December is the Cruelist Month: Watch Out, Student Debtors

 T.S. Eliot was wrong: December is the cruelest month, not April.  

We think of December as a time for rest after a toilsome and anxious year--a time to prepare for Christmas and reconnect with our loved ones.

Yet, December can bring a lot of nasty surprises--shocking us when our hearts are mellow and our guard is down.

For example, the Japanese attacked Pearl Harbor on December 7, 1941. 

The Germans launched the Battle of the Bulge in December 1944.

George Washington's ragtag army sneaked across the Delaware River and surprised the Hessians on Christmas Eve, 1776.

Poor Napoleon was shocked when he reached Moscow in December of 1812. He thought he had beaten the Russians, but he was wrong. By the time he got his army back to France, he had lost 90 percent of his soldiers. 

So here are my predictions for the month ahead: Americans will receive two rude shocks.

First, the United States is prosecuting a hot war by proxy in Ukraine. Americans believe that the plucky Ukrainians are beating the crap out of Russia.

I don't think so. The Russians are masters of winter warfare and still have a few tricks up their sleeves. Vladimir Putin will remind America there is a price to pay for mucking around in eastern European politics. 

Second, the crypto craze will blow up next month, and everybody who bought crypto coins will be wiped out. You will be surprised to learn the names of famous people who got duped.

These two bombshell events will rock the American economy and make us all poorer.

If you are a college student, this is the December to be on your guard. Now is a terrible time to take out student loans to pay for your studies. This might be a good time for you to take a gap year, get a job, and start thinking seriously about what you will do to make a living. 

If you're majoring in liberal arts, now is an excellent time to consider changing majors. You may love literature, but you will need more than a bachelor's degree in English to get a job.

My advice: select a vocationally oriented major and read Henry James on your own time.

Surprising the Hessians during the holiday season

Fair or Not, the Biden Administration Owns the Student Loan Catastrophe

 I grew up in a small Oklahoma town before the era of the big box stores. If my family wanted to buy a small appliance, a birthday present, or a wedding gift, we went to the town's family-owned gift shop.

This little shop sold items that would make good gifts for a wedding shower--glassware, casserole bowls, and kitchen stuff. It also sold toys and sports equipment.

Wandering through the gift shop as I child, I remember seeing mysterious little signs posted in the glassware section that said this: 

Lovely to look at,

Delightful to hold.

If you break it,

We mark it sold.

What did that mean? I asked myself.

One day my six-year-old brother and I were in the little store shopping for Christmas presents.  Without warning, my brother grabbed a football in the sporting goods section and kicked it into the glassware aisle.

That's when I knew what the sign meant because my mother had to pay for the damage.

President Biden is in a situation somewhat like my mother's. Someone kicked a metaphorical football into the federal student-loan program, and he has to pay for the damage.

I feel sorry for the President. He did not break the student-loan program. Other parties bear most of the blame. 

First, Congress revised the Bankruptcy Code several times to make it almost impossible for student borrowers to discharge their loans in bankruptcy. 

Next, President Obama's Department of Education introduced PAYE and REPAYE, extremely generous income-based repayment plans that allowed borrowers to stretch out their payments for as long as a quarter of a century. Borrowers in those plans were allowed to make loan payments so small that they would never pay off their loans.

Then Betsy DeVos, President Trump's Education Secretary, administered the loan program so heartlessly that borrowers who were defrauded by their schools could not get their loans forgiven. In addition, DeVos made it almost impossible for people to avail themselves of the Public Service Loan Forgiveness program.

Thus, when Biden stepped into the presidency, he was confronted with a student-loan scheme that had run amuck. More than 40 million Americans are student-loan debtors, along with several million parents who took out Parent PLUS loans.  Total indebtedness is now around $1,7 trillion, and most of it won't be paid back.

President Biden attempted to provide student borrowers with a bit of relief by forgiving $10,000 in student debt for every borrower making less than $125,000 (and $20,000 in forgiveness to people who got Pell grants while in school).

That's not working out so well. The federal courts have blocked the President from implementing his loan forgiveness scheme.  He has responded by extending the pause on student-loan payments until August 2023 (unless the Supreme Court rules on the plan's legality before the end of June).  

Experts estimate that this loan-payment moratorium could cost taxpayers more than $200 billion. 

So--like my mother, who paid for a lot of broken glass in an Oklahoma gift shop, President Biden now owns this shit show.

