Student must repay $350,000, court says

If the bad economy has you thinking of taking on debt to go to grad school, consider the case of Mark Jesperson. The federal case.

The Eighth U.S. Circuit Court of Appeals has ruled that the 45-year-old Grand Marais man cannot escape more than $350,000 of student debt he piled up over more than a decade.

Jesperson had hoped to discharge the debt in bankruptcy and won the first couple rounds in court. But last week a three-judge panel reversed the lower courts' decision and said he must pay the money back.

While the dollar amount involved is unusual, experts say the latest ruling is not. It's extremely difficult to get rid of student loan debt, even through bankruptcy.

"The system's set up as such that most people -- people like myself -- cannot complete a professional degree without the help of student loans," Jesperson said. "Then, even if that profession doesn't work, even if things go wrong, there's no way out."

Jesperson has a law degree, but he's not putting it to much use these days -- except for representing himself early in his case. He works as a painter, and lives in a camper.

Struggles with alcohol brought him in and out of college; it took 11 years to complete his undergraduate degree.

He began law school at Hamline University School of Law in 1995, transferred to Lewis and Clark Law School in Portland, Ore., in 1997 and got his degree in 2000, according to court documents.

Sober for several years, he passed the Minnesota bar on his first attempt in February 2002.

Jesperson "borrowed heavily from government and private lenders" to finance his degrees, court documents state. Since passing the bar exam, he's never made more than $48,000 per year.

In 2006, Jesperson went to bankruptcy court to rid himself of the debt.

To succeed, a borrower must show "undue hardship" -- a step beyond what it takes to discharge most other kinds of debt. The high standard is meant to encourage lenders to extend students credit and to prevent abuse.

The bankruptcy court ruled in his favor, saying without discharging the "shockingly immense" debt, Jesperson "would, in effect, be sentenced to 25 years in a debtors' prison without walls." The lenders appealed, but the U.S. District Court upheld the bankruptcy court's decision.

The appeals court disagreed.

It said that Jesperson's "young age, good health, number of degrees, marketable skills, and lack of substantial obligations to dependents or mental or physical impairments weigh in favor of not granting an undue hardship discharge."

The lenders and courts pointed out that Jesperson hadn't made a single voluntary payment toward his student loans. That's true, Jesperson said.

"I'm just like everyone else on the planet," he said. "I've been surviving. Housing and food and diapers."

The ruling stated that Jesperson should have taken advantage of a program that would have allowed him to make payments based on his income and family's poverty level -- regardless of his total unpaid student debt. Lenders argued that if Jesperson had used the program, his loan payments would have equaled no more than $629 per month.

If, after 25 years, he had not repaid the debt, the unpaid portion would be forgiven.

Courts are citing such programs more often as reasons to deny discharging student loan debt, said Deanne Loonin, director of the Student Loan Borrower Assistance Project at the National Consumer Law Center.

"We've seen this reasoning for a while, but it has taken on new momentum," she said.

A new student loan repayment plan went into effect just this month that applies to more people with more kinds of loans.

The programs are good options, Loonin said, but are not equal to having debts discharged in bankruptcy court. For one, not everyone's eligible. The programs also don't provide relief from private loans. And they don't offer the "clean slate" bankruptcy does. Once a debtor makes it to 25 years, he or she pays taxes on the amount that's forgiven.

For Jesperson, the repayment program "is basically a life sentence," he said. "It's like having the court say you and your family are relegated to poverty for the rest of your lives."

He's not sure he qualifies. He and his attorney plan to petition the court for a rehearing and clarification on that point. But beyond that, his fight is over.

"I'm done," he said. "I'm worn out. There's no starting over for me. The rest of my life, I'll have no credit. I'll have no house. This is it."

Jenna Ross • 612-673-7168