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Guest Post: A Bankrupt Policy

By Deanne Loonin

As most readers of Higher Ed Watch know, current bankruptcy law treats students who face financial distress the same severe way as people who are trying to discharge child support debts, alimony, overdue taxes and criminal fines. It's difficult to separate fact from fiction when trying to understand the logic behind this policy, but one thing is clear -- the restrictions came about without any empirical evidence that students were more likely to "abuse" the bankruptcy system.

Unfortunately, the legislative history of the student loan bankruptcy provision sheds little light.

The bare facts are that in 1976, Congress made student loans generally non-dischargeable except five years after default or if the borrower could prove "undue hardship." Since then, there have been three significant legislative changes. First, in 1990, the five year period was extended to seven years. In 1998, Congress eliminated the seven-year floor primarily as a budget savings gimmick to pay for student loan changes it made when it reauthorized the Higher Education Act that year. Finally, in 2005, lawmakers included private loans in the non-dischargeability category as part of comprehensive bankruptcy amendments (the change primarily affected for-profit lenders because private loans made by nonprofit providers were already exempt). If there were reasons to consider restricting bankruptcy for federal loans, there was absolutely no such basis for extending the policy to high-cost private loans.

The "Soft Fraud" Theory

In an excellent article, John Pottow, a law professor at the University of Michigan, lays out a number of plausible theories for why student loans should be nondischargeable. The most commonly cited reason is what Professor Pottow calls "soft fraud" or "opportunism." According to this theory, most students go to school with good intentions and only think about discharging their student loans later. Once they get out of school (or if they drop out), they find that jobs are hard to get, salaries are lower than expected, and many good jobs require even more education and more debt (hardly a far-fetched scenario in this economy). They see a long debt-burdened road and start looking for the bankruptcy exit.

Before addressing whether the current system is designed to address this issue, it is important to note that there is no evidence that student loan debtors are more likely than other borrowers to file for bankruptcy. In fact, a 1977 study by the General Accounting Office - which Congress appears to have ignored -- found that only a fraction of 1 percent of all matured student loans had been discharged in bankruptcy. "This compares favorably with the consumer finance industry," the study stated.

The "soft fraud" theory also assumes that the decision to file bankruptcy is cost-free when in fact there are many negative consequences, such as damage to credit rating. Further, in 2005, Congress added a number of new elements to the personal bankruptcy system, such as a means test and counseling requirements, that make it more difficult for all consumers to file bankruptcy, especially those who have assets to pay their debts. In any case, the bankruptcy code has always included safeguards to prevent discharge in cases where debt is obtained through false pretenses or fraud.

An Arbitrary System

Even accepting "soft fraud" as a concern, the problem is that the current system does not target only those who are supposedly abusing the bankruptcy system. While it may catch some student borrowers who can afford to pay their loans, it also snares those who are truly financially distressed and desperately need relief.

Under current law, most federal and private student loans can only be discharged if the debtor can show that payment will impose an undue hardship on the debtor and the debtor's dependents. The student must seek the hardship determination in court through a separate proceeding.

The system is strikingly arbitrary. Anyone who has handled one of these cases can tell you how random it is. A legal aid lawyer I know in the South tells me that the judge in her area almost always grants discharges. Other attorneys I work with practice in districts where the judges almost never grant discharges, regardless of the circumstances.

Judges are granted extraordinary discretion to make these decisions, especially since the code provides no definition of "undue hardship." An academic study of 261 reported decisions affirmed the randomness in the application of the undue hardship test. The study found few statistically significant differences between the debtors granted discharges and those that were not. The study also found that students seeking bankruptcy relief were in fact suffering financial distress. The authors conclude that judicial discretion has come to undermine the integrity of the undue hardship system.

Another problem with the current system is that it is pretty much stacked up against the most financially distressed borrowers. These borrowers have few, if any, resources to pay for legal assistance to prove to judges that they suffer from undue hardship. The sad fact is that there are very few lawyers that are willing to handle these cases through free legal services or on a pro bono basis.

Without legal assistance, these borrowers must litigate undue hardship while going up against aggressive creditor lawyers. Proving hardship requires independent evidence of medical conditions if the borrower is disabled. Borrowers also must show that their financial distress will last indefinitely. Some courts have adopted a nearly impossible to prove "certainty of hopelessness" standard.

A Middle Ground?

Many courts, recognizing the inequity of this system, have begun to create an ad hoc middle ground. Some allow partial relief by discharging a portion of the debt or by discharging some, but not all, of the loans. Some courts have allowed a restructuring of the loan, for example by discharging collection fees and accrued interest and even by delaying the student's obligation to start making payments, during which time no further interest accrues.

Whether a borrower gets the benefit of a middle ground approach depends entirely on where she happens to live and the judge she happens to draw. This is unfair, but the judges have a point. They are flying by the seat of their pants without any foundation in the bankruptcy code because they understand that the current all or nothing approach doesn't work for everyone.

