Friday 6 May 2016

For Student Loan Borrowers in Default, Redemption Just Got Easier


AS college campuses prepare for a new academic year, revised federal rules now in effect should make it easier to return student loans in default to good standing.
The new rules, which became official July 1, help define what is a “reasonable and affordable” monthly payment for borrowers working to get troubled loans back on track through a rehabilitation process. Under the rules, payments must be calculated in a way that takes into account a borrower’s income and expenses as well as family size.
Loan rehabilitation, which gives borrowers who have defaulted a chance to redeem themselves, isn’t a new option. But previously, loan servicers and debt collectors had different definitions of what an appropriate payment meant, leaving some students with payments that were still too high.
“Because it wasn’t defined, it varied,” said Betsy Mayotte, director of regulatory compliance at American Student Assistance, a nonprofit agency that works to help borrowers avoid defaulting on their student loans.
Federal student loans are typically considered in default after payments are past due for more than 270 days — about nine months. Once that happens, borrowers are no longer eligible for protections like loan deferments and may not be able to receive federal aid should they decide to return to school. Their wages are subject to garnishment — meaning that payments can be involuntarily deducted from their paychecks — and their credit will most likely be damaged.
Rehabilitation allows most borrowers with federal loans to get out of default by making at least nine full, on-time payments over a 10-month period. But if the payment amount is too high, they are less likely to complete the rehabilitation process.
That’s why the new rules borrow the definition of “affordable” from the federal government’s traditional income-based repayment, or I.B.R., program, which bases borrowers’ loan payments on a conservative estimate of their disposable income. The formula calculates a payment of 15 percent of income after subtracting 150 percent of the federal poverty level. This year, that adds up to $17,505 for an individual in every state but Alaska and Hawaii, which have higher poverty levels. So, for instance, if you’re single, with an annual income of $25,000, the formula reduces your income to $7,495 — and your payment would be about $94 a month, according to the American Student Assistance loan estimator tool.
Loan experts caution, however, that even though you’re making payments based on the I.B.R. formula while your loans are in rehabilitation, that doesn’t mean that you’re formally enrolled in the I.B.R. program. For instance, while you’re in loan rehabilitation, your payments don’t count toward the eventual forgiveness of your student debt, as they would if you were in I.B.R., Ms. Mayotte said. You must first must complete the rehabilitation program and bring your loans into good standing; then you can apply for the I.B.R. program and its full range of benefits.
What’s more, under I.B.R. your payment could actually be zero, while under the rehabilitation program, your payment can’t be less than $5, said Persis Yu, a lawyer with the National Consumer Law Center.
Keep in mind that only loans made or guaranteed by the federal government qualify for rehabilitation. Most private lenders don’t offer this option.
Here are some questions about student loan rehabilitation:
■ How can I apply for loan rehabilitation?
Contact the company that holds your loan. If you’re unsure who that is, you can look it up on the National Student Loan Data System.
■ What if the payment offered to me under the rehabilitation program is too high?
You can ask for a more detailed analysis of your income and expenses to see if that approach might result in a lower payment than the I.B.R. formula. You can then choose the lower of the two options.
■ What happens after I successfully complete loan rehabilitation?
Your loan will usually be moved to a new servicer, and you may then apply for I.B.R. or other income-driven payment options that can keep your monthly payments manageable.
■ Will garnishment of my paycheck stop once I enter a loan rehabilitation program?
Once you make five on-time payments under the rehabilitation program, the involuntary payments may be suspended, Ms. Yu said.
By Sophia on 01:17 0

