'To Make Matters Worse...'_ Nadler Rails Against Trump's Move To Garnish Student Loan Debtor's Wages

5 months ago

During a House Judiciary Committee hearing in July, Rep. Jerry Nadler
(D-NY) spoke about the Trump administration's policy garnish wages from student loan debtors.

Transcript

00:00yield back and recognize the ranking member Nadler for his five minutes.

00:04Thank you, Mr. Chairman. As I noted in my opening statement, student loans are the only kind of

00:10unsecured debt that consumers cannot discharge in our current bankruptcy system. Although we

00:15generally imagine a young person who we consider tackling the issue of student loan debt,

00:20this issue affects people of all ages and increasingly it's our senior citizens

00:24with loans going back many decades who are shouldering this non-dischargeable debt.

00:28Thanks to changes in the bankruptcy laws passed in 2005, to which I led the opposition,

00:34we now have a system in which debtors who are presumed to be too insolvent to pay medical

00:39or credit card debt must remain on the hook for their student loans. The legal hurdle to prove

00:44quote, undue hardship in order to discharge student loan debt means that disabled veterans,

00:50senior citizens, and low-income individuals, among others, are on the hook for decades for

00:54debt that they will never realistically be able to repay. And to make matters worse, right now student

01:00loan debtors are subject to wage garnishment and garnishment of their social security benefits

01:05for these debts that they can never discharge. Professor Jacoby, is there any logical reason

01:12why only student debt should not be dischargeable in bankruptcy?

01:15The traditional argument for special treatment of student loans in bankruptcy related to protection

01:25of the public fisc to preserve money for educational opportunities to others. There also were unsubstantiated

01:33concerns early in the history of developing the 1978 bankruptcy code about individuals who might not

01:41deserve bankruptcy relief running from graduation right to the bankruptcy court, which of course is not,

01:48for a variety of reasons, is not even possible under the current system that we have.

01:54So the first, that latter instance I discount completely. There are plenty of checks and balances for that.

02:02The first one, it does raise broader matters of education policy, but in that case,

02:08the rest of the law needs to be written very, very differently to re-tailor it to that objective.

02:16Thank you. And Professor Jacoby, what's the impact of saddling millions of Americans with non-dischargeable

02:21student loan debt? And do you believe that Congress should act to ensure that debtors can discharge

02:26their student loans?

02:28I believe that this part of the bankruptcy code is well overdue for reform. I think this section of the

02:35Bankruptcy Code 523A8 is indeed broken and that none of you, none of the members of this esteemed

02:42subcommittee would write it this way if you were to do it today. So I hope you do act.

02:48And should we make a distinction between private and public loans?

02:52Yes.

02:53Why?

02:55To your original point about where student loans fall in the general range of unsecured debts,

03:03there is no reason to distinguish a loan for food or medical care made by a private for-profit

03:12lender from a loan that someone might use while they are a student in their education. Those are

03:18loans that are part of our marketplace and can manage the risk very differently.

03:23Thank you. And finally, Professor Jacoby, the undue hardship standard was added to address

03:27presumed or feared abuse of our bankruptcy standard. Is this a realistic fear?

03:33It is not a realistic fear. And undue hardship used to be used in a way narrower way because there

03:41were other paths, including older student loans, to discharge without even overcoming that hurdle.

03:48So that's two reasons why undue hardship does not work today in our system.

03:53And why is it different from what it used to be?

03:54It used to be that if a loan had been under repayment for five years and then seven years,

04:02that it could be discharged in bankruptcy independent of any questions of undue hardship.

04:07Only a more recent loan would somebody have to file a lawsuit and prevail on the argument that it was

04:14an undue hardship, which might explain the impossibly high standards that courts adopted then that they

04:21still use to this. And that was changed when? Well, it's been done incrementally in pieces. I believe

04:29the seven-year would have disappeared in 1998, but I would need to check to make sure because it's changed

04:37so many times. Okay. Thank you. I yield back.

04:40The gentleman yields back.

'To Make Matters Worse...'_ Nadler Rails Against Trump's Move To Garnish Student Loan Debtor's Wages

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