This page has been archived and commenting is disabled.
Student Loan Bubble? Just Discharge It
By now everyone knows that the biggest portion of US household debt, besides mortgage debt, is a towering $1+ trillion in student loans, more than total outstanding credit cards or car loans, which is problematic for three main reasons: it is increasing at an unprecedented pace due to lax Federal lending standards, delinquent loans are soaring and are now well over $100 billion and rising at a pace of tens of billions each quarter, and it can not be discharged. At least that is conventional wisdom. But while points 1 and 2 are indisputable (and deteriorating), it is point 3 that is the more troubling for an entire generation of young men and women who are afraid to splurge on levered purchases such as houses due to an already insurmountable debt overhang, and a job market that is hardly hospitable to young entrants. Luckily, there may now be solution stamped in US case law.
Meet Mike Hedlund.
This Klamath Falls native may have just made legal history by winning a 10 year battle to have the bulk of his $85,000 in federal student loans, which he accumulated as a law student at Willamette University in Salem, discharged. The result of this legal decision will likely have epic implications for an entire generation drowning in debt, as it has now "opened the flood gates" for all those in Mike's position to challenge their massive debt encumbrance.
And when it comes to Mike's case, there are millions who not only want to be like Mike: they are just like him. At least when it comes to their
Mike's story is well-known one: spending thousands to get a degree, he was unable to obtain the well-paying job he had studied for (although how much of that was market driven instead of purely due to incompetence is unclear: he failed the bar test three times), and instead was forced to settle for a low wage job paying $40,000 as a probation officer. He then filed for bankruptcy, demanding his slate be wiped clean, including the discharge of his (collateral-free) debt. What ensued was a ten year legal odyssey with lender Pennsylvania Higher Education Assistance Agency, which ultimately reached the Ninth Circuit court twice. In the end he prevailed, with the result being a reduction of debt owed by $53,000 from $85,000 to just $32,000 (unclear how many tens of thousands of dollars the legal bill was: but Mike doesn't have to worry about that - his parents footed it).
Here is Oregon Live with the story, which most current and recent graduates can surely commiserate with:
Mike Hedlund waged a 10-year legal battle to force his lender to discharge most of the $85,000 in federal student loans he built up while earning his 1997 law degree from Willamette University in Salem.
When Hedlund graduated from Willamette, he owed two student loan companies. He struggled to pay either of them, but reached a deal with the smaller lender to repay $18,000 at $50 a month.
Hedlund was unable to make much use of his expensive law degree. He failed the Oregon bar exam twice in his first year out of law school, then locked his keys inside his car on the way to his third scheduled test, and so missed it entirely. He did not try again.
Instead, Hedlund got a $40,000-a-year job as a Klamath County juvenile probation officer, a job he still holds.
"I had planned on making $200 an hour instead of $20 when I agreed" to take out loans totaling about $100,000, Hedlund said.
Just a case of reality not jiving with one's exorbitant expectations? Seems like it:
[T]estimony from an employment expert convinced judges that Hedlund holds a good-paying job for Klamath Falls and wouldn't likely earn a whole lot more as a starting lawyer there, particularly if he worked in the public sector.
Of course, the same argument can be made by every Joe Sixpack rushing to buy a McMansion during the last housing bubble (not to be confused with the current one). But being accountable for one's choices is so 20th century.
With that in mind, Mike fought on:
Last week, in a decision that could affect debtors in eight states, a panel of the Ninth Circuit Court of Appeals in Pasadena, Calif., ruled in Hedlund's favor.
It upheld a bankruptcy judge's ruling that Hedlund proved all three factors necessary to have $53,000 of his debt forgiven: He made a good faith effort to repay the money; he can't earn enough to both repay the money and maintain a basic standard of living; and his inability to earn substantially more is likely to persist.