Tax Credits for College Can Help Ease Costs





With all the worries about rising college costs, lower- and moderate-income families should keep in mind that there are federal tax benefits that can help ease the financial burden of getting an education.
For instance, there are two tax credits available that can lower your tax bill while you, or your child, are in school. The American Opportunity Tax Credit lets you reduce your tax bill by up to $2,500 per student for the first four years of higher education. The credit can be used for either undergraduate or postgraduate educational costs. Eligible expenses include tuition, fees, books and equipment. To get the full credit, a single taxpayer can’t make more than $80,000 in 2014, according to the financial aid siteEdvisors.com; partial credits are available for income up to $90,000.
The credit is partly refundable — meaning that in some cases, even if you don’t owe any taxes, you can receive up to $1,000 back as a refund. Gary Carpenter, an accountant and executive director of the National College Advocacy Group, a nonprofit organization that helps families plan for college, recalls that one of his clients, a single mother with two children in school, received a $2,000 tax refund thanks to the credit.
There is also the Lifetime Learning Tax Credit, which offers a tax reduction of up to $2,000 per return (rather than per student). Income limits are lower than with the opportunity tax credit; the lifetime credit phases out between $54,000 and $64,000 for a single taxpayer for 2014. Unlike the opportunity tax credit, however, the lifetime credit is available even if your program of study doesn’t lead to a degree, and there is no limit on the number of years it can be claimed.
Karla Dennis, chief executive of Cohesive Tax in Cypress, Calif., said the lifetime learning credit was a boon for people seeking to update their skills or retrain for a new career: “I make a lot of my clients aware of it.”
Often, this credit is taken by graduate students who are ineligible for the opportunity credit, because they have been in school longer than four years, said Mark Kantrowitz, publisher of Edvisors.
If you’re eligible for both credits, you must choose one or the other. In general, Mr. Kantrowitz said, if you qualify for either, the terms of the opportunity credit are more generous, so “that’s the one you should pursue.”
If you borrowed money to attend college, the interest paid on both federal and private student debt is deductible on your federal tax return. You can reduce your taxable income by up to $2,500, if you meet the income requirements. Single filers can earn up to $65,000 this year and take the full deduction; if you make between $65,000 and $80,000, you can take a partial deduction.
You don’t have to itemize deductions on your tax return to claim thestudent loan interest deduction, so you can claim it in addition to the standard deduction.
There’s also no limit on the number of years that you can take the interest deduction. “As long as you’ve got the interest, you can deduct it,” Mr. Carpenter said.
As always with taxes, the impact of taking a deduction or credit varies, depending on your specific situation, so you may want to consult a professional tax adviser.
Here are some questions about education tax benefits:
■ How do I know how much interest I paid on my student loans?
Your servicer — the company that manages your student loans — typically reports the amount to you (and to the Internal Revenue Service) each year on Form 1098-E.
■ Is there a tax deduction available for college expenses?
A deduction of up to $4,000 for tuition, fees and other expenses expired on Dec. 31, 2013, according to the Internal Revenue Service website: “Under current law, the deduction is not available for tax years after 2013.” That means it’s no longer available, unless Congress acts to extend it. That’s not necessarily a big loss, said Mr. Carpenter; many people may be better off taking one of the available credits anyway.
■ How do I claim an education tax credit?
File I.R.S. Form 8863 with your federal tax return.
By Sophia on 01:14 0

