Student Loans and Bankruptcy: Zen Buddhism to the Rescue!

16 Apr Student Loans and Bankruptcy: Zen Buddhism to the Rescue!

I just finished listening to a discussion on the radio about discharging student loans in bankruptcy, and it occurred to me that we could learn a lot from “The Middle Way” of Zen Buddhism in our approach to this issue.

“The Middle Way” is a term Siddhartha Guatama (hereafter “The Buddha”) used to describe the path to liberation. In fact, he apparently taught this concept immediately after his “enlightenment” in The Setting in Motion of the Wheel of Dharma. The idea of “The Middle Way” is that we should take a “path of moderation between the extremes of sensual indulgence and self-mortification.” The Apostle Paul echoed this several centuries later by encouraging the early church to, “Let your moderation be known unto all.” (Yes, I know I’m mixing religions here, but stay with me.)

But I’m not a Buddhist!

No worries. Neither am I. But I think The Buddha had a point, and I think it’s something we can learn from here in America in the 21st century.

The pendulum in American politics swings wide from one extreme to the other, and how student loans have been treated in bankruptcy over the years illustrates this point.

The 70s…

In the 70s, we had what I call the “peace, love, and rock-n-roll” approach. Student loans were freely dischargeable. Rock on!

The 80s…

In the 80s, student loans were dischargeable in Chapter 13, payment plan bankruptcies, or if they were more than 5 years old in Chapter 7 bankruptcies.

The 90s…

In the 1990s discharge in Chapter 13 was eliminated, and loans could only be discharged if the the 7-year requirement was met (it went from 5 to 7 years in 1990), or the debtor could demonstrate “undue hardship.” (Spoiler alert: Undue hardship means, among other things, that you’re (very, very) disabled and will remain so for the rest of your life…and you can prove both of those things. It has nothing to do with not having money for food, clothing, or the fact that you’re living in a van down by the river.)

1998 to 2005…

From 1998 to 2005, the only way to discharge student loans was to prove undue hardship. (See “Student Loans: The Worst Kind of Debt (Part Three)).” However, and this is a big however, private student loans were still dischargeable.

2005 to today… (Take me down to Crazy Town!)

In 2005, Congress passed our current Bankruptcy Code, the Bankruptcy Abuse Prevention and Consumer Protection Act, otherwise known as BAPCPA. (Spoiler alert: There is nothing in this piece of legislation protecting consumers.) The 2005 Code made even private student loans essentially non-dischargeable and subject to the “undue hardship” (you’re very, very disabled) standard.

In 2005 it became easier to discharge federal and state income tax debt than PRIVATE student loan debt

Think of that for a moment. Congress (part of the federal government) actually made it easier to discharge debt owed to the IRS (also part of the federal government) than debt owed to private student loan companies (not part of the federal government, but having really good lobbyists).

What this means is that the IRS needs a freakin’ lobbyist! And…

It also means that we’ve officially arrived at Crazy Town. The Middle Way of the 80s and 90s has been abandoned, and if you owe student loans–especially to private lenders–well, you’re screwed. No matter how much you owe, no matter how you’ll never be able to pay it back, no matter how unemployed you are, you’re screwed.

My favorite example of this, and it’s a recent one, is In re Wallace, a decision out of the Southern District of Ohio. The bankruptcy judge described Wallace–because if I describe him, you’ll think I made this up–as follows:

After receiving his college degree, Wallace began to work as a manager of information technology at Kelly Services in 2005. He held that position for approximately one year, earning $12,261, but left after developing vision problems as a result of his diabetes. Also, as a result of the diabetes, Wallace underwent dialysis and multiple surgeries from 2005 to 2006. He developed kidney disease and, in April 2008, received pancreas and kidney transplants. Now 31 years old, Wallace is considered legally blind, with a prosthetic implant in his right eye socket and apparently uncorrectable 20/400 vision in his left eye. Whatever vision Wallace has is extremely limited. During his testimony, Wallace attempted to read written materials presented to him. Even while holding the materials near his face, he was unable to make out words written in typeface and was able to read only certain words that he or a family member had written using large handwriting. Because of his visual impairment, Wallace will never again be able to qualify for a driver’s license. Sometime in 2006, the Social Security Administration determined that Wallace was permanently disabled due to his blindness. [emphasis added].

Still, the Court ruled that Wallace failed a prong of the infamous Brunner test. Wallace, the judge said, didn’t meet the undue hardship test! The judge did agree to hold off issuing a ruling for two years to see how the blind diabetic with kidney and pancreas problems might fair job-wise. Who knows, maybe he’ll regain his sight. Anything’s possible, right? In Crazy Town, it sure is. And anyone with a shred of common sense yearns for a time when the Middle Way was the law.

Post script: BLN’s Brett Weiss recently appeared on an NPR radio program discussing student loans, which made me think about doing this post. You can listen to the discussion by clicking here.

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Russell A. DeMott is a Charleston, South Carolina bankruptcy lawyer who represents consumer debtors in Chapter 7 and Chapter 13 bankruptcy. He is the author of the Charleston Bankruptcy Blog. He is also a member of the South Carolina Bankruptcy Blog. He files bankruptcy cases for clients in the Charleston, South Carolina division, which runs from Myrtle Beach to Beaufort. The DeMott Law Firm also represents clients in foreclosure defense and mortgage modification. You can also connect with Russ on Google Plus Russell DeMott. Russ can be contacted directly at (843) 695-0830 or by email at
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