Monday, February 11, 2013

Round Five: Restoring Bankruptcy Protection Rights To Student Loan Borrowers (HR 432)

Last Wednesday, HR 432, which would allow private loans to be discharged in bankruptcy, was introduced by Congressmen Danny Davis (D-Ill.) and Steve Cohen (D-Tenn.). This is the fifth time that that this type of legislation has been presented for passage.

As most of my readers are aware, I am in full favor of restoring bankruptcy protection rights to borrowers with private student loans. The same goes for federal loans, too. However, there are valid concerns about the potentially, negative consequences of a bill like this passing - this is always the case when legislation is passed. That's to say, the outcome can result in unforeseen problems. The most significant concern I have is the following: if the bill passes, Congress and higher education policymakers might pat themselves on and declare, "The problem is solved, so there is nothing to worry about now." That is not what we want our dear Congressmen, Congresswomen, and policymakers to conclude! Far from it.

And, as I've mentioned previously, the lenders, who are culpable - just as the U.S. government is - in creating this crisis, would not be held accountable if this law were passed. Furthermore, bankruptcy is not a walk in the park. It is a difficult procedure, which would in the end hurt the borrowers (not to mention taxpayers, too).

Again, I want to be clear - bankruptcy protection rights need to be restored. In fact, they should have never been taken away in the first place. Indeed, they were taken away as a result of false claims made about scores of doctors and attorneys, with high levels of student loan debt, who purportedly rushed to bankruptcy attorneys, declared bankruptcy, and got off the hook in - if memory serves me - the late 1980s and 1990s. Based upon extensive research I have done, searching to find proof of this fact, I haven't found a shred of evidence that confirms the claim. In fact, the argument reminds me of President Reagan's problematic description of the black "welfare queen" who, so he fallaciously claimed, abused the welfare system, bought fancy cars, flashy clothing, and so forth. Recipients use the system to feed and clothe their families. In addition, these people, who receive a minimal amount of support from the government, are also the working poor, a class of people in the U.S. that continues to grow - unfortunately - exponentially. Furthermore, the majority of welfare recipients are not African Americans, but poor, whites who live in the South in rural areas. Mind you, whites make up the majority of Americans, but it is a important reminder of how this remark by President Reagan became part of the national conversation as an accepted truth, one of which has had negative ramifications for the welfare system and those who receive support from it. This assertion led to an aggressive dismantling of the system. Naturally, the same goes for the myth that countless doctors and attorneys recklessly declared bankruptcy after they earned their degrees.

The bill is currently under review by the House Committee on the Judiciary.

What do you think? Will it pass, and if so, will the results be positive? Why or why not?


Anonymous said...

Dear Cryn,

As someone who is so terribly crippled by private student debt, maybe I am biased, but I absolutely feel that allowing bankruptcy would be a blessing. My husband and I are in our early and late thirties. I have $100,000.00 (thanks to interest compounding on my debt) in private student loans. My husband has about $20,000.00. This does not even account for our federal loans which total roughly $250,000.00 themselves. We've just never been able to make enough money to keep up on the payments so we stay in school to stave off the federal payments and make what we can, but sometimes, it doesn't even cover the interest which continues to compound.

As for the private loans, they have turned our lives upside-down. My husband lives with family on the east coast and I live with family on the west coast because these are the places where we found our respective jobs. We had to give up our apartment because we could no longer afford rent and utilities thanks to our private loans coming due. We have one old car between us, meaning one of us is always taking public transportation. We can't even consider having children since we aren't technically even living together and we certainly couldn't afford them.

Unless something like this changes our lives, I do not see how we are possibly going to live together... even under our OWN roof - ever. These loans have cost me my home, my future family, practically my marriage and certainly my future. Even after giving up everything, we're barely making our minimum payments - and this is just on the private loans. We're staying in school because we can't afford to pay the federal loans yet, and we're this old.

Two years ago, we filed for bankruptcy, hoping that it would free up money to help us pay on our student loans. What scares me is that if this passes, they will not apply it retroactively and we will have to wait several years to file. While it is better than nothing, it worries me that they may remove the protections again before we are legally allowed to file a second time. Another fear I have is having two bankruptcies on my record, as if one isn't bad enough.

By the way, I believe the REAL statistic was that less than 1% of people were bankrupting out of their student loans... then again, the majority of them probably didn't need to since they hadn't been as saddled with debt as we are.

If this passes, it is a step forward. Congress already pats themselves on the backs for doing menial thinks like artificially keeping the federal loan interest rate at 3.4% for another year, and acting like the problem has officially been solved. Of course they'll do that again, but we'll keep fighting and eventually, reasonable rights will be returned to this debt so that both lender and consumer will have rights.

