BEYOND BANKRUPTCY
requirement the borrower has a solid
idea of what his next 30 years looks
like financially as he shops lenders to
finance his purchase. And it doesn’t
stop here. Finalizing that transaction
is even more detailed with a smattering
of disclosures under federal and state
laws. Ultimately, the borrower receives
at closing an amortization statement,
a comparison of actual costs to the
GFE, and an exact monthly repayment
amount.
Not so when it comes to
student loan lending. It wasn’t until
2008 that the Higher Education Act
mandated some minimum information
that student loan borrowers should
receive from the lender presumably
before borrowing money. 20 U.S.C.
§1019b(a)(1)(B)(iii)(I)-(VIII). Nowhere
on this list of minimum information is
an amortization statement or even an
estimated monthly repayment. It also
omits any mention about the exact
collection costs or additional interest
that a collection company may add to
the debt if the debtor defaults. The list,
however, does include a requirement
that the lender advise the borrower what
is really an impervious legal defense:
that a discharge under the bankruptcy
code doesn’t apply to student loans. Id.
at §1019b(a)(1)(B)(iii)(VI).
Under this legal framework
student loan borrowers typically
navigate an obfuscated lending
process. They usually sign small,
piecemeal
loans
electronically
semester by semester with a litany of
different names and varying interest
rates. Naturally, this prevents any
student loan borrower from knowing the
true cost of the entire education before
going to college. It also gives schools
the infrastructure they need to change
or increase the costs or tuition without
any legal or contractual safeguards
that thwart it.
Since schools are largely
unhampered in their ability to change
or increase the tuition semester by
semester the student loan borrower
can’t possibly know exactly what sort
of debt he will have when he leaves
college. This is how 24 year olds
exit undergrad with $75K in principle
getting a bachelor’s degree and
wonder why their monthly repayment
is nearly $1,000. They honestly did
not know that this is how much they
were borrowing. They had no way of
knowing exactly how much they had to
earn to afford it. And if they were savvy
enough to figure out their financial
future halfway through college they had
too much invested in the debt to quit.
II.
The Repayment Stage
Unabsorbed by the job market
these kids have one option after any
deferment periods if they can’t afford
the monthly payment.1 They must
enter a repayment program.
The Income Based Repayment
(IBR) program, for example, stretches
the debt out up to 25 years with
payments tied to 15% or less of the
debtor’s income. 20 U.S.C. §1098e et
seq. Any remaining unpaid balance
at the end of the 25 year IBR is then
‘cancelled’ under the Higher Education
Act. (Id.)
But this isn’t the full face of
1
Allegedly, student loan
borrowers may apply for loan forgiveness
programs. But just as these kids were
uninformed through the lending stage they
appear to be equally uninformed about
these forgiveness options.
National Association of Consumer Bankruptcy Attorneys
Spring 2016
an IBR. And ‘cancelled’ isn’t what
people think it is. The bankruptcy
court in In Re Abney smoked out the
financial hardships an IBR can inflict
on someone. In Re Abney Bankr. 540
B.R.