Who were the "villains" that granted Mike the funds needed to pursue the dream that promptly turned into a nightmare when reality collided with rosy models of what the future "should" be (see Federal Reserve for other instances of this):
He tried to negotiate a repayment plan with the firm he owed $85,000, called Pennsylvania Higher Education Assistance Agency, but that lender would not agree to a plan Hedlund felt he could remotely afford.
That lender exists to make money to help Pennsylvania students afford college, and it currently holds $39 billion worth of student loan debt. A previous director stepped down in 2007 after a state audit revealed he'd issued millions in lucrative, undisclosed bonuses to managers and executives.
When a judge agreed that all but $30,000 should be wiped clean, the Pennsylvania agency appealed, setting off a 10-year legal odyssey that twice reached the Ninth Circuit. Hedlund filed to represent himself before that high court, but Ninth Circuit judges awarded him pro bono representation by an experienced San Francisco firm.
The Portland-based lawyer who represented the lender said Friday he would ask an official with the agency to comment on the decision. None did.
Victory for Mike... and for everyone else who thought that by spending nearly $100,000 on an education pursuing a career would immediately result in financial utopia, and instead ended up with a menial, low-paying job.
"I owe a car instead of a house now," he said. "It's huge for me. What I've wanted all along is something I can afford," not having the slate wiped clean, he said.
He and his wife have three daughters, and his wife works one day a week. He coaches soccer on the side to supplement his income and continues to live frugally, he said. "We don't go on many vacations, other than day trips. My newest car is six or seven years old and our other one is a '96 Explorer."
Well, it is called a "bankruptcy" for a reason.
"I am happy that maybe this will help someone else in their dealings with the student loan people," he added.
The same people without whom he would be unable to go to school in the first place? The lawyer chimes in next:
"He had to make his showing, all this evidence, to get part of his loan discharged," Scott said. "This wasn't a case of, 'Oh, I went to school and I didn't get this dream job I thought I was going to get, so now I'm not going to pay what I owe.' He had made his best effort to pay."
And failed.
Ethical issues aside, perhaps a far bigger question is what happens when the flood gates now truly open:
Natalie Scott, a Eugene lawyer who represented Hedlund, said lawyers for the loan agency suggested that forgiving most of Hedlund's loans would "open the flood gates" to healthy college graduates claiming they couldn't earn enough and demanding their loans be forgiven.
Scott said thinks a smaller set of borrowers will be affected, because Hedlund's actions and circumstances were particularly compelling. He tried repeatedly to work out a payment plan that he could deliver on; he made some payments; he worked full-time at a good-paying job and applied for jobs paying more; and he put up with having $280 a month garnished from his wages for 16 months without objecting.
Well, no. Now that there is case law precedent, every student finding themselves to their neck in debt will try the same defense.
So great news for Mike. However, just like the great bank bailout of 2007, there is never a free lunch, and that trillion in debt on the Federal government's balance sheet will likely end up having to be made whole by someone. That someone will certainly be the Fed and the result will require even more deficit spending by the Treasury to provide the Fed with securities to monetize, even more pent up inflation, and even more unsustainable Federal debt for everyone.
Bottom line: who ends up footing the bill? Why you will dear taxpayer, in the form of even more "government" debt that will have to be, you got it, inflated away.
But in a culture in which nobody is accountable for their monetary decisions - from the too biggest to fail banker to the lowliest student pursuing levered dreams of a high-paying job - living up to the consequences of one's actions is so Old Normal.
»
- 58989 reads
- Printer-friendly version
- Send to friend
- advertisements -
I realize it is merely your opinion, courteously presented, but have you considered how dangerous it is to build massive universities, stock them with expensive academic and maintenance personnel, and then allow them to accept mediocre students on credit?
Any misallocation of scarce and precious capital is extremely dangerous, in my opinion, and this one is a whopper of nearly incomprehensible proportions.
Kickaha, you receive my vote for this response as the best, most comprehensive description of the real problem with University education today.
If the University system could be objectively analyzed in relationship to other bloated entities over the past 50 years, it would be the clear-cut, hands-down winning example of waste.
