National Healthcare Student Loan Amnesty Act

THE NATIONAL HEALTHCARE STUDENT LOAN AMNESTY ACT

by Michael M. Rosenblatt, DPM

I. WHEREAS healthcare providers and researchers are an important national resource, their supply
should be protected and encouraged by government policy.

Healthcare workers and researchers provide the expertise to treat and cure the diseases and infirmities suffered by Americans. As the average age of Americans gradually increases, there will be a larger number of people requiring healthcare. Americans have become used to the remarkable miracles of treatment that American medical researchers routinely produce. The training and preparation of healthcare workers and researchers is long, expensive and arduous compared with many other professions. Those other professions have recently produced far more personal income than healthcare providers earn. For that reason, many talented students shun healthcare. Government policy has left many existing healthcare graduates with enormous college loans and the inability to pay them back properly. The reasons for this are as follows:
A. Government had felt it essential to reduce healthcare costs.
B. Government has enacted a number of legislative burdens on healthcare providers that include the following:

STARK laws prohibit many normal activities of business among healthcare providers that provide criminal penalties. This strongly limits possible income sources. That was the legislative intent.

ERISA laws have subjected healthcare providers to malpractice lawsuits and allowed Health Maintenance Organizations to be free of same, even though providers must obey and follow the patient treatment rules dictated by Health Maintenance Organizations in their day to day activities.

Government has not taken any action to reduce the costs of healthcare education, even though a concerted effort was made to reduce provider income.

Medicare and other government venues have markedly reduced provider income.

Government has issued a number of laws welcoming managed care as a health care choice for Americans. The main purpose of this was to reduce provider income. Gradually, in most large communities managed care has become the norm rather than the exception. This has left fewer work opportunities for individual practitioners, the historical method of earning greater personal income.

Medicare, in an effort to target and remove fraud and abuse, has targeted healthcare providers, especially individual practices as the main source of their effort to enforce reduced provider income. Criminal penalties are provided for routine mistakes that occur normally in the course of most businesses. Medicare providers are subject to unreasonable and excessively complex and strict charting requirements that are carefully audited by investigators.

There has been no change either by states or Federal government easing the very complex and difficult laws for licensure in various health professions. It takes just as much training for licensure as before.

In most cases, government has attempted to encourage small businesses which still provide the greatest number of employee jobs in America. In the case of healthcare, government has deliberately sustained a complete reversal of this policy.

C. There was an “implied promise” that healthcare students expected when they attended their training. That implied promise was a respectable income sufficient to earn a living and pay back college loans at the same time. Government and managed care changed that while most students were still in training. The respectable income no longer exists. Often this policy change was much worse for students whose families had much less money and were unable to afford to sponsor their adult children's’ academic efforts. For those people the “Horatio Alger” affect of education turned into a fraud, and instead became a kind of government indentured servitude.
D. Government policy has had the unintended effect of forcing some desperate providers toward more aggressive billing practices that might be viewed as fraud by government. This completes the “toxic circle” of unintended government policy that should be addressed and changed by Congress. That is the purpose of this proposed legislation.

II. THE EFFECT ON HEALTHCARE PROVIDERS AND RESEARCHERS:

A. No student signed for loans without the intention of trying to pay them back. Some have been able to make a reasonable attempt. Because government had and continues to have a very strong impact on the ability for providers to pay, government must take some responsibility for borrowers’ inability and difficulty in doing so.
B. This program is split into three parts. One part for those who have been able to consistently pay toward their loans, another for those who don’t have enough total income to pay and thereby do so only sporadically, and finally a section for so-called “non cooperators.”
C. The purpose of any amnesty program is to be realistic. It is not appropriate for loans granted by the government in good faith to be granted total amnesty except under the most extreme of circumstance. Good government policy should by definition encourage the payment of personal obligations.
D. There must be both encouragement and flexibility on the part of government.
E. Existing bankruptcy policy contains statutes for release of loan obligations for nearly all Americans. There is no compelling reason to totally exclude healthcare borrowers from this privilege thereby penalizing them to a life of indenture and negative amortization. Congressional rage at students who could afford to pay but did not engendered an over-reaction to solve the student debt problem. There are sufficient rules and safeguards in the AMNESTY program to encourage accelerated repayment and to maintain Governments’ interests. The authors of this act feel this is a far more constructive approach.
F. It is the purpose of this legislation to manage the AMNESTY program at least partially through existing bankruptcy courts with legal counsel available to all petitioners. However, this program is not to be regarded as a typical complete bankruptcy sustained under other statutes of loan discharge. Rather, it is to acknowledge Governments’ role in the inability for many providers to pay back their loans. There is no compelling reason to subject healthcare petitioners to the “shame and personal financial degradation” of regular statutory bankruptcy. However, bankruptcy judges are experienced in examining the financial affairs of petitioners and their expertise is a valuable resource for Government.