So far, Biden's DOE has tinkered a bit with the program. For example, the Department granted generous relief to students who claimed they were defrauded by their college, and it is trying to clean up the Public Service Loan Forgiveness program.

But, there is only one reasonable thing to do to address the student-debt crisis. Biden needs to put the heat on Congress to amend the Bankruptcy Code to allow millions of distressed debtors to discharge their debt in a bankruptcy court.

Tragically, I don't think the President will do that. Instead, he has chosen to preside over the student-debt crisis, which he now owns.

President Biden's Never Ending Pause On Student-Loan Payments: Hey, It's Just Monopoly Money

 When I was a kid, my childhood friends and I often played Monopoly on those long summer days when time stood still in southwestern Oklahoma.  

Sometimes our games lasted for two or three days. If a kid went broke by landing on Park Place, the player with the biggest bankroll would provide an interest-free loan to keep the game going.

Why not?  It was only Monopoly money. 

Now, the United States is playing a grown-up version of Monopoly. Beginning in 2020, the Department of Education allowed student-loan borrowers to skip their monthly payments due to the COVID pandemic. 

The original pause ended in September 2020 but has been extended eight times.  

In the meantime, President Biden launched his student-loan forgiveness plan to give millions of student debtors $10,000 a piece in student-loan forgiveness.

Biden's plan was challenged in the courts, and the President used this ongoing litigation as an excuse to continue the pause on student-loan payments. 

"It isn't fair to ask tens of millions of borrowers eligible for relief to resume their student debt payments while the courts consider the lawsuit," the President said.

Thus the moratorium on student-loan payments will extend until August 2023 unless the Supreme Court rules on his loan-forgiveness plan by the end of June.

Due to the payment pause, it seems likely that 40 million student debtors will go more than three years without making a single loan payment. During this moratorium, student loans do not accrue interest, and DOE does not assess penalties for non-payment. 

Even better, borrowers in DOE's various income-based repayment programs can count the time their loan payments are paused toward their fixed-term payment obligations. For example, an individual in DOE's ten-year Public Service Loan Forgiveness program (PSLF) who skips loan payments for three years will only be required to make income-based payments for seven years. Sweet!

How much is the loan-payment pause costing taxpayers? According to the Wall Street Journal, the government will have lost $155 billion in uncollected interest by next month. By extending the break until August 2023, the delay will cost taxpayers an additional $40 billion.

So what? It's only Monopoly money. If the federal government runs out of cash, it can always print or borrow more.

Ultimately, I predict, the U.S. Supreme Court will declare President Biden's student-loan forgiveness program unlawful.  The Bident administration asked the Supreme Court to fast-track the case, but I don't think the Court will agree. It will probably be 2024 before the litigation is resolved.

As the loan-forgiveness litigation winds its weary way through the federal courts, Biden will certainly keep extending the loan-payment pause--probably to the end of his administration.

There will likely be two dire consequences if 40 million Americans are allowed skip making student-loan payments for four years.

First, student borrowers will conclude that they will never have to pay back their loans and will be damned angry if the government forces them to resume writing loan-payment checks after four years.

Second, after allowing student debtors to skip making loan payments for several years, DOE  won't be able to get the student-loan program back on track.  It will become like a car that sits idle in a barn all winter.  When spring arrives, the car won't start.

Meanwhile, colleges and universities continue raising their tuition prices, and students are taking out more federal loans.

To quote from an old adage, if something can't last forever, it won't. DOE's Rube-Goldbergian student-loan program will eventually collapse--perhaps sooner than anyone thinks.

Hey, it's only Monopoly money. 

Be Awake, College Students! Massive Economic Turmoil is Coming

A friend sent me a copy of the Magnificat journal's Advent Companion, a selection of daily reflections for the Advent season. Advent begins on November 27, and I read the first entry, which reflects on Matthew 24 and Christ's warning to be watchful.

During the time of Noah, Jesus instructed, people ate, drank, and married until the day the flood came and carried them all away.

"Therefore, stay awake!" Christ cautioned, and be prepared for the hour you don't expect.

As I read the Advocate Companion, I thought this passage would make an excellent advertisement for My Patriot Supply, an outfit that sells emergency food kits with a shelf life of 25 years. 

This is not a religious message. Instead, I warn that our national economy, built on financial speculation and easy money, will ultimately collapse. Perhaps it will be brought on by the cryptocurrency meltdown. If you aren't convinced, read James Howard Kunstler's recent blog essays posted on Clusterfuck Nation.

