Student Loan Investigations

Scott Creighton, a struggling borrower profiled in my 2011 story about student loan disability discharge. Photo: Brian Blanco for ProPublica.

Over the years, I’ve authored several investigations and newsfeatures about the various problems plaguing America’s student loan market. It’s remarkable to think that when I first started writing and thinking about it back in 2009, Americans’ total outstanding student debt stood at around $700 billion. It’s now more than $1.7 trillion.

I owe my interest in this topic to Sheila Coronel at Columbia Journalism School. Sheila picked student loans as a topic for my classmates and me to dig into during our time at the school’s Stabile investigative journalism program in 2009. Together, we published some high-impact investigations, and I’ve followed up with additional stories over the years.

Below are some of the highlights of my work in this important area of consumer debt. As always, if you have an additional story idea or newstip, I’d love to hear from you.

Student Loan Disability Discharge Fails Student Borrowers

Under federal law, borrowers who develop severe and lasting disabilities after taking out federal student loans are entitled to have their debts forgiven. But for many years, the Department of Education’s bureaucracy has prevented disabled borrowers from having their loans forgiven.

In a February 2011 investigation I co-authored with Jeannette Neumann, Sasha Chavkin and Ben Protess, we revealed why the Department of Education’s loan forgiveness process for disabled borrowers is broken. The system lacked standards for determining disability, didn’t explain to borrowers why their applications had been denied and provided no formal appeals process for denials – shortcomings repeatedly flagged by the department’s internal watchdog and ignored.

The story was published with Pro Publica, The Center for Public Integrity, and The Chronicle of Higher Education. Within ten days of publication, the Department of Education forgave the lead character’s loan and promised an overhaul of the process.

The story made a big impact on disabled borrowers’ lives. In July 2012, the Department of Education proposed new rules to revamp the student loan forgiveness program. In November 2012, the department implemented a key reform that made it easier for eligible borrowers to have their loans forgiven by recognizing certain disability findings by the Social Security Administration as sufficient evidence for loan discharge. And in 2016 the Department of Education took a big step to implement that reform by offering to write off $7.7 billion of student debt owed by disabled individuals, taking a big step to streamline the troubled loan forgiveness program.

The Education Department’s work remains unfinished, however. As I recently reported for Business Insider, data obtained under a Freedom of Information Act request by the National Student Legal Defense Network showed that, as of Nov. 2019, the department had sent out some 571,000 offer letters to borrowers who had qualified for disability discharge. But only around 218,000 had been approved for discharge, leaving more than 350,000 still waiting to successfully navigate the process. I’ll be keeping an eye out to see how this progresses.

Deceptive Student Loan Advertising

Another one of my projects from my time at the Stabile investigative journalism program involved deceptive advertising that targeted student loan borrowers.

For years, lenders could splash university names, logos, colors, and mascots on their student loan advertisements. The practice, known as co-branding, gave inexperienced borrowers the impression that the schools provided the loans. So Congress banned the practice in 2008.

But as I revealed in this May 2011 investigation for The Center for Public Integrity, co-branding could still go on, thanks to a mix of Congressional ambiguity, regulatory initiative and industry lobbying that created a significant loophole for private lenders. As a result, some students could still find themselves confused when they take out student loans.

My thanks to Keith Epstein and Ben Protess, who helped edit and publish the story with The Center for Public Integrity. And to Sheila at the Stabile Center for Investigative Journalism for her support and encouragement.

Student Loan Securitization: Canary in the Coalmine?

Nearly decade later, as Americans’ student loan debts topped $1.5 trillion, cracks were starting to appear in the foundations of this fast-growing market. One of the stories I worked on in my Wall Street Journal series on inflated bond ratings explored this theme by analyzing how lenders were propping up the market for private student loans.

Like with the home mortgage bubble that burst in the 2008 financial crisis, lenders of private (non-government issued) student loans don’t keep them on their books. Instead, they sell them into trusts that pool together thousands of student loans and sell bonds that are backed by monthly principal and interest payments from borrowers. That process, known as securitization, involves a huge chunk of the private student loan market, which stands at around $140 billion or so today.

But here’s the problem: Borrowers are falling so far behind on so many of the loans that bondholders who bought this debt are unlikely to get paid back anytime soon. Like, not until you and likely many of the borrowers inside these pools are dead. As I reported in this page-one story for the WSJ, lenders were adjusting to this new reality by pushing back the final repayment dates of these bonds way into the future. One borrower I profiled, Julie Chinnock, would turn 114 years old by the time the bonds that include a big chunk of her loans would mature in 2083 (I will be 99 at that time, and just for the record, I hope both Julie and I get to see the day when it’s all paid off!).

These extensions did nothing to help struggling borrowers like Ms. Chinnock. But they did help prop up the bonds’ credit ratings, which was the bond rating angle through which I happened across the story. It’s a sober reminder of just how problematic it’s becoming for borrowers to repay their student loans.

The “Myth” That Student Loans are Not Dischargeable in Bankruptcy

If you fall seriously behind repaying your loans, one avenue that’s always open to you is to file for bankruptcy and try to get a fresh start by having your debts wiped out. It’s not an easy path to pursue and it’s certainly not a panacea, but for anyone crushed by car loans, credit cards and other consumer debts, it can give them a much-needed lifeline.

Except for student loans, which are supposedly exempt from discharge in bankruptcy. But is that really true?

When I first started writing about student loans during my time at the Stabile program, prevailing wisdom said that any borrower who takes out debt to finance their education won’t be able to get rid of it in bankruptcy. You’d hear that often in interviews and read it in student loan advice blogs.

This mindset was so prevalent that when I checked the website of one of the nation’s busiest bankruptcy courts, the Southern District of New York, I found a “Bankruptcy Mythbusters” presentation which stated, flat out, that student loans are not dischargeable in bankruptcy along with the mea culpa, “yeah, sorry about that.” But in 2020 the district’s chief bankruptcy judge made headlines when she ruled that she would not perpetuate the “myths” that student loans are not dischargeable in bankruptcy and wiped away about $220,000 of one borrower’s student loans.

It’s a stark illustration that the long-prevailing wisdom that student loans are not dischargeable in bankruptcy turned out be wrong. The court updated its “mythbusters” presentation after I asked about it while reporting this May 2021 story for Business Insider. It was an in-depth profile of one lawyer who has helped dozens of student loan borrowers get portions of their student debt forgiven in bankruptcy. The dogged litigation prompted one federal judge to call the lawyer, Austin Smith, the “Don Quixote” of student debt. But as I reported in my profile of Mr. Smith, challenging the “student loans are not dischargeable in bankruptcy” myth is no longer akin to tilting at a windmill:

Each year, about a quarter million student loan debtors file for bankruptcy. Of those, fewer than three hundred get their educational debt discharged in bankruptcy. That’s a success rate of 0.1%, according to calculations by Jason Iuliano, law professor at Villanova University who specializes in bankruptcy and student loan issues.

But those figures don’t tell the whole story. In 2017, for instance, only 447 out of the 241,000 student loan borrowers who filed for bankruptcy actually sought to have their educational loans discharged. The remaining 99.8% didn’t bother trying. But of those who did, around 60% managed to get a discharge of some portion of their student debt, Iuliano found.

Here is a link to Prof. Iuliano’s study, which provides important context to Mr. Smith’s legal work. And just to be clear, most student loans are still covered by some form of exemption in discharge in bankruptcy but there are ways to take advantage of exceptions to those exemptions. If that sounds convoluted, that’s because it is. So here’s a long explainer that I wrote for Business Insider, which walks you through the bankruptcy rules and what they mean in plain English.