Navigating the Thickets of Student Loan Counseling


As a former student loan borrower himself, President Obama has more than a passing familiarity with the complexities of higher education finance. But in a little-noticed bit of comment last year in an interviewwith David Karp, the founder of Tumblr, he issued some pointed criticism of the advice that students get on the way into college.
“Frankly, universities don’t always counsel young people well when they first come in,” he said. “They say ‘Don’t worry about it, you can pay for it,’ not realizing that you’re paying for it through borrowing.”
Indeed, all students with federal student loans must complete counseling sessions before they borrow their first dollar and are supposed to do it again once they finish their degree. Most colleges useonline modules that the federal Education Department supplies.
And over the last two years, the nonprofit group TG, which collects payments on older federal loans and tries to keep borrowers out of trouble, has done its own examination of the government-supplied counseling lessons. It, too, had some tough-love analysis after it watched students put themselves through the process. Its reports note that students find much of the material “irrelevant” and that the government “assumes users know things they do not (and often cannot) know.”
TG’s critique goes on: Each module “imagines borrowers are tireless text processors,” while delivering a “bulky and ultimately ineffective user experience” that was often “generic to the point of uselessness.”
In short, this may be the only dose of financial education that teenage borrowers get when making one of the most important financial decisions of their lives. But the counseling offers a dizzying amount of facts and not all that much advice about how much to borrow, in what way and when. “It’s a life-altering decision being made with minimal information at a time of maximum distraction,” said Jeff Webster, the TG executive who led its research.
Yet each student’s choice is just a little bit different from everyone else’s, which makes this a hard problem to solve. Counseling has been required since the 1980s, and universities have a long list of things they must teach, by law. When the federal government offered its own set of courses, colleges knew that if they simply adopted them they wouldn’t have to worry about running afoul of regulations. So the majority did.
Mr. Webster began asking about the federal counseling modules roughly two years ago, and he said he was disturbed by what he heard back from college financial aid officers. “They said that they send students to the modules but don’t have any illusions that they are actually learning anything,” he said. “Well heck, if this is the opportunity to allow them to make informed decisions yet they lack faith in its efficacy, then what’s going on here?”
To find out, a team of researchers embedded with students at a handful of colleges and universities and quizzed them as they completed their counseling requirements. They found problems in at least four major areas.
TIMING Ideally, parents would be spending all of their children’s high school years introducing them to the idea of debt, generally, and then work with them to decipher the different student loans that a college suggests. Since those conversations don’t occur often enough, the universities end up having to educate the students.
Incoming freshmen should be completing the entrance counseling over the summer. (TG researchers heard many reports of parents doing it for them, which is also far from ideal.) If they don’t get it done, they have to complete it when they arrive on campus (or else they cannot get their loan funds). But at that point — when they don’t even know where their classes are or how to get to the dining hall — they’re inclined to rush through the counseling as quickly as possible.
Raul H. Lerma, executive director of the financial aid office at El Paso Community College in Texas, has used experienced borrowers to help the others. Ivan Pierre Aguirre for The New York Times
Ideally, students, as a condition of getting federal loans each year, would have to do an annual checkup on their total debt and a reminder of how many loans they’ve taken out. Colleges can encourage this but may not require it. Jeff Appel, a deputy undersecretary at the Education Department, said the department might support a yearly check-in if Congress required one, though he expressed concern about universities assuming additional underwriter-like gatekeeper responsibilities.
Parents who are writing checks for part of tuition can certainly mandate regular updates on a family debt spreadsheet that they look over with their college-age children.
ASSUMED KNOWLEDGE The federal government can’t very well give college freshmen an instant education in all things financial. So it has to assume some baseline knowledge and then move on after an initial definition of certain terms. Still, the modules are filled with phrases like this one: “Graduation before exceeding your maximum eligibility period protects Direct Subsidized Loans received from interest subsidy loss.” Ugh.
TG, in its analysis, also focused on the entrance counseling calculators, which tell new students to enter the amount they plan to borrow, the interest rates and what they think they’ll earn once they graduate. Students that TG observed were dumbfounded by this requirement. “If they knew what Treasury bills would look like in five or six years, they could probably be employed doing other things,” Mr. Webster said. A2014 study in the Journal of Student Financial Aid showed just how little students at Iowa State University knew about their debt. About 13 percent of them had outstanding loans but didn’t know it. Another 9 percent underestimated their debt by more than $10,000.
BULK The large blocks of text came in for particular criticism by the students TG studied. Many of them did not see the handful of videos that are part of the modules but found them helpful when researchers pointed them out.
Indeed, some of the videos are quite good. The budgeting videoincluded one of the most succinct cases for budgeting I’d ever heard: It’s all about you deciding where your money goes instead of wondering where it all went. The entire set of lessons could use a lot more of this kind of conversational communication.
LACK OF HUMAN CONTACT Not every college uses the modules that the Education Department supplies. Many of those that do not instead try to put more people in front of groups of students to make sure they understand their debt. This isn’t easy for institutions that are strapped for cash themselves, but many find a way to do it anyway.
Raul H. Lerma, executive director of the financial aid office at El Paso Community College in Texas, has used experienced borrowers to help the new ones. He also runs sessions and makes himself available as much as he can to students new to the process. “I’ll go over it in Spanish, or have students make appointments to come in,” he said. Parents are welcome at the counseling sessions, too.
While there are not yet any studies comparing different forms of counseling, Mr. Lerma knows from his encounters in the community that he’s had a lasting impact. A former borrower stopped him in the funnel cake line at a baseball game recently to chat about loans. A father who came in with his college-age daughter also recognized Mr. Lerma from his own loan counseling in the 1990s.
Nothing is stopping any student at any college from making a friend in the financial aid office. The people who work there crave human contact, too, and stretched as they may be at certain times of the year, they take great joy in helping straighten out students. Encourage your children to knock on some doors there if they are confused about their loans.
In an educational universe of ever-rising tuition and perpetually constrained budgets at the colleges themselves, the challenge of offering and getting good counseling is not a problem that anyone will solve quickly. The Education Department pledges to keep trying and is working on many improvements. “We welcome the recommendations and the findings from TG’s research,” Mr. Appel said. “It’s useful.”
By Sophia on 01:13 0