III. LOAN AMNESTY FOR THOSE WHO PAY REGULARLY

Even though there is an interest deduction for college loans, the principle is not. In order to get a good deduction, the borrower must frame it against income. The Amnesty Act would propose that for a particular year designated by the borrower that all PREVIOUS PRINCIPLE AND INTEREST (FOR THAT YEAR), BE MADE DEDUCTIBLE, as student loan interest is now. This would result in a tax refund.
Government would then grant permission to repay loans at a one dollar for two rate. For example, during the specific year selected by the borrower, they could send back 30,000 dollars and pay off 60,000 dollars of their loan permanently. To avoid the “risk” of seeing the money go to other purposes, borrower could perform this transaction on a form designed by the Amnesty Program. They would receive a receipt back from the lender automatically crediting the new payback and recording a new lower balance with lower monthly payments. But borrower must send their funds back THAT year to secure that privilege.
This policy could result in many recipients suddenly and consistently making a very serious effort to start paying back their loans. It is good policy because it encourages sound personal and family financial goals, at the same time encouraging accelerated pay back. Borrowers would also have the option of paying additional principle with their payments by a separate check to sweeten their potential future refund. This program would be retroactive to all borrowers from 1975 forward. There would be no additional refunds if a loan happened to be completely vacated by a bulk repayment.

IV. THIS SECTION REFERS TO THOSE WITH INSUFFICIENT INCOME TO PAY THEIR LOANS REGULARLY, BUT WHO MAKE A SPORADIC ATTEMPT, AS DEFINED BY AT LEAST FIVE PAYMENTS PER YEAR TOTALING FIVE THOUSAND DOLLARS OR MORE.

Borrowers would have a hearing before a local municipal bankruptcy judge, even though they are not declaring bankruptcy. They would be represented by legal counsel. The bankruptcy judge would examine a number of aspects in deciding how the loan would be managed.
The rules of the Amnesty Program would dictate the method and policy of handling the loan, and the judge would make sure that those policies were enforced properly and the criteria were met by the borrower.
Vacating and excusing the loan would constitute lowering it to 35,000 dollars to take effect the day of the final hearing disposing of the matter in front of the judge.
The judge would examine the borrowers financial records, including automobile purchase receipts, child support payments, yearly tax records going back to graduation, mortgage payments, and personal check books of the borrowers going back 5 years from the date of the hearing
If the judge determined that the borrower didn’t make enough money, and lived relatively penuriously during those years, they would vacate the loan to $35,000.
The judges would be instructed to be “reasonable” in their determination, recognizing that American bankruptcy statutes are much more lenient by comparison. Yet a balance is required. If a judge saw considerable income and yet a reasonable attempt to repay the college loan was not occurring, they would not grant the borrower’s petition.
Should the judge refuse to grant that partial retirement, the borrower would have the option of seeking an appeal to be heard by another judge. The second judge’s report would be final. There would be no more appeals. Petitioners would have to accept the ruling of the judge who required the greater dollar amount repayment.
Another option would exist for those who felt they had very poor earnings and would qualify to reduce their 35,000 dollar ceiling even further. But these requirements would be much stricter:

A. If they completely left their health care profession for over 2 years, but wanted to return to it. And/or

B. Any attempts by living a very, very penurious lifestyle with serious attempts at repayment would be viewed in favor by the judge. For example, if a borrower made an attempt to pay back their loan by a large percentage of their small income, they would have the ability to lower the 35,000 ceiling further by the privilege of being granted 5,000 dollars off the ceiling for each year of “extreme effort” to pay back their loan. The presiding bankruptcy judge would have complete discretion in deciding if a petitioner qualified for this strict low “standard of living.” The actual numbers of these petitioners would probably be few.
Deliberately shielding income from any bankruptcy judge would have the same legal implications as for regular bankruptcy.

