failure. And all of those statements are uttered every day by people, and none of them are true. Instead, they are like the insensitive bully’s schoolyard shouts that leave scars for life on fragile minds.

Debtors do have a duty to find a solution to make the pain and misery through change. But that can be like asking someone with a bad back to run a marathon.

Being in debt is a thing, but being a debtor is personal, and debtors deserve to be treated with dignity and compassion while helping towards a solution.

Doing something nice today, give a debtor a hug.

Steve Rhode is the Get Out of Debt Guy and has been helping good people with bad debt problems since 1994. You can learn more about Steve, here.  You can read this essay on Mr. Rhode's web site at https://getoutofdebt.org/21762/debt-with-dignity.

Say goodbye to your golden years: 100 million Americans have no retirement savings

According to the  National Insitute on Retirement Security, more than 100 million Americans have no retirement savings whatsoever. 

As Diane Oakley, NIRS executive director, observed:

The facts and data are clear. Retirement is in peril for most working-class Americans . . . When all working individuals are considered--not just the minority with retirement accounts--the typical working American has zero, zilch, nothing saved for retirement.

The NIRS partly blamed the 2007 recession for the bad news. But the report was issued in 2018--before the coronavirus put millions of people out of work.  Over the past year, Americans have dipped into their savings and their retirement accounts just to pay today's bills.

 A 2019 survey also reported bad news for American retirees. A GobankingRanks survey concluded that almost two out of three Americans (64 percent) will retire broke. And--shockingly--nearly half of the people surveyed said they'd didn't care!

Clearly, millions of Americans are not preparing for their retirement years. Many workers don't make enough money to fund a retirement account, and others are overwhelmed with consumer debt--home mortgages, car payments, and credit card bills.

And student-loan debt is a significant contributor to Americans' precarious financial status. More than 40 million people have outstanding student debt, and less than half that number are paying it off. Nine million student-loan debtors are in long-term income-based repayment plans, which means they will never pay down their loan balances.

What is going to happen to all these impecunious Americans when they reach retirement age?

A great many will just keep working until they die or become too incapacitated to be a Walmart greeter. Others will tap the equity in their homes or draw down their meager savings just to pay their utility bills. Some will move in with their kids--who will have their own financial troubles.

As a recent New Yorker article noted, there is a growing movement to increase the minimum wage to $15 an hour. I hope Congress does exactly that.

Nevertheless, even if the minimum wage is roughly doubled, elderly Americans who work full-time at Wendy's for $15 an hour will generate just enough income to keep them above the poverty line.

Working on their feet for eight hours a day will be difficult for people in their seventies.  Many will have to pop Chinese-manufactured Advils to keep their arthritis under control.  But it can be done.

But the days when Americans referred to retirement as the Golden Years are over.  For many Americans, their last years will not be golden. They will be difficult, bitter, and depressing.

photo credit: finance.yahoo.com