Between 2006 and 2015, Jamie Mudd took out 41 student loans to attend Heald College, a for-profit institution, and San Joaquin Delta College, a public institution. In 2015, she rolled these loans into two consolidated federal loans, totally about $72,000.
Mudd put her student loans into an income-based repayment plan (IBRP) that established her monthly payments at zero due to her low income. Under this plan, she was obligated to certify her income on an annual basis. Evidently, she forgot to do this because the U.S. Department of Education (DOE) removed her from the IBRP and reset her monthly payments at almost $800 per month.
Mudd was readmitted into an IBRP, but she again failed to certify her income, and DOE set her new monthly payment at $963.
According to Bankruptcy Judge Shon Hastings, Mudd never earned more than $13 an hour, and she often worked two jobs to make ends meet. She lived in a one-bedroom apartment and incurred regular expenses caring for a grandson with disabilities. She also suffered from significant health problems.
Ms. Mudd filed an adversary proceeding, hoping to discharge her student loans, but DOE objected. First, DOE said Mudd’s financial circumstances would probably improve, enabling her to make modest payments in an IBRP. Second, Mudd was a smoker, and DOE said she should save her cigarette money and use it to pay down her student loans. DOE also claimed that Mudd’s expenses for her grandson’s video streaming were unnecessary. Indeed, DOE disapproved of any money Mudd spent on her grandson.
Fortunately, Bankruptcy Judge Shon Hastings was considerably more compassionate than DOE. In a decision issued last month, Judge Hastings discharged all of Mudd’s student-loan debt.
In ruling in Mudd’s favor, Judge Hastings applied the “totality of circumstances” test approved by the Eighth Circuit Court of Appeals. This is a summary of his reasoning:
“Mudd has made a good faith effort to maximize her income. Mudd works approximately 53 hours per week at two jobs. . . . Overall, Mudd’s expenses are necessary and reasonable and consistent with a minimal standard of living. . . . She has no savings, owns no assets of significant value (except her used car in which she holds no equity), lives in a one-bedroom apartment and obtains food and toiletries from local nonprofit organizations to make ends met. Her medical expenses are higher than budgeted, and she anticipates that her health care costs will continue to rise due to her high cholesterol and diabetes.”
In short, Judge Hastings concluded, Mudd did not have sufficient disposable income to pay on her student loans. Thus, the judge discharged all of this debt.
Judge Hastings specifically rejected DOE’s suggestion that Mudd should not be credited for the expenses she incurred for her grandson. “[T]he Court finds it entirely inappropriate to find or suggest that Mudd should not care for her grandson or to weigh undue burden factors against her for doing so.”
Judge Hasting’s ruling should not surprise us. Clearly, Jamie Mudd was in dire financial straits and entitled to discharge her student loans in bankruptcy.
What is shocking is the fact that DOE objected. Mudd v. U.S. Department of Education is just one more example of the federal government’s heartlessness toward college-loan debtors, heartlessness that borders on cruel.
Mudd v. U.S. Department of Education, Adversary No. 19-04048, 2020 WL 7330054 (Bank. D. Neb. Dec. 9, 2020).