Debt and Destruction

Episode Notes

Transcript

Above the Law – Thinking Like a Lawyer

Debt and Destruction

02/03/2018

[Music]

Intro: Welcome to Thinking Like a Lawyer with your hosts Elie Mystal and Joe Patrice, talking about legal news and pop culture, all while thinking like a lawyer, here on Legal Talk Network.

[Music]

Joe Patrice: Hello, welcome back to another edition of Thinking Like a Lawyer. I am Joe Patrice from Above the Law and with me as always, though a little more edgy than usual is —

Elie Mystal: Where are my drugs?

Joe Patrice: — is Elie Mystal.

Elie Mystal: Why did they take them from me?

Joe Patrice: Who has decided to quit smoking and he is —

Elie Mystal: For the third time.

Joe Patrice: Yeah.

Elie Mystal: For the first time that isn’t being aided by the ending, birth of a child.

Joe Patrice: Yeah — he is — it’s a little touch and go over here, so pray for him. But yeah — no, so we are here again to have a conversation about the law, and in particular, educational debt, which I think everybody who is a lawyer knows something about.

Elie Mystal: We are not going to talk about like the ministers’ responsibility for murder when you are quitting smoking, that’s a lot awful.

Joe Patrice: No, no, no.

Elie Mystal: Because that will be a good topic.

Joe Patrice: Yeah — no, I thought we would talk about that when I wasn’t in the room because I don’t want to give any ideas because I know who would get hit first.

So, since you are not in the best shape, I figured we would have a different kind of discussion instead of a gear-grinding moment. So, I was one of those guys who kind of enjoyed the Law and Economics thing in law school.

Elie Mystal: Do you know?

Joe Patrice: Yeah — the “nerd” is the word you can say.

Elie Mystal: Nerds.

Joe Patrice: Well, because I had an Econ. degree in undergrad, so it seemed natural to me and so torts and all —

Elie Mystal: But you were just too risk-averse to go to business school like what was —

Joe Patrice: Well, business school I had no interest in. I considered going to get an Econ. degree, and then I started looking at what working in academia was like, and I decided that I would become a lawyer.

Elie Mystal: Fair.

Joe Patrice: One of the few situations where I might have made a better financial choice.

So, anyway, I — it always interested me and torts and so on as courses interested me, because I felt like it’s important to have rules that set incentives and disincentives, that’s how you should look at things what you are incentivizing and dis-incentivizing. So, I wanted to talk about football because the XFL apparently is coming back.

Elie Mystal: Apparently.

Joe Patrice: And the XFL was all about —

Elie Mystal: Vince McMahon would just welcome Colin Kaepernick to the XFL.

Joe Patrice: Nice, there we go, it’s all happening, people.

Elie Mystal: Because we are on the worst timeline.

Joe Patrice: But — no, the XFL when it had its heyday the last time its whole point was to make it as dangerous as possible, there was no fair catches, people got blown up, Jeff Brohm literally got knocked out on the field at one point.

So these — it was all about hard-hitting; and now obviously, we are much more cognizant of those problems and it strikes me — I noticed and it came up this weekend a few times, it’s come up throughout the whole year, the new zero-tolerance policy that the NFL has on helmet to helmet hits. It’s a foul even if it’s really fairly accidental, they are just going to call it, no matter what, even if it’s just kind of you have run into them.

Elie Mystal: Yeah, unlike the first eight years of professional football, now the league specifically wants you to take people out of the knees instead of the head, so progress.

Joe Patrice: But my point is that I see these receivers get hit and this whole – they are a defenseless receiver and they got hit and this and that, and it strikes me that I understand the purpose of zero-tolerance rule, but from an incentive/disincentive it strikes me that the problem is the rule that we often call the Calvin Johnson Rule. This rule that says, if you have a ball and you clearly catch it and everybody who has a sense knows you caught that ball, but it jostled a little at some point, that’s not a catch anymore.

And it strikes me that the NFL’s strict adherence to this stupid rule incentivizes these kind of lead with your head, try to hurt people hits, even if you aren’t trying to go helmet to helmet, they incentivize those sorts of hits because your job is to ring people up because then they might drop the ball. The risk of you getting called for 15 yards is less than the risk that you might marginally dislodge the ball, and if they would just —

Elie Mystal: Plus $5,000 fine.

