Feeling bogged down by student loan debt? It could be worse. Today we present the case of one Mark Allen Jesperson, a Minnesota lawyer who had what no doubt was one of the worst days in his life yesterday.
Jesperson had student debt liabilities totaling $362,218 at the time of his bankruptcy trial in February 2007. (The reasons the debt was high are not spelled out, but undoubtedly included the fact that it took him 11 years to graduate college before he got his B.A. from the University of Minnesota-Duluth). Jesperson’s condition at the time of the bankruptcy, described by the 8th U.S. Circuit Court of Appeals in a decision it released yesterday, was thus: He was 43 years old; unmarried, but with two children to support by two different mothers; working a temp job; and living in his brother’s basement.
The weighty loans coupled with his no-frills lifestyle seems to have a struck a chord with the Minnesota bankruptcy judge, who awarded him the Holy Grail of student loan debt , a hardship discharge. The Minnesota federal District Court judge affirmed. One can only imagine how relieved Jesperson was to have the weight of that massive debt off him. But unfortunately the time of Jesperson’s joy — much like the money that financed his entire education — was only borrowed. Educational Credit Management Corp. appealed, and, yesterday, a divided 8th Circuit panel opted to overturn the ruling granting the hardship discharge and thereby reinstate the full balance of the loans.
Writing for the panel, Chief Judge James B. Loken said there was no hardship here because the debtor could always enter into a 25-year plan to repay the loans under the U.S. Department of Education’s Income Contingent Repayment Plan. (At the end of such a plan, any unpaid balance remaining would be wiped clean.) Thus, rather than getting a fresh start now, Jesperson will have to wait until he is 70. Interestingly, Loken’s opinion says that the bankruptcy and district court judges should not have imputed rent to Jesperson in calculating his living expenses. “A debtor making a good faith effort to repay loans would continue to live with his brother to save money,” the judge wrote. (Hmm. We hope it is at least a finished basement.)
Admitting that Jesperson, who has not attempted to repay his loans and wound up quitting several law jobs after short periods, doesn’t present the most sympathetic of pictures, Judge Kermit E. Bye, writing in dissent, said that Jesperson nonetheless presented a case of hardship. Not discharging the debt in effect relegates Jesperson and his two children to a life punctuated by constant financial crisis and impoverishment, Bye said.
Nye also took issue with the calculation of Jesperson’s expenses, which did not include rent, medical or dental expenses or a retirement plan. “I reject the majority’s assertion that Jesperson failed to demonstrate good faith because he aspired to live somewhere other than his brother’s basement,” the judge wrote.
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The “reforms” shoved down our throats in 98-99 by the republican congress and Clinton Whitehouse are nothing short of monstrous. How on earth can someone in this day and age make a real distinction between student debt and other types, such as car loans / credit cards / retail financing and the like? The gut reaction is of course that with most loans, there is something material that a creditor can recover to attempt to recoup the losses.
This is a flawed argument for many reasons… Most notably, the fact that there’s nothing stopping me from racking up $360k worth of services on a CREDIT CARD and then discharging that away in bankruptcy, with nothing left for a creditor to recover here either.
In addition, and recovery made off of purchased goods is going to be exponentially lower than the actual credit burden for someone in bankruptcy. Cars, jewelery, electronics, and these days even real estate do nothing but depreciate in value, to the point where it’s not even worth a creditor’s time to pursue such a recovery, with the possible exception of short sales of homes or vehicles.
If you want to treat student loans differently from other loans, then protections should be built into them as well, including:
-Guaranteed low interest
-Caps on monthly payments
-No compounding interest
-Include these protections for private student loans
-Allow ICR and IBF to work with private student loans, not just federal
ICR and IBR DO make some sense, but there’s a problem: These only apply to FEDERAL loans, not the PRIVATE student loans that any student without scholarships are basically forced to take today. Also, for someone with a burden of $65k in federal loans, it becomes cheaper to be on a standard payment program even if your household income is only $50k or so. And again, this does NOTHING to protect you from private student loans payments, which often carry interest rates higher than some credit cards. I sincerely doubt that this guy’s debt was all from federal loans, it had to be private loans by a vast majority, and IBF/ICR will do nothing for him.
This is exactly why the poor have so many issues trying to improve their station in life. They are told that education is the path to success but with the exorbitant rate, it often means decades of debt leaving them no further ahead. Everyone should take note of the fact that the Obamas did not pay off their student loans until after Barack had published his second book. How many people are going to have the kind of opportunities they had?