That sounds confusing so I'll say it this way: Student loans are wrecking society and it's only going to get worse.
This post isn't about the combination of factors that results in higher education's soaring, spiraling costs. It's about the fact that we make people who incur student loan debts carry that yoke with them for the rest of their life, lumping student loans in with drunk driving and fraudulent scams in the panoply of debts one cannot get rid of.
That's the lesson of Walker v. Sallie Mae Serv. Corp. (In re Walker), 427 B.R. 471 (B.A.P. 8th Cir., 2010), a case in which a student loan lender fought tooth and nail to avoid a young family getting rid of their educational debts.
Student loan debt is, unlike almost every other debt, barely dischargeable. Credit card debt, medical debt, business loans taken out to finance a business that sells ice cream flavored like boogers... all of them are (generally speaking) dischargeable.
But take out a student loan, and the odds are you will be paying that loan the rest of your life.
I don't know what the justification is for that decision; I do know that it creates situations like Walker, where Michelle Walker had $300,000 in student loan debt, a debt that arose after she went to medical school but couldn't pass the boards and so had to go back to get other degrees so she could work. Michelle got her degree, but then had five kids -- a first one followed by two sets of twins.
Start the quibbling about how people run their lives! Start talking about how Michelle shouldn't have had kids until she had a well-paying job, how she should have stopped at 1! or 3! or whatever! That's what people do these days, right? They ignore the fact that there are circumstances we control and circumstances we don't, and that while people can choose to have kids (or not) they cannot choose whether they will be able to pass the medical boards (or not).
They also cannot choose whether two of their children will have autism, as Michelle's middle twins did.
So Michelle found herself with five kids and a police officer husband and an inability to work; the twins with autism required Michelle to be constantly on call, and also to have 8+ hours of therapy in her home every Saturday and Sunday, for which an adult had to be present.
Michelle's husband worked two jobs to help finances but Michelle couldn't work, and so the couple declared bankruptcy in 2004. That alone didn't do anything about her student loans; bankruptcies don't discharge student loans unless the debtor sues to do that.
(That's another special favor to student loan lenders: In most bankruptcies, if a creditor wants to avoid a discharge, the creditor has to sue and the creditor has the burden of proof. Student loans are just the opposite.)
So Michelle tried to pay her loans, it seems, for 4 years, but couldn't and came back to the bankruptcy court in 2008 to try to discharge them.
The 8th Circuit's standard for discharging student loans is:
We apply a totality-of-the-circumstances test in determining undue hardship under § 523(a)(8). Reviewing courts must consider the debtor's past, present, and reasonably reliable future financial resources, the debtor's reasonable and necessary living expenses, and "any other relevant facts and circumstances." The debtor has the burden of proving undue hardship by a preponderance of the evidence. The burden is rigorous. "Simply put, if the debtor's reasonable future financial resources will sufficiently cover payment of the student loan debt-while still allowing for a minimal standard of living-then the debt should not be discharged."
A minimal standard of living.
In Michelle's case, the Bankruptcy Court discharged the loans, determining that Michelle was unable to work and that the family's take-home income was about $4,300 per month, while they had expenses greater than that even without the student loans.
That was not the end of the case -- it's an appellate case, so you know that the lender appealed, because why not make this cost a lot more for the debtor even though these inquiries are fact-specific and rarely overturned.
The lender, Sallie Mae, fought the discharge on a lot of grounds. It started the judging! noting that Michelle's husband had bought an expensive SUV and the couple had put a deck on their house following the chapter 7 bankruptcy. That alone is not a bad argument: a couple that can pay $1100 per month for a deck and SUV can likely pay something towards their student loans...
... but what Sallie Mae ignored is that Michelle and her husband were already underwater, as they say: the bankruptcy court calculated that they made $300 per month less than their budget required, not counting the SUV and the deck.
Reasonable minds could say "Well, where did they get that money from?" and that's a fair question -- one that Sallie Mae, with all its resources and oh-so-clever lawyers running up their billable hours, didn't bother to try to answer: Sallie Mae's expensive, high-priced (I'm guessing) lawyers didn't bother questioning any of the line-item expenses Michelle submitted except the SUV and the deck, so they didn't really inquire as to whether the expenses were legitimate. Sallie Mae's expensive, high-priced (I'm guessing) lawyers didn't even seem to bother asking Michelle where that extra money came from.
That's a rookie mistake. I had a trial once where a guy testified that he made less than $4,000 a month. His expenses on his financial disclosure statement said he spent more than that per month, though. So I asked him whether he was current on his credit cards.
Yes, he said.
Do you borrow money from anyone on a regular basis? I asked him.
No, he said.
Do you owe anyone any money other than what's listed on here? I asked him, holding up his disclosures.
No, he said.
And all of these expenses are accurate, and you actually spend this much per month? I asked him.
Yes, he said.
Then I argued to the Court that he must make more than $4,000 per month because if all of the things he said was true, he was spending more than $4,000 per month without borrowing money. The Court agreed with me and I proved my case without even deposing the other side.
But, then, I'm not a high-priced Sallie Mae lawyer, so what do I know? Maybe Sallie Mae got their money's worth when their high-priced lawyer argued (without evidence, it seems) the money must be coming from somewhere.
Well, sure: It could be borrowed. They could be using credit cards. They maybe have a wad of cash gifted to them every year by their rich uncle. Sallie Mae didn't seem to ask.
Instead, Sallie Mae appealed and argued things like "subject matter jurisdiction" and claimed that the Bankruptcy Court could only look at how things were in 2004, not 2008, to determine dischargeability, and made a bunch of other ridiculous arguments (including one in which Sallie Mae's high-priced lawyers argued that the Bankruptcy Court erred in calculating Michelle's family's income, a ridiculous argument because the Court had actually found Michelle had more income than Sallie Mae had stipulated to.)
In the end, the hardship was enough: Michelle's husband, working two jobs while Michelle spent her time as a full-time caregiver to her special-needs sons as well as her other three kids, had no reasonable chance of maintaining a minimal lifestyle while paying back $300,000 in student loans, and so after thousands of dollars of lawyers' fees, they were able to get on with their life, such as it was.
In other words, as I started out: As long as you cannot possibly use the education you got, you won't have to pay for the education you got.
No comments:
Post a Comment