The first pebble in the student loan default landslide

[BehindBlueI's]

Out of curiosity, how many knew that prior to 1976 bankruptcy did negate student loans? That until 1998 if you'd been paying for longer than 7 years they were dischargeable? That private student loans had no special protection from bankruptcy until GW Bush helped the banks remove risk and increase the education-for-profit bubble so many of you complain about until 2005?

How many actually looked up the Brunner test mentioned?

In plain English, the Brunner standard says:

1. the borrower has extenuating circumstances creating a hardship such that they cannot repay the student loan and maintain a minimum standard of living;
2. those circumstances are likely to continue during the repayment term of the student loan; and
3. the borrower has made good faith attempts to repay the loan. (The borrower does not actually have to make payments, but merely attempt to make payments - such as try to find a workable payment plan.)

Relax. This isn't anything new or Earth-shattering.

 

[JettaKnight]

Out of curiosity, how many knew that prior to 1976 bankruptcy did negate student loans? That until 1998 if you'd been paying for longer than 7 years they were dischargeable? That private student loans had no special protection from bankruptcy until GW Bush helped the banks remove risk and increase the education-for-profit bubble so many of you complain about until 2005?

How many actually looked up the Brunner test mentioned?



Relax. This isn't anything new or Earth-shattering.

DENNY.


Student loan debt is the current lightning rod on the left and right.

 

[HoughMade]

Let me correct myself. I was wrong. I was heavily into BR law from 1997 to about 2004 and lost track of it after that, but that is no excuse.

Yes, there is a hardship exception. Therefore, the judge's decision will probably be upheld and it may not even be challenged.

That being said, the guy in the article- $116,000 that "ballooned" to over $221,000....this means he has taken every deferment, probably refinanced...and has not been making his payments for a long time.

BTW- the average starting salary for a lawyer in NYC is somewhere between $90k and $150k....but that is the most competitive city for lawyers in the country. A person with a good personality and decent academics should be able to make around $70k in any metropolitan area. If you don't have a lot of other debt and you live poor (like I did) until you make more money, you can make it. Jobs were few and far between from 2009-2014, but that is now long in the past.

Best advice- don't go that deep into debt. You have options. My son has his B.S. in IT in 2019, has only a modest car loan as debt (living on his own a state away), and has enough money in his budget to make it realistic to explore starting his MBA. Undergrad debt is a huge trap unless your degree leads directly to well compensated employment (petroleum engineers come to mind). If it doesn't and you believe you need a college degree, do whatever it takes to have no (or little) debt, and then pay that debt off before moving on.

My wife had some undergrad debt- paid off in 3 years. My sister had some too, but very little since she took a year out to work, then went back to college. She paid it off in 5 years while being predictably poorly paid as a Christian school elementary teacher (she later obtained her Masters degree paying for it as she went).

Don't hear me to say it's easy to come through college debt free. It's hard and loans are easy (as I said before, we had to sign papers to REJECT loans or else they were automatically applied). However, keep the debt to a minimum is worth it. My son has related how many of his friends worry about debt and how they will pay it, but he's looking at the next step. That's a nice place to be.

 

[Clark & Addison]

I think personal finance (preferably taught by someone that handles their own finances above average) should be a high school graduation requirement. A lot of college students don't want to work hard and aren't smart enough to realize what they are doing. The state tried a handful of years ago to make personal finance a graduation requirement. It didn't pass. I actually heard a local school superintendent say it was a bad idea, "Because we all know that you don't really learn how to manage money until you have money." I just shook my head. Students should learn how to handle money before they are in the hole.

 

[HoughMade]

...I actually heard a local school superintendent say it was a bad idea, "Because we all know that you don't really learn how to manage money until you have money." I just shook my head. Students should learn how to handle money before they are in the hole.

I learned about gun safety before I ever touched a gun.

Also, most kids have some money. Teach them how to handle that and then move on to lessons about more money.

 

[spencer rifle]

My mom inherited some $ from her sister, and a percentage of that came to us and we invested it all in 529s for our kids. They earned scholarships and applied for grants and worked and saved. Oldest graduated with no debt and money left over. Just bought his first house, no mortgage. The second went out of state to a private college, got her undergraduate with no debt but nothing left over. Then went on to get a Masters from Columbia, still no debt while living in Manhattan and working 5 jobs (nanny, tutor, running coach, and a couple for the university). Now teaching in China and building up her IRA. Third moved to Kalifornia to get "free" education and just started back to school again. Fourth still in HS but his 529 has built up to over $30K. He might be using it for trade school, since he is in a precision machining program.

