How To Get Rid of Your Student Loans
The answer is to elect more Democrats to Congress. The Republicans have made it all but
impossible to ever get rid of your student loans, particularly not in
bankruptcy proceedings. If you file for
bankruptcy protection from your creditors, no matter how disastrous your
financial situation is, you will emerge from the bankruptcy still owing every
penny of student debt you incurred, and that debt will follow you to your
grave.
It wasn’t always so. I’m
a law professor at The Ohio State University, and I’ll be teaching the course
on bankruptcy there this coming fall semester. Prior versions of the federal Bankruptcy Code
allowed student loans to be discharged in bankruptcy where it was clear that
there was no way the former student was going to be able to pay them off. But in 2005 the Republican-controlled
Congress pushed through major changes in the Bankruptcy Code, most of which
were designed to screw consumers and reward banks. Deceptively named “The Bankruptcy Abuse Prevention and Consumer
Protection Act” (BAPCPA), the statute made it difficult for many debtors to
enter the usual bankruptcy proceeding in which the debtor surrenders all
his/her nonexempt property and then is forgiven most outstanding debts, thus
getting a fresh financial start. Instead
if the debtor shows any ability to repay those debts BAPCPA denies entry into
that sort of bankruptcy and instead forces the debtor into a Chapter 13 plan,
which consists of five years of debt repayment before there is a reduced
discharge of some debts.
Whichever version
of bankruptcy consumer debtors enter, BAPCPA forbids the discharge of student
loan debts unless paying those debts would “impose an undue hardship” on the
debtor or his/her dependants [Bankruptcy Code §523(a)(8)]. The courts have construed “undue hardship”
very strictly so that mere current inability to pay the debts is not enough to
qualify. Instead it must be obvious that
the debtor will never be able to
repay. For example, in one case, Barrett v. Educational Credit Management
Corp., 487 F.3d 353 (2007), the Sixth Circuit Court of Appeals allowed Mr.
Barrett to use “undue hardship” to discharge his student loans because he had
Hodgkin’s disease, with lymph nodes in his neck, abdomen, lungs, and liver, and
was in pain so great he couldn’t hold up a coffee cup. This made him unemployable, and there was no
hope of recovery. But it is a rare
bankrupt-seeking debtor who is “fortunate” enough to be struck so low as to
meet this standard and thus discharge student loans.
Senator Elizabeth Warren |
The Federal
Reserve reports that unpaid student
debt has doubled since 2007 to around $1.3 trillion, with 40 million Americans having
student loan debt averaging almost $30,000.
The Democrats keep
trying to change things, only to be met with a filibuster in the Senate that
kills any hope of relief. Senator
Elizabeth Warren (D-Mass.), herself a former teacher of bankruptcy law (and a
friend of mine) for years now has decried the fact that the federal government
bailed out the banks with TARP billions of dollars loaned at ALMOST NO INTEREST RATE
while projected to make over $127 billion dollars in profit from student loans over the next ten years. Just two days ago her bill to allow Americans
with student debt to refinance at a lower rate was given a favorable vote in
the Senate of 58-38 (with some minimum Republican support while all of the
negative votes were Republican), but the bill nonetheless failed. Why? Because 60 votes is needed to cut off a
filibuster, and 58 votes won’t do it. I’ve thundered before against the stupidity
of having to have a “supermajority vote” that filibuster rules require (see “Related
Posts” below), and here again that stupidity prevented badly needed progress on
this issue. As her recent (and terrific)
autobiography, “A Fighting Chance,” demonstrates—the audio book, which she
reads herself is particularly fascinating—Senator Warren worked for years to
prevent Republicans from pushing through anti-consumer changes in the
Bankruptcy Code, only to be overwhelmed finally in 2005 when BAPCPA was
enacted.
Congress is now
so deadlocked that legislative relief for student loan debt is not coming
soon. The Republicans have control of
the House of Representatives and are hoping this fall’s election will give them
a majority in the Senate (they need a gain of six seats). If that happens then Congress will be able to pass legislation (though
the filibuster in the Senate will now switch and aid Democrats in creating a
roadblock), but that legislation will certainly not be pro-consumer. It will be pro-banking lobby.
If you’ve not yet
taken out any student loans, don’t do so unless you are certain you will be
able to repay them. Instead work part
time during college and pay for your degree as you go. If you must take out loans, get them from
your parents, or take out loans that are not earmarked for student educational
purposes (i.e., general loans), which would be dischargeable in bankruptcy.
Related Posts:
“Killing
the Filibuster and Letting the Majority Rule in the Senate,” December 31, 2013
“Elena Kagan and Me,” March 23, 2010 (about Elizabeth
Warren)
“A Guide to the Best of My Blog,” April 29, 2013
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