Paying for College and Learning a Lesson for Life

Roger Koester at his home in Golden, Colo. Decades ago, he taught families in the Chicago area how to apply for financial aid and curb graduation debt. Matthew Staver for The New York Times
When it came time to apply for college in the fall of 1988, my parents and I didn’t know the first thing about the financial aid process. But my mother, a veteran personal shopper who has always had a knack for figuring out just who to call to solve consumer mysteries of all sorts, knew someone who knew someone. A guy. The guy.
So we went to see him. He was an associate director of financial aid atNorthwestern University, eight miles north of where we lived in Chicago. And on certain weekday afternoons, after his colleagues had gone home, he’d usher a local family into his inner sanctum, collect $45 and pull back the curtain on how the system worked.
We had a lot to learn about which numbers to put where on the federal financial aid form and how to arrange things so that we would appear as needy as possible, without breaking any rules. But the guy taught us what we needed to know, and it worked. My aid from Amherst was generous (for ethical reasons, he wouldn’t have worked with us if I had been appealing to him and his Northwestern colleagues for grant money), and I finished college with a manageable amount of student loan debt.
I didn’t think about him much until recently, when I had cause to reflect on some of the most important things I had learned about money before I became an adult. But that meeting now sticks out for a couple of reasons.
First, the encounter taught me that the grown-up world was filled with complex systems involving money and that they were made to be hacked. Legally, of course. Moreover, if you look hard enough, quite often there’s an expert around somewhere who will explain everything to you for a reasonable price, or even free. It’s probably not a coincidence that I grew up to be the person whose beat in journalism is beating the system.
But there was something else that was even more important about that meeting: The mere fact that I was in the office with my mother in the first place. Not every parent would have taken a 17-year-old along for that particular encounter. It would have been natural for my mother to try to shield me from worry or complication or shut me out from examining her income and other data that many parents might deem to be none of my business.
Except it was my business — my future, my debt — that was at issue. So of course I should have been in the room, just as parents should be including teenagers in all sorts of discussions about ever-larger amounts of money as they prepare them to make six-figure decisions about college and the five-figure debt they will probably have to take on to graduate.
As for that guy, we had long since forgotten his name. All I remembered was that he had left Northwestern for the Colorado School of Mines. My mother thought that his first name started with the letter R. Northwestern and the Colorado school came up with the same name, but Google was useless for this particular search and New York Times librarians could not locate a listed phone number for him or his immediate family members.
So I sent an email, which the human resources department at the college in Colorado printed out and dropped in the mailbox, care of his last known address. I crossed my fingers, since he had retired in 2009. But a week or so later, Roger Koester sent me an email from his home in Golden, Colo.
He remembered me, though only slightly; his side business had never grown very big, so he hadn’t had that many clients. He was similar to me too, in that he had also taken an interest in money early on. His parents had helped him get a passbook savings account for his allowance, and he had a job shoveling snow.
So was he surprised that I tagged along to his office that day in 1988? Not really. While he didn’t require the students to show up, he was always a little surprised when clients called and asked if it was O.K. to bring their high school students to the meetings. “ ’By all means,’ I would say,” he recalled. “If part of this is going to be their investment in their own education, then they sure as hell better know what’s going on.”
Thanks to him, I did learn what was going on. But if my mother hadn’t taken me along, I’m not sure I would have started down the career path of teaching others what’s going on, too.
By Sophia on 01:10 0