If you are a college student, this is no time to take out extravagant student loans. Higher education is under extreme duress: Since 2004, 861 colleges have closed their doors, and more than 9,000 campuses have shut down.

Stay awake, and don't take out loans to attend an obscure small college with a tuition rate of $25,000 a semester. Don't enroll in an online degree program unless you are pretty damned sure that an online college degree will lead to a good job.

Just importantly, don't be deceived by all the talk of student-loan forgiveness or by the Department of Education's pause on student-loan repayment--which will last more than three years.

A few people will get their loans forgiven under DOE's borrower defense program based on findings of fraud, and President Biden's loan forgiveness initiative may ultimately be approved by the courts. Still, the President's plan to forgive $10,000 of student debt, if it comes to fruition, will be a drop in the bucket for students paying $50,000 a year in college tuition. 

If you are pretty sure a college degree will lead to a job, by all means, go for it. People with degrees in the medical services field will probably find jobs.

But you are insane if you plan to take out $50,000 or more in student loans to get a humanities degree, a liberal arts degree, or a degree in gender studies.

You are insane if your college degree requires your parents to take out Parent Plus loans that they can't discharge in bankruptcy.

You are insane to take out a Grad PLUS loan to get a graduate degree in business, journalism, or the liberal arts.

Sometimes the Bible has some good advice. Indeed, now is an excellent time to head the biblical admonition to "Stay Awake!" and be prepared for global economic turmoil--which is coming.

 

Universities entering the gambling business while students place bets on their futures by taking out student loans

 Sports betting is legal in most states, and universities are getting in on the action. As the New York Times reported earlier this week, eight universities have already signed contracts with gaming companies.

Last year, Louisiana State University's athletic department partnered with Caesars Sportsbook, a gambling corporation. The contract gives Caesers the naming rights to the Skyline Club at Tiger Stadium and the right to advertise at the stadium, LSU"s basketball arena and the varsity baseball stadium.

Cody Worsham, LSU's associate athletic director and "chief brand officer," describes the deal as a win-win for everybody. LSU "shares a commitment to responsible, age-appropriate marketing," he said. That commitment "is integral to a sustainable and responsible partnership benefiting our entire department, university, and fan base." That sounds like bullshit to me.

Robert Mann, an LSU journalism professor, is not sure LSU's gambling partnership is a good thing: "It just feels gross and tacky for a university to be encouraging people "to engage in behavior that is addictive and very harmful," Mann said in an interview with the Times.

Indeed, LSU sent an email message encouraging recipients, including students too young to legally gamble, "to place your first bet (and earn your first bonus)."

Implicit in LSU's new revenue stream is the belief that gambling is not harmful and that students too young to place bets won't engage in sports betting.

However, that sentiment is naive, if not downright disingenuous. LSU students will see sports betting advertisements when they go to Tiger Stadium to watch a football game, and they can place sports bets on their cell phones. Does anybody believe LSU's contract with Caesars won't cause more students to gamble?

Louisiana is already lousy with gambling opportunities: riverboat casinos, land-based casinos, truck stop casinos, and the Louisiana Lottery. (The lottery also advertises at LSU). Ubiquitous gambling advertisements often portray young, prosperous, and healthy people having a ball at one of the state's many casinos.

I've strolled through the Louisiana casinos several times over the years, and almost no one looks happy and prosperous to me.  Mostly, they look old, unhealthy, and poor. Why would a young and successful person want to throw money away at a truckstop casino in Port Allen, LA?

The universities and the gaming companies seem to believe they have met their obligation to discourage addictive gambling by posting an 800 number at the bottom of their ads informing people where they can call to get help for gambling addiction. But does LSU really want its students to seek professional counseling to overcome a sports-betting addiction--a habit that LSU profits from?

LSU students must be on their guard when they see their university pushing sports betting. Gambling is not suitable for anyone, especially young college students. In fact, every time an LSU undergraduate sees an LSU gambling enticement, they should remind themselves that their university is not their friend.

Another Half Assed Attempt to Fix Federal Student Loans With Bankruptcy: Essay by Steve Rhode

The Department of Education just released a guidance document to the Department of Justice on what they feel should be done to allow people to discharge federal student loans, partially or entirely.

While I applaud the efforts by the Department of Education, it seems like we’ve watched this movie before.

