Judge says Citibank's law-school loan isn't "student debt" and can be discharged in bankruptcy


#1

[Read the post]


#2

Holy shit! This changes everything for college financing.


#3

Hopefully it will change things for college tuition fees.
I still boggle at the fact that MrsTobinL paid less for 4 freaking years in Canada than what one semester cost me and that was 20+ years ago.


#4

Bearing in mind of course that we’ll have to (a) raise taxes or (b) borrow from China to cover all that debt.


#5

so that law school degrees was worth something like $250,000.


#6

I’m not following the actual legal logic used here. The judge says that just because the terms of the loan required the recipient to be a student doesn’t make a loan a “student loan,” but what does? What about this loan makes is NOT a student loan, and why might a similar loan not fall into the same pit?


#7

That’s my hope as well. One solution is to get rid of a lot of the Presidential salaries. Another is to restore state funding to state schools, it’s been chopped like mad to balance budgets because citizens don’t seem to care as much about an educated citizenry.


#8

With an extra step or two along the way.

As the story mentions, the loans are “handed off to banks, who securitize them.” That is, turned into securities and sold to investors. Just like all those liar loan mortgages in the '90s.

Vast numbers of students are racking up massive debt, told by parents and teachers and councillors who did the same when tuition costs were much, much lower that it was an investment they’d be stupid not to make.

Even those who graduate often find that the jobs simply don’t exist. Many will be unable to repay them REGARDLESS of what the courts have to say about it.

In turn meaning that the government will have to bail out the investors and investment banks again.


#9

As the story says…

He said most student loans are “nondischargeable” under the bankruptcy code, because they’re insured by the government, and this private loan didn’t fit that category.

Also there may be a difference between a loan being all about student costs like tuition, and a loan for general purposes where being a law student simply makes it a lower risk for the bank.


#10

This is the best I could find:

The term “educational benefit” is not defined in the Bankruptcy Code, In re Carow, supra, and no higher court has addressed its meaning. - Source

So, basically, no one knows, and it depends on the judge you get.

ETA: For fun, check out the [official bankruptcy glossary] (http://www.uscourts.gov/educational-resources/educational-activities/bankruptcy-basics-glossary) from the US courts. Try searching “educational benefit”, look under ‘E’. Good times.


#11

Hey, if I could use these to pay for my college tuition, I would as well!


#12

Yes probably also, maybe, something like a loan with an ad that says

“Live in suburbia? Need a car? We have the loan for you!” but gives an secured loan to suburbanites who can use the money for anything …well it’s not exactly a car loan.

College tuition is what it is today because the students can borrow the money. If it weren’t for that, guess what would happen.


#13

Really, it’s a razor’s-edge cost-benefit analysis for the banks: do they lend to law students?

Low-risk scenario: they’ll make a bunch of money and pay it off reliabliy.
High-risk scenario, until now less probable: the students, as a result of the education financed by the loan, will figure out how to make the debt go away without payment.


#14

What is with loans that makes people forget they’re an investment that doesn’t carry a guarantee?

I mean if absolutely nothing else… people do die.


#15

300K in student loans from Pace Law School is absolutely ridiculous. The school is a bottom tier school with a fairly low bar passage rate in the state.

The schools themselves lie like cheap rugs about the average salaries and job prospects of graduates in order to sucker students in to paying such exorbitant tuition for a degree nobody in the industry will take seriously (unless you are the top 1-2% in your class). Add to that the collusion between the schools and the student lenders to make any ability to shop around with different lenders for loans impossible. You end up with a monopolistic predatory lending system.

I eagerly await when colleges start to buckle under the weight of the cheap credit monster they created.


#16

Someone once told me “housing prices are so high because mortgages allow people to buy houses that are more expensive than the houses are worth.” Is this basically true? And has it now become true for college tuition? Is there a basic law that says loaning money for a specific thing makes the prices of those thing drift upward? (Obviously, I have no understanding of how these things work.)


#17

It really doesn’t change much. It probably only applies to loans originated outside the DOE student finance system, which is not very many - and after today, it’s gonna be zero.

I’m curious what the interest rate was. If she already had $285,000 in student loans, and Citi then loaned her an extra $15,000, I can imagine an arm and a leg were involved.


#18

Bank, singular. Student loans are usually issued by a single lender associated with the school these days. No shopping around is even possible in most situations.

The cost benefit analysis only works for student loans if they are non-dischargable. Especially for law schools, where the market is largely flooded with graduates and salaries have stagnated. Schools fudge numbers to the public to represent that salaries for graduates can offset the amounts paid in student loans. The access to cheap easy credit gives even the shittiest schools incentives to raise tuition. As long as people are delusional enough to think the loans can be paid off effectively after graduation, it just feeds a boom cycle for the lenders and schools.


#19

Specifically in the case of student debt, some [quote=“lamaranagram, post:12, topic:75846”]
College tuition is what it is today because the students can borrow the money. If it weren’t for that, guess what would happen.
[/quote]

Reduced social mobility?

@Mangochin - yeah, revisions to bankruptcy law screw over student debt holders pretty badly, and create some pretty perverse incentives for lenders


#20

Citibank’s law-school loan isn’t “student debt”

Outpouring of empathy from Americans nowhere to be found…