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Student Debtor Forgiven $220,000 in School Loans

Kevin Rosenberg was able to have his student debt in bankruptcy.

A judge in bankruptcy court has ruled in favor of a law school graduate who asked to have more than $220,000 in student debt erased.

The case is notable because student debt is commonly thought to be unforgivable in bankruptcy cases, a lament of many students who leave college saying they are too financially burdened to advance the milestones of adulthood, like buying property or having children.

But borrower Kevin J. Rosenberg, 46, of Beacon, N.Y., asked the court to forgive his student debt because repaying the loans was impossible and created an undue hardship, the legal test of whether a debtor should be forgiven.

Rosenberg’s student debt commenced in 1993, when he enrolled as an undergraduate at the University of Arizona, according to court documents. After receiving a bachelor’s degree in history, he served in the U.S. Navy on active duty for five years.

He then attended Cardozo School of Law at Yeshiva University in New York from 2001 to 2004. His degrees were financed by student loans.

When he graduated from law school in April 2005, he consolidated his debts with a nonprofit corporation called Educational Credit Management Corp., (ECMC), owing $116,464 in principle on the loan amount before interest. But by November 19, 2019, the 3.38% interest rate expanded that loan debt to $221,385.

Rosenberg is among a small percentage of student debtors – 2% -- who owe most of the nation’s $1.7 trillion student debt. This group borrowed money to pay for expensive graduate school programs, like law and medicine.

The average loan debt for law school graduates in 2012 was between $84,600 and $122,158, according to the American Bar Association. Almost 70% of law school graduates in 2016 left with student debt, according to the National Center for Education Statistics.

ECMC -- a nonprofit lender organization headquartered in Minneapolis, Minnesota -- argued that Rosenberg did not meet the undue hardship standard. They cited his age (45), health, lack of dependents, two degrees, and law licenses in New York and New Jersey in their legal brief.“

Shortly after starting his first job as an associate attorney at a law firm, [Rosenberg] decided that practicing law was not for him, because he disliked working in an office and did not find the work interesting,” New Jersey attorney Kenneth Baum, who represented ECMC, wrote in his court brief.

"Thus, after leaving that job after only 2½ months, [Rosenberg], with the exception of a brief period of working as a part-time contract attorney on a project basis – which [he] likened to working as a paralegal – has not sought any employment in the legal profession and has no intention of ever doing so, despite the fact that opportunities abound for Plaintiff to make a very respectable living in the legal profession," Baum wrote.

Rosenberg was quoted in Yahoo Finance on January 12, saying, “First of all, I realized the whole job is sitting in the office by yourself. You can't be creative at all, but also that you either help people out or you make a good living -- you can't do both. And I kind of had a problem with that.”

But Rosenberg told VOA that his hardship was caused by the collapse in the bricks-and-mortar retail industry in 2017, when a shop he owned in the Park Slope neighborhood of Brooklyn, New York City, failed because consumers made their purchases online.

"I left the law in 2005 and filed for bankruptcy in 2018," Rosenberg told VOA in email and by phone. "In between, I was able to launch a business as a street vendor and grow it into a small shop, and then with the help of an investor, a much larger shop that was nationally recognized, before brick & mortar retail collapsed in 2017. It was nation’s switch to ecommerce and the collapse of retail that directly caused my bankruptcy."

Judge Cecelia G. Morris, chief U.S. Bankruptcy judge in the Southern District of New York, agreed with Rosenberg. She used the student-debt test case, Brunner v N.Y. State Higher Education Services Corp., from 1987 differently than other decisions. “

Brunner has received a lot of criticism for creating too high of a burden for most bankruptcy petitioners to meet,” Morris wrote. For Brunner, who filed for bankruptcy within a year of graduation, “the test is difficult to meet,” she wrote. “

However, for a multitude of petitioners like Mr. Rosenberg, who have been out of school and struggling with student loan debt for many years, the test itself is fairly straightforward and simple," she said.

Rosenberg was relieved of his debt.

Student-loan experts say that most students are under the impression that student debt cannot be relieved in bankruptcy court. Some get bad advice from attorneys who also believe student debt cannot be forgiven in bankruptcy court. “

Jason Iuliano, student-debt expert and assistant professor of law at Villanova University in suburban Philadelphia.
Jason Iuliano, student-debt expert and assistant professor of law at Villanova University in suburban Philadelphia.

You can't discharge student loan debt in bankruptcy: That was the prevailing wisdom,” said Jason Iuliano, an expert in student debt and assistant professor of law at Villanova University in suburban Philadelphia.

But Iuliano, whose own student debt was hundreds of thousands of dollars after receiving degrees from Harvard University and Princeton University, dove into the caseload and found that wasn’t true. “

What I found when I actually went in and collected the cases was a lot of folks actually do meet the [undue hardship] test,” he said. “About 40% of the student loan debtors in bankruptcy … are successful in getting a discharge of some sort. And that struck me as really important.”

Iuliano said about 250,000 student debtors file for bankruptcy each year. But only about 500 of them take a necessary additional legal step – an adversary proceeding - to address college-loan specific debt. Only 1% end up going in front of a judge.

"A lot more people should be filing and trying to prove undue hardship, because they would be successful if they actually came before a judge,” Iuliano advised.

Ashley Harrington, senior policy counsel for the Center for Responsible Lending in Washington.
Ashley Harrington, senior policy counsel for the Center for Responsible Lending in Washington.

Ashley Harrington, senior policy counsel for the Center for Responsible Lending, celebrated the decision, but said student debt that impacts low-income and minority borrowers more than any others should be addressed long before debtors end up with interest-bloated loans. “

My initial thought was, ‘This is great, good for him.’ We’ve always supported student-loan discharge of both private and federal loans,” Harrington said. “But, there still is a need for Congress to do something about it.”

Among students in the Class of 2016, 70% borrowed an average of $30,000, Harrington said.“

People are really struggling under this debt for a very long time. Your repayment term is 20 to 25 years, and that’s as long as some people’s mortgages," she said.“

Part of the conversation is changing in judicial chambers because everyone is realizing what a crisis this is, seeing how it effects students’ lives,” Harrington added. “How much help have you given them?”

Rosenberg said he is frustrated by "some folks [who] come away acting like my case was a scheme to get out of a bad decision and it wasn’t.

"I did everything I could to avoid bankruptcy and tried to work things out with the lenders but they refused to budge ... I only filed for bankruptcy when I had no other realistic option."

ECMC has the right to appeal the decision. Spokesperson Laura Telander Graf emailed VOA that “We are reviewing the ruling to determine how we will proceed.”