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Judge slams loan program, cancels student's debt. (around the nation).

PEORIA, Ill. -- In an unusual move, a bankruptcy judge has sharply criticized a state student-loan program in a case involving a former community college student.

"The debtor started with a loan of $2.625. Ninety-five payments and 11 years later, she owed $3,561, an increase of 35 percent," U.S. Bankruptcy Court Judge Thomas Perkins said, cancelling the former student's debt.

"Something is seriously awry with a student loan system that permits unsophisticated borrowers who make a good-faith effort to repay over a period of years to unwittingly end up owing more than the loan amount because the interest accrual has outpaced the payment amount," he continued.

The case involved Linda Robinson, a divorced mother then raising three children, who enrolled lull time at Illinois Central College in Peoria in 1987. She borrowed the $2,625 through a guaranteed loan that was assigned to the predecessor of the Illinois Student Assistance Commission (ISAC), the agency that unsuccessfully contested the discharge.

After Robinson failed to complete here degree, Perkins said she began making repayments, most of them $20 a month, while on public assistance.

In 2000, she filed for bankruptcy protection at a time when she was earning about $4,000 a year from part-time work in a school cafeteria. She suffers from health problems and was raising two additional children she had adopted.

Under federal law, student loans can be discharged in bankruptcy only if repayment would impose an "undue hardship on the debtor and the debtor's dependents."

"Those are tough standards to meet for the most part," said ISAC general counsel David Hershman.

ISAC objected to discharging her student loan. "They have a rule. They always contest it," said Robinson's lawyer, James Brannon.

Hershman said Illinois borrowers who attempt to discharge student loans through bankruptcy win in "much less than 10 percent" of the cases.

"We put up a defense to all of them," he said.

He said many debtors opt to consolidate their loans or to take part in the William D. Ford income contingency repayment program. Some other delinquent loans never reach bankruptcy court because ISAC forgives them due to permanent disability or the closure of a school.

"For the most part, the student loan program has built-in safeguards," Hershman said.

In the Bankruptcy Court decision, Perkins said Robinson had demonstrated that her loan should be discharged as an "undue hardship," finding both a current and future inability to repay it.

He also said there was no doubt she had had made good-faith efforts to repay, something that ISAC had acknowledged.

There will be no appeal, Hershman said.
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Author:Freedman, Eric
Publication:Community College Week
Geographic Code:1U3IL
Date:Nov 25, 2002
Words:432
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