There might be room for a middle ground approach for some borrowers, as long as that policy was administered across the board. The new income-based repayment system in the federal loan programs is especially promising as it gives borrowers the opportunity to manage their debts outside of bankruptcy. Once it is available in July 2009, this program will allow most federal student loan borrowers with economic hardships to repay their loans based on a formula that takes income and total indebtedness into account (though, as currently designed, it may not be as helpful to borrowers who are already in default as it should be.)

Regardless, the program, however, is available to only federal loan borrowers. The lack of this type of option in private loans is a good reason why restoring bankruptcy rights for private loan borrowers is such a critical step.

There might also be ways to incorporate some of the ad hoc policies into the bankruptcy system through partial discharges or by separately classifying student loans in Chapter 13 plans so that borrowers can make a bigger dent in these nondischargeable debts during the course of the plan.

These middle ground approaches should be considered, but not as a substitute for full bankruptcy rights for the neediest borrowers. If, however, the undue hardship system is retained for these borrowers, the standard should be refined to target those in the most distress and to ease the burden of proof. But this is not enough. Congress should also restore the waiting period as an alternative ground for discharge. A five year waiting period has the benefit of allowing a more straightforward process so that borrowers who cannot access the system are not unfairly penalized and of weeding out those borrowers who can work, but are choosing not to. If they truly have assets and income, their loan holders can try to collect during the waiting period. At a bare minimum, full bankruptcy rights must be restored for financially distressed private loan borrowers.

These solutions are not perfect, but can help correct a skewed system that unfairly penalizes students who discover that their education has not paid off as expected.

Deanne Loonin is a staff attorney with the National Consumer Law Center and the director of the center's Student Loan Borrower Assistance Project. She focuses on consumer credit issues generally and more specifically on student loans, credit counseling, and credit discrimination. She is the principal author of numerous publications, including "Paying the Price: the High Cost of Private Student Loans and the Dangers for Student Borrowers." Her views are her own and do not necessarily reflect those of the New America Foundation.

Comments

Income based repayment is NOT an option

" The new income-based repayment system in the federal loan programs is especially promising . . " Eh, You are kidding me, right?

If a person is already financially in trouble, and they are in default, the income based repayment is not an option, as it has a hidden booby trap at the end. Lets say for instance, your pre-default payment was $300 a month, then after default its now $650 a month. If you are one of these people who are financially in trouble, and you cannot make the $600 a month MINIMUM payment, even on income based payment, the loan continues to grow. Now here is the booby trap at the end. At the end of the 20 year period, any outstanding amount due (which has grown for 20 years) is now taxed as income. If you cannot pay the tax in full the first year, you end up paying interest and penalties to the IRS. In effect, shifting the payment from one government controlled enterprise to another.

You never end up out of this mess. AND THAT is why many folks just give up.Ya pay the government for 20 years then the IRS till you die, never getting out from under the burden. And that is not a solution for anyone.

income based repayment of student loans

mac zeff- good comment.

the plain fact is that  they try to force some into this knowing they can't afford this either-

and then pass the funds through to other agencies that have nothing whatsoever to do with it- and yes it's just plain wrong.the whole way it was set up is unconstitutional.

student loans should be dismissed in bankruptcy just as all other loans are dismissed. the new income based re payment program is just as big of a crock as the way the current loan system both private and federal are set up.

so good for you for pointing this out to people. maybe the new administration will listen and fix this.

Sen. Durbin's Bankruptcy Bill

Senator Durbin seems in the past to have been an advocate of including private student loans in bankruptcy. But I have not seen him address this issue lately. Instead, I found this letter to Secretary Paulson on Sen. Durbin's website. Is it just me, or does it seem strange that a United States Senator has to politely ask for Mr. Paulson's consideration of Sen. Durbin's ideas? Shouldn't the senators have been in the driver's seat?

In case you missed it, here's the letter. This is the time for Sen. Durbin to reintroduce his bill that failed last time, to allow private student loans to be discharged in bankruptcy. As has been pointed out many times, homeowner's can leave their keys on the table and walk away. Student debt is for life, and private student debt will still be around in the hereafter.

December 3, 2008

The Honorable Henry M. Paulson, Jr.
Secretary
U.S. Department of the Treasury
1500 Pennsylvania Ave. NW
Washington, DC, 20220

Dear Secretary Paulson:

I am writing to urge caution as the Department of Treasury moves forward with its plan to use Troubled Asset Relief Program funding to stabilize for-profit lenders of private, non-federal student loans and to recommend that consumer protections be incorporated into the plan.

I have serious concerns about the ethics and practices of lenders who offer private, non-federal loans to students.

* With no cap on interest rates, lenders charge high, variable rates on private student loans. As a result, lenders have enjoyed far higher profit margins on private student loans than on federal student loans.
* Direct-to-consumer private lenders skirt financial aid offices by marketing loans directly to students, often without informing students of the availability of lower-cost federal student loans.
* A recent report by Iowa’s attorney general revealed misdeeds by an Iowa lender that aggresively steered students to expensive private student loans.
* A proliferation of unlicensed, unaccredited trade schools have partnered with lenders to provide high-cost private loans to at-risk students at those schools.
* Lenders successfully lobbied for a provision in the 2005 bankruptcy bill that rendered private student loans almost impossible to discharge in bankruptcy.