Well played.
But we mustn't hurt feelings. Everyody wins. Everybody gets a degree. Everybody gets food stamps. Everybody for everybody. This is a collective now! Just cuz you are rocking it doen't mean that Mr Fuckhead shouldn't draw some of your ability to pay for his dumbass mistakes.
Like have said before, just reading the posts here validates why country so screwed up.
Was interest charged? If so, then the risk of default was priced in to the loan. Thus the risk of default was part of the contract, and thus default is an option for both parties of the contract.
Since the money was created out of thin air, let it go back to the source. Now, if someone had loaned Mr. Mike some gold coins [perhaps foolishly] and Mr. Mike pooh-hooh'd this loan, I would personally rip his balls out but since... well you know the rest of the story....
Dude got that Pomo look about him.
Well, in Delaware, despite our "highly regarded" Chancery and Bankruptcy Courts, you can fail the bar three times, be barred from taking it again (3 strike rule) and then have your daddy-erstwhile-Senator-now-Vice-President pull some strings and get the 3 strike rule removed. Then you too can become Attorney General in the First State.
Celebrate Diversity. Law school students, investment bankers,...
Freeloaders come in all sizes, shapes, colors, national origins, religions, sexes, sexual orientations, and the rest of the interminable melange of protected groups.
At least Mommy & Daddy paid the legal fess and not Uncle Sam (yet).
Before I noticed the light fixtures at the top, I thought for a moment that the silver vertical projection to his right was a needle he held for a metaphorical bubble-popping photo-op.
Failed the Bar 3x, eh? Where did he go to school - Walden College?
He is a Phoenix.
"I had planned on making $200 an hour instead of $20 when I agreed" to take out loans totaling about $100,000, Hedlund said.
Oh, please. Who cares what you "planned?" Pay back the money. You can not afford children (who have now been taught not to pay their way). What were you thinking was going to happen if things did not work out precisely as you imagined?
I know - another entitled victim wholly unable to understand the ramifications of what he was signing (a wanna be lawyer no less). Absurd.
Once I sold a stock at a loss -- who is going to make me whole? I had planned on making a lot of money. Where's my loss forgiveness?
This is probably not over -- the Ninth Circuit is the most over-turned circuit in the US (once, they had a record three decisions over-turned in one day).
It's a fucking business contract and you make it out to be his Word of Honor. Jeese get fucking down fro myour high horse already won't you? DEFAULT is part of the contract. He exercised a contract option instead of playing "Boxer" from animal Farm.
Man, you people - where are your friggin heads in this? you can't see past your own sadism.
Folks who have this knee-jerk reaction, blaming the student for taking on debt he can't pay, just haven't seen through their own brainwashing. Yes, there is such a thing as predatory lending. Has been for thousands of years. And it's the reason societies have tried to outlaw predatory lending for about the same amount of time.
I think it helps to see lending as the INVESTMENT that it really is. A lender is making a bet. An investment which it hopes to reap a return from. Now, if said INVESTOR (i.e. lender) were to make a ludicrous $100K bet on, say, buying stock in a company that promises to find real leprachauns and said company then goes bust (when no leprechauns are found), don't we all acknowledge that said investor was an idiot, and such idiots in a free market deserve to lose their money. Afer all, the investor made a terrible bet, and such investors lose their shirts every day without any moral outrage.
Here, lenders knowingly bet on kids who obviously would not be able to repay. The lenders didn't care. They wanted the short-term rewards of spinning such loans off as pre-packaged re-hypothecated Wall Street investments, or (as the article notes) lined their pockets with gargantuan mulit-million dollar bonuses. The lenders don't even care if their institutions still stand in five years. They've fleeced the system already.
So I say it's just naive to blame the dumb kid who borrowed. Everyone in the scheme was dumb. And as such, all parties should share the blame. Especially the most lawyered up, sophisticated party, which in this case was the lender. Not the dumb 21-year old kid who thought he was going to be a rich super-star lawyer afer attending some two-bit law school.