Joe Patrice: — yeah, if they just would give up on this stupid rule about what a catch is, it would incentivize more people not to go, blow people up, when they could easily just tackle them.

Elie Mystal: Yeah, I think you are right. I think that in our new future of tampon ball, this is exactly the kind of thought we have. I obviously have a somewhat unreformed, uninvolved view about football. I think of it more like boxing, and I still can enjoy boxing, I can still enjoy the gladiatorial combat of two economically disadvantaged men trying to concuss each other for my betting and sporting enjoyment.

(00:04:52)

I would kind of be okay with football being in the same — the thought process behind the XFL, I don’t want to go so far to say it appeals to me because that would make me look like an idiot, but I get it — right, like I get the thought that like some things are just going to be inherently dangerous, would I let my son play that? No, but my son is going to have financial options.

Joe Patrice: Yeah.

Elie Mystal: Am I going to let somebody’s poor son play that? There is a gladiatorial aspect to my bloodlust, and so, much like boxing I am kind of okay with it.

Joe Patrice: You are a true friend to the people.

Elie Mystal: Yeah, look, you are right. Let’s be clear then. Your side needs to win.

Joe Patrice: What I am seeing is I have failed as a podcaster because I had — what I thought might be an interesting thought experiment of — is a zero-tolerance policy against the hit or an incentive structure that makes it less likely and somebody do that, would that be the best way of solving this problem? What I failed to recognize is that you didn’t come to the table with solving the problem, is a good idea, which is a — that was on me — that was my fault.

Elie Mystal: We’re going to work on our communication pretty sharp.

Joe Patrice: Fair enough. Okay, so we have got with us Jordan Weissmann who is the Senior Business and Economics Correspondent from Slate. Welcome back to the show, you have been on before.

Jordan Weissmann: Yeah, long time back. I just want to say that during the opening of the show I just found myself imagining Elie as like dressed as Emperor Commodus, just like 00:06:30 to some poor football player. It’s like he gets his head bashed in, it’s like, yes, more, 00:06:37 not entertain. I just needed to share that. Anyway, let’s talk about debt, guys.

Elie Mystal: My side needs to lose. In happier news, one of the reasons why we wanted to have you on, Jordan, is that if you read Above the Law, this week I wrote about how I am now free of my private educational debt, all of the debt that I wracked up from private lenders, from college and law school, as of this Tuesday I have paid it all off, I am free and clear, and that’s a particularly big milestone for me because these were the debts that I went into default over and had a judgment entered against me over about 11 years ago.

So, this is — so from the point 11 years ago where I was literally kind of a deadbeat till today where I have paid off those debts, it’s pretty big for me.

Jordan Weissmann: Yeah, I was reading the — well, first of, congratulations, man. I was really happy to read that piece, and one thing that struck me about it was that you managed to kind of survive having this giant black mark on your credit score, your financial permanent record, relatively, well — and like you said in it, a lot of that it seems to have been your wife’s doing, so kudos to her.

Elie Mystal: Right, that piece is really an homage to my wife.

Jordan Weissmann: Yeah, like a good financial — you need to have someone in the household who can do financial planning, and in your case you married into that skill-set, so it’s so 00:08:10, but, yeah, I mean, I am glad you made it out alive and with a house and with a basically functioning financial life. I just — I am really worried that there is someone out there who is going to be like — I mean, and you say at the end of the piece that hey, I am not an example to be followed. Do not try to follow on my path; however — there’s just a part of me that worries, someone else is going to like interpret it that way, that this is — that you — I guess there is just little concerns there, but I guess, that’s a decisive point really in the end.

Joe Patrice: Yes, so Elie does the — it was Charles Barkley, the I Am Not A Role Model ad, yeah.

