Government officials are trying to rein in increasingly popular federal programs that forgive some student debt, amid rising concerns over the plans' costs and the possibility that they could encourage colleges to push tuition even higher, the Wall Street Journal reported today. Enrollment in the plans -- which allow students to rack up big debts and then forgive the unpaid balance after a set period -- has surged nearly 40 percent in just six months, and they now include at least 1.3 million Americans owing around $72 billion, U.S. Education Department records show. The popularity of the programs comes as top law schools are now advertising their own plans that offer to cover a graduate's federal loan repayments until outstanding debt is forgiven. The school aid opens the way for free or greatly subsidized degrees at taxpayer expense. At issue are two federal loan repayment plans created by Congress, originally to help students with big debt loads and to promote work in lower-paying jobs outside the private sector. The fastest-growing plan, revamped by President Barack Obama in 2011, requires borrowers to pay 10 percent a year of their discretionary income -- annual income above 150 percent of the poverty level -- in monthly installments. Under the plan, the unpaid balances for those working in the public sector or for nonprofits are then forgiven after 10 years. Read more. (Subscription required.)
For further discussion of the student loan debt crisis, be sure to attend ABI's Student Loan Debt Symposium, which will feature Rep. Tom Petri, sponsor of a new graduated loan repayment bill, as the keynote speaker. Click here for more information or to register.
ANALYSIS: SUPREME COURT SCRUTINIZES GRANTING DISCOVERY OF SOVEREIGN NATION DEBTORS
If the case of Republic of Argentina v. NML Capital Ltd. before the Supreme Court were about a defaulting debtor of the everyday kind, a court probably would allow creditors to go very far to discover whether the borrower was hiding its money or property. But since the debtor in this case is the sovereign nation of Argentina, the Court is treading lightly, according to a SCOTUSBlog analysis yesterday. Jonathan L. Blackman, the lawyer representing Argentina, based his argument on the fact that Argentina is a sovereign nation and, as such, is protected by the Foreign Sovereign Immunities Act from having to surrender property outside the U.S. The Act, he insisted, treats discovery of information about property as an undivided part of the question of demanding that it be handed over. The creditors who are holding bonds on which Argentina defaulted, Blackman said, are demanding to know what Argentina owns throughout the world, including its embassies, its military installations, and even the personal property of a former president. Since Argentina is immune from having to forfeit those assets, creditors can't even ask about them. Justice Stephen G. Breyer insisted that the law on foreign government immunity in U.S. courts says nothing at all about the "discovery" process -- that is, asking about where Argentina may be hiding money or property. Argentina's lawyer was sharing his time with a federal government lawyer, Deputy U.S. Solicitor General Edwin S. Kneedler, who tried to convince the Court that the case was all about government sovereignty, and the U.S. government would be "very troubled" if another country's courts ordered it to tell foreign creditors about what the U.S. government owns around the world. Click here to read the full analysis.
COMMENTARY: PROPOSED DETROIT REORGANIZATION PLAN RUNS RISK OF COMPARISONS TO GM, CHRYSLER BAILOUTS
From the moment Detroit filed for bankruptcy last summer, comparisons to the 2009 Chrysler and General Motors bailouts have abounded, according to a commentary by Prof. David Skeel in the Weekly Standard yesterday. Most highlight the differences, noting that the federal government is unlikely to pump billions of dollars into Detroit. But although the differences are real, the restructuring plan that Detroit has recently proposed suggests that the city's bankruptcy may have more in common with the car bailouts than anyone imagined. Unfortunately, it's the abuses of the latter that could be replicated -- and even extended -- if Detroit's plan is upheld in its current form, according to Prof. Skeel. The centerpiece of the proposed plan, which was released in February and revised late last month, is an $816 million art-for-pensions deal. A group of foundations and other donors, including the Ford, Kresge and Knight foundations, propose to pay at least $330 million for the Detroit Institute of Art's (DIA) collection so long as, among other things, the state of Michigan contributes $350 million, the collection is transferred to a nonprofit trust that will keep it in Detroit, and the funds are used to increase the bankruptcy payout to Detroit's retirees. This last feature, the insistence on picking winners and losers, comes straight from the Chrysler bailout, according to Skeel. Read the full commentary.