These practices combined with the exponential growth of the private student loan market over the past decade have resulted in trouble for students. Too many borrowers now find themselves overwhelmed by high-interest private student loans with no hope for relief.

Using taxpayer dollars to aid an industry that has been detrimental to so many students is very troubling. At a minimum, the Treasury should require that any receipt of taxpayer dollars be contingent on the lenders’ agreement to increase consumer protections for private student loan borrowers. Private lenders that receive federal funds should be required to cap interest rates, offer income-contingent and income-based repayment options, and allow private loan borrowers to renegotiate more reasonable terms for their loan if they fall on hard times.

Thank you for your consideration of this request.

Sincerely,
Richard J. Durbin
United States Senator

Durbin's letter

It's hard to believe that a representative is actually taking the time these days to address this issue with such frankness. For a while, I permitted myself to feel a warm glow of hope. I wish he was one of Mississippi's Senators.

Do you know Senator Durbin?

If anyone reading this site has any influence with Senator Durbin, please point out to him that, with a new President, a new congress, and legislators bailing out companies left and right, this is the time to INSIST on equitable treatment instead of settling for middle ground. Private loans (both profit and non-profit) should definitely be dischargeable in bankruptcy. These are the loans where the borrower has NO protection whatsoever. Government guaranteed loans should also be dischargeable, but Hillary Clinton's bill contained an obscenely long waiting period. Why? By the time you add back in forbearances and deferments to Hillary's seven years, the period before being allowed a discharge could stretch out far too long for the debtor and his/her family facing financial collapse. Also, many times the borrower isn't even aware of when the clock is running on their forbearances, how many they have had, etc., because these are sometimes applied retroactively, and can even be done without the borrower's knowledge. There were instances in the 1980's and 90's, a time when government student loans WERE dischargeable, that debtors in bankruptcy were denied discharge of their student loans because the lender calculated the debtor's 5-year (or later on) 7-year period based on forbearances that had not even been requested by the borrower, and the courts abetted this practice -- the rationale being that the lender should not be penalized for attempting to “help” the borrower.

Advocates should RIGHT NOW press forward with bankruptcy reform. Watch how fast Sallie Mae will be willing to work with borrowers if student loans can be discharged. Mortgage lenders are working with homeowners because they know the homeowner can just walk away. Sallie Mae needs a similar incentive.

So, this letter was written

So, this letter was written by Sen Durbin on 12/3/08..just a few days ago? Is he really reintroducing the same bill that he put through at the beginning of the year or is it modified to exclude the private student loan language from bankruptcy?

Deanne Mostly Right

As usual, another excellent piece by Deanne Loonin. Mac Zeff is right, however, about the income based repayment plan...same noose, longer rope.

IBR

A quick reply re: the IBR comment--Let me be clear, I believe that federal and private student loan borrowers should have full bankruptcy rights. But I also see a hard fight to reach this goal, particularly for federal loan borrowers. e.g. In the recent policy debates, restoring discharge rights for federal loan borrowers hasn't even been on the table (of the bills introduced in the past few years, only Sen. Clinton's Borrower Bill of Rights provided some bankruptcy relief for federal loan borrowers). IBR is certainly not a panacea for indebted borrowers and I'm particularly concerned about access to IBR for borrowers in default, but this is not an "either-or" situation. Bankruptcy and IBR have different eligibility requirements, different barriers to entry, different costs and benefits. Recognizing that we need "middle ground" programs such as IBR should not in any way undermine the critical need for a safety net as well.

Gear up for a hard fight.

"... But I also see a hard fight to reach this goal, particularly for federal loan borrowers."

Hard fights are what this country was founded upon. The citizen's rights have been trounced upon by the student loan system for decades. If a hard fight is what is required to correct this longstanding injustice, then I believe we are equal to the task.

Great beginning, Lame ending.

This piece starts by clearly laying the groundwork for why full bankruptcy protections should apply to all student loans. Then, it loses itself in championing a decades long, big government program as a substitute for bankruptcy protections.

 When student loans were treated as EVERY other type of loan in the country, it was shown that far less than 1% of federally guaranteed student loans were discharged through bankruptcy. According to a Congressman at the time, the spectre of students promptly filing BK after graduation was "a crisis only in the imagination". Unfortunately, Loonin is hedging for some reason. Why she, an advocate for borrowers, is so unwilling to simply call for the full reinstatement of bankruptcy protections for all student loans is beyond me. Frankly, I'm astonished. She knows full well that the bankruptcy laws have been strengthened considerably since 2005, and that the likelihood of fraud and abuse is minimal. Yet instead of arguing for student loans to be treated the same as EVERY other type of loan in our nation(federally guaranteed, and not), she implicitly pushes for this IBR program.