A 2 bit law school should have aquired a 2 bit loan, not one to afford a mansion on.
The lender will bear financial consequences, but that does not relieve the borrower from his obligation to repay the debt. Both borrower and lender bear the consequences.
Stupidity is not a valid defense for anything.
Terms of contract, bitchez.
Or maybe you were one of those hippies in the 70s crying for unilateral disarmament with the Soviets, you know, to show the world how peaceful and honorable we were.
Higher education is one of the most bloated frauds in existence. Only those with connections make it to higher paying jobs.
Connections are good, but these kids are fucking lazy now. You gotta create! Waking up and playing Call of Duty for 12 hours and pausing to send out a few resumes won't cut it. My friend has a law degree from a shitty little Ohio university. He has his own practice cuz he sat outside the courthouse taking ANYTHING. I call bullshit. Man up. Create it. I'm glad I paid for my education outta pocket. Smart! Well my wife went to Debtlumbia Univ. like Dear Leader. She has 100K so we may make good. It also helps to have a few things you can do like dabbling in auto mechanics or construction/handy man. These kids are pussies today. Wahhh! Pay my debt! I can't find work. Fuck you.
When I was in school they told me the Baby Boomers were going to retire (by the time I graduated).
My fault for believing it, but it seemed plausible at the time, what with record stock markets and real estate prices!
The job market sucks. No one will argue that, but I think some people, not all, are just lazy. it's a shitty time to be alive, huh? So glad I had a kid.....she will become a welder....oh wait, a robot will do that and everything else. WTF will we be able to do that automation won't steal? Will we just lay around in jumpsuits as robots tend to everything and be killed off at 30? I think that's a movie.
This guy played Call of Duty? Wow. Didn't read that in the article.
Fuck it. make tham go work on some Indian Reservation or some "Northern Exposure" shithole for 5 or 10 years.
You'd think that after spending 100 k on a law education that he could of been able to defend himself. Even a 100 k can't turn a
sow's ear into a silk purse.
No, but his daddy who cleaned carpets could afford the legal bill so it's all good now.
If I could go back in time, I never would have taken out my huge loans to go to law school. I worked my way through college, paid it in full at the time, but law school was just too much to foot the bill. I took out some heavy loans, while still working 40+ hours per week to pay the montly bills + add a bit for tuition. Per ABA rules or whatever at the end, no law student were allowed to work more than 15 hours per week, but I never told anyone. Anyway, I wound up with around $85k in student loan bills. Got a decent job at a big firm, bringing in about $70k per year. Got laid off a couple years back, and have only been able to find temp jobs for a couple months here and there. My student loans are now around $50k, but totally manageable. I got a long term repayment plan, and my student loan bills are only around $375 a month. I've basically accepted the fact I'm going to have these loans until I die, and there's nothing I can do about it.
So yes, if I could go back in time I never would have taken the loans, and would probably have joined the Air Force or something. Lawyers are a dime a dozen, and the work just isn't there for enough of us in order to pay down these loans. It's a huge issue, a huge problem, of which there are no easy answers.
Totally agree. I would also go back in time and avoid law school, even though my law school education was mostly funded by scholarship. It was totally wrong for me, and certainly wrong for the times I graduated into. Big mistake.
Gold and Silver..., your story is one of the more compelling here and you have my most sincere sympathies for your predicament and term of seemingly endless indenture.
When I was working on my Ph.D. in English, my assistantship ran out and I was faced with the prospect of taking out student loans to complete it (dissertation and assorted other trivia). Now, I was looking at an academic job market where only 25% of my Ph.D. cohort got tenure-track positions, the rest relegated to proverbial gypsy-scholar or taxi-driving status. Given those parameters (and really hating academia to boot :), I dropped out rather than subject myself to massive debt in return for an uncertain future.