For further analysis on the Detroit chapter 9 filing and to hear a keynote speech by Detroit Emergency Manager Kevyn Orr, make sure to attend Thursday's Annual Spring Meeting in Washington, D.C.! Not able to attend? Orr's keynote speech will also be live-streamed on the ABI website.
COMMENTARY: MORTGAGE REFORM IS WORTH THE SMALL EXTRA COST TO BORROWERS
The legislative proposal put forward recently by Sens. Tim Johnson (D-S.D.) and Michael Crapo (R-Idaho), who lead the Senate Banking Committee, would bring about a housing finance system driven first and foremost by market incentives rather than by government dictates, according to a commentary by Prof. Phillip Swagel in Friday's New York Times. There are many pieces to the proposal, including support for affordable housing and an innovative approach by which to reward financial firms that serve a broad range of customers and penalize those that do not. But reducing government involvement in housing finance and bringing back private capital is at the heart of the bill, which would end the anomalous situation in which housing finance giants Fannie Mae and Freddie Mac are private companies that earn enormous profits but remain under the control of a government regulator. Building on an earlier effort by Sens. Bob Corker (R-Tenn.) and Mark R. Warner (D-Va.), the Crapo-Johnson legislation reduces taxpayer exposure to housing risk by requiring private investors to risk their own capital in an amount equal to 10 percent of the value of the mortgages receiving a government guarantee, according to Prof. Swagel. The government would then sell secondary insurance on mortgage-backed securities composed of qualifying home loans (with underwriting protections written into the legislation). As mortgages go bad (which they do even in good times), the private capital would take the first losses and provide a buffer against the need for the government to put out cash on its guarantee. Read the full commentary.
KEVYN ORR KEYNOTE, ENGAGING PANEL SESSIONS, SIGNED COPIES OF SEN. ELIZABETH WARREN'S BOOK AND MORE AT THURSDAY'S ANNUAL SPRING MEETING!
Over 1,000 are registered to attend Thursday's 32nd Annual Spring Meeting at the JW Marriott in downtown Washington, D.C. The conference features a roster of the best national speakers, while the depth and scope of topics offer something for everyone. Detroit Emergency Manager Kevyn Orr will keynote the Friday luncheon at the conference (Note: A live webstream will be available on Friday for Orr's keynote at www.abiworld.org). Former Attorney General and Governor of Pennsylvania Dick Thornburgh will be the special guest at the opening reception. Watch below to find out more about what is on tap for ASM!
Find out how you can pick up a signed copy of Sen. Elizabeth Warren's brand new book, A Fighting Chance, at the ABI Bookstore at ASM!
NEW CASE SUMMARY ON VOLO: FDIC V. SIEGEL (IN RE INDYMAC BANCORP INC.; 9TH CIR.)
Summarized by Prof. Kevin M. Baum of St. John's University School of Law
The Ninth Circuit affirmed the district and bankruptcy courts' decision determining that over $55 million in tax refunds were property of IndyMac's Bancorp, Inc.'s (the debtor) estate. In so holding, the Ninth Circuit concluded that the tax refunds were property of the debtor's estate because under California law, the tax sharing agreement between the debtor and IndyMac Bank F.S.B. did not (1) establish a principal-agent relationship or (2) create a trust relationship.
There are nearly 1,300 appellate opinions summarized on Volo, and summaries typically appear within 24 hours of the ruling. Click here regularly to view the latest case summaries on ABI's Volo website.
NEW ON ABI'S BANKRUPTCY BLOG EXCHANGE: FISKER FACTORS LEAD TO CREDIT-BIDDING BEING CAPPED AGAIN IN CHAPTER 11 CASE
A recent blog post examines a recent opinion in Free Lance-Star Publishing Co., in which Bankruptcy Judge Kevin Huennekens cited the Fisker case as support for his decision to cap a secured lender's ability to credit-bid in a chapter 11 case.
Be sure to check the site several times each day; any time a contributing blog posts a new story, a link to the story will appear on the top. If you have a blog that deals with bankruptcy, or know of a good blog that should be part of the Bankruptcy Exchange, please contact the ABI Web team.
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Detroit should not be allowed to slash pensions in its bankruptcy case.
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