Elizabeth Warren on How Clinton Backed Student Loan and Mortgage Debt Slavery with Bankruptcy “Reform”

A sorry chapter of Hillary Clinton’s legislative record was her vote in support of the 2005 bankruptcy “reform” bill. Thw the credit card industry had long been keen to get this measure passed. It had come up repeatedly in Congress and had managed to be beaten back….until 2005, when it became law. One of its biggest proponents was the credit card issuer MBNA, which is now part of Bank of America. MBNA had estimated that getting the bill passed would enable them to get an additional $10 a month from consumers who were eligible for bankruptcy, which would mean an additional $85 million a year to them in profits.

The legislation restricted access to Chapter 7 bankruptcies, which enable borrowers to wipe out their debts, and forced more into Chapter 13 bankruptcies, which require borrowers to negotiate a 60 month repayment plan with budgets that require them to live at an extremely meager level (one indicator: the amounts allotted for food are stunningly low, and one wonders how people who are juggling multiple jobs can possibly find the time to shop for food bargains and cook so as to stay within these restrictions). Many people cannot complete their Chapter 13 plans due to ‘shit happens” (an unexpected expense, like a medical emergency or car problem, can lead to a borrower missing his repayment schedule). And that’s before you get to bad faith conduct by the lender intended to make the borrower fail or appear to fail, which we documented regularly during the mortgage crisis (the objective was to enable the mortgage servicer to proceed with a foreclosure).

As most readers know well, the provisions of the 2005 bankruptcy “reform” bill relating to student debt were even more draconian. The overwhelming majority of student loan borrowers are effectively barred from discharging these debts in bankruptcy. Moreover, Social Security payments can be garnished to repay student loans. putting parent/grandparent co-signers and middle aged students presumably seeking to qualify themselves for new careers at risk.*

As you can see in a Bill Moyers segment below, Elizabeth Warren recounts how Hillary Clinton sought out Warren’s advice on the bankruptcy bill in 1999, and persuaded her husband to veto it, one of the last acts he took as an outgoing President. Warren points out that this bill at the time was a not-very-high priority pro-business measure and by implication was not unduly costly for a departing Chief Executive to oppose.

Hillary Clinton was so proud of her role in stopping this bankruptcy legislation that she touted it in her autobiography. Yet in her first act as a newly-elected Senator from New York, she made a 180 degree change and voted in favor of the bill. And Warren makes clear that from her earlier discussions with Clinton that she knew full well what was at stake in terms of the consequences to families.

How does Warren explain that change? She attributes it to the power of lobbying dollars in Washington, particularly from the consumer financial services industry, which has long been a top spender. Warren also highlights that financial firms were now Clinton’s constituents and she therefore was obligated to represent them.

But who precisely were these banking constituents? It was the top executives of the big players headquartered in New York City, such as JP Morgan and Citigroup. Keep in mind that Clinton was not protecting jobs in New York state. Credit card operations, such as back offices and call centers, are located in much lower cost regions (for instance, Citigroup’s big credit card processing operation has long been in South Dakota; American Express’ is in Phoenix). So Clinton was not protecting jobs; she was at best protecting bank profits and senior level bonuses. And it does not appear that she gave much thought to the costs to the manyborrowers in her jurisdiction.

The lesson seems to be that Hillary Clinton is capable of acting on good impulses, as long as she has nothing at stake.

Elizabeth Warren on Hillary Clinton from BillMoyers.com on Vimeo.

* The Administration has attempted to offer some relief by allowing as of October 1 that private student loan borrowers be allowed access to bankruptcy courts if the loan does not offer “income driven repayment.”. A widely publicized story shows how little this can mean in practice. From Forbes:

Take the case of Robert E. Murphy, a 65-year-old former manufacturing executive who took out a slew of Parent PLUS student loans to put his three kids through college. Murphy, who’s been out of work for 13 years, burned through his retirement savings, and had his home foreclosed on, has seen hit his debt balloon to more than $246,000. Even if he were to land a new job and start chipping away at his debt, he estimates he’ll owe $500,000 by the time he’s 77.

