14 April 2013

Student Loan Discharged

Judge Frank Eastebrook of the 7th Circuit Court of Appeals wrote the opinion for the panel in Krieger v. Educational Credit Management Corp. reinstating the decision of the bankruptcy court holding that Susan Krieger met the "certainty of hopelessness" standard previously announced by the Seventh Circuit. (Go here for some earlier thoughts.) In fact, Easterbrook hints that "certainty of hopelessness" is too stringent.

These are the apparently undisputed facts:
Krieger cannot pay the debt now or in the foreseeable future. She is living with her mother, age 75, in a rural community where few jobs are available; mother and daughter between them have only a few hundred dollars (from governmental programs) every month. She is too poor to move in search of better employment prospects elsewhere, and her car, which is more than a decade old, needs repairs. She lacks Internet access, which coupled with the lack of transportation hampers a search for work.
Judge Manion concurred with an opinion that flummoxes me. He acknowledges that student loan applicants "need not show that they will be capable of repaying the student-loan debts
they incur." He also observes that "a good and expensive education is no longer a guarantee that a good job will ensue." Inability to find a job and subsisting on public assistance while caring for a 75-year old mother still does not amount to "undue hardship" (the statutory standard) because Krieger could have applied for the William D. Ford Income-Based Repayment Plan under which she would have paid nothing for 25 years before her loans would be forgiven. Judge Manion nonetheless concurred in the result because the question of undue hardship is a mixed one of law and fact and the appellate court must defer to the findings of the trial court (in the case the bankruptcy court).

The Ford Program was not the solution for Krieger. Undoing the 2005 amendments to the Bankruptcy Code making all student loans nondischargeable would cut back on the absurdly growing amount of student loan indebtedness. Continuing to subsidize private lenders is the problem. Enhanced nondischargeability is not the solution.

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