The Great Student Loan Issue

I'm here to address the corruption of the student loan industry and advocating for either a reinstatement of bankruptcy provisions for the honest but unfortunate debtor, or to encourage the 4+ million individuals in default to flood the bankruptcy courts with petitions to discharge their student loans in a effort to force the governments hand.

The reality of the bankruptcy issue is this: in the late 1970's Ms. Brunner graduated with "XYZ" degree, then filed for bankruptcy a few months later (before her post grad deferment ended). Simultaneously, Congress was being lobbied to "be afraid" of the student loan bankruptcy scandals that were upon them, and thus without any empirical data Congress redacted the right to bankruptcy for student loans, essentially making it the only consumer debt that cannot be discharged in bankruptcy. Thus the development of the "Brunner Test" was created.

There has been a variety of modifications to the bankruptcy code since the late 70's, but the notable thing to understand is that student loans are excepted from bankruptcy unless the debtor can show that repayment would constitute an undue hardship (this is codified under 11 U.S. Code 523(a)(8). The "loop hole".

The Brunner Test is the most widely implemented standard for determining undue hardship across the 11 Circuit Courts (9 of 11), while other tests also exists, the only other substantial test is the Totality of Circumstances Test.

The difficulty is that Congress has, presumptively, not "defined" undue hardship in the bankruptcy code (with respect to 523(a)(8)). Thus the entire judiciary throughout the 11 Circuits for years now has interpreted/applied the undue hardship evaluation(s) in both wide scoped and contradicting manners. This wide range are variable applications should be viewed as a violation of the United States Constitution (Article 1, Section 8, Clause 4) authorizes Congress to enact "uniform Lawson the subject of Bankruptcies throughout the United States."

We [society] find ourselves now in the mist of the onset of another "recession". Student Loans, as of 2014, have become the second largest household debt, second only to mortgage (and some project are on track to overtake mortgages in the coming years), and are valued at over $1.5t rillion and growing by the second. Unlike the "bubble" of the recent great recession, the student loans "crisis" is like a boa constrictor that is suffocating the economy. What we are seeing is asset backed securities and other "pre great recession behaviors" with respect to student loans.

Reports have already been linked to low reproduction, home buying, auto sales, credit card acquisitions, and various other economic stimulations as a result of student loan debt.

For those facing dire straights they are bombarded with media that suggests that student loans in bankruptcy are nearly impossible. YES, it's a mountain not a mole hill to climb, but the empirical data already suggests that more than 50% that petition to discharge their loans in bankruptcy obtain some relief. However, it is estimated that less than 1% of individuals that file bankruptcy while holding student loans even attempt the process.

The "process" required that the individual file a separate lawsuit within the bankruptcy case against the student loan entities (lenders, guarantors, and service providers). The average bankruptcy attorney charges anywhere from $1,200 - $2,000 just to file the bankruptcy petition, and the "process" (known as an adversary proceeding) is still guess work for the majority of law firms, and they typically set the fees from the $10k-$20k+ range.

So for an individual that is facing such hardship they go bankruptcy, the legal institutions are designed to then make it impossible to "seek" the fresh start. It's a classic catch-22. If you're so bad-off you need to file bankruptcy, then how the hell can you afford a $20k debt for an attorney (that cannot be bankrupt since it's "post" petition).

I've had some very amazing engagement with folks on Reddit about the repayment plans, and their never-ending grip on individuals. The basics: you enroll into a repayment plan that extends the life of the loan by 20 or more years, often times associated with a % of the income, or various other calculations. For the build of individuals, they, if lucky, get ahead of the accruing interest. Sadly, the majority will watch the loans grow while in these extended repayment plans because they can't get ahead of the interest.

The so-called silver lining is that after the extended repayment period is over (20+ years) the "left over" loan is forgiven. Two issues here: 1, the government could "amend" these plans down the line and basically remove them (we are seeing similar behaviors with the "borrower defense" and "Public Service Loan Forgiveness" programs under the current administration; and 2, the "forgiven" amount, will be considered taxable income. Therefore, unless the individual is "insolvent" at the forgiven time period, they are on the hook for even more "non dischargeable bankruptcy debt" (IRS taxes). Sure, if the individual is insolvent at the time of the forgiveness they can declare bankruptcy, this leads to too perspective: 1, it encourages people to basically live in poverty for the next 20+ years, or 2, we are truly expecting that our college educated folks will be so dire that they will again face financial hardship nearing the end of their lives that they can find comfort in bankruptcy in their 60's/70's? HOLLY SHIT!

I've been working closely with some folks to try and create an alternative service where we can provide individuals with all the tools needed to file bankruptcy, and initiate the adversary proceeding without an attorney (a mock turn-key approach) to assist an increase in the volume of bankruptcy petitions to bottleneck the system and force the hand of the Government. Unfortunately, there are a lot of (forgive the rudeness) uneducated haters on Reddit that keep trying to bash this approach, because they themselves are shills for the Student Loan industry, or have no personal experience in the student loan bankruptcy arena (or are lawyers that just want the $20+k (among a few potential rationals).

So my questions for ya'll in this Lounge is this:

1. Whats your understanding of the student loan situation?
2. What are your thoughts on what needs to change/how?
3. (Consider the turn key approach as valid)... if a large volume of bankruptcy petitions hit the courts overnight, would this actually force the hand of the Government to finally do something about this current state we find ourselves in.

Submitted May 01, 2018 at 11:44PM by DeathByEducation https://ift.tt/2HLN2Rh