Then there’s Mark Warren Tetzlaff, a 57-year-old who financed an MBA and law degree with student debt that now exceeds $250,000. Educational Credit Management Corp., a student loan guaranty agency, expects Tetzlaff to pay that money back — even though he’s declared bankruptcy, is unemployed, and has moved back in with his mom.

In the first example, Robert Murphy, consider the Administration’s stance. From Bloomberg:

On Tuesday, the Department of Education intervened in the case of Robert Murphy…

Murphy doesn’t deserve a break just because he is 65 years old, department lawyers wrote. Repaying his debt loan may require “that he remain employed at or past normal retirement age,” they said, even though “his income may top out or decrease” and “further employment opportunities may be limited.”…

No student debtor should get a break on student loans unless they can show a “certainty of hopelessness,” said the government’s lawyers. “[A] debtor must specifically prove a total incapacity in the future to repay the debt for reasons not within his control,” they added. The lawyers said that the point of keeping such a stringent standard is to ensure “that bankruptcy does not become a convenient and expedient means of extinguishing student loan debt.”

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  1. sd

    Question – does anyone know just how much debt Donald Trump has ‘extinguished’ by repeatedly declaring bankruptcy?

      1. Alejandro

        I’m not sure you realize that he IS running to be their president and also recently made a contribution to their debt with a recent filing there…apparently a company ‘using’ his brand name received a loan from their “Development Bank” to build a luxury golf resort, but never got around to the building but did get around to the filing…apparently his companies can file but they can’t.

    1. jgordon

      Good. All the more reason to vote for him then; he’ll definitely be on board with loosening up bankruptcy laws.

      1. participant-observer-observed

        Lol, +10!

        Anyone know if he ever had any student loans?

        Did Chelsea Clinton have student loans?

        1. greg

          From what I read lately that members of congress do not have to pay for their chlidren’s education. They are allowed to send their children to |Ivy league schools at no cost.

    2. Sammy Maudlin

      Either an obvious bot comment to get the reader off the subject of the piece or the worst comment I have ever read on this site. Perhaps both. Thanks for your contribution!

      1. Alejandro

        “[T]he subject of the piece” can be “read” as HOW degenerated the concept of bankruptcy has become and how far “it” has diverged from the purported “protection” “it” was intended to provide. Pointing to who and what “it” “protects” juxtaposed to who “it” does not “protect”, does not qualify as “worst” comment…otoh using a meaningless identity referent may…

  2. JTMcPhee

    At what point do ordinary people get organized and angry enough to “deal with this sea if troubles” more directly, to at least try to “overcome”?

        1. Joy

          He’s already made a statement that he isn’t for boots on the ground in Syria. NO, Bernie Sanders is not a war monger, just the opposite. His reform proposals are revolutionary. Is Fox News your information source? Sorry, but you are truly Wrong !

      1. diptherio

        Let me guess, in 2008 you were an Obama supporter….

        If voting changed anything, it would be illegal (See Gilens and Page, 2014)

      2. trinity river

        If you see the presidential election as the answer to our financial/economic problems, you are sadly mistaken. Yves leadership has taught us all that our issues are much more pervasive and serious than that. The choice of candidates currently running for president are indicative of that as well.

        We have been taught that the next president will change the direction of the country. Just not true, whoever that is.

    1. diptherio

      When their anger and outrage outweighs their fear. Some of us got there years ago…of course, most of us are those without much to lose in the first place. Eventually, maybe, enough people will see that they’re damned if they do and damned if they don’t and just decide to say “up yours” to the whole rotten crew (creditors and their gov’t lackeys). Debt strike, tax strike–mass refusal to bow down to the oppressors–nothing else will have any effect, so far as I can tell (and of course, that might not have the desired effect either, but it’s at least worth a shot).

      1. Joy

        Diptherio, I believe voting for Bernie Sanders in the Primary is the answer. He isn’t your typical politician. He can’t be bought. I’m a life-long Dem that is switching for the first time. Hillary cannot be trusted. She voted to pass this bankruptcy law as Senator, which she should have thought abt. her constituents, and not the campaign money from the credit industry.

        Bernie represents a movement for Change. He has been true to his policies & values all his life. He can beat any Repug that runs against him. He has every enthusiastic support from people who know him, not personally, but by following his record & reading his biography.

