Former Law Student Enlarges Student Loan Loophole

Back to July 2012 Ed Reporter

Former Law Student Enlarges
Student Loan Loophole

A Maryland woman who successfully petitioned to have nearly $340,000 in student loans wiped out in her bankruptcy proceedings may have helped set an important precedent for the way future student loan debts are handled in bankruptcy. That’s bad news for the taxpayers who would foot the bill if more education loans are forgiven in the same way former law student Carol Todd’s were.

Carol Todd of Nottingham, Maryland spent time in law school, was awarded degrees from four accredited institutions, and earned a Ph.D. from an unaccredited online school over a span of about twenty years. Even so, U.S. Bankruptcy court Judge Robert Gordon ruled that her Asperger’s Syndrome rendered her unable to get a job or support herself. Gordon ruled in Todd’s favor when she petitioned to have her student loan debt forgiven in a Chapter 7 bankruptcy, writing that “it must be possible for some combination of factors to exist to justify the discharge of student loan debt” and declared that she qualified for an exemption under the “undue hardship” requirements that federal law applies to student loan debt, criminal fines, and unpaid child support.

This is important both because Asperger’s Syndrome is a controversial diagnosis — some with Asperger’s do have a debilitating condition while others are merely socially awkward — and because it may strengthen the case of those who wish to weaken standing education debt practices. In 1976, Congress changed the bankruptcy code to crack down on students who tried to get rid of student debt by declaring bankruptcy days after graduation. Further changes in 1984 made it even more difficult to obtain loan forgiveness, and a 2005 amendment to the Bankruptcy Abuse Prevention and Consumer Protection Act further solidified the difficulty. Time Magazine reported that the National Association of Consumer Bankruptcy Attorneys is lobbying Congress to pass legislation that would make it easier for borrowers to rid themselves of education debt. Their attempts have been unsuccessful so far, but Carol Todd’s case may go a long way toward aiding their cause.