The only regret I have is that I totally loved teaching -- not that academia gives a good goddamn about that -- and always thought the younger generation vastly preferable to my own or those that came before me. (Another regret is that I didn't go to law school, since I fashion myself a real Clarence Darrow, but that's grist for a different thread, methinks :)
Mike Hedlund. Putz.
What a typical liberal piece of shit........have someone else pay the bills you racked up.
Fuck you and all of the other ticks and leeches
StarTedStackin', how about all the ticks and leeches at the Pentagon? Do they also earn your scorn?
When I first matriculated at a college, the tuition was approximately 160 dollars per quarter.
I would never borrow 100 k for some college edumacation to be taught I'm ignorant. News to me. I'd just work in the world and make it work for me without knowing shit from tar.
You'll be happier to feign stupidity. Better than owing some bankster tons of money for nothing.
The taxpayers don't care. If they did, they wouldn't keep electing the same rats to Congress as they have done for the last several decades.
The educational system and the government are part of the largest business in the world, the US govt. What makes any of you think the people running the various depts are going to work against each others' interests? This industry of govt has been in business a long time, and the power is passed down as people leave.
There is no relief without dismantling the Government-Education-Medical complex and privatizing the education and medical systems, along with many functions that have been taken over by the GEM complex.
We are headed the other direction. And the leader currently pushing this crap has pretty decent approval ratings.
Not good.
All debt is not created equal. What part of the financial crisis-CDOs- gets charged to Phil Gramm? if Phil doesn't get his butt kicked for his CDO stupidity, why should anyone else? Students? really? Treated on par with a Republican knucklehead?
Can I sue the hospital that birthed this POS?
The IRS will get him.
In my next life I want to be an admissions officer for a top medical or dental school.
One hundred grand up front for my local charity, and your kid is in like Flynn.
I bought a Ferrari 'cause the dealer said I'd get hot and rich chicks. It didn't work out that way.
Now, I want everyone else to pay for my Ferrari so I can start over.
Caveat emptor - don't ever forget it.
You can sell the fucking Ferarri. You can't sell or return a useless degree.
You people are sadistic and want some kid to bear the burdens not a single bankster or politicians will ever bear?
Get real. it's a business deal not his Plighted Word. Business deal fails. BFD. end of story.
Someone of legal age signed a contract and doesn't want to pay.
If you think it's unfair, you pay for them.
End of story.
He just demonstrated that he received the full value of the education he voluntarilly indebted himself to acquire. Thats fraud.
Must be time to go back to college!
Rodney Dangerfield's first Economics Class in "Back to School" (3:01):
http://www.youtube.com/watch?v=YlVDGmjz7eM
(link opens in new window/tab)
Bar exam question:
Q: If some idiot takes out loans for a law degee and can't pass the bar exam, does he have to honor his legally binding agreement to pay back his loan?
A: Not if he cries loud enough in front of the 9th Circuit.
He's a fucking deadbeat, fingerbanging his case obsessively for ten years on daddy's nickel, then smiling like he's a god for 'winning'. Go fuck yourself Mike!
I hear you, but how are Wall Street and Washington different?
His wifey only works 1 day a week? C'mon, get the fuck out of here-This silly piece of shite should be embarrassed of putting his name out there. Coaching football in the US to make money? What a joke.
University of America- we'll sell you on sex, booze, and college sports. You pay a good price, but you'll have loads of fun. Don't forget paying that $100,000 bar tab, though.
She's looking after 3 kids 7 days a week, AFAIK. And America could do with a few more properly raised kids, thats for sure.
First step ... all loans are at the same rate as the US govt borrows, or the banks borrow (less than 1%). All of a sudden a lot of the loans are repayable. Let's start with fair.
Next step ... stop making stupid loans .. and then tuition and college costs will decrease as demand falters. Win-win.
Debt Slaves: Brake The Matrix!