Students who must borrow to help pay college tuition will get a little bit of a break in the coming school year.
Starting July 1, the rate on new undergraduate loans made under the federal Stafford program will fall to 4.29 percent, down from 4.66 percent for loans issued in the last academic year. The new rates apply to both subsidized loans, based on financial need, and unsubsidized loans, which are made regardless of financial need.
“It’s good for students borrowing for the coming school year,” said Lauren Asher, president of The Institute for College Access and Success.
Rates will fall for other categories of education loans as well. The rate on unsubsidized Stafford loans to graduate students, for instance, will drop to 5.84 percent from 6.21 percent, while the rate on PLUS loans, for parents and graduate students, fall to 6.84 percent, from 7.21 percent. (More details about loan terms for the coming year are available on the Ticas website.)
Under a new method adopted by Congress in 2013, annual rates for federal student loans are based on the rate on the 10-year Treasury note in the spring, plus an additional margin that varies depending on the type of loan. Rates change each year, but once you borrow the money, the rate remains fixed for the life of the loan.
The drop this year is a change from the most recent academic year (2014-15), when rates rose from the previous year.
Although any decrease is welcome, the resulting interest savings are relatively modest, and the reprieve may be short-lived, once the Federal Reserve moves to raise interest rates. Rates on student loans are projected to rise starting next year, and to continue doing so for the next several years after that, according to an analysis from the institute using figures from the Congressional Budget Office. For the 2016-17 school year, rates for undergraduate loans are projected to move above 5 percent, and by 2018-19, above 6 percent.
Those who are already repaying their student loans were warned by the federal government to beware of scams that may target them online.

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A guide to student loans at various universities, and what it takes after graduation to repay that debt.
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Struggling borrowers using search terms like “student loan default” or “Obama student loan relief” may end up on sites that charge large fees to help them enroll in loan assistance programs that they could access themselves free of charge, according to the Consumer Financial Protection Bureau.
Rohit Chopra, the bureau’s student loan ombudsman, sent letters this week to Google, Bing and Yahoo, urging them to work with the government to ensure search engines are not being used to prey on student loan borrowers by directing them to sites that imply an affiliation with the federal government.
Statements from Microsoft and Google indicated they were attuned to the problem. “We have an extensive process for filtering and monitoring Bing traffic against known fraudulent patterns to help detect and prevent against fraud and phishing techniques,” Microsoft said in a statement.
Google said: “We work hard to keep our advertising ecosystem clean and last year alone we disabled more than 524 million ads. When we become aware of an ad that violates our policies, we’ll not only remove it, but in many cases remove the advertiser as well.”
Here are some additional questions about student loan interest rates:
■ Since rates are lower, should I borrow as much as I can for next year?
While it’s great that rates will dip, students should still avoid piling on debt if they can, said Ethan Senack, higher education advocate with the U.S. Public Interest Research Group. “Generally, they should borrow as little as possible,” he said, noting that heavy student debt can infringe on your ability to do other things after you graduate, like buy a car or a house.
Plus, said Mark Kantrowitz, publisher of Edvisors.com, there are limits on the amount of federal borrowing you are allowed to do — not only in the aggregate, over the course of your college career, but for each separate year that you are a student. For dependent undergraduates, or most students under age 24, the maximum annual amount is from $5,500 to $7,500, depending on your year in school — and separate, lower caps on subsidized loans apply as well.
■ Is there a cap on the interest rate for student loans?
Yes, there are caps that vary depending on the type of loan. For undergraduate loans, the cap is 8.25 percent; for graduate Stafford loans, it’s 9.5 percent; and for PLUS loans, it’s 10.5 percent.
■ Can I get a lower interest rate by making loan payments automatically?
Borrowers can typically get a 0.25 percent reduction in their interest rate if they agree to have regular monthly payments automatically deducted from their bank account.