There's a truck driver I know in Texas. Actually, he's a chiropractor, but the state of Texas has taken away his license, so he drives trucks. His student loans have ballooned to a half a million dollars. He is 50 years old. IBR will do nothing, ABSOLUTELY NOTHING for him. We have done it the banks way for so many decades, it seems that even the good guys have been drawn into their rhetoric, and are afraid to make a loud and clear call for the restoration of basic, standard consumer protections for student loans.

why is it that someone can

why is it that someone can rack up thousands of $ in credit card debt and then file for bankruptcy but someone seriously trying to better themselves with an education, cannot. I had every intention of paying back my student loans when I took them out, and if I could I would do so now. No repayment plan that I have seen has made this possible for me. Now I have defaulted and my credit is a mess. There is no way out. What a messed up system. Had I only known then what I know now.

Because the government's been bought

I agree with Cate. If people get in trouble with hundreds and thousands of dollars worth of credit card debt, they have consumer rights and protections. We don't. If $14,000 student loans can turn into $85,000 and a person can be punished for illness, disability and hardship by her government, then isn't IBR also a punishment? There's no way out.

Great Point

Excellent point. It just does not make sense that debt accumulated through credit card purchases can be discharged in bankruptcy and student loans cannot - student loans used to better oneself and in turn create more educated citizens. Hmmm, educated citizens, that should be a priority for our country. Not a country of citizens in debt for 20 years to pay for an education.

What About This Situation?

What about a licensed professional with a degree who through questionable grounds loses their professional license and is no longer permitted to work in their trained field. Now they're stuck repaying huge loan balances for a career they cannot have.

Why should they be forced to pay for job training that will no longer benefit them? Especially since their income will be drastically reduced!

Why under this circumstance are they not permitted bankruptcy protection?

Just more food for thought on the issue.

"Why should they be forced

"Why should they be forced to pay for job training that will no longer benefit them?"

Because educators have already rendered the service. You're basically saying that training should come with a money-back guarantee; this is an issue for the educator, not the lender.

A Terrible "Middle Ground" Solution

An appropriate middle ground solution is to create a 20 year repayment program for federal loans alone? The problem isn't federal loans! They have low interest rates, reasonable repayment plans, and usually lend out smaller total monies. Private loans are the ones who tie young adults to cosigners for 5-30 years, who loan out exorbitant amounts of money that cannot possibly be repaid, and sell people's loans to one another until you consolidate with the only student loan consolidator available, good ol' Sallie Mae. Something must be done. This is something, but it is nothing compared to a proper solution.

MacZeff is right

Mac Zeff is correct.
I found and posted to a group, a copy of a US Senate report which was dated in May of 1994, where senator Sam Nunn(d), told a senate subcomittie that during the 1980's many of the "trade" schools were selling useless educations leaving the students with bills they could not pay. This lead to the high default rates during the end of the 1980's. These students defaulted and no relief has ever been offered to them. Some 20 years later they still suffer the effects of those schools whose only education was how to end up in perpetual debt.

The 20 year repayment plan is not an option, if the balance due is taxed, and the balance is allowed to grow during the repayment phase. Not to mention many people who might qualify for such a plan, are now retired, or nearing retirement where their income levels will drop to near poverty levels, becuase they hae not been allowed to save a dime for retirement, without the government stepping in and taking it for the outstanding loan balances.

Congress has NEVER addreesed the victims of those trade schools. Its time we get some relief for those people.

Interest on 10-Year and 20-Year Loan

You've got to be kidding. Have you done the math? The interest on this would be prohibitive.

For a $20,000 loan at 5% the total payout:
~ at the end of 10 years: $25456 [$ 5456 interest]
~ at the end of 20 years: $31678 [$11678 interest]

You effectively double the interest.

Consider, too, the highly restrictive IRS regulations regarding interest deduction.

Student Loan Repayment

To suggest that one be granted twenty (20) years to pay back student loans clearly suggests that the author simply does not “get it”. The US government has allowed and supported predatory lending practices and organized crime type loan practices for many years. The student loan industry has been the only one to benefit while millions of low to moderate income US citizens have been ruthlessly and recklessly victimized by the present student loan system, which is simply inexcusable and preposterous.

The US government has bailed out Wall Street and big business repeatedly at the expense of once again low to moderate income American tax payers. It is beyond time for the predatory student loan industry to crumble while students forced to borrow student loans receive relief instead of government sanctioned knighthood into perpetual poverty and credit unworthiness.

wish I could afford IBR, but I cant

So I tried the handy little calculator, and it says I would have to pay $300 a month.... great, I wish that covered ALL my loans. It doesn't take into account the PRIVATE loans I have and need to pay another $200 a month to those.... well, you put those 2 together and there goes half my monthly income. THANKS that works well for me.... My federal loans are in deferment right now... My private loans won't work with me any farther than they have... for me, the "middle ground" doesn't work unless it INCLUDED my private and federal loans. .....and don't you just love how the government wants to BAIL OUT the private loan companies on top of everything else.... Obviously with taking away bankruptcy and wanting to bail out these companies the goverment obviously doesn't care about its citizens, at least not the ones who TRIED to do the right thing and go to college, but obviously failed in a failing economy.

does it ever end?