 This guidance is just that, an opinion letter, not law. If a Republican administration gets back into office, don’t be surprised to see this guidance revised or eliminated altogether.

By the time this guidance, if taken seriously, filters through the courts, I forecast things will change again. I have zero confidence this document can be relied upon in the future.

The better approach would be to have Congress change the Bankruptcy Code and eliminate the hurdles. My reading of the “Guidance for Department Attorneys Regarding Student Loans in Bankruptcy Litigation” is that it attempts to massage the law, not fix it.

The guidance says, “A debtor’s student loan be discharged if three conditions are satisfied: (1) the debtor presently lacks an ability to repay the loan; (2) the debtor’s inability to pay the loan is likely to persist in the future; and (3) the debtor has acted in good faith in the past in attempting to repay the loan.”

But here is where it gets fast and loose. “Department attorneys should stipulate to facts necessary to demonstrate undue hardship and recommend discharge where the debtor provides information in the Attestation (or otherwise during the adversary proceeding) that satisfies the elements of the analysis below. Some debtors have been deterred from seeking discharge of student loans in bankruptcy due to the historically low probability of success and due to the mistaken belief that student loans are ineligible for discharge. Other student loan borrowers have been dissuaded from seeking relief due to the cost and intrusiveness entailed in pursuing an adversary proceeding.”

So it appears the intention is to make it easier to get a discharge by relaxing the current requirements.

 For example, to help make one of the hurdles easier, the guidance says, “A presumption that a debtor’s inability to repay debt will persist is to be applied in certain circumstances, including: (1) the debtor is age 65 or older; (2) the debtor has a disability or chronic injury impacting their income potential; (3) the debtor has been unemployed for at least five of the last ten years; (4) the debtor has failed to obtain the degree for which the loan was procured; and (5) the loan has been in payment status other than ‘in-school’ for at least ten years.”

If we follow the guidance, anyone over 65 or someone who failed to obtain the degree for which the loan was procured should check off the future circumstances box.

But that’s not even the real loosey-goosey bit.

The section of what is an appropriate good faith attempt to repay student loans for consideration for a bankruptcy discharge includes the following factors.

“Where the debtor has taken at least one of the following steps and in the absence of countervailing circumstances as discussed below, the steps demonstrate good faith. We would normally expect the Department attorney to be able to determine the presence of any countervailing circumstances based on the information contained in the Attestation and provided by Education or that is publicly available.

Evidence of good faith: The following steps are evidence of good faith:

· making a payment;

· applying for a deferment or forbearance (other than in-school or grace period
deferments);

· applying for an IDRP plan;

· applying for a federal consolidation loan;

· responding to outreach from a servicer or collector;

· engaging meaningfully with Education or their loan servicer, regarding payment options, forbearance and deferment options, or loan consolidation; or

· engaging meaningfully with a third party they believed would assist them in managing their student loan debt.

Unless I’m reading this wrong, all someone now has to do to make the good faith part of the discharge test is make a payment, apply for a forbearance, apply for an Income-Driven Repayment Plan, consolidate their loans, or respond to a collector.

But here is my favorite, “engaging meaningfully with a third party they believed would assist them in managing their student loan debt.”

If we believe what that says than any discussion with anyone, from a credit counselor, my debt coach friend Damon Day, or just about anyone breathing, would meet that standard. Even a bankruptcy attorney could possibly check that box.

How about this nugget buried in the guidance, “Issues concerning employment, income, and expenses are case-specific and may be highly dependent on a debtor’s family, community, and individual circumstances. Debtors may provide an explanation of those circumstances, and the Department attorney should weigh the explanation in consultation with Education.”

So as long as it passes the sniff test, anything goes.

Bankruptcy attorneys should prepare to get busier than a one-arm wallpaper hanger.

While this solution may be bullshit, it’s the best bullshit we’ve got at the moment to deal with a fair legal discharge and fresh start for people buried in federal student loans.

And for anyone saying the debtors have to suck it up, let me remind you that the government gave out all this money with no qualifications other than a pulse.

 *****

This essay was originally posted on November 18th on Get Out of Debt Guy.

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.

DOE and DOJ Issue Guidelines for Dealing with Student Debtors in Bankruptcy: Blah, Blah, Blah

 On November 17, the U.S. Department of Education and the Department of Justice issued a 15-page document titled "Guidelines For Department Attorneys Regarding Student Loan Bankruptcy Litigation."

According to the memo, these guidelines aim "to enhance consistency and equity in the handling of [student-loan] bankruptcy cases."