V. NON COOPERATORS

There are some borrowers who have not cooperated in any attempt to pay back their loans. There may be legitimate reasons for this, including huge child support payments from a previous marriage, personal tragedy, drug or substance abuse, mental or physical disability, etc. When Congress became enraged at borrowers who refused repayments they may or may not have taken these issues into consideration. Certainly some borrowers abused their loans and the spirit of Congressional and governmental generosity in setting up the college loan programs.

These situations should be dealt with by an experienced bankruptcy hearing judge to determine their legitimacy; and each petitioner would have counsel available to them at the hearing, for which petitioners themselves would pay.

Non-cooperators who lived a “high life style” would see it to their advantage to use the new AMNESTY POLICY rules effectively. This would probably mean that if they could afford it, they would start paying back their loans immediately. Going before a bankruptcy judge, even in cases where full bankruptcy and the stigma attached to it don’t exist, is still a life changing event. This is especially true because all personal records requested would be made available to the judge, who would have the ultimate discretion concerning the petitioner’s case.

Amnesty is not an easy road. In order to be fair to everyone, including the government, the rules must be fairly complex. Ultimately the purpose of the program is to have the government acknowledge their role in making it so difficult for healthcare providers, not to completely excuse borrowers from their obligations.

VI. THE COST AND EFFECTS ON GOVERNMENT AND LENDERS OF THE HEALTHCARE LOAN AMNESTY ACT.

A. Certainly there will be a cost to Government and lenders to sustain this program. Government must partially (or in rare cases, almost completely) repay lenders. Lenders lose interest on part or all of the time value of their loans.

For those who paid one dollar for two to retire a large portion of their loan, Government must refund that difference back to lenders, who would also lose potential interest funds on that difference. However, lenders are seeing increased rates of complete defaults. The lost interest should be more than made up by increased rates of repayment of stagnant loans encouraged by the Amnesty program.

For those who sustained nearly complete discharge of their loans to the 35,000 ceiling (or less under special circumstances), Government would need to make up the difference, which would be considerable. This would result in lenders receiving the total amount of their loan, but no interest payments from their borrowers. However, these loans are typically in severe default or forbearance anyway, and the funds received by lenders would be typically “unexpected” in most “near bankruptcy” situations typical of other normal business practices.

The costs to lenders would be negligible. It would be to their considerable advantage to support the AMNESTY PROGRAM defined in this legislation.

Obviously Government will see some costs in the Amnesty program. But those costs would be considerably less than the increases of costs in healthcare had they permitted providers the same incomes as in the past.

B. There would be some other administrative costs to government in the management of this program, but that not be large, since the Nations’ existing bankruptcy courts would hear these petitions just as they hear others.

C. When borrowers study this legislation, they will see it clearly to their advantage to engage in a sudden and sustained increase in repayment of their principle loan balance over an extended time period. That is one of the primary intents of this legislation. The authors of this legislation firmly believe that this accelerated repayment rate would more than offset any defects in the legislation and spare Government of significant cost increases. And by enacting this legislation, the Government will be sending a message to existing and potential new healthcare providers and researchers that their lengthy time for education and their dedication to the health of Americans is finally appreciated. Government would be finally acknowledging their role in the financial damage done to healthcare providers and researchers at the same time providing encouragement for accelerated repayment of student loans.

VII. LENGTH OF TIME OF THE AMNESTY ACT

Any Amnesty program must have a time limitation. The authors of this act recommend that the HEALTHCARE LOAN AMNESTY ACT be in force for 15 years from the date of its enactment, roughly equivalent to the same period of time that Government decided to suddenly reduce provider incomes.

Posted on Nov 10, 2000, 10:56 AM to Podiatry Forum