I want to know this:

If you are nearing retirement age, and you can't get a job and the economy stinks, then what good is income-based payments if you have no income and the chances of getting an income are almost nothing? And what if you are sick?

What about people who couldn't get a job even before the economy tanked? What about them? Some were humiliated and had to go on welfare. $137 a month. How do you pay your rent? Never mind student loan payments?

What if you get cancer, have a stroke, a heart attack? What if? What if? And why are these laws arbitrary where some judges will discharge and some won't?

What about people who simply can't get a job, have no family and become homeless?

And Ms. Loonin, for your information, even the IRS now takes pennies on the dollar.

And why is Sallie Mae allowed to harass to the point of threats of violence? And why do people who gamble and shop til they drop get to discharge their debts in bankruptcy?

The professor who came up with soft fraud is a moron. He shouldn't even be a professor. I bet his MOMMY paid for his education.

what stupidity is this now?

What good is an income based payment plan if you have no income and no chance to get any income? As in OLD, DISPLACED, SICK, DISABLED????

20 year pay back period? CRIMES HAVE BEEN COMMITTED!!!

Forget Pottow, all he has is theory.

I want to discus reality and law.

We, the advocates for student-borrowers, need to call in a single, loud and clear voice for an FBI investigation into the student loan industry and the United States Department of Education (USDE).

Someone, stop me when I'm wrong.

I'll listen to what you have to say - well, unless it is just hapless theory...

Until then, here is where we stand:

1. A multitude of crimes have been committed against millions of student-borrowers.

If one needs a suggestion on where to start, I'd like to see these cases prosecuted - The stealing of DISABLED student-borrower's Social Security Disability Income (SSDI) checks!

The last time I checked disability is cause for student loan dismissal, not SSDI garnishment!

The proposed 'middle ground' would allow practices like these to continue for 20 years.

One day is too long to illegally garnish someone's SSDI check.

The sad reality is that practices like these will only stop when the crimes are fully investigated and successfully prosecuted.

2. The criminal activity in the student loan industry (including the USDE) has occurred in all 50 states and has endured for decades.

These are key triggers that help to open an FBI investigation.

The trick is this - we, as advocates, must make the FBI aware of the need for an investigation.

Finally, this is why we must help trigger an FBI investigation:

1. Congress will not reinstate full consumer protections for student-borrowers until they must.

2. The only sure action that will cause Congress to restore full consumer protections to all student-borrowers is the successful prosecution of the guilty parties.

In closing, Deanne, Alan and all the others, I want to thank you for your work in helping expose the nation-wide corruption undermining the long-term health of the student loan industry.

please the help is killing me

we are consolidated. . .with the gov. . .big help.

they helped themselves to practically an additional 100% of the principle. Why?

What purpose does it serve to create more debt? Who used that money? Where did it come from? Why add an additional 100% to an already bloated by 300% amount. WHICH ALL BECAME PRINCIPLE. How did that help us? And this is all government, not bank driven. SO why the extra 8% interest on top of all of that??

Is the purpose to make us feel powerless, helpless, hopeless? You got it!

You want a revolutionary idea. How about any loan that has doubled in size is canceled. Usury needs to get it's just reward. And every other loan is interest frozen as long as people pay. And people will pay. We want to pay. It is the absurdity of trying to dig out of the shit pile with a teaspoon when someone is shoveling it on with a backhoe, that causes us to stop paying.

Do something useful in congress for a change. . .you all have been fairly worthless.

Care Le$$

Sallie Mae could care le$$ about a person's income nor if they committ suicide !!!

The author seems to make an

The author seems to make an argument for restoring standard bankruptcy protections to private student loans. She makes the FFELP program seem as if there exists an oasis of options available to the student borrower in repaying the debt. This is most defininitely not the case. Once default occurs, almost all options dry up.

In my particular case... my student loans were placed into default without ANY collection attempts being made by Sallie Mae. It was only after placing my loan into default status ( 6 days after default occurred) that I was contacted by Sallie Mae and it's guarantor. No contact was made by either agency from delinquency through default. This is criminal.

The author implies that since the FFELP loans have such nice terms, standard bankruptcy laws need not apply to these types of loans.I have been in default (with FFELP loans) for 22 years with no end in sight. My loan balance has more than doubled; my interest raised from 7% to 12%;Income tax liens ; legal judgement; etc. Now I know what many of you may be thinking... I am unwilling to repay. The truth of the matter is that I can't .Despite having paid nearly the principal amount ($10,143), I have seen my debt more than double.

The author does not address people in my situation. All of the solutions that I have seen so far do nothing to address insolvent student loan debt. This is not an intellectual debate to me.... it is my life. Washington cares more for the big banks than a debtor trapped in "the system".

