How a woman lost $ 350,000 in student loans – without a lawyer
From the moment she moved to Los Angeles for her graduate studies, Mis Loe found herself experiencing what she describes as always “a late paycheck.”
The aspiring film producer had enrolled in the prestigious American Film Institute Conservatory in 2016, taking out loans to cover tuition fees of over $ 200,000, while working in a coffee shop and driving for Postmates to cover her expenses. subsistence. But despite the fact that she was working full time, her monthly salary was just below her expenses: $ 1,500 monthly rent, $ 800 for drugs, $ 300 for car payments. Loe found herself running late each month, putting daily necessities like food and rent on her credit card.
“I was living on an overdraft,” Loe, now 47, told CBS MoneyWatch. “I had to use every hour I had to create money.” Yet the bills snowballed. And when the coronavirus hit in the spring of 2020 and closed all three of her jobs, “the snowball hit me in the face,” she said.
Loe filed for bankruptcy that spring, with $ 410,000 in debt and earning $ 200 in weekly unemployment benefits. She was not optimistic: most of her debt was in student loans, which, between undergraduate and graduate studies, had climbed to $ 350,000. Like most Americans, she assumed student debt was safe from bankruptcy, and the few lawyers who answered her calls told her the same, Loe said.
Yet after reading a post on Facebook from another college graduate in debt, she decided to fight back. She sued the Education Ministry last August, claiming that repayment of her loans would be impossible given her financial and medical situation.
After a year of legal wrangling, his case was settled this month, with Loe agreeing to pay just $ 7,200 over 10 years. Its first payment is due on October 1.
“I want to move on now with my life,” Loe said. “It’s a 10 year contract – the sooner I start, the sooner it will be over.”
“It’s a very high success rate”
“I have never seen $ 350,000 in debt being paid off,” said Rohan Pavuluri. “You can imagine why people don’t even try.”
Pavuluri is the CEO of Upsolve, a non-profit organization that helps people file for bankruptcy for free. Loe used the Upsolve app to file her initial case, and she’s now pushing the company to expand its services to help people like her file their own student loan waivers.
While Loe’s amount of debt makes his case unusual, his success in getting him off is not as rare as many believe. In fact, student debtors who try to cancel their student loans in bankruptcy tend to be successful more than half the time, according to research by Jason Iuliano, a professor of law at the University of Utah.
In 2017, 447 debtors attempted to liquidate their student loans, Iuliano noted in a recent article. Of these, 234 – nearly 60% – either won the lawsuit or settled with their creditors.
“It’s a really high success rate once you go to the judge and say, ‘I deserve a discharge,'” Iuliano told CBS MoneyWatch.
The biggest problem, said Iuliano, is that most people don’t even try. While about a quarter of a million people with student loans file for bankruptcy each year, only a few hundred take the extra step of filing adversarial proceedings to try to clear their student debt – because most think it is. impossible.
“[E]Every year tens of thousands of bankrupt debtors fail to get a student loan discharge just because they don’t apply for one, ”he wrote.
Proving “undue hardship”
For most families, bankruptcy is largely an exercise in filling out forms, said Upsolve’s Pavuluri. Individuals list debts and assets, attend a court hearing, and then see most of their debts settled.
Student loans require additional steps. A debtor must actively pursue his creditor by filing what is called an adversarial proceeding. Bankruptcy then proceeds as a more typical trial, with both parties presenting evidence, calling witnesses and testifying in court. In addition, the indebted graduate often has to prove that repaying the loan would create “undue hardship” – a standard that is vague and difficult to meet because each court interprets it differently.
The process is intimidating for debtors and lawyers. “Most lawyers won’t handle these cases,” Iuliano said, “even if you go to a lawyer and offer to pay them up front.”
Loe spent several weeks calling legal aid organizations only to be told they couldn’t help. A lawyer specializing in student loan discharge offered to advise Loe for $ 2,000. But for Loe – who bought a home printer to file for bankruptcy because she couldn’t afford the $ 800 printing fee at Staples – those fees were out of reach. So she gathered hundreds of student debt cases and read judgments last summer in a process she said took 1,000 hours. In August, she sued the Education Department in a 180-page complaint.
“I gave them everything,” she said. “There was no way I was laying this down and not proving it in every possible way.”
Her complaint details the fees she has had to pay since she was an undergraduate student. Diagnosed with type 1 diabetes in the mid-1990s, she spent years in and out of the hospital before finding a job as a manager in a cafe that offered her health insurance. With full-time work being its new priority, education has taken a back seat. After several starts and stops, Loe finally earned her bachelor’s degree in 2013 – 21 years after her debut.
The following year, the cafe closed and she was fired, which led her to move to Los Angeles to pursue filmmaking. During that time, she postponed her loans half a dozen times and received 12 abstentions. She has also opted for several income-oriented repayment plans, which generally offer the borrower a lower monthly payment. But even those plans turned out to be too high for her, Loe said, because the salary-based calculations did not take into account her medical bills, which were approaching $ 800 per month.
“I have always worked hard,” Loe said. I have always worked more than 40 hours a week, and often two or more jobs at the same time. ”
“The purpose of my case was to show if I have health insurance, if I have medication, I can be healthy and productive. I cannot afford to take care of myself given my financial situation. current, ”she said.
Prior to her court date, Loe had several unsuccessful exchanges with the Education Department in which she tried and failed to come to an agreement. She was ready to submit her fate to a judge, even though she had no guarantee that a judge would rule in her favor. Then – a week before his scheduled court hearing – the education ministry accepted his offer.
“It saved my life,” Loe said. “It helped me out of a really horrible situation that I didn’t know how I was going to get out of.”
Bigger push for student debt relief
A handful of recent cases have made holes in the argument that student debt is eternal. Katy Adams, 51, was granted a $ 41,000 release from student debt last year when government attorneys called for the personal bankruptcy case to be dismissed before the judge could decide whether she met. the undue hardship standard.
A Nebraska court has relieved a 50-year-old grandmother of nearly $ 90,000 in debt, ruling her prospects for a better-paying job uncertain and her ability to continue working two jobs – due to her health and of her autistic grandson’s needs in her. care – unlikely. And a judge from Poughkeepsie, New York, made waves in a scathing opinion that wiped out $ 220,000 in debt accumulated by law school graduate and Navy veteran Kevin Rosenberg.
“[M]Most people (bankruptcy professionals as well as individuals) think that it is impossible to pay off student loans, “wrote Justice Cecelia Morris.” This Court will not participate in the perpetuation of these myths.
Amid a wider movement for student debt relief, some Americans are pushing to make it easier to pay off old loans in bankruptcy. Senators Dick Durbin (D-Illinois) and John Cornyn (R-Texas) introduced a bill last month to include student loans over 10 years old in bankruptcy proceedings and penalize schools if too many their graduates go bankrupt.
“Bankruptcy is in the constitution. The Founding Fathers included it because they wanted people to make a fresh start, they didn’t want people to be executed or go to jail,” Upsolve said. “This is what it means to participate in capitalism … You fall, you try to get up.”
Loe, too, is hoping for a change in bankruptcy laws. Until that happens, she said, “the # 1 thing people need to understand is not to pay attention to statistics.”
She added: “I want to change the narrative from ‘This is something impossible’ to ‘You can try. “”