Elie Mystal: No, I think — look, I was somewhat cognizant of that as I was writing the piece. The reason why I wrote the piece was not to necessarily provide — as you both were saying an exemplary path from that which other people should follow. It was very much, hey, don’t try this at home, kids. By the same token, I thought it was important to kind of tell my story and have that other kind of thought process out there because there are so many people who will be facing this problem, facing potential default or who are really stuck in jobs that they hate, because they fear defaulting, and I do think that it’s important for people to realize, understand, and remember that your life is more than your credit score, that there are more things to consider, to worry about to face than getting your credit score above 700.

Jordan Weissmann: Yeah, I agree, and actually one reason I thought the case was really a net good in the world and was that — the bottom-line is that there is just a ton of goddamn people in this country who are defaulting on the student loans regardless of whether it’s a good idea, it just happens.

(00:10:02)

Private, public, government backbone, you name it, a lot of people end up with their financial lives in little bit of a wreck because of education debt and for those who haven’t read the essay, it seems like you talk to my podcast colleague, Felix Salmon, he pointed out that your old education loans are probably owned by the third debt collection agency down the chain at that point. And probably they would take a very small settlement to discharge, and if there is a message from that, I think it’s that — don’t just give up. This stuff can be resolved, just don’t let it sit there and fester, there are ways to deal with at the end if you end up in the situation.

Elie Mystal: Exactly. A huge point in my story; look, I can’t disclose the final figures, but the payment that I made this week, was not for the full amount of my debt, that was still outstanding. After a certain period of time, as you are saying as Felix Salmon once said, these collection agencies have already written you off, they assume that they are going to take a loss on your entire debt.

And so, at some level whatever you pay them is found money, and that does — “leverage” is not the right word, but it does give you the ability to bargain, it does — I think, Jordan, as you put it up very well — give you the ability — reminds people that they shouldn’t give up. And it’s important issue, and this is my little segue way here, The Washington Post just reported on a Brookings Institute report that estimates 40% of people who took out loans after 2004; educational loans after 2004, will at some point default on those loans?

Part of that is the long tail of the great recession, but a big part of that is the way that the recovery has been unevenly distributed. What do you think about that, Jordan?

Jordan Weissmann: I think I have mixed feelings about this Brookings study because a little bit of what they’ve done here, is look at what happened to the last generation of student loan bars, that has had about 20 years to pay back its loan, seeing what their default patterns were and then they are kind of projecting that forward on to the next generation, saying, okay, if their default rate grows at the speed that last generations did, how many are going to end up in trouble?

And the bottom-line is that there was a small thing called The Great Recession in the middle of all that, using default despite the way they did for that last group was because the entire economy went to s**t. Am I allowed to curse on this show?

Joe Patrice: Oh yeah.

Elie Mystal: Yeah, yeah, we get encouraged.

Jordan Weissmann: Yeah, so the entire economy goes — ended up f**k and so default rates skyrocketed and that was sort of a defining moment for the previous generation and also for the people who had just graduated and taken out loans.

So, I guess, I am a little bit nitpicking. I think the bottom-line though is, it’s conceivable that 4 in 10 people are going to end up defaulting. It’s not totally at the real possibility and in the end, like I kind of mentioned before, this dent backfires for a lot of people, and we should be clear when we are talking about, when we say default on a student loan, it’s not always really a default like we normally understand it with a private debt like you had, Elie, you actually can just not pay essentially and now end up with a debt collection agency or hurt your credit record, but may end up in court or whatnot, but it’s a little bit more like a normal debt, you can’t really discharge it in bankruptcy anymore because of the way they wended the bankruptcy code, but it’s still — there is some sense in which you can default on it.

Elie Mystal: It’s a financial transaction. There are rules for how the financial transaction works, but there is, yes, so —

Jordan Weissmann: Yes, exactly. If I between two prior – with the government, they are just like garnish your wages, I mean, you can’t really escape it with a federal loan, they will just come after you with the full power of the feds, they will get their money. So, in a way, it’s sort of a forced debt restructuring where you end up paying more than you would have otherwise.

It’s a really tragic thing that shouldn’t happen, because I guess, you can’t strategically default on a federal student law, that’s what I am saying. There is almost no benefit to — and it happens to so many people because they just don’t know how to avoid it, and it happens to especially low income people who don’t graduate from college, and go to for-profit.