Is this a joke? Mortgages are re-written for bad decisions but

We invest our 200k in our education and we get NOTHING?? 20 years 20 years??!???! How about a a. lawsuit for fraud or predatory lending on these schools/lenders b. Writing down the loans as to what the actual education is worth based on 1/48th th of average starting salary in that field, approximately one weeks pay per month and the principal being written down to at most 75% of its value at this point.

Home values, easy credit ripooffs, the tons of money out there inflated the value of tuition. The enormous amounts of available money due to predatory lending and irresponsible borrowers led to those of us who invested in education, supposedly always the safest bet, getting killed. This also allows for the citizens with the best chance, because by definition they have a degree or some type of motivation or intellience to become the higher earners of society, to take adavantage of these forgiveness to repay the bank or lender over the course of a lifetime as their sucess and income level is greater and will be used to flourish exponentially, more income, more disposable, more lending, able to sustain a good solid "Due paying" period without worrying about losing their parents' house or destroying their credit.

Help those that will provide for the greatest return on the investment. Not those who will simply get themselves into the same situation again whose circumstances have not changed and will not be able to pay even 50k mortgages.

There simply is no middle

There simply is no middle ground on this one. Student loan borrowers have been unfairly targeted so that the bankers can profit at our expense. There is absolutely no logically fair reason why Student loan repayment is held to such a high standard. They should be dischargeable in bankruptcy, lenders should have to restructure defaulted loans for those who need it and they damn sure should not be allowed to garnish wages without a judgement! Not allowing any kind of restructuring of loans is utterly stupid and counterproductive. It doesn't get the loan paid back. It doesn't help either party. It's merely punitive towards the borrower who took out the loans in hopes that they would find a decent job once they gained an education. In MANY cases this does not happen.
When they stop sending jobs overseas and stop expecting folks to actually live and pay bills on $10 an hour, MAYBE we can buy the BS they're selling. (...and I say "they should stop sending jobs overseas, because the corporate crooks are in bed with the legislators who do nothing to help the folks who put them in office!)

Lol, a middle ground. Why

Lol, a middle ground. Why not do two things. First instead of giving out loans for students to go to school why not pay for every citzen to go to school or receive some kind of training. Somehow Americans have twisted the idea that receiving an paid for education is a luxury and that individual welfare is no good. Secondly, instead of tweeking the current system why don't they just give back bankruptcy protection. Keep it simple.

Finally, John Pottow, a law professor at the University of Michigan, I would like to find out what his political affiliation is(conservative or liberal). He is one of those people that uses his power and influence as a professor to promote an agenda of making sure that no one except corporations receive an economical break.  Why do banks get bailed out but not one individual will get a break? Hmmm.. something here smells like a dead rat.

It's a moral hazard problem...

Higher ed works in an opaque protected marketplace.

It has a brand that is supported by all the conventional wisdom. From the Top to the Bottom. "The most important thing is a good education." Every parent in the world wants a good education for their children.

Meanwhile, there is no signals that can be easily understood about who is delivering a "good education." If it doesn't work, it is always the student/customer's fault.

Meanwhile, the credit industries make money financing an expensive product that everyone believes they need for their children.

Meanwhile, the schools have no incentive to lower their prices and get more efficient because the only basis of judgment is their "reputation" often based more on the "star" faculty, institute, or football team.

Meanwhile, most of the conventional discourse is to increase the funding options and make it easier to get out from under unsustainable debt.

I think this is just another version of subprime mortgages, financial "meltdowns" and General Motors that can be cured by an "injection" of liquidity.

Institutions that are unsustainable, usually change or die. If it happened to GM, it's likely to happen to X,Y, Z college. It's probably just a matter of time.

Indeed

I have always and unrepentantly wanted to pay off my student loans after I finished school. I was able to do so with all of my undergraduate loans. Having just completed my PhD I have , unfortunately, been unable to secure a full-time tenure track position in academe for the current year. My current contract runs out in May and I hope to do some adjuncting over the summer. Given the bleak economic outlook for the upcoming academic year, full-time academic employment appears nowhere near the horizon.

So now I look at my student loan debt and wonder if it was worth it. Payments are supposed to start in February. That is not going to happen at $1,200 a month. So I am going to have to attempt forbearance, perhaps for a full year. About a year ago when we were finishing up our dissertations, a friend of mine asked, "What's the difference between a tenure-track job and a non-tenure track job." "The ability to pay off your student loans," I said half jokingly. Now its no joke.

Student loans

This country needs to give as much support to college education on the back end as it does to the front end, with all the pols prattling on about how valuable a college education is and such. This country must commit to full employment of people's college educations, as its graduates so desire. Grads need to be able to start their chosen careers before they have to start loan repayment, and salaries must display respect for the work that went into the educations. Companies start with their own costs when pricing their products. Employees have costs, too, and have a right to be able to price their labor including the costs of their readiness to do their jobs. While you're listening, I'm advocating the government work to end long-term unemployment regardless of educational attainment; but it should start with people for whom, on paper, there is the greatest discrepancy between potential and actual. "A college education is a terrible thing to waste." If this country made a commitment to full employment of these college educations, which are stored in college graduates, there wouldn't be very many problems with repayment of student loans. I speak as a grad who has never been allowed to do a job requiring even my B.A., let alone my major or my career goals.

