Tingling v. ECMC: 52-year old student-loan debtor with multiple degrees loses her case before Second Circuit Court of Appeals

Bankruptcy is intended to give honest but unfortunate debtors a fresh start in life. People who mismanage their finances, spend money improvidently or go broke through their own stupidity can shed their debts in a bankruptcy court.

That is a good thing. 

But the Bankruptcy Code contains an exception for insolvent student-loan borrowers. Unless they can show "undue hardship," they can't get free of their college loans. 

The Second Circuit Court of Appeals defined undue hardship in its Brunner decision, rendered in 1987.  To qualify for a discharge of their student loans, debtors must make three showings: 

1) They cannot pay off their loans and maintain a minimum standard of living.  

2) Their financial condition is unlikely to improve over the terms of the loans.

3) They handled their student loans in good faith.  

Some commentators (including me) hope the Second Circuit will reconsider the harsh Brunner test and perhaps overrule it or at least interpret it more humanely.

Unfortunately, Tingling v. ECMC, decided about a month ago, is a signal that the Second Circuit is not willing to abandon Brunner.

Janet Tingling, age 52, tried to discharge student debt accumulated to obtain multiple degrees (a B.S. and M.S. in biology, an M.B.A., and a Doctorate in Business Administration). Her adjusted gross income was about $50,000 before filing bankruptcy. Her total student-loan debt (including principal, interest, fees, and costs) was $59,000.

Tingling was initially represented by a lawyer in her bankruptcy proceedings, but she released her attorney and pursued her adversary action alone.

Bankruptcy Judge Alan S. Trust denied Ms. Tingling's application to shed her student loans, finding that she failed all three parts of the Brunner test. She appealed to U.S. District Court Judge Joanna Seybert, and she upheld Judge Trust's ruling.

Last month, a three-judge panel of the Second Circuit Court of Appeals (Judges Cabranes, Raggi, and Sullivan) upheld Judge Trust's bankruptcy opinion, ruling that he had applied the Brunner test correctly. The panel expressed no interest in modifying or overruling the Brunner standard.

I am not unduly disheartened by the Second Circuit's Tingling decision.  After all, Janet Tingling's situation was not as compelling as that of other more hard-pressed debtors who have wound up in a bankruptcy court. 

The Second Circuit pointed out that she "is of relatively young age (52 years old), in good health, possesses two graduate degrees in healthcare administration, lacks dependents, and, by all indications, is able to maintain her current level of income" (Tingling v. ECMC, 990 F.3d at 309).

I hope another debtor--someone in more desperate circumstances--takes her case to the Second Circuit and challenges the Brunner test.

 And I hope that person is represented by a competent and energetic lawyer.  Ms. Tingling was handicapped, no doubt, by the fact that she fought her case into the appellate courts on her own, without legal counsel to advise and assist her. 

References

Tingling v. Educational Credit Management Corporation, 900 F.3d 304 (2d Cir. 2021).

President Biden ponders $50,000 student-loan cancelation: That doesn't go nearly far enough

 President Biden has asked Education Secretary Miguel Cardona to prepare a memo on the president's legal authority to cancel up to $50,000 in student debt.  

If he did that, the experts tell us, President Biden would forgive all college-loan debt for 36 million people--about 80 percent of all borrowers. 

Is that a good idea? 

Sort of. Anything the federal government does to provide relief to distressed student-loan debtors is good, so I support a massive cancelation of student debt.

Nevertheless, one-time debt forgiveness is the wrong approach. 

Wiping out student debt without reforming the student-loan program is like fixing a flat tire on a broken-down car and then putting it back on the highway with no brakes. Someone down the road is going to get hurt.

The whole damned, rotten student-loan system has to be torn down. Otherwise, the corrupt, venal, and incompetent American higher education system will continue ripping off the American people.

Obviously, massive reform can't be accomplished overnight.  But here is what we need to do for starters:

1) Congress must remove the "undue hardship" clause from the Bankruptcy Code and allow insolvent student-loan debtors to discharge their loans in bankruptcy. 

2) We've got to shut down the Parent Plus program.

3) The federal government has got to stop subsidizing the for-profit colleges, which have hurt so many young people--especially people of color and low-income people.