I’m sure it probably happened, I don’t know the exact default rates, but I am sure if 100 people into for-profit law schools have run into this with extremely high law school tuition bills following them to their financial grip essentially.

Elie Mystal: A key part of my story and I put this right up at the top of the article, the default that I am talking about was for my private loans, on the ones that I think at that time I got through Citibank. I did not f**k with the federal government.

Jordan Weissmann: You can’t.

Elie Mystal: I was dumb, I wasn’t crazy, right? Like the federal government always got their money because as exactly as you’ve pointed out, the federal government will come in and garnish your s**t, if you do not pay them back. However —

(00:15:01)

Jordan Weissmann: 00:15:02 will personally turn your house upside down. He will show up with his wife and they will just take everything. They will just knock your shit over and walk out with whatever valuables you have, I swear to God.

Elie Mystal: And put it on Instagram. But that kind of brings us to our current administration, because I think that previous administrations on both sides of the aisle were interested in helping students out, helping to make sure that students didn’t default and had some different options.

When you quibble with the Brookings Institute Study, and I think correctly so projecting future default rates based on the past that includes a great recession in the middle, the great recession that might be in the middle for the current generation is the Trump administration, which seems kind of actively involved in making it harder for them to pay their money back.

There is the story recently this week where Betsy DeVos, the Education Secretary, has reneged on the Obama era promise that students who were snookered by Corinthian University, a for-profit university that their debts would be forgiven, Betsy DeVos has reneged on that promise. The Trump administration is not interested in helping people like this.

Jordan Weissmann: Yeah, it’s pretty atrocious. It’s really just a heartbreaking story, the entire Corinthian’s saga. It’s just like one of the — I can’t remember if it was the biggest or the second biggest for-profit college chain in the country. I mean just a massive number of students getting processed through this diploma mill, most of them were not making it all the way through the mill, they were getting ground up before they could get their little piece of paper and then ending up with debts they couldn’t repay.

And eventually Corinthian shut down because the Obama administration essentially cut off its ability to get federal financial aids. It gave it the death penalty, more or less, without getting too deep into it and state attorney generals were bringing lawsuits, basically everyone agreed this was a fraudulent operation. And the Obama administration said okay, we are going to create a process where you can get your loans forgiven because there is this thing called defensitory payment and you obviously were defrauded, let’s just try to fix this situation somewhat.

Betsy DeVos has decided to implement a new process where essentially whether or not you get any kind forgiveness depends on whether or not people who graduated from the program that you were enrolled in, make a salary that would have met the standards of the gainful employment rules the Department of Education put in place, but now is kind of retracting, yada yada yada.

The point is she has literally put in place — the standard for whether or not a student gets debt forgiveness has literally nothing to do with the student’s own financial situation, and it’s no longer really automatic; it’s this bizarre thing basically deigned to prevent adults from being able to get their loans forgiven.

And it’s kind of a Rube Goldberg device designed to keep people trapped in their loans. That’s the simplest way I can put it. And yet, that’s not even the worst part because there is this whole rulemaking process they are going through to kind of iron out how loan forgiveness is going to work in the future for people who are snookered, as you put it.

And the rules that they have proposed are basically a student has to prove that the college intended to defraud them and it’s not enough if there is like a lawsuit. Like they have to show some legal standard of proof that is going to require a lawyer, probably an expensive lawyer, it’s just putting up a giant hurdle that no one — that very few people are going to leap over, and it seems like her goal is to basically tell kids who get snookered like tough luck. That’s her approach.

And it’s dispiriting after all this that essentially that we have gotten administration that is — I mean, it’s dispiriting because Trump himself in his own weird 00:18:45 way sort of seems to realize there is a student debt problem, he has talked about it and yet he has just kind of left his Education Secretary to did this.

Joe Patrice: Well, I mean he did run a for-profit entity that he called Trump University or more accurately licensed it out to somebody I guess.

Jordan Weissmann: Yeah. I mean he doesn’t care in the end, like that’s the bottom line. Like he kind of knows, but he doesn’t give a shit. And it’s just this is the battle that she has decided to fight is like saving taxpayers this minimal amount of money that will not make a difference to the federal budget in the end, but will make a massive amount of different to these students’ lives.