Response: It's Not An Either-Or Situation

I'm sorry my piece was misinterpreted. Perhaps I wasn't clear enough so let me say again that I believe that students' bankruptcy rights should be the same as the rights of other unsecured debtors. My organization and others have highlighted the inequities in the current system for years I was appalled when I researched the legislative history for our paper, No Way Out, at how weak the arguments were for this policy in the first place. I have been even more appalled over the years, asI wrote about in the piece, about the way these cases are litigated in bankruptcy court. The system is completely unfair.

I think advocates all agree that it's worth the fight to change this policy, even though the fight will be difficult. That leaves me confused about where our disagreement is, but I think that the commentators were objecting to the idea that IBR should be a substitute for bankruptcy rights. Good point, I agree. I was as clear as I could be on that point in the article, but apparently not clear enough. So that's not the problem. Maybe some of you believe that bankruptcy should be the only option for financially distressed student loan borrowers. If this is what you're saying, then yes, we do have a disagreement. I believe that full bankruptcy rights should be one available tool. However, even if the policy is changed (as it should be), I believe that it is much better for borrowers to have a range of choices to deal with student loan debt, not just bankruptcy. Not all borrowers will be eligible to file bankruptcy given the current bankruptcy system. Not all borrowers will want to file bankruptcy. I am frustrated by the lack of bankruptcy rights for my clients, but I'm also frustrated by the lack of other options.

Advocates certainly don't have to agree all the time, but let's at least not waste time arguing about the things we do agree on. I don't know a single advocate for students or borrowers who has argued that IBR should be a substitute for bankruptcy rights.

I linked to the PDF and the

I linked to the PDF and the relevant part for me, and another individual who was neighbor until this past summer, involves the disability discharge program. Twice I submitted for a discharge and twice was turned down for "insufficient information" though they were provided with substantive medical documents used by both the Veterans Administration and the Social Security Administration to make a determination of total and permanent disability. In each claim a board certified physician produced a review of diagnostic and clinical procedures to support their opinion.

I was told by a collector that I'd be refused unless I was dying or had cancer. He was correct. The disability discharge system is a complete fraud.

From: The Student Loan Borrower Assistance Project

"Fix the disability discharge system. Some reforms in this area will require Congressional action such as "allowing borrowers to use evidence of a disability determination by another federal agency as presumptive proof for discharge." Other changes require administrative reform, including streamlining the application process and giving doctors reasonable guidelines and time to respond to requests for additional information."

Student Loans & Bankruptcy

If, as the article says, there was no strong evidence that students, or former students, were cheating the bankruptcy system by bankrupting on student loans, then why look for a middle ground? Let's restore the bankruptcy protection and statute of limitations protections that other debtors possess?

My student loan is 30 years old. I went into default about 25 years ago and within 2 years of that default endeavored to set up a repayment plan. I was told that NO payment would be accepted until I was sued. I offered a monthly payment of $ 150 a month to increase upon increase of income. If my repayment plan had been accepted, I would have paid off my debt well before now.

After several years of repeated efforts to set up an accepted repayment plan, an employee at the US Attorney's Office told me that in all likelihood I would NOT be sued due to the pending tolling of the statute of limitations. I was told that I may occasionally receive a dunning notice but that no action would be taken. Two years after being told this, I responded to a private collection agency to whom the account was assigned with yet another offer to set up a repayment plan. The agency said that they were authorized only to accept payment in full --- $ 12,000. An amount that I did not have available.

Then years and years went by without contact. Checking my credit bureau reports I found no record and truly believed that the action had been pre-empted by the Statute of Limitations. Unknown to me, the law had been changed by Congress abolishing all statutes of limitation. My debt had been "revived".

Within the last couple of years I was again approached in collections.
Learning of the revival of my debt I contacted the Department of Education. I was told to submit of my income and financial info to determine what I could afford in payments. Having just had a heart attack, uninsured and unemployed, I am not in the same shape that I was a quarter-century ago when I offered a payment plan of $ 150 a month. The Department of Education wrote me a letter affirming that I could not afford any payments at this time. And then turned the account over to private collection.

Does this make any sense? The Government affirmed that I could not afford to send them any money and then contracted to a private collection agency to harass me for payments. The private agency adds on its cut of course.

So now my $ 12,000 debt is $ 60,000.

If I had been one of the crooks who diverted funds out of a savings-and-loan bank in the 1980s, loans insured by the Feds, I would no longer have any obligation to pay those debts by now --- the statute of limitations would have tolled. Indeed, I could have bankrupted on them at any time. But I borrowed a student loan and have no option until the day I die. Fortunately, inasmuch as I am aging and in poor health, neither the Government nor their collection goons is going to be able to get much out of me. It is a pity that the olnly alternative to debt-slavery is death.