By Sophia on 01:09 0

Judges Rebuke Limits on Wiping Out Student Loan Debt







On a typical day in her last job, Janet Roth left home at 4 a.m. each day and drove 40 miles to a tax preparation office in Glendale, Ariz. When she finally got back home, she had less than an hour before starting her 6 p.m. shift decorating cakes at Walmart. She worked until midnight, giving her just a few hours to sleep before starting all over again.
Ms. Roth, 68, worked in many jobs over the years, but she never made quite enough to pay back the $33,000 she borrowed years earlier for an education degree she couldn’t afford to complete, and certainly not the $95,000 it ballooned to in default.
She filed for bankruptcy, wiping out five figures in medical debts. But erasing student loans requires initiating a separate legal process, where borrowers must prove that paying the debt would cause an “undue hardship.”
To prepare her case, she copied down statutes at a local law library and watched episodes of “Law and Order.” Her efforts paid off: Ms. Roth’s loans were discharged in 2013.
That Ms. Roth, now living on Social Security, managed to succeed in what is known as a notoriously difficult process is not even the most remarkable aspect of her case. Instead, the ruling captured the attention of other judges and legal scholars because of a judge’s bluntly worded written opinion that rebuked the widely adopted hardship standard used to determine whether a debtor is worthy of a discharge.
The judge, Jim D. Pappas, in his concurring opinion for the bankruptcy appellate panel decision in the United States Court of Appeals for the Ninth Circuit, said the analysis used “to determine the existence of an undue hardship is too narrow, no longer reflects reality and should be revised.”
He added: “It would seem that in this new, different environment, in determining whether repayment of a student loan constitutes an undue hardship, a bankruptcy court should be afforded flexibility to consider all relevant facts about the debtor and the subject loans.” But the current standard, he wrote, “does not allow it.”
Judge Pappas isn’t the only critic. Although plenty of cases still hew closely to a strict interpretation of the test, some judges and courts have signaled in recent years that they believe the rigid standard — known as the Brunner test — should be reconsidered, even if they are still bound to it now.
“The world has changed,” said Michael B. Kaplan, a federal bankruptcy judge for the District of New Jersey, who criticized the standard in anopinion article. “Certainly, the costs of education and the level of student loan indebtedness has exploded.”



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A guide to student loans at various universities, and what it takes after graduation to repay that debt.
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Because the bankruptcy code never defined “undue hardship,” the courts needed to develop their own definition. Most courts adopted the Brunner test, which originated from a precedent-setting ruling in 1987, in which a woman named Marie Brunner filed for a discharge of her debt less than a year after she completed a master’s degree.
To stop debtors from trying to prematurely cancel their debts, the case laid out a three-pronged test: Individuals must prove they made a good-faith effort to pay the loan by finding work and minimizing their expenses. Debtors must also show they could not maintain a minimal standard of living based on their income and expenses if they had to repay the debt.
But then, in arguably the most challenging prong, the court must consider whether that situation is likely to persist for a significant part of the repayment period — which essentially requires the judge to predict the debtor’s future, ensuring what some courts have described as a “certainty of hopelessness.”
“How do you prove things won’t change for the better in the future?” said Daniel A. Austin, associate professor at Northeastern University School of Law.
Bankruptcy scholars and judges said the test made sense at the time it was adopted because even if debtors could not pass the test, their debts — which were far more modest then — would automatically be discharged in bankruptcy five years after their repayment period started.
But the legal landscape has changed substantially since then. Before 1977, student loans could be discharged in bankruptcy alongside other debts like credit card balances. Congress toughened the law in 1976, adding the five-year period, and again in 1990, when the waiting period was extended to seven years.
In 1998, the waiting period was eliminated. So now, all debtors must prove undue hardship to erase their student debts. (In 2005, Congress added private student loans to the mix of federal education debt that could not be discharged, even though the loans are not backed by the government.)
“You can see why courts would have developed a harsh standard in those cases where consumers had sought discharge of loans soon after they came due, without waiting five or seven years,” said John Rao, a lawyer with the National Consumer Law Center. “But it is kind of ridiculous to be applying the same standard now when there is no longer a right to an automatic discharge.”
Another noteworthy case, also from 2013, involved a “destitute” paralegal named Susan Krieger, then about 53, who lived in a rural area of Illinois with her mother, according to court documents. Ms. Krieger received a bachelor’s degree in legal studies and a paralegal certificate, graduating when she was 43. But after a decade-long search, she couldn’t find a job.
The Educational Credit Management Corporation, the guaranty agency hired to battle student debtors in court, argued that Ms. Krieger should enroll in an income-based repayment program, even though she probably wouldn’t end up paying anything. Ms. Krieger’s remaining balance of about $25,000 was eventually discharged.