Elie Mystal: For me, there is a bit of just the whiplash effect and I don’t like to — I am not here to talk about the past, but for a real part of 2016 I found myself in debates with people about whether or not free college tuition for all was a good idea and how that was going to work and who that would work for.

And to go, in a second it feels, from having that be a serious proposal that was kind of on the table, to now students who got clearly defrauded, can’t even get their money back from it because the person making the rules has his own fraudulent for-profit university where it’s important for them to make sure in the future those places are protected. It’s just amazing the breadth of the policy debate in the course of the past two years.

(00:20:10)

Jordan Weissmann: Yeah, it is. I mean I remember I wrote a piece about how forgiving all student loan debt just in one grand Debt Jubilee wasn’t necessary a great idea and I got yelled at by the left for being a fascist or whatnot. It’s like, well, okay.

Now we are seeing what actually happens when the conservatives get in control. It’s so transparent. Like Betsy DeVos also has some — I am not saying she is doing this for her own financial benefit, but her family’s vast holdings include some connections to the for-profit or education industry as well. I mean it’s so deeply embedded, for-profit education in generally is just so deeply embedded in the entire conservative movement. I mean there is really sort of a hand in glove relationship there, when you think about like Jeb Bush and all of that as well.

You have a situation now where you have two parties that have just like diametrically opposite approaches to what education should be and how we should fund it. And I think you are right, we are going to kind of — as long as Americans do keep electing Republicans once in a while, we are going to ping-pong between them, and it makes it really hard to kind of plan — I think it may make it hard for people to plan long-term their financial futures because the policy just changes.

Elie Mystal: Before we let you go, I want to move off of for-profits and get to graduate schools, because the other thing that the Trump administration seems very interested in and we can debate why they are so interested in this, but they seem pretty interested in making it harder for people to go to graduate school.

If you look at Trump’s budget, and when I say look at Trump’s budget, I am not being entirely fair, because I am kind of saying let’s look at some back of the napkin calculations Trump has thrown out there in a document that will never ever get passed by the Congress, even as he controls both Houses, right? So I understand that I am talking about vaporware at this point.

However, if you look at Trump’s budget, it’s pretty clear that he wants a massive change into debt repayment programs. He wants to cancel the Public Service Loan Forgiveness Program entirely. He wants to keep IBR, that’s Income-Based Repayment generally generously for college students, but completely throttled it for graduate students which are going to be a lot of our people listening here, which would affect law students.

Jordan, what do you think that’s about, do you think that has any chance of passing both House — assuming Trump keeps control of both Houses, do you think that has any chance of passing both Houses kind of as it is? Like how scared should you be?

Jordan Weissmann: I should preface this by saying the Public Service Loan Forgiveness Program, I am conflicted out the wazoo on that, as some reporters like to put it.

My wife is a prosecutor. She took out loans to go to Georgetown which runs a notorious hustle with how they have sort of managed to give their students free education through the combination of that and Income-Based Repayment Program. And frankly, the Georgetown program has been used as an example of why Public Service Loan Forgiveness should be gotten rid of.

So speaking about that program specifically, I think they want to get rid of it for new borrowers for two sort of distinct reasons. One is there is a contingent of conservative wonks out there who are just sort of outraged about the money and the way it’s being spent and they think that it benefits doctors and lawyers too much who they think of as the rich, well-off or upper middle-class people, which is a little weird — which in some cases is weird because it benefits people like public defenders and prosecutors, but it also does benefit some doctors at nonprofit hospitals who are bringing down high six figures. So you can kind of see where the program doesn’t always exactly accomplish what it is meant to.

And my response to them is usually like, listen, I would really maybe care about what you have to say on this subject and the way we are wasting money if the Republican Party hadn’t just passed a 1. whatever trillion dollar tax cut that will primarily benefit capital. It sounds like a Piketty-esque nightmare. It’s like fiscal prudence does not matter. I do not give a shit. There should be a program that makes it possible to be a public defender in this country, end story.