These guidelines are bullshit and won't do anything to change the way DOE and its collection agencies respond to student debtors who file for bankruptcy relief. 

Why do I think these guidelines are bullshit? Three reasons:

First, the policies are not signed. Nor do they appear on government letterhead. It's not clear who's responsible for drafting this murky document. I don't think anyone wants to be associated with it.  That's a bad sign.

Second, DOE didn't honor the guidelines it issued in 2015, so it probably won't follow the new guidelines. Instead, I predict that DOE will continue to oppose almost all student-loan bankruptcies.

Here's a little background information. In July 2015, Deputy Assistant Secretary Lynn Mahaffie released a letter advising DOE lawyers and debt collectors not to oppose bankruptcy if it didn't make economic sense to do so.

That letter had zero effect on DOE's policy to oppose bankruptcy relief for nearly every student debtor.

For example, in Abney v. U.S. Department of Education, which was decided after Mahaffie's letter was issued, DOE opposed a bankruptcy discharge for a man living on less than $1200 a month and who rode a bicycle to work because he couldn't afford a car.  This poor guy was making child-support payments that almost equaled his take-home pay and had lost his home to foreclosure. In fact, this man's situation was so desperate that he lived in the cab of one of his employer's trucks for a time. And DOE demanded that he be put on a 25-year repayment plan!

To this day, DOE fights bankruptcy relief for almost every student borrower, no matter how desperate the circumstances. And Mahaffie's letter has apparently been withdrawn because the link to that letter is no longer operable.

Third, the new guidelines allow DOE lawyers to agree to the partial discharge of student loans in bankruptcy but only "[w]here appropriate and permissible under governing case law."

Although the guidelines cited some case law about partial discharges, they didn't mention four recent bankruptcy decisions in which judges issued partial releases over DOE's (or its debt collectors') opposition.

In Murray v. Educational Credit Management Corporation (ECMC), Kansas Bankruptcy Judge Dale Somers approved a partial discharge of student debt owed by Alan and Catherine Murray. ECMC, DOE's contracted debt collector, opposed the ruling and appealed.  Acting as an appellate judge, a federal district court upheld Judge Somers' decision.

Later, Kansas Bankruptcy Judge Robert Nugent approved a partial discharge of student loans owed by Vicky Metz over ECMC's objection. ECMC appealed this ruling, just as it had appealed in the Murray case. ECMC lost again when Judge Nugent's opinion was upheld on appeal.

Despite losing two partial student-loan discharge cases in  Kansas, ECMC opposed a partial discharge a third time in the same jurisdiction. In ECMC v. Goodvin, ECM lost again, appealed again, and lost the third appeal.

Did DOE and ECMC get the message about partial student-loan discharges in Kansas? No. In Loyle v. DOE and ECMC, decided just nine months ago, the Department and ECMC  opposed a partial student-loan discharge sought by Paris and Katherine Loyle. For the fourth time in the same jurisdiction, ECMC and DOE lost their case.

If DOE and DOJ are serious about approving partial discharges, why didn't the Guidelines cite these four important cases? I'll tell you why. DOE and DOJ don't really want student debtors to get relief in the bankruptcy courts--even partial relief.

I encourage you to download and print these new guidelines. You can put this gobbledygook on your bedside table if you have trouble sleeping.

Better yet, keep the Guidelines in your bathroom. We have a paper shortage; you can always use this disingenuous blather for toilet paper.

References

Lynn Mahaffie. Undue Hardship Discharge of Title IV Loans in Bankruptcy Adversary Proceedings, July 7, 2015, GEN 15-13.  

In re Murray, 563 B.R. 52 (Bankr. D. Kan. 2016); aff'd sub nom,  Educational Credit Management Corporation v. Murray, No. 16-2838, 2017 WL 4222980 (D. Kan. Sept. 22, 2017).  

In re Metz, 589 B.R. 750 (Bankr. D. Kan. 2018), aff'd, Educational Credit Management Corporation v. Metz, Case No. 18-1281-JWB (D. Kan. May 2, 2019).

Educational Credit Management Corporation v. Goodwin, Case No. 20-cv-1247-JWL, 2021 WL 1026801 (D. Kan, March 17, 2021)

Loyle v. U.S. Department of Education and ECMC, Case No. 19-10065 Adv. No. 20-50732021 WL 1026801 (Bankr. D. Kan. Feb. 24, 2022).