This post was originally published on Forbes Oct 28, 2015
I recently wrote about an article by Professor Victoria Haneman concerning the interaction of student debt planning with joint income tax filing. One of the things I discussed with her is a disturbing trend of schools coaching students to minimize their adjusted gross income in order to maximize the amount of their loan that will be forgiven if they stick with Income Based Repayment or similar programs. That brought up the subject of the future debt bomb.
Reilly: Well that sounds promising, Right?
And make no mistake, even for the most destitute borrowers, the Department of Education, ECMC, and the entire lending industry are continuing to pour massive resources into defeating them in bankruptcy court by using shameless fear tactics with the judges, who they pressure ceaselessly - and usually successfully- to make bankruptcy determinations against, these most impoverished individuals rather than for them. It comes as no surprise, therefore, that the already tiny number of people trying to use the bankruptcy laws for student loans has shrunk dramatically since 2007.
Saying that bankruptcy is possible for student loan borrowers is like saying that winning the lottery is possible - you can say it, but it ain't going to happen for the overwhelming majority of borrowers, even if they go through the expensive and difficult process of trying. The "debt coaches", and others perpetuating this myth have no intentions of guiding distressed borrower successfully through bankruptcy. Most are just trying to get them "in the door", so that they can sell them "loan rehabilitation", where the borrowers pay 10 months worth of payments (which goes into the pocket of the collection companies), the loan is repackaged as a much larger loan, and ultimately resold. The nearly 20% commission on these "rehabilitated" loans make this a hugely lucrative endeavor. Never mind that 60% of rehabilitated loans or more wind up defaulting a second time. This is among the scummiest and harmful components of the Student Loan Scam.