        It’s hard to have faith when we are an oligarchy already, but this can be reversed. We must all work hard to see that Sen. Sanders is the winner of the Dem Primary. He hasn’t started hitting at Hillary…..he wants to run a civilized campaign. But his supporters can point out her major FLAWS.

        This is first time in my life that I have sent a candidate money & more than once. We are not rich people. My husband was a teacher & I was a secretary. We are both informed on the issues, unlike some low information voters who vote only on 1 issue like abortion.

        Please check out Bernie. He is authentic, he is Real.

    2. Sammy Maudlin

      Anger has nothing to do with it. This is a simple, but massive, distortion in the economy benefiting a few companies in one industry and the federal government at the expense of many companies in almost every other industry. Maybe if a few giant retailers or the Realtors Association or even Budweiser InBev were made made aware that dollars are disproportionately and counter-productively being taken out of the economy to their detriment, there could be some real movement on this issue.

      1. Left in Wisconsin

        There is very little evidence that capitalists prioritize their own profits over class solidarity. For example, the data is crystal clear that single-payer health care not associated with specific jobs or companies would save almost all companies a boatload yet I’m not sure a single big company is willing to publicly acknowledge this.

        But I’m with you that anger is not enough. Unfortunately, I think a good portion of the middle class still sees taking on TPTB as more risky than trying to lay low and preserve as much of what they now have for as long as they can. And I’m not sure they are wrong. The historical evidence is that people are not motivated to act by fear or anger alone; they also need a sense that change will bring about improvement. Absent that, it is hard to motivate challenges to power.

    3. Joy

      Bernie is our revolution, our movement, our answer. Our country is already an oligarchy, rule of the corporations. Citizens United made them more powerful. Bernie is a Democratic-Socialist. Don’t be afraid of the word, socialist. Denmark, Germany, and other successful, nationalistic countries are socialist. Germany is very successful now. They protect their workers with good jobs, benefits, and policies that help their people. The USA is suppose to be the “greatest” “richest” country in the world.

      That is only true for the wealthy now. We reverse this by our people voting to take back our country. As voters & because we literally outnumber the politicians, lobbyists & corporate cronies we can win the primary; and Bernie as Leader of our Movement, and as President can take our country back.

  3. Katniss Everdeen

    Devil’s advocate point of view:

    Although his case is tragic, I do not like Robert Murphy as the standard bearer for a very REAL and MASSIVE problem. While he is the debtor, he is NOT the student. There are three of those in this case.

    Nowhere have I seen mention made of what his three children, the actual students who benefited from their father’s indebtedness, are doing to help solve this problem.

    I would certainly feel better knowing that they were at least attempting to contribute towards easing their father’s burden.

    Having said that, no discussion of this subject is complete without hammering home the link between the massive student borrowing and lack of bankruptcy protection. Without that legally enforced “guarantee,” many, if not most, of these loans, masquerading as financial “aid,” would never have been made in the first place. And without all this easy money, colleges would never have been able to escalate their costs as obscenely as they have.

    1. cnchal

      Your last paragraph is dead on. When one considers how it started, and where we are now, it is clear that the best criminal minds are in banking.

      ….until 2005, when it became law. One of its biggest proponents was the credit card issuer MBNA, which is now part of Bank of America. MBNA had estimated that getting the bill passed would enable them to get an additional $10 a month from consumers who were eligible for bankruptcy, which would mean an additional $85 million a year to them in profits.

      For that to have morphed into a $trillion millstone that students carry for decades, if not life, is a great crime. University administrators and professors are guilty of being accomplices to that crime.

      1. participant-observer-observed

        Also, GFC creamed invested endowment funds at many universities and colleges, putting the screws on the students to hope we die before needing social security and finding a way to get by until then!

        I still have an unanswered question though. Who is it that awards the contracts from DOE for the student loan servicer companies?

        I am suspicious that Great Lakes student loan servicer is located in Wisconsin, home of Koch Bros and state gov lackeys.

        Is there a bidding process? How much money is in on the books of the loan servicers? What is their executive pay?

        David Dayen????

        1. Sammy Maudlin

          It doesn’t even matter who gets the contracts. The point is that student loan debt servicing is an entire industry (or at least an arm thereof) that is being subsidized by the federal government and disproportionately benefited by this rule.