“The world has changed,” says Michael B. Kaplan, a bankruptcy judge in New Jersey.Bryan Anselm for The New York Times

But it was the written opinion of a well-regarded judge in the Krieger case, questioning the application of the Brunner test, that has been repeatedlycited by other judges. In the ruling, Frank H. Easterbrook, then chief judge for the United States Court of Appeals for the Seventh Circuit, seemed to signal that requiring debtors to prove their futures were “hopeless” was taking the undue hardship standard too far.
He wrote that it was important not to allow “judicial glosses,” like the language in the Brunner case, “to supersede the statute itself.”
Rafael I. Pardo, a bankruptcy law professor at Emory Law, said Judge Easterbrook’s opinion was a reminder to other courts that carried a lot of weight. “If this highly respected, highly cerebral conservative judge is saying this, that is a big deal,” he added. “It is a clarion call that some judges should be more forgiving when applying the law.”
Judge Easterbrook and Judge Pappas weren’t the first to criticize the Brunner standard. That distinction may belong to Judge James B. Haines Jr., who spent 25 years as federal bankruptcy judge in Maine before retiring in 2013. In an opinion in 2000, he said that some courts reach too far in trying to define undue hardship.
He said he never felt shackled by Brunner’s three-prong test because the higher court in his jurisdiction never adopted that standard, leaving him free to consider another standard, whereby judges can consider the “totality of the circumstances.”
“Throughout my time on the bench, I heard many student loan cases,” said Judge Haines, now a professor at Maine University School of Law. “The totality of the circumstances test gave me sufficient structure, with a fair ability to balance all pertinent facts.”
Many of those facts have become more dire over the last decade. Among debtors filing for bankruptcy with student loans, the average amount of student debt has doubled to nearly $31,000 in 2014 from $15,350 in 2005, according to an analysis by Professor Austin of Northeastern. But perhaps more important, student loans as a percentage of the filer’s annual gross income have also increased substantially. In 2014, 16 percent of all bankruptcy filers had student loans that totaled more than 50 percent of their annual income, compared with 5.4 percent in 2005.
This year, President Obama instructed several governmental agencies to review, by Oct. 1, whether the treatment of student loans in bankruptcy should be altered. Congress could tweak the bankruptcy code, perhaps reinstating a waiting period before debts can be canceled. Judge Kaplan, in New Jersey, said perhaps 10 or 15 years was the right number. Otherwise, the existing hardship standard could be overridden if a circuit court hears a case en banc, meaning all of the judges in a circuit decide together.

All of those are long shots, for the time being. A larger part of the problem is that only a tiny percentage of debtors attempt to dischargetheir student loans in bankruptcy, perhaps because of the perception that it isn’t possible or is too hard.
But debtors’ best chance at having their student loans wiped away may simply be to try.




By Sophia on 01:04 0
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