4) We've got to stop shoving student borrowers into 25-year, income-based repayment plans that are structured such that no one in these plans can ever pay off their loans.  There almost 9 million people in IBRPs now. 

5) The universities have got to start offering programs that help their graduates get a real job. Degrees in ethnic studies, diversity studies, LGBT studies, and gender studies only prepare people for jobs teaching ethnic studies, diversity studies, gender studies, and LGBT studies.

6) Finally, we must restore the integrity of the nation's law schools.  We've got too many mediocre law schools. California alone has more than 50 law schools, with only 18 accredited by the American Bar Association.   And the law schools need to go back to admitting students based on objective criteria--the LSAT score, in particular.

If we had fewer but better-trained lawyers, we'd have less litigation and fewer attorneys who see their job as being hired political hacks.

Will the Biden administration do any of the things I've outlined? I doubt it.

Higher education is in desperate need of reform. A college education is far too expensive, and much of what is taught at the universities is not useful.  Wiping out student debt will bring some relief to millions of college borrowers. But if the colleges don't change how they do business, the student-debt crisis will not be solved.

Don't let college professors persuade you that learning to speak Standard English is optional

I've been to Georgia on a fast train honey,

I wudn't born no yesterday.

Got a good Christian raisin' and an eighth-grade education

Ain't no need in y'all a treatin' me this way.

Billy Joe Shaver 

A while back, I met an elderly man who told me he had grown up in the Texas Panhandle back in the 1950s.  As a child, he spoke with a strong West Texas accent. But then his family moved to Arizona, and no one could understand him at his new school.

Fortunately, the man recounted,  an Arizona teacher began tutoring him on a one-to-one basis and taught him to speak standard English without a Texas accent. "If it hadn't been for that teacher," he said, "I would never have made a success of my life."

This man's story made an impression on me because I grew up in western Oklahoma, where the people speak very much like the West Texans.  To this day, I have some range dust in my diction; and I think at least some of my classmates at Harvard wrote me off as hick when they first heard me speak.  

Now there is a movement to de-emphasize standard English because it disadvantages minorities--particularly African Americans.  For example, Professor Asao Inoue of Arizona State University argues that students should not be graded based on the quality of writing but "purely by the labor students complete . . ." 

Why should professors stop grading students on the quality of their writing? "Because, Professor Inoue maintains, "all grading and assessment exist within systems that uphold singular, dominant standards that are racist, and White supremacist."

 Rebecca Walkowitz, chair of the English Department at Rutgers University, is on Professor Inoue's wavelength. She sent an email recently, announcing an initiative to incorporate "critical grammar" into the department's pedagogy.

Critical grammar pedagogy, Professor Walkowitz's email stated, "challenges the familiar dogma that writing instruction should limit emphasis on grammar/sentence-level issues so as not to put students from multilingual, non-standard 'academic' English backgrounds at a disadvantage."

Professors Inuoue and Walkowitz's views on language are in harmony with the ebonics movement, which asserts that Black English should be regarded as a language in its own right and not a substandard dialect of proper English.

I sympathize with the academics who argue that we should show more respect for non-standard English. Indeed, some of America's greatest literature contain expressions in non-standard dialect. Huckleberry Finn, for example. And the lyrics of country music (which I love) are full of non-standard English phrases.

When Merle Haggard wrote Hungry Eyes, he penned, "us kids was too young to realize."  Should we give him a C- because he didn't write "we children were too young to realize"? And Elvis--should he have sung "You are nothing but a hound dog"?

Nevertheless, I believe all Americans should strive to master standard English in both their speech and their writing. After all, shouldn't we endeavor to build a common culture? And if that is so, isn't a common culture built on a common language?

I acknowledge that some Americans grew up in subcultures that did not value standard English. Those subcultures should not be denigrated.  I said "y'all" as a kid, and I still say "y'all." 

But standard English is not that hard to learn. I keep Strunk and White's Elements of Style on my desk, which I consult occasionally; and I subscribe to Grammarly, an online editing tool that checks my writing for spelling and grammar. All our commuters have a spell check function.

Besides, every young American must eventually leave academia, where grammar and spelling are being emphasized, and get a paying job. American employers may insist that their employees write and speak in standard English. Indeed, job candidates who misspell words on their job applications and converse in an obscure dialect may not get hired.

In my view, academics who want to deemphasize standard English grammar and diction are doing their students a disservice. Millions of young people are graduating from universities with crushing student loans. If they leave college speaking and writing no differently from when they entered, what was the point of all that education?

"This student loan case fits the definition of insanity": Bankruptcy judge grants 56-year-old Kansan partial relief from his student-loan debt

 In Goodvin v. Educational Credit Management Corporation, Judge Dale Somers, a Kansas bankruptcy judge, began his opinion with these words:  "This student loan case fits the definition of insanity."

Judge Somers went on to chronicle the story of Jeffrey Goodvin. 

Mr. Goodvin attended Wichita State University for four years (1982-1986) but did not obtain a degree. He enrolled at Brooks Institute of Photography in 1987 and got a bachelor's degree in fine arts in 1990. In 2007, he enrolled at Santa Barbara City College and obtained a certificate in multimedia studies. 

Goodvin made repeated attempts to find steady employment over many years, but he worked in an unstable industry.  Judge Somers summarized Mr. Goodvin's job history as being "marked by several relocations, intermittent job loss, layoffs, and periods of unemployment, through no apparent fault of his own." In 2018, Goodvin entered an apprentice program with the Plumbers and Pipefitters Union. 

By the time Goodvin filed for bankruptcy in 2019, he was 56 years old, and he owed $77,000 in student loans. Educational Credit Management Corporation (ECMC) held Goodvin's largest loan, a consolidated loan that Goodvin took out in 1992. 

And here is where Judge Somers found insanity. The principal of Goodvin's consolidated loan was only $12,077, and Goodvin had paid $19,527 on that loan--more than 150 percent of the amount that was disbursed. But interest on that loan accrued at 9 percent. By the time Mr. Goodvin filed for bankruptcy, he owed $49,000 on that $12,000 loan. 

Predictably, ECMC argued that Mr. Goodvin should be placed in the Department of Education's REPAYE plan, a 20-year income-based repayment plan that would end when he was 76 years old. ECMC did not contend, however, that Goodvin would ever pay off his student loans. In fact, Judge Somers noted dryly, "To argue otherwise would strain incredulity."

Naturally, Mr. Goodvin did not want to enroll in a repayment program that would not end until he was ten years into retirement. Moreover, as Judge Somers pointed out, Goodvin's payments under a REPAYE plan would not cover accruing interest. As Judge Somers observed, "Goodvin's reluctance to participate in the REPAYE plan for another twenty years is not a lack of good faith; it's called hopelessness."

Very sensibly, Judge Somers granted Mr. Goodvin partial relief from his student debt. The judge discharged the consolidated loan, which he described as "the elephant in the room."  That loan, accruing interest at 9 percent, amounted to 64 percent of Goodvin's total student-loan indebtedness. 

That leaves Mr. Goodvin with an obligation to pay back $27,689, an amount that he can probably manage.

Judge Somers' sensible and refreshing decision is a sign that the federal bankruptcy courts are recognizing the enormity of the student-loan crisis.  ECMC appealed to the U.S. district court, but Judge John Lungstrum upheld  Judge Somers' ruling.

This is the third bankruptcy court decision out of Kansas in recent years to grant a partial discharge of student loans. ECMC was a defendant in all three cases, and it appealed all three decisions. Remarkably, federal district courts, acting in their appellate capacity, upheld the bankruptcy judge in all three matters.

Judge Somers was right: The Goodvin case fits the definition of insanity. His decision, thank God, restores some sanity to Mr. Goodvin's life, which should hearten us all.

References

Goodvin v. Educ. Credit Mgmt. Corp., Case No. 19-10623, Adv. No. 19-3105, 2020 WL 6821867 (Bank. D. Kan. Sept. 9, 2020), aff'd, Educ. Credit Mgmt. Corp. v. Goodvin, Case No. 20-cv-147-JWL (D. Kan. March 17, 2021).

Sweet v. DeVos: A federal judge calls Education Department's Borrow-Defense process "Kafkaesque"

In 2019, a group of student-loan debtors filed a lawsuit against the U.S. Department of Education and Education Secretary Betsy DeVos. 