          These type of contracts for services shouldn’t be so attractive. If bankruptcy were a legitimate option for student loan debt, the business of collecting on it wouldn’t be so profitable and less companies would be interested in the business.

    2. Sammy Maudlin

      I think you’ve already provided an effective reply to your “Devil’s Advocate” POV….

      Katniss Everdeen
      September 28, 2015 at 11:35 am

      Agree with most of what you say in both your comments with the VERY notable exception of “deadbeat grandkid.”

      Wanting, or maybe more to the point believing that you NEED, higher education to get ahead and being unable to come up with the money DOES NOT MAKE ONE A DEADBEAT….

      Stop blaming the victims for taking the bait and then getting snared in the trap.

      1. Katniss Everdeen

        If I remember correctly, the comment you cite had to do with a grandmother whose social security was being garnished to pay for her granddaughter’s cosmetology school loan which the grandmother had cosigned. I still disagree with the automatic “deadbeat” characterization–not enough information.

        The granddaughter could have been a “deadbeat,” but the knee-jerk generalizing to all delinquent borrowers to which I objected is the falsehood that smilin’ joe biden used to get this “law” passed in the first place.

        In the current instance, I neither assumed nor meant to insinuate that Murphy’s children were “deadbeats.” I was just suggesting that more information was needed.

        More compelling than even Murphy’s age and employment status in demonstrating the parasitic effects of rampant student debt, would be the fact that a “retired manufacturing executive” borrowed a quarter of a million dollars to buy gainful employment for each of his three children and got nothing for it except a crushing, non-dischargeable debt.

        1. Sammy Maudlin

          Nowhere have I seen mention made of what his three children, the actual students who benefited from their father’s indebtedness, are doing to help solve this problem.

          I would certainly feel better knowing that they were at least attempting to contribute towards easing their father’s burden.

          Please excuse me for once again apparently causing confusion. So I understand, in your view is it OK to allow a discharge for the co-signer only if the children are paying on the loan, or at least trying to? Or is it only when they are not making any effort to do so that a discharge is warranted?

        2. Sammy Maudlin

          Whoops, my bad. Mr. Murphy is in fact the borrower on these loans. Please ignore my previous post.

          So then my question becomes, in your view is it OK to allow a discharge for the borrower in this case only if the children who benefited from the loan are at least trying to help pay it? Or is it only when they are not making any effort to do so that a discharge is warranted?

    3. grayslady

      Actually, Robert Murphy is the perfect standard bearer for this case. Moral judgments about Murphy or his children really have no place in this argument. The immorality exists in a government program that guarantees unsecured, “cash flow” loans of a quarter of a million dollars to someone with no cash flow! This has all the earmarks of the home lending frauds, only here it’s applied to educational debt rather than mortgage debt, and without any requirement for collateral, as far as I can tell, based on the stated requirements for Parents Plus loans that only mentions a satisfactory credit report. If you wanted to take out an SBA loan, by contrast, not only would the government insist on taking all your corporate assets as security, it would demand that you assign your personal residence as collateral in addition.

      Murphy started taking out these loans in 2001. By 2002, Murphy was unemployed, but he continued to receive more loans through 2007. Any responsible lender would have started taking collateral or denied the loans once Murphy lost his job. Murphy strikes me as the poster boy for why these government guaranteed loans are criminally reckless behavior by the government and the lending banks.

      1. Katniss Everdeen

        Not sure who’s making “moral judgments” about the Murphy’s. Certainly not I.

        I was unaware, however, that Murphy continued to “receive” these loans for five years AFTER he became unemployed. Which means, of course, that the “former manufacturing executive” continued to sign the notes and “promise” to pay the money back without income. Not exactly the would-be cosmetologist’s grandma with only her social security to pay the bills.

        This is the kind of information missing in the current narrative.

        And, if true, a savvy bank lobbyist could put him closer to the “deadbeat” end of the curve than to the “good faith” end.

        I’ll reiterate my original point. While his story is tragic, I don’t like Robert Murphy as standard bearer. This issue is far too important. To mix a few metaphors, it wouldn’t be the first time a poster child’s feet of clay sank the whole ship.