This must end, Cryn. It must. As of this point, I really have nothing to live for anymore. I've lost my earthy possessions, my home, my potential family, my future and practically my marriage. If something doesn't change, I'm afraid I won't see a purpose for remaining here.

Anonymous said...

As for a parent who is helping my daughter pay off her student loans and asking for forebearances and deferments from time to time. We struggle to pay them back and now people who has aacquired more student debt than most want to go to bankruptcy. I hope that people realize that bankruptcy can hinder your credit for at least the 1st 3-5 years and up to 10 years. Be careful about this and are we talking Chapter 7 or Chapter 13?

Anonymous said...

85% of all student loan debt is federal, 15% is private.

Cryn Johannsen said...

@Anonymous Feb 11 (9:12 am) - you are correct, and I am glad you brought up this point. It is something I've written about extensively. That will be my next post - this particular problem and IBR.

Thanks for the comment.

-Cryn Johannsen
Founder & Exec. Dir.
All Education Matters (AEM)

Brandon FG said...

I agree that this should not be done just to conveniently get someone out from under the mountain of debt. However, I do believe the option should exist, as long as the person filing for bankruptcy understands the ramifications and possible future consequences.

Anonymous said...

I would also like to add this:

It pains me when I hear people saying that bankruptcy would be the easy way out for those of us with this insurmountable debt. My husband and I have been dealing with this debt for over a decade (two decades for him). As I have mentioned, we have given up everything we own, including our own home, a future family and even living together, just to pay back these loans. We have NOT taken the easy way out.

If bankruptcy protections and usury laws (as well as truth-in-lending) had never been removed, the banks would never have lent so recklessly or charged this kind of interest and we wouldn't be in this position at all. Money lent would have been based upon a debtor's ability to repay.

I mentioned that I already filed bankruptcy once so that I could try to pay on my student debt. The consequences are severe but I must add that my credit was already basically useless before filing thanks to my debt to income ratio, anyway. By the way, I am so ashamed for filing bankruptcy that to this day, nobody in my family knows what I did. I did not take this decision lightly.

If anyone reading this believes that those of us with student debt are trying to take the "easy way out" by bankrupting, you are sorely mistaken. I have given everything but my mortal life to pay these back and in all of the years of my payments, my balances haven't budged. In fact, they've increased.

We need help, and if another hit on my credit will set me free and allow me to start over (with consequence) like every other person in this country, I will take that chance. Besides, I'd be able to contribute more to the economy if every dime I made wasn't given to the already rich banks.

Sincerely, Anonymous February 11, 2013 at 1:21 AM.

desormesk said...

Bankruptcy gives debtor leverage to negotiate down their private student loans sometimes for pennies on the dollar. A lot of these settlements are confidential and unavailable to the public so as not to disturb the wrongful perception that student loans are non-dischargeable in bankruptcy. Keep in mind that there's a dozen ways to skin a cat

Anonymous said...

Excellent idea, Cryn! I'm one of the suckers who finally paid off all my loans a few years ago. If this bill of yours passes, will the Dept. of Education give me back all that money? Inquiring minds want to know.

Anonymous said...

To February 13, 2013 at 1:18 AM:

Wouldn't it be fun if the world worked that way? Like, if every time someone filed bankruptcy, everyone in the entire country received the exact amount of money that was discharged in bankruptcy court... or if every time someone went to Planned Parenthood and received "free" birth control, the government shelled out the cost of that to every person in the nation? Hey, since I can't afford to have a kid thanks to my student loans but you can, how about I get the same tax credit that you do for your kid(s)? Why do I have to pay for you to have children when I can't afford my own? Better yet, what if every time a homeless person got a free meal, the government paid all of us the cost of that meal just so everything could be fair in the sandbox? Because certainly, the homeless man is homeless by choice. He could have a nice home and family like you do, he just prefers to live under a bridge in his own filth, right?

Unfortunately, the real world is not a Disney movie. If it makes you feel any better, releasing students from this debt would stimulate YOUR economy and hey, maybe you could upgrade to a bigger house once we pull out of this never-ending recession!

Congratulations on being able to repay your student loans. My guess is that you probably went to school before tuition prices became out of hand and/or you had a parent, scholarship or grant assist you with expenses and/or you graduated in a more healthy economy and were able to find a decent paying job to help you pay off that debt, contrary to what today's undergraduates are facing.