Claiming to represent more than 100,000 student-loan borrowers, the plaintiffs accused DOE of issuing "blanket refusal[s]" when students tried to have their student loans forgiven based on claims they had been defrauded by the for-profit colleges they attended. 

More particularly, the plaintiffs accused DOE of “stonewalling” the fraud-claims process and allowing more than 200,000 fraud claims to languish for eighteen months.

In October 2019, Federal Judge William Alsup certified the lawsuit as a class action (Sweet I); and on May 22, 2020, Judge Alsup approved a preliminary settlement proposal that would end the litigation (Sweet II). 

Under the terms of the proposed settlement, DOE pledged “to decide claims and notify borrowers within eighteen months of final approval and implement relief within twenty-one [months].” DOE also agreed to be penalized if it delayed its decisions.

The plaintiff students apparently believed DOE would process the fraud claims in good faith based on a review of each individual claim. But they discovered that DOE denied almost all claims by sending a form letter that told petitioners their requests were denied based on “Insufficient Evidence.”

As reported in Forbes, borrowers accused DOE of "skirting the spirit of the settlement agreement, by essentially, arbitrarily denying relief to everyone." DOE admitted that since April 2020 it had denied 94% of all borrower-defense claims. 

When DOE’s behavior came to Judge Alsup’s attention, he was not happy. As he explained in his order, DOE’s form letters did not explain why students’ claims were almost uniformly rejected.

  Although individuals could request reconsideration of their individual denials, they had no basis for doing so since DOE gave no reason for the rejections.  Indeed, Judge Alsup observed, “the borrower’s path forward rings disturbingly Kafkaesque” (Sweet III, p. 5).

In fact, it is hard to read Judge Alsup’s opinion without coming to the conclusion that Betsy DeVos’s DOE was determined to deny relief to almost everyone who claimed to have been defrauded by a for-profit college.

As Judge Alsup pointed out, DOE had processed fraud claims expeditiously during the Obama administration. In the final 19 months of President Obama's second term in office, DOE processed 32,000 borrower-defense applications and approved 99.2% of them (Sweet III, p. 9).

But in 2017, President Trump took office and appointed Betsy Devos as his Secretary of Education. DeVos's DOE slowed down the borrower defense review process dramatically. In fact, over an 18-month period, DOE did not issue any decisions on borrower-defense claims (Sweet III, p. 3).

Then, in December 2019, while litigation was pending, the DeVos DOE speeded up its review process and decided 16,000 cases in one day. In contrast to the 99 percent approval rate during the Obama administration, President Trump's DOE denied 95% of the borrower-defense claims (Sweet III, p. 3).

Judge Alsup’s order canceling the proposed settlement was issued less than a month before the 2020 presidential election. Donald Trump was defeated, and DeVos resigned her post as Education Secretary in January.

In short, there is a new sheriff in town. Let us hope Miguel Cardona, President Biden’s Secretary of Education, will resolve student-loan borrowers’ fraud claims quickly and in good faith. The Obama administration determined that most of these claims are valid--that most claimants were ripped off by for-profit colleges.  Surely the Biden administration will come to the same conclusion.

References

Adam Minsky. Dept. of Education Tells Court It Has Denied 94% of Loan Forgiveness Applications, Forbes.com, Sept. 14, 2020.

Sweet v. DeVos [Sweet I], No. C19-03674 WHA, 2019 WL 5595171 (N.D. Cal. Oct. 30, 2019) (granting motion for class certification).

Sweet v. DeVos {Sweet II], No. C19-03674 WHA, 2020 WL 4876897 (N.D. Cal. May 22, 2020) (approving preliminary settlement).

Sweet v. DeVos [Sweet III],  No. C19-03674 WHA, 2019 WL 6149690 (N.D. Cal. Oct. 19, 2020) (refusing to approve settlement agreement).

Bye-bye, Betsy!

All Sales Final! No Refunds! Students lose lawsuit for tuition reimbursement against four Rhode Island universities that closed their campuses during COVID pandemic

Almost exactly one year ago, American higher education shut down in response to the COVID pandemic.  All across the United States, universities closed their campuses and switched from face-to-face instruction to online teaching.

