08 September 2013

The Glacier Continues to Melt

Another example of the perceptible increase in realism about the "undue hardship" standard when it comes to student loans. I've posted here and here about other occasions where the courts have shown a greater willingness to grant a discharge to student loan borrowers. Today I came across another example (read it here on Bloomberg Law).

I was interested to read that two of the three lenders stipulated that Chelsea Conway's loans were dischargeable. The third lender fought and won at trial but the Bankruptcy Court was reversed on appeal. Chelsea's post-graduation employment history is a stark example of the downward mobility of America's middle class in the past decade: "In 2005, Conway began working full time as a loan sales analyst, but was laid off in 2007 and began working part-time in temporary office positions. She obtained another full-time job in December 2007, but was laid off in 2008 and again began working part-time. By April 2009, she was working part-time as a waitress." And so she's remained ever since with average monthly earnings running between $1,379 and $2,040.

The Bankruptcy Appellate Panel  remanded the matter with instructions to the Bankruptcy Court to examine each of Chelsea's 15 student loans individually. While one might expect that paying a few of them should not produce an undue hardship, I'm confident she'll get a discharge for most.

1 comment:

  1. I understand that there are policy reasons for singling out student loan debts as being more difficult than other types of debts. With other types of loans there are (in theory) forms of protection for creditors in the way of security/collateral. However, protecting creditors from the discharge of unreasonable student lending has drawbacks not only for the student but also for our national economy.

    We used to live in a world of, "If you can dream it, you can do it." That was all fine and good when the economy was booming. As unemployment has risen along with the cost of living, however, perhaps we need to re-examine the wisdom of protecting lenders who grant substantial loans to students who are pursuing degrees and studies unlikely to result in gainful employment?

    This may not be popular, but do we really want to protect a lender who grants thousands and thousands of dollars to a student pursuing a fine arts degree in “dance” or “art history?” Is that not, at least in a sense, "predatory lending?" Why is it that banks and financial institutions are protected from a discharge when they have irresponsibly loaned thousands and thousands of dollars to students who (at least statistically speaking) are studying to be "starving artists?"

    By contrast, students borrowing to obtain degrees in high-demand fields such as engineering and medical services are less likely to find themselves only able to find work serving tables while repaying their student loans. Such students are less likely to require bankruptcy protection. Granted, there are always risks in lending. However, some student loans seem more ridiculous to me than a million-dollar mortgage granted to a borrower earning less than $30k a year.

    It seems to me that the additional protections afforded to student lenders serve only to encourage the issuance of student loans that the student cannot repay. If those protections did not exist within bankruptcy law, then perhaps lenders would better scrutinize the risk it is undertaking. Perhaps they would ask, "Can this student find a job with the degree s/he is seeking?" Even better, perhaps they would ask: "Can this specific student succeed in his/her proposed field of study?" If the answer to either of those questions is no, then why would a bank, financial institution, or government agree to a loan? One answer/explanation is that they are protected by bankruptcy laws.

    How many undergraduate students finish college with less than a 3.0 GPA in an unemployable field of and then decide they want to go to law school or medical school? Do we really want lenders to be protected against irresponsibly financing the impractical, improbable, and/or impossible dreams of our great nation’s (often sheltered) youth?

    The "If you can dream it, you can do it" mentality was for a different time and a different economy. Our nation cries “Yes you can!” in a time when our students desperately need to hear, “I’m sorry, but no you can’t,” or at least: “I’m sorry, but we will not lend you money to ‘reach for the stars.’”

    Today's young students need real job skills for real careers - not massive student loans enabling their pursuit of unrealistic dreams/goals. If students want to "shoot for the stars," then let them find another way to finance their lofty goals other than incurring massive and often non-dischargeable student loan debt that creates an economic hardship that the hard-working people of this country who will eventually be taxed into financing the resulting bailouts. Eventually, every debt is paid - it is only a question of who is made to pay.