    4. run75441


      85% of student loans are made by the government in one form or another. Those loans always had protection against bankruptcy since the seventies. What was passed by Congress was similar protection for bank loans. An 18 year old can get a loan for college by signature and is an indentured servant until paid off. The only outs are disability, death, public service, etc. What Yves is telling is accurate and I am just adding to it.

      The roach motel aspect of student loans is pretty well known; however, students are young and are interested in going to college at the time giving little thought as to paying things off. It may surprise you to know 34% of all student loans are less than $10,000 (and in default) and ~24% of all student loans are less than $5,000. It is thought many of these loans are the result of going to community colleges, for profit colleges, and people changing their minds about the course, the school, etc and not completing the curriculum. On the other side of the spectrum, 18% of all loans >$100,000 are in default. This is not new for student loans. What has changed is the cost of college which has growth fater than healthcare costs, the decrease in state funding, Gov grants which have not kept up with college costs, etc. More on this to come later.

      Alan Collinge of The Student Loan Justice Org sits in Washington DC today living off of donations and attempting to get a bill passed to allow bankruptcy. He has had several articles written on “The Hill.” I also cover Alan on AB (my apology Yves – just talking about Alan). Student Loan Debt and defaults is a topic I cover also along with Yves.

  4. equote

    A modern variant of debt bondage is personal installment debt. In a monetized economy, where wealth need not be created by labor, a worker need not be bound to a given employer or occupation, but rather to an income stream to service the debt. The ‘capitalist’/’creditor’/’rentier’ thus receives money payments on the debt in lieu of labor.
    So is the USA the land of the ‘free’?

  5. anonymouse

    The 2005 act was a travesty of the American political system. All of the lenders KNEW, even then, that they were underwriting bad loans. But rather than fix the underwriting process, they had the rules changed.

    And it’s the very same system that refused to prosecute and jail the criminal elements in the banking industry after it all blew up.

    Which is why we’re permanently stuck in a weak economic environment. Object lesson: Iceland

  6. jgordon

    Here is the dictionary definition of reform from Google:

    1. make changes in (something, typically a social, political, or economic institution or practice) in order to improve it.

    In order to meet the definition of reform 1) something has to be changed, and 2) at least one person has to believe that the change was an improvement (show me a definition where its explicit about who exactly believes there’s an improvement). And there are certainly a whole mess of creditors and their pet politicians who view this bankruptcy reform as a tremendous improvement over the old order. Therefore I think we should all agree that Hillary Clinton is a true, honest-to-God reformer as far as any English usage of the word is concerned. And certainly Hillary will be showering many more such reforms on her rich benefactors the moment she’s elected.

    As for student debt and bankruptcy, well the political system is broken and completely corrupt. So maybe everyone should just stop paying the creditors who own it. It’ll happen anyway due to deflation (caused by resource depletion), but it’ll be a whole lot more beneficial to everyone involved if we destroy the creditors before they destroy the people. This is a bottom-up solution that could be perfectly effective with a bit of organization–as opposed to the completely ineffective top-down solution of democratically pleading with creditors and their lackey politicians to not be such mean-spirited assholes–when their paychecks depend on being mean spirited assholes.

  7. Vatch

    I believe there’s an error here. Hillary Clinton did not vote for or against the 2005 version of the Bankruptcy bill. As reader NotTimothyGeithner pointed out, she was unavailable because of her husband’s surgery. I’m sure she supported the bill, event though she wasn’t present for the vote. See:


    She had previously voted for the 2001 version of the bill:


    As I pointed out in the Links section on Oct. 22, Sanders voted against both bills when he was in the House.

    1. Yves Smith Post author

      The post is accurate as it stands. You miss a key issue. The post makes clear Hillary voted for the bill in her very first vote as a new Senator.. When did HIllary become a Senator? In 2001:

      Sen. Hillary Clinton is on the defensive for another vote aligned with President Bush early in her legislative career: this one for a measure to make it more difficult to erase personal debts through bankruptcy.


      In 2008, she tried claiming she would have opposed the 2005 bill. The problem is that it’s easy to make a claim about a vote you never made. A bankruptcy expert who was close to the legislative horse trading points ou by e-mail:

      She’s got a story about only voting for the law once it was changed to help women and children, but the way it’s drafted, that’s bullshit. The law says, “women and children first, but only to the extent that the fees of the bankruptcy trustee are paid for the effort collecting the money.” In other words, trustee is first, then women and children. That probably means nothing for women and children in most cases. She never had a problem with the student loan provisions, she was cool with that.

