Posted by David Falvey on Sunday, January 5th, 2014 - 3,045 views

Recently The Day ran a column on the front page about student loans. The journalist, Natalie Kitroeff, wrote for the New York Times, “Aggressive action of agency that monitors student loans faces scrutiny’. In the article Natalie introduced us to Stacy Jorgensen who had pancreatic cancer and couldn’t have her student loans discharged in bankruptcy because she didn’t have a sufficient hardship.

The missing details

The article had glaring omissions on 3 major points. First, it didn’t explain adequately why the student loan was not dischargeable under the ‘Brunner Test’. Second, it didn’t give the history of discharging student loans in bankruptcy. Thirdly, and most importantly, it didn’t offer a solution to the problem.

First, in 1987 during the Administration of Ronald Reagan, the Second Circuit Court of Appeals heard the pro se appeal of Marie Brunner (831 F.2d 395) and decided she had not passed what has become the ‘Brunner Test’ and that was that she had to be below the poverty level and was always going to be below the poverty level and she had to have made good faith efforts to re-pay her student loans.

Secondly, the article didn’t mention that student loans were dischargeable in bankruptcy in 1991 but Wall St. took over the student loan business which is now over 1 trillion dollars worth of debt more than the entire amount of debt Americans owe to the credit card industry. Remember we were told, ‘Government is not the solution to our problem, government is the problem’ .

(Watch the video of Reagan’s quote here:

Reagan Government is not the solution to our problem government IS the problem

In 1991, if a student loan was in repayment for 7 years, then the debt could have been discharged in bankruptcy. Prior to 1991, the rule was 5 years in repayment and the debt could be discharged.

My personal warning to parents

I am writing to warn parents and students about an insidious trap, namely, student loans.

Everyone hears and accepts and believes that if you get a college education, this will advance you economically. Usually, scams are a tale wrapped in a truth and the ‘educational myth’ is no exception.

There are statistics justifying obtaining a college degree and that doing so has helped people ‘get ahead’ in life. But there’s a dark side to this “opportunity”. When the economy goes into a steep decline, and jobs are not available which can pay a ‘living wage’, then the full horror of this myth raises its serpent’s head.

And now instead of having ‘indentured servants’, we have ‘indentured students’. We can thank Wall St. for this turn of events.

Wall St. lobbyists got Section 523(a)(8) of the Bankruptcy Code amended totally in its favor. My solution is: amend Section 523(a)(8) back to the old standard and read the controversial book, ‘Is College Worth It’ by William Bennett.

Student loan debt is the next major financial crisis for many Americans.

People have no idea how insidious and large is the problem. I have clients coming to me with $100,000-$250,000 in student loans and can only get jobs as waitresses. The supposed solution is to agree to pay a fixed percentage of your income of the rest of your life. This is worse than a 30 year mortgage. And remember, ‘mortgage’ means ‘to the death’.

America abolished economic slavery in 1897 when the bankruptcy law was amended allowing people for the first time ever to instantly become debt free. Prior to 1897, bankruptcy was strictly a tool of creditors (Wall St) to strip debtors of all their possessions.

This new bankruptcy code allowed individuals to become ‘free from debt’. It was revolutionary but it was a practical response to a civil unrest due to a financial collapse which bordered on a Second Civil War. (Sound familiar?)

Now the pendulum has swung back in the direction of Wall St.(‘Some pigs are more equal than other pigs’) And people are becoming ‘indentured servants’, people who had their passage paid to come from Europe to America and weren’t free until they paid off their debt.

Only today, it is ‘indentured students’.

When the economy was wildly growing as it was in the beginning, being an ‘indentured servant’ was not the problem that it represents in today’s economy.

Is college worth it?

William Bennett’s book Is College Worth It? Is very controversial because he could be accused of being elitist in a democracy but he has many common sense points which should be a matter of intense public debate and discussion.

You can hear William Bennett, former US Secretary of Education on Youtube:

"A Nation at Risk" 30 Years Later: The State of American Education

Hoards of students like lemmings are marching off to college and the cliffs of student loans. I want to scream from the roof tops , ‘Beware the Ides of Student Loans’.

Atty. Dave Falvey
Attorney David Falvey has been practicing Connecticut Bankruptcy Law for over 25 years and has helped Connecticut residents get through all their financial difficulties while helping them get their finances back on track.