Out of our whole family, my wife is the only one who had college debt - when we got married she had about $1500. Got that paid off ASAP, and we try to stay debt free in all things. We hope that has rubbed off on the kids.

"Just as the rich rule the poor, so the borrower is servant to the lender"
Conversely, "If you owe the bank $10,000, they have you by the throat. If you owe them $10,000,000, you have them by the throat."

 

[eldirector]

I work in the education industry. Been watching this closely, and waiting for the bubble to burst. In reality, it already has started. Lots of schools have closed, merged, or scaled back. A few schools have figured out the right mix, and are cashing in big-time. Competition for students is higher than ever. Money is drying up, or at least getting spent like drunken sailors on shore leave far from home. Folks are starting to realize that on-campus apartments, full-service cafeterias, exercise centers, and well-manicured lawns are expensive, and MIGHT not get you that much better of an education.

Going forward, schools and lenders will be taking a HUGE risk loaning money for school, and they will be more careful. Honestly, as it should be.

 

[hoosierdoc]

Federal student loan program needs to be scrapped. College prices will go down by 50% at least

 

[eldirector]

Federal student loan program needs to be scrapped. College prices will go down by 50% at least

Agreed.

Once again, the .gov proves they can screw up ANYTHING. Can't even be a good loan shark.

 

[HoughMade]

I also agree.

When's the last time the government addressed a problem by proposing less spending?

Also, so let's say that every person in default with their student loans defaults, files BR and gets a discharge. Something like 88% of student loans are federally insured. The colleges got their money a long time ago and the lenders are insured by the feds...they will get their money. The federal government runs a deficit all the time anyway, so who cares?

The IS a crisis, but I'm not sure that anyone with actual skin in the game cares.

 

[Leadeye]

Somehow I don't see the institutions holding the paper on this as taking a big haircut. Phone calls will be made and as was said earlier it will get buried.


Always follow the money

 

[MCgrease08]

I think personal finance (preferably taught by someone that handles their own finances above average) should be a high school graduation requirement. A lot of college students don't want to work hard and aren't smart enough to realize what they are doing. The state tried a handful of years ago to make personal finance a graduation requirement. It didn't pass. I actually heard a local school superintendent say it was a bad idea, "Because we all know that you don't really learn how to manage money until you have money." I just shook my head. Students should learn how to handle money before they are in the hole.

As a Dave Ramsey Kool-aid drinker I'm enjoying this thread already. He goes off on all kinds of rants when it comes to student loans.

Parents play a huge role in this too. They have been failing their children for decades now.

My parents did a pretty good job with me but I still fell short in many ways as an adult. I always had the work ethic but I had the spending gene and didn't do nearly enough to save in my teen years and early adulthood. It also took me about 10 years to build up my skill set, but once I did I was able to more than triple my income over a span of about 3 years.

I am committed to teaching my kids about money early. They are 8 and 4 and both got Dave Ramsey's Financial Peace Junior kit for Christmas. The both earn a commission by working around the house. No allowance allowed.

They have giving, saving and spending envelopes and are learning how to handle cash. They will work when they're able and buy they own cars and contribute to their own college education. I hope to be able to help fund most of college, but if they don't work and save they won't be getting any help from me.

I highly recommend the book "Smart Money, Smart Kids" for every parent.

 

[MCgrease08]

My mom inherited some $ from her sister, and a percentage of that came to us and we invested it all in 529s for our kids. They earned scholarships and applied for grants and worked and saved. Oldest graduated with no debt and money left over. Just bought his first house, no mortgage. The second went out of state to a private college, got her undergraduate with no debt but nothing left over. Then went on to get a Masters from Columbia, still no debt while living in Manhattan and working 5 jobs (nanny, tutor, running coach, and a couple for the university). Now teaching in China and building up her IRA. Third moved to Kalifornia to get "free" education and just started back to school again. Fourth still in HS but his 529 has built up to over $30K. He might be using it for trade school, since he is in a precision machining program.

Out of our whole family, my wife is the only one who had college debt - when we got married she had about $1500. Got that paid off ASAP, and we try to stay debt free in all things. We hope that has rubbed off on the kids.

"Just as the rich rule the poor, so the borrower is servant to the lender"
Conversely, "If you owe the bank $10,000, they have you by the throat. If you owe them $10,000,000, you have them by the throat."

Great job Dad. And when it comes to stuff rubbing off on the kids, more is caught than taught. It sounds like you are a great role model.

 

[spencer rifle]

Great job Dad. And when it comes to stuff rubbing off on the kids, more is caught than taught. It sounds like you are a great role model.

Well, about some things. If you only knew...