      1. Vatch

        I agree that she supported the bankruptcy bill, and I know that she voted for it in 2001. But here’s the first sentence of the article (with emphasis added):

        A sorry chapter of Hillary Clinton’s legislative record was her vote in support of the 2005 bankruptcy “reform” bill.

        This is false. If “vote in” were removed, it would be true. Or if “2005” were removed or changed to “2001”, it would be true. But as written, it is false. Sorry.

        1. Yves Smith Post author

          The post says “vote in support” and not “vote for”. I refer to it as the 2005 bankruptcy reform bill because that is how it is most commonly described in the media. She supported the bill that eventually passed. And she had NO qualms about the worst part, the student loan provisions.

          1. Vatch

            “vote in support” ?

            Actually, she didn’t vote on the 2005 bill at all. There was no vote in support of it, no vote for it, no vote against it. She didn’t vote on that bill, period. And yes, she supported the bill, despite her later protests to the contrary.

            Saying that she voted “in support of” the 2005 bill allows her advocates to claim that people are unfairly distorting her record. Let’s not give her any more opportunities to portray herself as a victim. She’s very rich, and she became rich by doing favors for giant corporations and billionaires.

      2. Massli

        Nope. She said that the time she would have voted against you. Then pint doesn’t stnd at all. Hillary did not vote for the law. Period. 2001 is irrelevant because they bill never became law.

        1. Yves Smith Post author

          Sorry, her 2001 vote most assuredly does count. And I can give you a list a mile long of Congresscritters who have made statements against bills that they later voted for. This is the reaction I’ve also gotten from the Congressional staffers and the BK expert who is very knowledgeable about the negotiations.

        2. archer

          Get real. Look at where Hillary’s money came from in her 2008 campaign. She had substantial support from banks. Her absence for Bill’s operation, which was pretty likely to be an outpatient procedure, looks like a great excuse for her to have it both ways, to play play to the rubes without annoying her patrons. Who knows, she might even not even have voiced her opposition until the whip counts said the banks had enough votes. The margin of passage was a mile wide, so even an opposing vote by her would not have made a difference. So she could afford not to take an official stand:


  8. Ishmael

    Besides the bankruptcy vote let’s look at some other great votes cast by Hillary:

    Iraq War 2
    Wall Street Bailout – TARP
    Patriot Act
    Patriot Act Reauthorization
    TPP (she supported it before she did not support it)

    As well as the Libya mess and the Ukranian situation. Personally, she is more like the idiot George than probably his idiot brother!

    A real populist there.

  9. readerOfTeaLeaves

    Watching this YouTube of Sen Warren and Bill Moyers makes me think, “There must be a God, and s/he has a wicked, ironic sense of humor.”

    The date on this YouTube is 2005, and I recall that’s about the time that I first saw a YouTube video online. So I went to The Wikipedia, and sure enough:

    “…YouTube is a video-sharing website headquartered in San Bruno, California, United States. The service was created by three former PayPal employees in February 2005. In November 2006, it was bought by Google for US$1.65 billion.[3] YouTube now operates as one of Google’s subsidiaries”

    When Hillary did the Banker’s Bidding on bankruptcy, she could not have foreseen that one day her efforts to ‘serve her constituents’ would come back to bite her on a finance blog in the form of a YouTube. But then, when Prof Elizabeth Warren explained this short history to Bill Moyers, probably neither Warren nor Moyers could possibly have imagined the far-reaching, Internet-based ramifications of who, where, and how, their conversation would be viewed — on smartphones (iPhone debuted in 2007**), desktops, laptops, and smartTVs anywhere on the globe with Internet network connections that support Vimeo’s version of online video.

    Pretty incredible.
    I still have hopes that the Internet is driving more political transparency, and FWIW I am convinced that most of us would have very little grasp of the events of 2008 if it weren’t for the Internet. And incredibly hard working bloggers ;-)

    I think our political system is having a very, very hard time with those two concepts.

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