Central Banks turn all of us into debt slaves.
http://homment.com/debt-slaves
There shouldn't been a reduction in the amount owed, the judge should have just stopped interest from accruing, as long as he kept up a pre-determined payment schedule.
Educating the next generation is a part of overhead in a society.
It's no different than keeping streets and highways paved, maintaining bridges and airports and public buildings.
Which is to say: a society pays for education, including higher education, out of its cash flow.
A healthy, functioning society does not BORROW the cost of educating its children.
The Student Loan problem has little to do with personal responsibility or incautious lending practices. It has everything to do with our society having chosen to ignore economic reality since about 1965.
We can't consume more than we produce. For a long, long time now we've pretended that we can.
It's been a long leisurely boat ride down the river of Denial, but the waterfall is dead ahead. Oops. Maybe next time we'll live according to our ethics instead of what is most expedient when the going gets a little tough.
There never should have been student loans in the first place--especially ones that were guaranteed by the government.
Unfortunately, we haven't yet invented a time machine, so I guess we have to deal with the horrid consequences.
What a strange concept.
good for hedlund....the education racket is a fraud and a scam for which the banksters and people should suffer losses....education is a lottery game which preys on the weak. "you have to go to school so that you can get a good job." crap i have heard ad nauseum.....students do nothing but pay protection money to the employers and banksters who scam the system like mobsters.....it is a crooked system through and through. so many jobs stipulate college degrees yet never use 1/10 of that information which grows antiquated at a quick pace...
the educrats are like carnival barkers hawking snake oil and promises of wealth if you play this stupid bottle game...
when i look at all of the college educated turds like paul krugman, milton friedman, richard nixon, george bush, barry soetoro, i laugh at the value of a degree.
The next QE will involve the Fed monetizing student loans. Gotta purge those balance sheets.
Exactly what would you have Mr. Hedlund do? It is very easy to blame the borrower for his or her moral shortcomings ("lack of personal responsibility") while ignoring completely other parties to the affair, namely lenders, law and graduate schools (who admit way more students than can possibly be employed in good-paying jobs) and a society which nominally stands opposed to indentured servitude . . . except in the case of student debt.
At my last managerial position, one of my staff (a ripe old 25-year-old) was having her bi-weekly paychecks garnished for 25% of her gross, i.e., before taxes and other withholdings, to satisfy a $50,000 debt she took out at the oh-so-mature age of 18 for tuition and living expenses at one of the numerous parasitical proprietary trade schools that traffic in human misery in the Los Angeles area. My staffer earned a 'certificate' from the trade school but it did not land her a job or even employment in her field (high tech). Instead, she was going to be forking over 25% of her pay seemingly in perpetuity, only getting relief for a week or two when she would change employers until the garnishment caught up with her yet again. Did she somehow fail her responsibility? Or did society badly fail her?
"That someone will certainly be the Fed and the result will require even more deficit spending by the Treasury to provide the Fed with securities to monetize, even more pent up inflation, and even more unsustainable Federal debt for everyone."
credit bubbles burst, which releases pent up deflation.
Systems that refuse debt discharge have to mathematically collapse at some point.
The law school he attended should have to pay off his loan because they defrauded him by passing him and wasted years of his life in education kabuki. If a car dealler sells you a lemon, you do not sue the finance company.
Who is worse? The 18 year old idiot who borrows too much money (which the whole world has spent the last 18 years convincing him is "worth it" and "for his own good"), or the PROFESSIONALS WHO WERE ONLY TOO WILLING TO LEND TO HIM WITH NO THOUGHT TO RISK????????? Sure, blame the kid, and his parents for being too blase , but you also have to give ten times that blame to the "pros" (double entendre intended) who are supposed to know how to value risk.
Side note: If Mike Hedlund represented himself and won his case, then he would've proved that he was good enough to be a lawyer, in which case he would have lost his case. If he represented himself and lost his case, then he would have proved that he would not be able to ever be a lawyer, and therefore would have won his case. Confused yet?