What Consequences? Judge Rules Student Loans Of Broke Lawyers Can Be Cancelled

Following SCOTUS' decision not to hear a case making it easier to get rid of student debt, and The White House's push to ease student loan 'burdens', WSJ reports a federal judge ruled law-school graduates who file for bankruptcy protection can cancel the debt they racked up while studying for the bar exam.

In an opinion filed Thursday, Judge Carla Craig of the U.S. Bankruptcy Court in Brooklyn, N.Y., said bar-exam loan debt is “a product of an arm’s-length agreement on commercial terms” and doesn’t fall into the category of student loans that stick with a borrower who files for bankruptcy.

 

The decision, which is the most thorough recent ruling on the matter, contradicts the widely accepted notion that student loan-related debt can be canceled in bankruptcy only under rare cases of extreme financial hardship.

 

In her 20-page ruling, Judge Craig said bar-study loans were akin to commercial or consumer loans and weren’t an “educational benefit,” like a scholarship or stipend, and thus could be erased in a bankruptcy case.

 

The U.S. Supreme Court recently declined to hear a case that could have made it easier to get rid of student loan debt. The White House, however, said last year that it would examine whether it should be easier for student loans to be canceled by bankruptcy, opening the door for student debt made by private lenders to be treated on par with credit-card debt and mortgages.

 

“We’re starting to chip away at the absolute immunity of student loans from bankruptcy,” said Austin Smith, Ms. Campbell’s lawyer.

 

A Citibank lawyer declined to comment on the ruling or to say whether the bank plans to appeal.

Judge Craig’s ruling isn’t binding on other courts but may be helpful to other bankruptcy judges with similar disputes before them.

Judge Craig isn’t the first federal judge to take up the issue of whether bar-study loans can be wiped out in bankruptcy. Her ruling conflicts with an April 2010 decision from Alabama Bankruptcy Judge Jack Caddell, who said a University of Alabama School of Law graduate couldn’t cancel a $9,475 bar-study loan.

 

“We’ve come to a place where student loan debtors are very much backed into a corner,” said Greta LaMountain Biagi, a bankruptcy lawyer in Amherst, Mass. “This judge clearly to me understands that and is in touch with that.”

Perhaps it is time to reconsider the cost-effectiveness of college? Or of adding to the swirling shoal of sharks that are called 'lawyers'? But that would not do in this new age of higher education is "Free-for-all" - when "free" means becoming a debt serf for the rest of your working life unless you hit the lottery.

Once again - a poor outcome from a seemingly-easy decision (suggested by, and made easy by government) is made consequence-free by America's government (on behalf of US taxpayers). One wonders if the law graduates in question should receive "participation trophies" also as they enter the workforce (as Baristas).

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