8th Circuit doesn't lend sympathetic ear to MN Lawyer with $360K+ in student debt

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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.