Best of the Week
Most Popular
1. Gold vs Cash in a Financial Crisis - Richard_Mills
2.Current Stock Market Rally Similarities To 1999 - Chris_Vermeulen
3.America See You On The Dark Side Of The Moon - Part2 - James_Quinn
4.Stock Market Trend Forecast Outlook for 2020 - Nadeem_Walayat
5.Who Said Stock Market Traders and Investor are Emotional Right Now? - Chris_Vermeulen
6.Gold Upswing and Lessons from Gold Tops - P_Radomski_CFA
7.Economic Tribulation is Coming, and Here is Why - Michael_Pento
8.What to Expect in Our Next Recession/Depression? - Raymond_Matison
9.The Fed Celebrates While Americans Drown in Financial Despair - John_Mauldin
10.Hi-yo Silver Away! - Richard_Mills
Last 7 days
Buying a Custom Built Gaming PC From - 1. Delivery and Unboxing - 17th Feb 20
BAIDU (BIDU) Illustrates Why You Should NOT Invest in Chinese Stocks - 17th Feb 20
Financial Markets News Report: February 17, 2020 - February 21, 2020 - 17th Feb 20
NVIDIA (NVDA) GPU King For AI Mega-trend Tech Stocks Investing 2020 - 17th Feb 20
Stock Market Bubble - No One Gets Out Of Here Alive! - 17th Feb 20
British Pound GBP Trend Forecast 2020 - 16th Feb 20
SAMSUNG AI Mega-trend Tech Stocks Investing 2020 - 16th Feb 20
Ignore the Polls, the Markets Have Already Told You Who Wins in 2020 - 16th Feb 20
UK Coronavirus COVID-19 Pandemic WARNING! Sheffield, Manchester, Birmingham Outbreaks Probable - 16th Feb 20
iShares Nasdaq Biotechnology ETF IBB AI Mega-trend Tech Stocks Investing 2020 - 15th Feb 20
Gold Stocks Still Stalled - 15th Feb 20
Is The Technology Stocks Sector Setting Up For A Crash? - 15th Feb 20
UK Calm Before Corona Virus Storm - Infections Forecast into End March 2020 - 15th Feb 20
The Growing Weaponization of Space - 14th Feb 20
Will the 2020s Be Good or Bad for the Gold Market? - 14th Feb 20
Predictive Modeling Suggests Gold Price Will Break Above $1650 Within 15~30 Days - 14th Feb 20
UK Coronavirus COVID-19 Infections and Deaths Trend Forecast 2020 - 14th Feb 20
Coronavirus, Powell and Gold - 14th Feb 20
How the Corona Virus is Affecting Global Stock Markets - 14th Feb 20
British Pound GBP Trend and Elliott Wave Analysis - 13th Feb 20
Owning and Driving a Land Rover Discovery Sport in 2020 - 2 YEAR Review - 13th Feb 20
Shipping Rates Plunge, Commodities and Stocks May Follow - 13th Feb 20
Powell says Fed will aggressively use QE to fight next recession - 13th Feb 20
PALLADIUM - THIS Is What a Run on the Bank for Precious Metals Looks Like… - 13th Feb 20
Bitcoin: "Is it too late to get in?" Get Answers Now - 13th Feb 20
China Coronavirus Infections Soar by 1/3rd to 60,000, Deaths Jump to 1,367 - 13th Feb 20
Crude Oil Price Action – Like a Coiled Spring Already? - 13th Feb 20
China Under Reporting Coronavirus COVID-19 Infections, Africa and South America Hidden Outbreaks - 12th Feb 20
Will USD X Decline About to Trigger Precious Metals Rally - 12th Feb 20
Copper Market is a Coiled Spring - 12th Feb 20
Dow Theory Stock Market Warning from the Utilities Index - 12th Feb 20
How to Get Virgin Media Engineers to FIX Hub 3.0 Problems and NOT BS Customers - 12th Feb 20
China Under Reporting Coronavirus COVID-19 Infections by 66% Due to Capacity Constraints - 12th Feb 20
Is Coronavirus the Black Swan That Takes Gold To-Da-Moon? - 12th Feb 20
Stock Market 2020 – A Close Look At What To Expect - 12th Feb 20
IBM AI Mega-trend Tech Stocks Investing 2020 - 11th Feb 20
The US Dollar’s Subtle Message for Gold - 11th Feb 20
What All To Do Before Opening A Bank Account For Your Business - 11th Feb 20
How and When to Enter Day Trades & Swing Trade For Maximum Gains - 11th Feb 20
The Great Stock Market Dichotomy - 11th Feb 20
Stock Market Sector Rotation Should Peak Within 60+ Days – Part II - 11th Feb 20
CoronaVirus Pandemic Stocks Bear Market Risk 2020? - Video - 11th Feb 20

Market Oracle FREE Newsletter

Nadeem Walayat Financial Markets Analysiis and Trend Forecasts

Exposing the Secret to Wiping Out Student Loan Debt in Bankruptcy

Personal_Finance / Student Finances Jun 06, 2013 - 11:45 AM GMT

By: Money_Morning


Tara Clarke writes: Accepted wisdom says that there are only two (rather sobering) ways to relieve the burden of student debt: either pay it off, or depart from this earthly world.