Over the past several months, students brought dozens of lawsuits against their colleges, seeking partial tuition refunds for the 2020 spring semester. They argued that the quality of teaching suffered when teaching shifted to computerized learning.

Some student plaintiffs found sympathetic courts, but a federal judge in Rhode Island dismissed students' lawsuits against four Rhode Island schools: Brown Univesity, Johnson & Wales University, Roger Williams University, and the University of Rhode Island.

 Judge John McConnell ruled that the four universities had no contractual obligation to deliver in-person instruction during the spring of 2020.  In Judge McConnell's view, the universities' recruitment materials, which touted lovely campuses and stimulating classroom environments, were mere "puffery" and did not amount to a contractual obligation to teach classes face-to-face.

I think Judge McConnell ruled correctly. Confronted with the coronavirus pandemic, American colleges and universities had no choice but to switch instruction from the classroom settings to an online format.

I sympathize with the students who brought these lawsuits, particularly the one brought against Brown University, an elite Ivy League school. Brown's tuition and fees total $58,000 per year. Students did not shell out that kind of money to take classes by sitting in front of a commuter in their parents' basements. 

Nevertheless, America's college leaders were justified in closing their campuses last spring. It was the only responsible thing to do. Surely they realize, however, that they cannot teach students via computers over the long term, even if the coronavirus pandemic stretches out for many months or years to come.

The total cost of attending America's most prestigious colleges now amounts to about $70,000 a year or even more. Most students will have to take out student loans to cover the bill.

If Brown's academic leaders think their students will take out student loans indefinitely for computerized instruction, they are in for a rude awakening.  No one will go into six-figure debt to get an online diploma, even if the credential is from Brown University.

Thus if the COVID pandemic isn't quickly brought under control, it will be the end of expensive private-college education.  After all, a young person smart enough to be admitted to Brown is smart enough not to pay $58,000 a year for an online college degree.

References

Burt v. Board of Trustees of the University of Rhode Island, __ F.3d ___, C.A. No. 20-465-JJM-LDA (D.R.I. March 4, 2021).

A little good news: COVID Relief Act includes tax relief for student debtors whose loans are forgiven

 A little good news. The COVID relief bill that Congress passed a few days ago includes modest tax relief for student debtors whose college loans are forgiven.  

Senators Bob Mendez and Elizabeth Warren introduced the Student Loan Tax Relief Act in the U.S. Senate as a provision of the $1.9 trillion COVID relief legislation. 

Thanks to the passage of the Mendez-Warren bill, student debtors who complete income-driven repayment plans (IDRs) and have their college loans forgiven will not get a tax bill.

In most circumstances, the Internal Revenue Service considers a forgiven debt to be taxable income. Until the Mendez-Warren bill became law, this was a problem for student debtors in IDRs.

Indeed, most college-loan debtors in IDRs will have substantial loan balances when they finish making monthly payments under a 25-year IDR because their payments weren't large enough to cover accruing interest.  

The U.S. Department forgives the remaining student-loan debt for individuals who complete IDRs, but the IRS has treated the forgiven debt as taxable income.  Under the terms of the Mendez-Warren bill, that forgiven debt is no longer taxable.

This is a good development, but the Student Loan Tax Relief Act offers is only a modest reform. 

First of all, the IRS does not tax forgiven debt if the debtor is insolvent when the debt is forgiven. Since most student debtors who complete 25-year IDRs will be insolvent, their forgiven debt would not have been taxable even before the Mendez-Warren bill became law.

Second, for reasons I do not understand, the tax-relief measure expires on January 1, 2026.  After that date, forgiven debt will again be treated as income by the IRS.

Third, as the National Consumer Law Center reported earlier this month, only 32 people who completed IDRs have had their loan forgiven. If this low IDR-completion rate continues, the Mendez-Warren measure will impact very few people.

In short, the Mendez-Warren legislation is a welcome development but is no reason for student debtors to start popping the champagne corks. Save the champagne for the day Congress repeals the undue-hardship language in the Bankruptcy Code and allows distressed student debtors to discharge their student loans in bankruptcy.

Don't pop the champagne corks over the Student Loan Tax Relief Act.