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<\/figure>\n\n\n\nA student debt protest at Washington University in St. Louis, Missouri. (Photo credit: Paul J. Richards\/Getty Images)<\/em><\/p>\n\n\n\n This report was written by Walker Bragman<\/em><\/p>\n\n\n\n Jessica was in her early 30s when she decided to pursue her MBA. She enrolled full-time at Columbia University after the school offered her a scholarship. To help with the rest of her tuition, Jessica relied on $72,000 in loans. Most were federal, but one was private through Wells Fargo.<\/p>\n\n\n\n That was nearly 25 years ago. Today, despite her making regular payments, Jessica\u2019s debt has increased to roughly $200,000 \u2014 and it\u2019s still growing. <\/p>\n\n\n\n \u201cI\u2019ve paid nearly $61,000 so far,\u201d said Jessica, who lives in New York City and does consulting work for government-funded entities. \u201cYet in those ten years, the $72,000 principal didn\u2019t go down one cent. All that money went to interest.\u201d<\/p>\n\n\n\n Jessica, who asked not to use her last name for privacy reasons, had little expectation of her situation improving \u2014 until recently. The Supreme Court is considering hearing a case which could help dismantle the massive roadblocks that stand in the way of student borrowers like Jessica from seeking debt relief in bankruptcy court. The case is the most prominent in a series of recent court actions that together could defang a draconian bankruptcy law championed by Joe Biden and his financial industry donors 16 years ago \u2014 and could offer people a meaningful pathway out of massive student debt. <\/p>\n\n\n\n These legal developments, plus reports<\/a> that Biden is exploring canceling up to $50,000 of student debt plus interest payments per person, suggest the country could finally be taking some steps to deal with its mounting student loan crisis after decades of political neglect and obstruction \u2014 a situation that was in part created by our current president. <\/p>\n\n\n\n As college costs have skyrocketed, student debt in America has now reached a whopping $1.8 trillion<\/a> in outstanding loans, impacting nearly 45 million<\/a> people. In total, 92 percent<\/a> of those loans are federally owned. While defaults, payments and interest have been frozen through September<\/a> due to the pandemic, prior to the freeze, 11 percent of student loans were 90 days delinquent or in default. <\/p>\n\n\n\n While student debt is primarily thought of as an issue for young people, an analysis<\/a> by the American Association of Retired Persons (AARP) found that Americans over the age of 50 account for an increasingly large share of the $1.8 trillion. In total, this group owed $289 billion as of 2018. <\/p>\n\n\n\n Moreover, the AARP report found that in 2015, nearly one in three of Americans between the ages of 50 and 64 were in default on those loans. Meanwhile, according to 2018 data from the Consumer Financial Protection Bureau, nearly 40 percent<\/a> of student borrowers age 65 and older were in default.<\/p>\n\n\n\n Still, most student borrowers<\/a> are between the ages of 25 and 49. That demographic also owns the lion\u2019s share of the debt.<\/p>\n\n\n\n Bankruptcy courts have not been friendly to student borrowers. That\u2019s at least partly attributable<\/a> to Biden. In 2005, \u201cthe Senator from MBNA<\/a>,\u201d so named for his close relationship with the credit card company that was also his largest donor, was one of 18 Senate Democrats who backed a successful Republican-led bankruptcy reform bill that stripped private student loans of bankruptcy protection amid an explosion of private loan debt.<\/p>\n\n\n\n \u201cHe is a zealous advocate on behalf of one of his biggest contributors \u2014 the financial services industry,\u201d Sen. Elizabeth Warren, D-Mass., said of Biden at the time.<\/p>\n\n\n\n For his part, Biden argued the law was necessary to prevent abuse of the system by borrowers who could afford to repay some of their debt. He and other supporters of the bankruptcy bill claimed<\/a> the legislation would enable private lenders to lower costs for people seeking credit. But both arguments were ultimately proven wrong<\/a> \u2014 abuse was minimal and interest rates in general did not go down. Instead, the law resulted in a system that leaves borrowers with few options for relief.<\/p>\n\n\n\n Prior to the passage of the revised bankruptcy law, student loans issued by for-profit private entities could be erased under the Bankruptcy Code<\/a>. Congress had stripped federal student debt of bankruptcy protection in the 1970s, but private loans were a different matter. The 2005 law removed those protections, requiring borrowers to show that compelled repayment of their loans would impose \u201cundue hardship\u201d on them or their dependents. <\/p>\n\n\n\n Proving undue hardship is difficult because the Bankruptcy Code does not define the term. In general, courts have found that it means borrowers are unable to repay their loans and maintain a minimum standard of living. To determine whether that is the case, many courts apply what has come to be known as the Brunner test. <\/p>\n\n\n\n Established in the 1987 case Brunner v. New York State Higher Education Services Corp<\/em>, the Brunner test involves three requirements<\/a> to prove undue hardship: The borrower must be unable to maintain a minimal standard of living for themselves and their dependents, the borrower\u2019s financial status must be likely to continue for a substantial part of the repayment period, and the borrower must have made a good-faith effort to repay the loan debt.<\/p>\n\n\n\n Because of the subjective way different courts have applied the test, the requirements have proven to be a notoriously high bar to meet. Prior to the 2005 law, a showing of undue hardship had only been required to discharge federal student loans, which traditionally offered lower interest rates and greater repayment flexibility than private loans. Since private loans had no such cushions, the 2005 law expanding the Brunner to cover them proved to be punishing. <\/p>\n\n\n\n The change proved to be so damaging, the Obama administration tried to roll the law back<\/a> in 2015, while Biden was vice president. Obama\u2019s Department of Education released a report<\/a> urging legislative action. <\/p>\n\n\n\n \u201cAs private student loans generally do not include the consumer protections, such as income-driven repayment plans, included in federal loans, the undue hardship standard for bankruptcy discharge leaves private student loan borrowers in financial distress with few options,\u201d it read.<\/p>\n\n\n\n Even the Bloomberg editorial board lamented<\/a> the lack of relief for student borrowers in 2018, calling for changes in an op-ed titled, \u201cLet Student Borrowers Declare Bankruptcy, Already.\u201d The editorial board noted that those who cannot pay their student loans \u201care relegated to a modern-day form of debtors\u2019 prison.\u201d<\/p>\n\n\n\n Howard University bankruptcy law professor Matthew Bruckner told The Daily Poster<\/em> that the second prong of the Brunner test \u2014 a person must prove loan repayment would be a burden through much of the repayment period \u2014 is particularly difficult for student borrowers to meet.<\/p>\n\n\n\n \u201cThe standard repayment term is 10 years,\u201d he said. \u201cSome courts have said you could repay them over 25 years.\u201d <\/p>\n\n\n\n It\u2019s very hard for people to prove that their financial situation will stay the same for that long, said Bruckner, adding, \u201cI don\u2019t know what I\u2019m going to have for dinner on Sunday.\u201d<\/p>\n\n\n\n A new case that the Supreme Court may consider could upend the Brunner test. A petition for a writ of certiorari, or review by the high court, has been filed in the case of McCoy v. United States<\/em>, which centers around Texas resident Thelma McCoy. <\/p>\n\n\n\n McCoy pursued higher education in her forties, taking out student loans to do so. However, after severe accidents left her disabled with diminished job prospects, she found herself unable to pay her debt. Now in her sixties, she owes about $350,000<\/a>.<\/p>\n\n\n\n In 2016, McCoy filed for bankruptcy protections, and filed a separate lawsuit against the U.S. Department of Education to discharge her loans. The courts found that McCoy had failed to meet the second prong of the Brunner test.<\/p>\n\n\n\n In support of McCoy\u2019s legal efforts, the nonprofit Center for Responsible Lending has filed an amicus brief with the Supreme Court calling for a rejection of Brunner<\/a> in favor of a less common and more lenient standard, called the totality of the circumstances test, which, as the name suggests, weighs real-world circumstances \u2014 the debtor’s past, present, and future financial resources, living expenses; and anything else that\u2019s relevant. <\/p>\n\n\n\n If McCoy is successful in her efforts, it could be a boon to overwhelmed student borrowers across the country. The May 7 deadline for the Supreme Court\u2019s response to the petition is fast approaching. <\/p>\n\n\n\n Even if McCoy<\/em> goes the other way, which is possible with a Supreme Court dominated by conservatives, there may still be hope, thanks to other recent court cases.