Until now.

On May 22 the Ninth Circuit Court of Appeals wiped out $58,000 in student loan debt for a former law student in bankruptcy proceedings, sending shockwaves through the formerly impervious facade of student loan debt performance.

Ten years in the making, the ruling could burst the trillion dollar student loan bubble.

This is the case of Michael Hedlund.

His tale seems unexceptional in today's economic hard times.

Hedlund went to the University of Oregon and earned a bachelor's degree in business administration. He then attended Willamette Law School where he earned his J.D.

Hedlund financed his education with Stafford loans, a commonplace higher education loan backed by the U.S. government.

After graduating, Hedlund took the Oregon bar exam and worked as an intern for the Klamath County District Attorney.

That's when things began to fall apart.

Hedlund failed the bar. He tried and failed again. The DA fired him for he was not able to practice law.

In an effort to turn things around, Hedlund got a full time job as a counselor with the Klamath County Juvenile Department. He signed up to take a third stab at the bar exam.

The day of the exam, he accidentally locked his keys in his car and missed the test.

At this point, Hedlund gave up on trying to practice law. He married in 2000, and became a father in 2001.

But just because Hedlund gave up on his legal training didn't mean the lenders who paid for it were going to let him off the hook.

Hedlund owed PHEAA (Pennsylvania Higher Education Assistance Agency) more than $85,000, which came out to monthly payments around $800. He didn't make nearly enough money in his counselor position to pay that amount, so he began searching for relief.

After exhausting all forbearance opportunities, Hedlund applied to consolidate his student loans in an attempt to lower his monthly payment.

The lender lost his application causing Michael to default on his loans. Once he defaulted, he was no longer eligible for consolidation or any other program relief. He tried different avenues to consolidate his loans but was rejected at every turn. He made every attempt to continue paying for his loans.

But the lenders filed action against Hedlund for defaulting. They began garnishing his wages in small increments, which he did not contest.

Then, one of the lenders garnished a larger chunk, way too much for Hedlund to handle, as he frantically tried to keep his family afloat.

In a final act of desperation, Hedlund filed for bankruptcy.

Until Hedlund's case, bankruptcy was thought to be a safety net only available to failed businesses and unlucky or mismanaged personal finances.

Debt wrought from educating yourself is considered a non-dischargeable offense, unless you can show "undue hardship" - up until now a nearly insurmountable standard to prove in court.

Proving undue hardship is a costly and highly intrusive prospect. The burden is on the debtor to prove it's impossible for him or her to pay the student loan. The process involves a public, intimate, and downright embarrassing examination of your finances.

On top of that, different courts use different indicators to determine undue hardship, making the likelihood of success extremely difficult to predict.

But here we have Michael Hedlund, a shining example of a man who acted in good faith to repay his debt.

The Ninth Circuit looked upon Hedlund with an appraising eye.

Here is a debtor who made every effort to obtain employment, to maximize his income, and to minimize his expenses. He tried everything he could think of to reduce the monthly payments to a manageable amount, including negotiating with lenders. He even endured wage garnishments without protest until an overwhelming amount was taken.

Hedlund was judged to have done his absolute best to pay his debts and so the court discharged all but $32,080 of his remaining debt.

It decided that paying the full amount would be too onerous on Hedlund and his family.

This ruling opens the flood gates to student debtors across the nation.

By defining guidelines for undue hardship in a detailed, published opinion, the Ninth Circuit has given courts more freedom to say, "You've done enough to try to repay. We'll discharge your student debts."

Borrowers who have truly made every effort to repay their loans now have an avenue for relief.

Derek Foran, whose firm represented Hedlund, commented, "The Ninth Circuit's decision is important for other student debtors, because it clarifies the correct standard of review governing undue hardship determinations under the bankruptcy code. It will mean significant relief for student debtors - who often are unrepresented - seeking relief in bankruptcy court."

Now, imagine what would happen if an abundance of student debtors across the nation have circumstances as compelling as Hedlund's?

The implications are vast, given the student loan bubble.

Klamath Community College President Dr. Roberto Gutierrez commented to his local NBC affiliate: "An extreme measure would be that the bubble will burst as far as loans - and a lot of students will refuse to pay the loans anymore. Then we've got a problem, because then we may have lenders that do not want to loan anymore."

If the student loan bubble bursts, we are talking earth-shaking stuff here - as major as the subprime mortgage crisis in 2008.

And, just like subprime, Hedlund's case reiterates the idea that lenders have a responsibility to issue loans they know can actually be repaid.

Hedlund's case is a game changer for student debtors, and if enough borrowers like him are out there, it's a game changer for us all.

Source :

Money Morning/The Money Map Report

©2013 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email:

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2019 - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.

Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules