A few debt-ridden former students of the now defunct for-profit college are taking a stand against high student loan payments by intentionally refusing to make payments.
More than 100 people announced the joint effort in a letter to President Barack Obama and Education Secretary John King. Despite the former college’s assurances that nearly three-fourths of graduates received jobs after graduation, many former students feel bad about their prospects. “Now when I interview or submit my resume to future employers they will look at where my education and degree is coming from and laugh,” mused one man. In their letter, the former students blame the Education Department for failing to protect them from “ITT’s scam.” The college was forced to close after the federal government said it would no longer provide financial assistance to its students. Earlier, in 2015, for-profit Corinthian College underwent similar scrutiny. It was forced to close and, the California Attorney General ultimately obtained a $1 billion fraud judgement against the entity.
ITT Tech had three campuses in Chicagoland.
Student Loans and Bankruptcy
Until the Bankruptcy Code was amended in the 1970s, student loans were dischargeable in a Chapter 7 or Chapter 13 bankruptcy just like any other unsecured debt. But at the same time Congress began debating these legal changes, some lawmakers expressed concern that student radicals went to school on Uncle Sam’s dime, stirred up trouble on campus, and then refused to pay their loans after graduation. That may or may not have been true, but as so often happens, perception became reality.
The new Bankruptcy Code stated that student loans could be discharged based on “undue hardship,” a phrase that was not really defined. Several years later, the Second Circuit Court of Appeals decided Brunner v. New York State Higher Education Services Corp. Marie Brunner graduated with about $9,000 in student loans, which even back in the 1970s/1980s was not an enormous amount of money. Furthermore, Ms. Brunner asked a bankruptcy court to discharge her loans even though she had only recently graduated and had probably never made a single payment, and could show no evidence of undue hardship.
Rather predictably, the court refused to discharge her loans and also articulated a very harsh definition for “undue hardship.” To have their student loans discharged, borrowers must show:
- Repayment History: Borrowers must have made a good faith effort to repay the money they used to attend school.
- “Minimal” Standard of Living: The borrowers must demonstrate that, if forced to repay the loans, they cannot subsist above the poverty line.
- Permanent Hardship: The condition that prevents repayment must be permanent and must not be related to the borrower’s fault.
Under the Brunner Rule, it is difficult, although certainly not impossible, to discharge student loans based on anything other than a physical disability or injury that occurred after graduation that renders it impossible for the person to pursue his or her chosen profession.
A New Attitude?
Although some circuits are reconsidering the Brunner Rule in light of the current student loan crisis, the Seventh Circuit, which includes Illinois and Indiana, remains committed to this standard. In Tetzlaff v. Educational Credit Management Corp. (2013), Mark Tetzlaff accumulated an eye-popping $260,000 in debt attending college and law school. He had failed the bar exam twice, largely because of chronic depression and substance abuse issues. However, the court was unmoved by the circumstances and stated that Mr. Tetzlaff was ineligible for discharge under the Brunner Rule.
As mentioned, several other circuits, including the neighboring Eighth Circuit, have adopted a more lenient totality-of-the-circumstances analysis. So, this question will probably wind up before the United States Supreme Court.
Contact Experienced Attorneys
Student loan discharge in bankruptcy may soon become easier. For a confidential consultation with an experienced bankruptcy attorney in Chicago, contact the Bentz Holguin Law Firm, LLC. We have offices in Illinois and Indiana.