Supreme Court Student Debt Loan Crisis

BY: EDITH MAUCH

In my opinion, student loan debt is a huge issue in the United States. Over one-third of people enrolled in post-high school classes borrow have borrowed money for their education ("Supreme Court Rules In Student Loan Debt Case"). The federal government gives these loans to most individuals asking for them, guaranteeing loans that collectively add up to about $818 billion ("Supreme Court Rules In Student Loan Debt Case"). Federal law makes it extremely hard to fail to pay this money back. In 2021, 1.1 million hourly paid workers in the United States earned minimum wage or below ("What Percentage Of Americans Make Minimum Wage?"). With so many Americans hardly being paid enough to support themselves and their family, for some people who owe money from student loans to the government, they cannot dream of paying it back by the time they need to, often leaving them increasingly financially unstable ("Supreme Court Rules In Student Loan Debt Case"). In addition, the money that needs to be paid back by these people is not just the amount they originally borrowed- they frequently also have to pay interest and if they paid back the loan late, penalties, that can cost thousands of extra dollars in addition to the original amount borrowed ("Supreme Court Rules In Student Loan Debt Case").

United Student Aid Funds v. Espinosa arose when Francisco Espinosa could not pay a student debt loan he was granted from United Student Aid Funds Inc. for technical school. The lender called Espinosa’s mother, suggesting that she cash in her pension to pay back Espinosa’s debt ("United Student Aid Funds V. Espinosa"). If that wasn’t enough stress on Espinosa, he also was planning to get married and wanted to get his financial situation taken care of now that he was married ("Supreme Court Rules In Student Loan Debt Case"). However, this was not easily done, as Espinosa was earning only $6.70 an hour as a baggage handler for America West ("Supreme Court Rules In Student Loan Debt Case"). With no other options left, Espinosa filed to restructure his loan as per bankruptcy law, agreeing to repay his $13,250 loan over five years, however he did not agree to repay the $4,582 he owed in interest and penalties. United Student Aid Funds Inc. was told many times about the repayment plan, but they filed no objections, nor did they appeal the bankruptcy court order, even though Espinosa had only restructured the plan to pay back the $13,250.

Many years after Espinosa had made the repayment plan and paid off the $13,250, United stated the bankruptcy court had made a mistake, since it made no conclusion that the repayment of the whole debt (including the $4,582 in interest and penalties) at once would impose “undue hardship” on Espinosa.

On December 1st, 2009, the Supreme Court ruled unanimously that due to the fact that United was told repeatedly of Espinosa’s repayment plan under bankruptcy and had failed to object to this plan, they could not come back and say that the bankruptcy court had made a mistake ("United Student Aid Funds V. Espinosa"). Following the court case, the message was made clear that once the appropriate notice has been given that a repayment plan for student debt under bankruptcy is made, it is final and unchangeable ("Supreme Court Rules In Student Loan Debt Case"). Therefore, if no objections are made, the plan is implemented exactly as originally

filled and the lender will not receive any additional portion of the loan, even if technically, the whole loan was not paid back, as in Espinosa’s case.

Although this specific case relates to student debt, the Supreme Court’s ruling extends far beyond this. It also applies to any bankruptcy matter. The Supreme Court expressed that Congress made it that student loan debts were treated differently from any other debt in that the law exclusively permits a restructuring of a loan when full payment would impose “undue hardship”, as in Espinosa’s case. The Supreme Court concluded that lenders cannot stay silent over a loan restructuring and then come back and object once the plan has been approved.

Bibliography:

"Supreme Court Rules In Student Loan Debt Case". NPR.Org, 2010, https://www.npr.org/2010/03/23/125072326/supreme-court-rules-in-student-loan-debt-case.

"United Student Aid Funds V. Espinosa". LII / Legal Information Institute, https://www.law.cornell.edu/supct/cert/08-1134.

"What Percentage Of Americans Make Minimum Wage?". Spendmenot, 2022, https://spendmenot.com/blog/what-percentage-of-americans-make-minimum-wage/#:~:text=What%20Percentage%20of%20Americans%20Make%20Minimum%20Wage%3F%201,wage%20or%20less.%20%2