There’s a anecdote about caged laboratory monkeys that were tempted by bananas hanging above them. Trouble was, every time a monkey reached the bananas, the whole group of monkeys was sprayed with cold water by the scientists observing them. Soon all the monkeys learned not to reach for the bananas. When a new monkey was brought into the group and made the mistake of going for the bananas, all the experienced monkeys beat and pummeled him. You know the rest of the story. One by one each of the monkeys who had been sprayed with cold water was replaced with a monkey who never had till all the monkeys in the cage had never had the experience of being doused with cold water. Still, they all beat up on any monkey who attempted to reach for the bananas.
This is a pretty good analogy for what is happening with student loan borrowers today. Because the Congress, the courts and the DOE have made it so difficult for borrowers overwhelmed by educational debt to bankrupt their debt, borrowers who really should consider this as an option, do not. It’s true, bankruptcy is a difficult option, but many borrowers have successfully discharged their educational debt in bankruptcy. Further, extending the analogy of borrowers and monkeys, let’s return to the original reason that educational debt was difficult to discharge. When Congress enacted a law that educational debts should only be discharged in the event the repayment caused the borrower undue hardship, the intent of Congress and the Department of Education was not simply to “soak the monkeys” as it were, it was to protect the interest of the American taxpayer and the long term health of the student loan program. The Non-Dischargeability of Private Student Loans: A Looming Financial Crisis? Preston Mueller Emory Bankruptcy Developments Journal Vol 32 Issue 1. As Mueller discusses, the fear of mass bankruptcy filings was overblown as there was no evidence that a disproportionate number of bankruptcy filers were attempting to shed their student loans, but the monkeys were sprayed nonetheless. Consequently, they learned not to attempt to reach the bananas.
Today, the DOE still maintains that it is protecting the interest of the taxpayers by denying borrowers discharges in bankruptcy and by actively pursuing the appeal of any denials all the way to an appellate court. In its July 7, 2015 Letter Undue Hardship of Title IV Loans in Bankruptcy Adversary Proceedings, the DOE enunciates its policy as follows: “the strength or weakness of the undue hardship claim is directly related to the costs of opposing the discharge…the regulations require the loan holders to evaluate the litigation costs against the outstanding loan balance and determine if the debtor’s request…should be opposed.” Notice the wording of the policy, the DOE is not evaluating the cost of litigation against the likelihood of recovery (the only sensible method of determining whether any litigation should proceed), but against the total debt outstanding; therefore, if the debt is $200,000 and the cost of litigation is $80,000, then in theory the DOE will proceed with litigation notwithstanding the likelihood of recovery of any amount is non-existent. We can see the DOE implementing this nonsensical policy in these cases. Nothing else explains their pursuit of the debtor in the foregoing cases. See e.g. IN RE SCHATZ 584 B.R. 1 (2018) where the DOE pursued a 64 year-old debtor whose only source of funds to repay her loan was her home equity of $125,000 and the Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. B.A.P. 2013) decision wherein the Ninth Circuit Bankruptcy Appellate Court discharged student loans owed by Janet Roth, an elderly student-loan debtor who was living on a monthly Social Security check of less than $800.
This seems to be the current state of the relationship between debtors and the DOE. The DOE pursues debtors at great cost to the taxpayer when the prospect of recovery is non-existent, even on the DOE’s own terms. They do so under the guise of protecting the integrity of the student loan program and the monies of the taxpayer. Neither guise is indicative of their true purpose. The DOE bureaucrats beat the monkeys for reasons they can no longer recall even when no purpose, other than administering a beating, is served.