How can you be so callous? I guarantee you that if you were in our situation, you'd be singing a different tune.

Anonymous said...


Would I? I've always heard that ethics are for the well-fed, but most of the people who say that are unethical AND well-fed.

Your post is jam-packed with logical fallacies. Geez, no wonder nobody wants to hire you.

What kind of "taxes" are you paying in the first place, by the way? I seriously doubt that you are "paying" for me (or anybody else) to do anything. That point notwithstanding, there's a huge difference between NOT taxing an activity (that is, leaving it alone) and giving someone free money to pursue it. If you can't even grasp that simple distinction, then perhaps you should demand that your alma mater give you a refund - because you have clearly learned nothing.

If they made student loans dischargeable in bankruptcy, tuition would probably soar to a million dollars per year - overnight. As sweet as your "stimulus" plan sounds, how about I just stimulate the economy by spending my own money, 'kay? Thanks.

Far too many student loan debtors turn their noses up at manual labor because they are "too good" and "too educated" for such jobs. Kind of difficult NOT to be callous toward that attitude, wouldn't you agree?

Cryn Johannsen said...

@ Feb 17 3:22 - based upon the thousands and thousands of conversations and exchanges I have had with student loan debtors, there is not a single one who has told me that they "turn their noses" up at manual labor. Where is your evidence for such a claim? I have plenty of examples that suggests otherwise. In fact, many of these folks not only work jobs that require manual labor, but have TWO to THREE of them. So, you're assertion is incorrect.

That said, I am really glad you have joined the conversation and are being civil. I have been following this debate closely, and want to thank all of you for being polite (despite disagreeing so vehemently on a topic that is so near and dear to me).

Founder & Exec. Dir.
All Education Matters

Anonymous said...

Restoring consumer protections to student loans would cause lenders to take partial responsibility for the amounts of money that they are lending to students, which would in turn cause less money to be lent to people who would never be able to repay their loans anyway. The inability of students to obtain such ridiculous loans would cause schools to either shut their doors or lower their tuition, because nobody will be able to afford their classes any longer. I do not see how restoring consumer protections to student loans would cause tuition to inflate? It is simple economics that the prices would decrease.

And yes, I do pay taxes from my wages as a manual laborer. I work 12 hour night shifts and clean houses during the day. I hold a master's degree from a top university in my field. I graduated with a 4.0. Unfortunately, my field is shrinking and there are no positions available to one with "only" a master's degree. The only university in my area with a funded Ph.D. Just closed their program, probably because the industry, while important, is no longer lucrative in this country. I refuse to take out more student loans to attend a non-funded program so until the economic climate improves, this is my position.

Tiffany Gholar said...

I am so tired of the bitter comments left by people who've repaid their student loans and are angry that debtors who were unable to do so are looking for other options like bankruptcy and forgiveness. It's so immature. Though I am buried under student loan debt, I did manage to pay off some credit cards, but I don't begrudge the people who have made payment arrangements or filed bankruptcy because they couldn't afford to repay Target or Nordstrom or Citibank. That attitude--not that of student borrowers who are looking for justice and truth in lending--is one of selfishness and entitlement.

Anonymous said...

I think it's disgusting that a country that holds the ideals of liberty and justice with such high regard, won't allow students bankruptcy protections.
What's so special about student loans? What makes them so different from mortgages or auto loans?
I'm not saying give people a free ride, but seriously, at some point these loans should become dischargeable.
All loans should be dischargeable after 5-10 yrs of repayment history. Private or Federal.

Defaulted student loans said...

Restoring purchaser insurances to person advances might cause moneylenders to assume ownership over the measures of cash that they are giving to people, which might in turn cause less cash to be loaned to individuals who might never have the ability to reimburse their credits in any case. The failure of people to get such silly advances might cause schools to either close their entryways or bring down their educational cost, since no one can manage the cost of their classes any more drawn out. I don't perceive how restoring buyer securities to scholar credits might cause educational cost to blow up? It is modest money matters that the costs might diminish.

Defaulted student loan said...

Goody gumdrops Brian-

I am so tired of the severe remarks left by individuals who've reimbursed their scholar credits and are irate that borrowers who were unable to do so are searching for different alternatives like liquidation and absolution. It's so adolescent. Despite the fact that I am covered under person advance obligation, I did devise a workable plan to pay off some Visas, however I don't resent the individuals who have made installment courses of action or indexed chapter 11 since they couldn't stand to reimburse Target or Nordstrom or Citibank. That disposition -not that of person borrowers who are searching for equity and truth in giving -is one of childishness and qualification.

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