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JULY 17, 2009 4:15PM

Welcome to the Minimum Security Debtor’s Prison

Rate: 11 Flag

We are a few short weeks away from the start of fall semester.  Soon thousands of bright-eyed college kids will be starting on campus.  With the economy currently in the doldrums, the numbers of graduate students are also on the rise.  As the numbers rise, so too do the costs of matriculation.  Higher demand, as my economics professors often repeated, means higher prices.  How can students pay for that bloated tuition bill?  The answer in most cases is to take on more debt.  But before you sign that loan document, you may want to consider the fact that you could be signing up for a life sentence in a free range debtor’s prison.

Just last week, a federal appellate court ruled that an attorney turned painter with $350,000 in outstanding school loans couldn’t seek bankruptcy protection.  Following a bankruptcy court’s ruling finding the loans were "shockingly immense" and discharging the debt, the loan companies appealed and a three judge appellate court panel reversed the bankruptcy court.  The panel ruled that the 45 year old lawyer’s "young age, good health, number of degrees, marketable skills, and lack of substantial obligations to dependents or mental or physical impairments weigh[ed] in favor of not granting an undue hardship discharge."  Instead, the court suggested that the man should have requested a plan that would have discharged the remaining balance of the debt after 25 years of continuous $629 payments.   

The program suggested by the court was recently enacted by Congress in an attempt to give young attorneys a break on student loans in exchange for working in public interest legal jobs.  Now the law students programs, not to mention similar so-called public interest programs for indebted college and graduate school students, are being touted by lawyers for loan companies as a reason to refuse discharge of student loan debt in bankruptcy proceedings.  Hence, if you take out too many loans for school, you may be turning yourself into an indentured servant for one of the major student loan companies.   

What can you do as a potential borrower?  Here are a few tips.  First, for you college graduates out there, think twice before returning to graduate school.  I am of the firm belief that education is valuable in its own right, not just as a credential.  That said, idealistic views of education won’t pay the student loan bills.  Study up on the pros and cons of a master’s or doctorate program before you dedicate too much time and money to study feminine critiques of Nietzsche. 

Second, minimize debt.  Professors and counselors at the universities I attended often said that living like a professional in school leaves you living like a student after graduation.  Suffer through the lean times and borrow as little as you can to get through school.  No one is going to judge a university student for eating Ramen every night, but you’ll have a hard time throwing Ramen-themed dinner parties as a professional. 

Third, pick a university that fits your budget.  I know you studied really hard to get into Rice University and it’s hard to give up the dream, but the University of Houston has comparable programs in the same city and the employers that interest you recruit at both universities.  Oh, and did I mention public university tuition typically costs tens of thousands less?   

There are lots of other tips and tricks for reducing school debt, and anyone entering university or graduate school this fall should speak to someone knowledgeable about them.  Making the right choices now will make all the difference.

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yikes. Im going to start grad school in the fall, and the debt does terrify me. It's in-state, and public, so tuition could be worse but still, thanks for the tips!
This belongs in every mailbox of every college graduate before they put on the gown and pick up their BA or BS diploma.
Kevin Phillips makes a similar point in his American Theocracy, but not coming from present law. Rather, he analyzes the ways in which the fall of various overextended empires of the past have played out. It's a chilling read.
I don't think the analysis suggests the end of the empire is nigh, but it certainly isn't helping. The number of young professionals being turned into new age tenant farmers grows with each graduating class, and the people with money and access are making it ever more difficult, through legislative initiatives at the state and federal level, to escape the servitude.

Case in point: A young Houston attorney was disbarred a few months back by the the State of Texas for not paying his school loans or filing for bankruptcy. The moral of the story: pay your loans or the loan companies will take away your livelihood.

The article can be found here.

Eric Hudson: Or, worse yet, being refused admission to the bar in the first place for the same reason: http://www.nytimes.com/2009/07/02/business/02lawyer.html?_r=1
Yes, there are attorneys who cannot find work--even in the federal sector. Even with good grades, excellent credentials, etc. The judges and their clerks are clueless.
My high school senior daughter and I have been been having similar conversations. She has spent her entire youth sacrificing everything for grades and she has rocked them, tied for Valedictorian at this time. Her plan was to go to an Ivy. Now? Not so much. Her talent and gifts are not for sale with a price that of her future in debt.
I guess I assume by the time someone gets into law school, they should be able to do the math. I don't have a whole lot of sympathy for people who want others to pay for the expensive law school education that they got and decided they don't need.

The cost of education is out of control, but the lawyer-artist is not the poster child for its problems.
"The cost of education is out of control, but the lawyer-artist is not the poster child for its problems."

Sure he is. The amount that was loaned vs. the amount that was federally backed is nearly four to one. What responsible lender loans nearly four times the federally backed amount to a person who takes over a decade to complete his education? The answer is no responsible lender would. Unfortunately for the lawyer/artist, no one sheds a tear because they presume he was bright enough not to get sucked in by predatory lending.

If a person as bright as the lawyer/artist is suckered by student loan companies, what do you think is happening to average students studying average things? The reason the lawyer/artist is a good poster boy is that he represents what happens to some of the brightest people in our society when predatory lenders sink in their teeth.

The lack of empathy and lack of understanding that there is something wrong with this picture allows it to endure. It creates a system in which overburdened graduates are accepted as something normal. It creates a system that makes college look like a burden and turns off the best and brightest who may not want to risk spending their lives working as indentured servants for loan companies. It also prevents the best and brightest from entering the public sector, because public interest workers, in today's society, live in free range debtor's prisons.

If you can't see that, then you missed one of the points of the article.
This is why I think the guy is a poor poster child. He invested in an expensive law school education and then choose to become an artist -- a profession notorious for wanna-bes who can't support themselves at it.

That's very different from someone who needs a degree to get a decent professional job but can't get the education they need without loading up with excessive debt.

That's different from the cost of education being a barrier that prevents talented people from lower-income backgrounds from attending the nation's elite colleges and universities, thus entrenching the divide between the Harvard educated "haves" and the state college educated "have-nots".