<\/p>\n\n\n\n In January 2020, the chief judge of the U.S. District Court of the Southern District of New York, Celia Morris, canceled<\/a> more than $221,000 worth of student debt in a decision that could have significant implications for the Brunner test.<\/p>\n\n\n\n Navy veteran Kevin J. Rosenberg had accrued the student loan debt more than a decade after completing law school. His debt, which was roughly $116,000 after graduation, reached that amount despite repayment efforts over a 13-year period. He filed for Chapter 7 bankruptcy in 2018 and commenced an adversarial lawsuit to have his debt discharged months later under the U.S. Bankruptcy Code.<\/p>\n\n\n\n According to Bruckner at Howard University, Morris\u2019 decision was noteworthy because of how it interpreted the second prong of the Brunner test \u2014 that the borrower must prove repayment will continue to be a challenge through much of the repayment period.<\/p>\n\n\n\n \u201cShe looks at this, \u2018Will you be able to pay in the future?\u2019 as asking, \u2018Will you be able to pay when the loan is due?\u2019 And she said, \u2018Well, the loan has been defaulted and accelerated, so there is no future; the future is now,\u2019\u201d Bruckner explained. \u201cThat\u2019s really interesting. I hadn\u2019t seen any other court do that. I\u2019m not aware of any court that interpreted it that way.\u201d<\/p>\n\n\n\n Rosenberg was one of several recent cases in which a court has been willing to discharge student debt in bankruptcy. In August, a federal appeals court allowed<\/a> the bankruptcy discharge $200,000 for a Colorado couple with 11 private student loan accounts. The next month, a New York judge enforced<\/a> a prior discharge of $400,000 of federal student loans.<\/p>\n\n\n\n There is even a new startup<\/a> called Reset Button, which seeks to encourage and facilitate student borrowers to attempt discharge of their debt through bankruptcy. The company provides a consultation service for borrowers, drafts a strategy, and connects them with bankruptcy professionals in select states.<\/p>\n\n\n\n While the courts may present one avenue for student borrowers, advocates are pushing for more action from the federal government. <\/p>\n\n\n\n Earlier this month, the U.S. Department of Education offered up minimal relief, announcing<\/a> that roughly 72,000 student borrowers who were defrauded by their schools would get loan forgiveness totaling $1 billion. The amount represented a mere 0.058 percent of total student debt and 0.16 percent of total borrowers. <\/p>\n\n\n\n If the president so desired, he could back legislation<\/a> to statutorily change the \u201cundue hardship\u201d standard, rather than waiting for a judicial reinterpretation of current law. He could go even further by issuing an executive order<\/a> to cancel most or all student debt on federal loans. Last week, Senate Majority Leader Chuck Schumer took the remarkable step of calling on Americans to make phone calls<\/a> to the president to demand he cancel $50,000 of student debt per person.<\/p>\n\n\n\n “We’re asking you, email, call, write President Joseph Robinette Biden and tell him you want this done,\u201d Schumer said.<\/p>\n\n\n\n Now, according to the latest reports, Biden is exploring<\/a> canceling $50,000 worth of student debt per person and is considering capping or eliminating interest payments. <\/p>\n\n\n\n In New York, Jessica noted the gesture would hardly \u201cmake a dent\u201d in her $200,000 debt. But between that and the recent developments in the courts, she finally feels there could be an eventual escape from the burden of her student loans.<\/p>\n\n\n\n \u201cNow,\u201d she said, \u201cI have a little bit of hope.\u201d<\/p>\n\n\n\n This newsletter relies on readers pitching in to support it. If you like what you just read and want to help expand this kind of journalism, consider becoming a paid subscriber by clicking this link<\/a>.<\/strong><\/em><\/p>\n\n\n\n Got this email from a friend? Click here to subscribe.<\/strong><\/em><\/p>\n\n\n\n Subscribe now<\/a> The Supreme Court may consider a case that could defang Biden\u2019s bankruptcy bill and protect people being crushed by college debt. Walker Bragman April 8, 2021 (The Daily Poster) A student debt protest at Washington University in St. Louis, Missouri. (Photo credit: Paul J. Richards\/Getty Images) This report was written… Continue reading A Growing Student Debt Crisis<\/strong><\/h4>\n\n\n\n
Biden, The Brunner Test And \u201cUndue Hardship\u201d<\/strong><\/h4>\n\n\n\n
A New Standard<\/strong><\/h4>\n\n\n\n
\u201cA Bit Of Hope\u201d<\/strong><\/h4>\n\n\n\n
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