We were Crown Ministries instructors back in the day, and see all around us how debt destroys freedom and takes resources best used elsewhere. The kids all knew we would never make enough to pay their way, or even help out much.
Our motto - "We have everything we need and most of what we want. Contentment is a choice." And "If you're not happy with what you have now, what makes you think you'll be happier with more?"

 

[breakingcontact]

From the article: "In his bankruptcy filing, Rosenberg said that he was earning so little, and owed so much, that he was left with negative income of $1,500 a month."

Sounds like he should have studied a little harder in school, or maybe adjusted his standard of living if he can't manage to make more than a negative $1500 a month as a lawyer.

Statistically lawyers and even doctors don't make what folks think they do.

 

[Route 45]

And "If you're not happy with what you have now, what makes you think you'll be happier with more?"

Yeah...well...I've never seen anyone frowning on a jet ski.

 

[DoggyDaddy]

Statistically lawyers and even doctors don't make what folks think they do.

They sure as hell should be making more than a negative $1500. If they're not, they're doing it wrong. Either under-employed or living beyond their means.

 

[HoughMade]

Statistically lawyers and even doctors don't make what folks think they do.

I'm sure that's true (I'm certainly not rich), but the guy in the OP originally owed $116,000. With budget control, even that should not be a huge problem. Sounds to me like he's got a spending issue. My first lawyer job was at $40,000/year and starting salaries would be much higher now- my wife was a stay at home Mom, I had modest student debt (still well into 5 figures), bought a house and had a car loan and was not underwater.

 

[mmpsteve]

They sure as hell should be making more than a negative $1500. If they're not, they're doing it wrong. Either under-employed or living beyond their means.

From the article: "in part, they said, because he had chosen not to earn a living as an attorney and take advantage of the education he borrowed to fund."

So once again, it comes down to life choices. I have a niece that was offered a full-ride scholarship at Valpo to study law. She could have lived with my wife and I and probably banked money in the process. She decided she wanted to be an environmental lawyer, and chose to pay to go to Colorado. She racked up big student loans, fell in love with a wildfire firefighter out there (he had a teachers degree), never finished law school, and got married and started having babies. Her husband is a grade school teacher, she raises kids and works part time, and she still has the college debt. To say they struggle would be an understatement.

Life Choices.

.

 

[actaeon277]

I know a married couple who has, over the last 10-15 years or so, worked hard to pay off around $450-500k in student loan debt. And they could have done so MUCH earlier had they really buckled down and done it (but I digress).

But their post-schooling career choices afforded them jobs (both literally and figuratively) with quite high income earning potential.

I personally think that financial literacy courses should be mandatory before a lender will lend for student loans. ESPECIALLY if it's a government-backed lender.

As for me, I also chose an inexpensive State school for my post-secondary education. At the time, it was the cheapest State school in Indiana. I think it still is - even though it's at least 50% higher now than it was when I entered it in 1996. Know what else? I knew early on that if I wanted to go to college, I was going to have to do my part financially. That meant keeping my grades up to a point where I could earn scholarships. And earn scholarships I did. 1/2 Tuition from the University plus half a dozen or so private scholarships. I believe that I took out an insurance loan my first year, and I think I needed to again for my last year.

I worked Christmas break of my Freshman year at Kroger. I worked the summer break after my Fresh year at Shades State Park. I worked the following summer at Pace Dairy. I then applied for and was selected to be a Resident Assistant - which paid for my on-campus housing for the 6 semesters I was an RA. Semesters 3-6 we also earned a stipend in addition to housing costs. I also secured an off-campus part-time job during semesters 3-6. I also worked for the Housing Department for 2 consecutive summers. Those summers, I'd work for the housing department during the day and then my other PT job in the evenings and weekends.

Long story to say: I worked to pay for my share of my schooling. A lot. And not really even manual labor. (And my mom and my dad helped out, too - as their divorce decree declared).

All said and done, 5 years at a State school + 5 years in on-campus housing = around $10-12k in student loan debt no CC debt. At the time, that was a tick less than half the average student loan debt. I was fortunate enough to get a low-paying Government job not long after graduation. It paid for my apartment, food, entertainment, car costs, and paying off my loans within 2 years.

I'm under no illusions that an incoming collegiate freshman can follow the same formula and only owe $10-12k, but I do definitely think that the general game plan that worked for me can definitely also work for others and leave them in WAY way better shape upon matriculating than the vast majority.

I personally think that financial literacy courses should be mandatory before a lender will lend for student loans. ESPECIALLY if it's a government-backed lender.
I agree. But they'd find a way to mess it up.