And I have had this exact rant to people like Jason Delisle at American Enterprise Institute and I am not shy about it. And frankly, I should also say, again, they want to end this program for new borrowers or they want to limit it for new borrowers, where it would be capped at $57,000, which if you are in law school is equivalent to pretty much ending it for a lot of people.

So I don’t think I personally stand to lose out. If you are currently on it, I don’t think you stand to lose out. That said, they have been doing some funky stuff with whether or not your job actually qualifies in certifying that you have made enough payments, so I wouldn’t be surprised to say the Department of Ed, and you are talking about how they are trying to trap students in their debts, I would not be surprised if they played games with this in the future as more people hit the 10-year mark.

(00:25:01)

Why are they trying to cut off debt to grad students, more generally or limit IBR, I think there is a little bit of it that like the upper middle-class is now the enemy, like that’s the Republican Party’s enemy. It’s like people who live in the suburbs and have professional jobs and are a Democrat. So it’s not a class they feel compelled to cater to. And so I could sort of see in a Republican controlled Congress something like this passing.

On the other hand, I think you might agree with me Elie, there is some rational public policy for limiting the amount of debt you can take out in grad school, unlimited PLUS Loan hustle that we have got going now is not necessarily benefitting people, it’s almost certainly leading to tuition inflation at law schools and med schools and whatnot.

So I think there is a good way to do it; I think limiting what you can pay back through IBR is not necessarily how I would go about it.

Elie Mystal: I think you make such a good point and I try to emphasize this in various ways. But there is a legitimate reasonable people policy debate that needs to happen on how we fund higher education. Clearly unlimited loan payments, the ability to take out unlimited loans for schools and especially graduate schools clearly has led to an explosion in the cost of graduate schools and we have to find some way of reining that.

So I think that you could have — people have really interesting innovative ideas about how to attack that problem. You can only have that debate if you are kind of debating in good faith and you are trying to work out a policy solution amongst people who are generally positive about the ability of people, regardless of their family income to be able to go to school and to be able to go to a good school. And we can’t have that debate because for the most part the Republican Party seems to be unwilling to even accept that basic premise that people who are poor deserve to be able to go to school.

Jordan Weissmann: It’s like if you had a debate about whether — how to stop concussions in football and then there was a fundamental disagreement about whether you should stop concussions or whether someone should be fed to the pits. Anyway.

Elie Mystal: That’s the end I think.

Joe Patrice: Yeah, that brings this all back together.

Elie Mystal: We will come back for that.

Joe Patrice: Yeah. Thanks for joining us again Jordan. Jordan is over at Slate, so you can read his stuff there. He has got podcasts all over the place.

Elie Mystal: Give us your Twitter address Jordan?

Jordan Weissmann: Yeah, @JHWeissmann.

Joe Patrice: Excellent, excellent. So thanks for joining us for this show everybody. If you aren’t reading Above the Law, you should be. If you aren’t subscribing to this podcast, you should be. You should give all the reviews and that sort of thing that helps more people see it in their searching.

I am @JosephPatrice on Twitter. Elie is @ElieNYC on Twitter.

You can subscribe to the Legal Talk Network App, where you can see other shows by Legal Talk Network too. And with that I think we are done.

Elie Mystal: Enjoy the Super Bowl.

Joe Patrice: Yeah. Hopefully there will be more helmet to helmet hits, for Elie’s amusement. All right, thanks everybody. Bye.

Elie Mystal: Bye.

[Music]

Outro: If you would like more information about what you heard today, please visit  HYPERLINK “http://www.legaltalknetwork.com/”legaltalknetwork.com. You can also find us at  HYPERLINK “http://www.abovethelaw.com/”abovethelaw.com,  HYPERLINK “http://www.atlredline.com/”atlredline.com, iTunes, RSS, Twitter, and Facebook.

The views expressed by the participants of this program are their own and do not represent the views of, nor are they endorsed by Legal Talk Network, its officers, directors, employees, agents, representatives, shareholders, and subsidiaries. None of the content should be considered legal advice. As always, consult a lawyer.

[Music]

Continue Reading