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Meet The Man On A Quest To Upend 1 Corner Of The Student Loan Industry


It's estimated there's as much as $1.5 trillion worth of outstanding student debt in the United States. And for most people struggling to pay back their loans, bankruptcy has not been an option - that is, until now. Darius Rafieyan from Planet Money's The Indicator brings us the story of one man on a quest to upend a corner of the student loan industry.

DARIUS RAFIEYAN, BYLINE: Austin Smith is a bankruptcy litigator.

AUSTIN SMITH: I do what's called consumer litigation, which is I sue generally large institutions on behalf of consumers who I feel have been injured in some way.

RAFIEYAN: Specifically, Austin specializes in student loans, which he got interested in, appropriately enough, while he was at law school. He was working on an article for the Law Review, and he started to wonder why it was so difficult for people to get rid of their student loans in bankruptcy. To be clear, we are not talking about regular accredited colleges here like UCLA or NYU. We're talking about non-accredited schools like truck driving school or dog walking school. And, yes, that is a real thing.

What Austin had learned in class was that if you took out a loan to go to a school like that, you could get rid of it by declaring bankruptcy because it's what's called an unqualified loan - private lender, for-profit school. That lending has resulted in a lot of bad debt, and so a lot of people have tried to file for bankruptcy. But in case after case, people with these unqualified loans were getting denied in court.

SMITH: For the longest time, people were going into court with these private loans and they'd say, no, you were attending Georgia's barber college.

RAFIEYAN: (Laughter).

SMITH: Georgia's barber college is not a real college. So it's not a qualified education loan.

RAFIEYAN: All because of this one phrase in the bankruptcy code - educational benefit. The lawyer for the bank would jump up and say...

SMITH: Well, this provided you with an educational benefit. Georgia's barber college might not be a real college, but you got some education there, right? So it's not dischargeable. Sorry.

RAFIEYAN: That seemed wrong to Austin. Educational benefit had become a catch-all term that doomed any bankruptcy proceeding right from the get-go. So he hit the history books. And he found out that when Congress wrote the phrase back in 1990, they had actually been talking about scholarships, as in someone gives you scholarship money. That's a benefit. What they weren't talking about was a benefit that made you smarter as in the benefit of an education. But that's how people were using it. It was a bad reading of the law, as Austin saw it. So he wrote up this brilliant discovery in a law review article.

SMITH: And nobody read it. And nobody could care less.

RAFIEYAN: But Austin would not let it go. Even after getting his first job at a law firm, he convinced his boss to let him file a case - Campbell v. Citibank.

SMITH: The judge had read my papers. And she actually was - right away she said, I agree with you to me. And the bank was like, what?

RAFIEYAN: Since then, Austin has gone on to win more than a dozen cases from Minnesota to New York to Texas. He's got dozens more winding their way through the courts now. And he estimates that as much as $50 billion of student loans could be wiped away. Robert Shireman was deputy undersecretary of education when a lot of this lending was going on.

ROBERT SHIREMAN: The same thing that was happening with mortgage loans was happening with student loans where they would package bad loans up with good loans. And that just made it easier to not pay much attention.

RAFIEYAN: Austin says many of his clients were enticed by that easy money into going to some pretty sketchy schools. And banks lent that money assuming that the borrowers would never be able to get rid of these loans in bankruptcy, that they were a guaranteed bet, all because someone misunderstood the word benefit 28 years ago. Darius Rafieyan, NPR News. Transcript provided by NPR, Copyright NPR.

Darius Rafieyan joined NPR in 2017 as the founding producer of The Indicator from Planet Money. He has produced stories about infectious disease outbreaks, the world's greatest air salesman, and the economics of Tinder.

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