Statute of Limitations change caught many

1980, the Reagan years. 4 years military service, then out and try to get an education. Became a victim of the student loan farming being done by the Proprietary trade schools mentioned in the Senate report that MacZeff mentioned. (he sent it to a bunch of us).

In 1994 forced into bankruptcy by economic conditions in Michigan. Believed the student loans to be taken care of. 13 years later, 2007, after the statute of limitations has been revoked for student loans, US Dept of Ed starts processing my loan paperwork again. By this time I have no paperwork what so ever of the original loan stuff. After all its been over 13 years and not a peep from them. Wage garnishment threatened. Demanded to see full and complete copies of original contracts. 150 pages sent, most unreadable even after computer enhancement.

Because of the renewed attack by the US Dept of Ed, I found out that in the mid 1980s a shift from Pell grants to student loans took place, and that is where the student loan nightmare began. Government became the guarantor of the companies that guaranteed the loans from the banks made to students. Then Congress extended the bankruptcy laws, then eliminated them, in effect changing the terms of the student loan contract. Then they removed the statute of limitations and people who once thought their student loan nightmare was over, find themselves back in it. This is worse for someone who comes from an economically suppressed area. Face it.  Greed took over. And now a significant portion of generation Y and Generation Z will pay a high price for it.'

Who has what?

In 1986, I attended one of those predatory trade schools. After I got out, and found that placement was really Arse Kissing 101, I got on with my life, trying to make enough money to start paying my student loans. Remember, back in the 80's there was NO one talking about the predatory practices of the schools, NOR were there much of any oversight being imposed by USDE.

In 1994, I was forced into bankruptcy. I was actually ORDERED by a judge to file. So I did. Then 13 years later, USDE contacts me and says my once 12k loans were now somewhere between 60 and 80K. And they sent a 3rd party collections agency after me. Well, I know how to deal with those parasites and with just 4 letters, I got them to say UNCLE!.. But during that time, I asked for copies of the original contracts.

What they sent me was garbage. 150 pages of unreadable highly degraded photo copies with half the information covered up or missing.

THEN on my own, I found the USDE website, and found thru it, that Bank of America supposedly has my loans. IF BOA has my loans, why have they not tried to contact me? Why is some 3rd party parasite contacting me? Why is USDE contacting me? WHO REALLY holds the loans, and why weren't they discharged in bankruptcy when I DID have the option to do so, in 94?

No questions have been answered by USDE or any of its Representative who have tried contacting me. NOR can I get a complete, readable copy of any contract.

They tried wage garnishment, but I got laid off a week before they were going to start it.. I would have been forced to leave my job anyways, because 15 percent of my pay would have caused me to loose my home.

I am part of that class of victims, of the 1980's student loan farming that took place during that time.

Since I got the loans, the bankruptcy laws have changed twice, Statute of limitations have been eliminated, and pay garnishment without a court order (which I believe is a 7th amendment violation), has been allowed.

ALL that changes the original terms of the contracts. Shouldn't people like me be subject or have the option of grandfather clauses?

Originally bankruptcy protection was stopped because a few shysters took advantage of the easy laws back when. In reality there is no reason for it being not available for many people.

Congress entered into the realm of commerce, when it started playing with student loans, yet it does not want to have to abide by the same rules as any other commercial entity.

Fact are facts. Congress is changing the terms of the contracts, thus the contracts are in reality, Unconscious contracts that should never be allowed to stand as valid contracts.

Just about every student has legal standing for suing the US government for negligence, and for violating the RICO statutes.
Participating in a known fraud, is a criminal act, and the US government is accessory to it all, because they allowed it, in fact, they made it happen.

It is high time they offer some REAL relief to the students. Especially those of us who are victims of student loan farming of the 1980's and before.

Big Shock!!!

I went to school back in the late seventies or early eighties, can't really remember as things happened. I qualified for a PELL grant and was told by the finance person at the school that I would not have to repay it. He also said I didnt need a high school diploma to qualify. I never received or signed for a loan. After my husband died in 1984 I was contacted by someone who said I owed 2 or 3 thousand dollars. I told them I had never borrowed for school. OK, this year i get a letter saying they are sending my tax refund to the Dept. of Ed.and that I had been contacted at this address before(untrue). I have received my refunds all these years. How in the heck do I go about proving that I don't owe this money? I don't even know how much they are talking about or who this "loan" was from. I am not worried about them getting any money out of me, I only work part time and gross 160. per week. I will just fix it so I pay no tax in the first place. Also, they cannot touch my pension, except my social security which is not much over 750. per month. This really bothers me though that the government can do this to me and get away with it. I suppose I will be tourtured for the rest of my life to pay for something I didnt receive and I'd like to do something about it. I am 66 years old and don't care about credit at my age. If I can't pay cash i don't need it. Any suggestions? I have plenty of time on my hands and would love to volunteer in some organization to help those being robbed in this way.