Death of Student-Loan Co-Signer

hail-to-the-victorsStudent loans are a burdensome fact of life for Americans of all ages. Post-secondary education is viewed as necessary for a lucrative occupation, either initially for a high-school graduate deciding on a career or later in life for an experienced worker who finds his or her previous employment choices disappearing. Tragically, the loan bargain many thought would help them escape poverty turns out to plunge them deeper into debt and further foreclose a brighter financial future.

The premise is that achieving educational goals financed through loans will result in income high enough that the loan can easily be paid off and will support a better lifestyle throughout the student’s career. Unfortunately, the recession at the end of the Bush Administration doomed many college graduates to low-wage jobs and years of struggle under the yoke of college debt. Also, for-profit schools like ITT lured hopeful veterans, low-wage and “downsized” workers, and persons with disabilities into training programs for clerical, mechanical and paraprofessional jobs. The jobs that were touted as lucrative and plentiful in the schools’ promotional literature, proved to be neither for those who received their diplomas or certificates. Even more catastrophically, many of these schools, like ITT, have closed their doors on their students. This left those students with nothing but loan debt.

There is a further hazard for student-loan debtors that is largely unknown and generally not explained to loan applicants who have co-signers. The hazard is that the loan may become immediately payable in full if the co-signer declares bankruptcy or dies.

The debtor must report the bankruptcy or death of a co-signer to the creditor. Failure to do so may be a default on the loan.

There are four possible results of co-signer death:

1. There might be no effect. Not all student loans have an acceleration clause triggered by the death of a co-signer.

2. The creditor may hold off on acceleration as long as payments are made as agreed.

3. The creditor may give the debtor the opportunity to apply as a sole debtor, without a co-signer.

4. The creditor may treat the event as a default and demand immediate payment in full.

This last alternative would result in a financial meltdown that could devastate the student-loan debtor. The default in one student loan could trigger defaults in other loans. Despite the lack of any blame on the debtor’s behalf it could take decades for him or her to recover.

A student-loan debtor with a co-signer should review the loan agreements to determine what would happen if the co-signer declared bankruptcy or died. This is particularly urgent if the co-signer does not have substantial net worth or is in declining health.

The debtor should place a high priority on getting a co-signer released from the loan. This may be possible under the following conditions: A) the debtor must be an adult, B) the debtor must have steady employment with good income and good credit, C) at least 12 months have passed since the debtor graduated or received a certificate of completion from the educational institution, and D) the debtor must have promptly made all required payments on the debt for at least 12 months. Different loan servicing agents have different requirements and 12 months of regular payments would be the bare minimum. Procuring a release for the co-signer may be an ordeal, but the project must be begun or it will never be completed.

Unfortunately, a bill to eliminate automatic default on the bankruptcy or death of a co-signer, the Protecting Students From Automatic Default Act of 2014, died in the 113th Congress. The terrible burden of student loans on individual borrowers and society at large is an important issue in the 2016 presidential and congressional elections. Will the attention turn out to be political hot air, or will there be significant reform? Time will tell whether Congress will reverse decades of allowing rapacious financial institutions and for-profit schools to prey on hopeful students. In the meanwhile, student-loan debtors must examine their loan documents and make plans to deal with the pitfalls they find there. Crossing one’s fingers and hoping or praying for the best is not an adequate plan.

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200

©2016 John B. Payne, Attorney

Do Not Put Premium Gas in your Chevy Sonic

The American Automobile Association (AAA) recently studied gas-buying behavior of U.S. motorists, finding that more than 7% of us (16 million out of approximately 210 million) use premium gas when our cars don’t need it. It has been known for decades that putting premium gas (90+ octane) in cars designed for regular (87+ octane) has no effect on performance, gas mileage, or engine life. Buying premium for a car that doesn’t need it is a serious waste of money, but at the same time motorists save only a few cents per gallon when they do not buy Top Tier gas, which does affect all of the above measures.

It’s tough to be a consumer. From the 19th Century, when quacks sold 100-proof panaceas from medicine wagons, to today, when Big Pharma spends billions convincing us to tell our doctors what prescriptions we need, we have been lied to about everything from drain cleaners to laxatives; from infant formula to hospice services. However, there are two relatively constant rules to guide us: TANSTAAFL (There ain’t no such thing as a free lunch) and PIQ (Price indicates quality).

Merchants do not give away their products. In the Good Ol’ Days, bars offered free lunches to patrons. This was not altruism, but opportunism. Bars made their money selling alcoholic drinks; the lunches were a come-on. Casinos give free drinks to gamblers for the same reason.

There is a fairly close correlation between price and quality. As between two similar products, if Acme’s product sells for a higher price than Excelsior’s, the fact that many consumers see Acme’s product as of superior reliability, appearance, or value retention, indicates that the product probably is of objectively higher value.

The 2014 Chevrolet Sonic RS sedan joins the Sonic line-up in Spring 2014 at a starting MSRP of $19,705. The performance-inspired Sonic RS sedan (left) offers customers the same youthful styling and sporty performance packaging as the hatchback (right).

The 2014 Chevrolet Sonic RS sedan joins the Sonic line-up in Spring 2014 at a starting MSRP of $19,705. The performance-inspired Sonic RS sedan (left) offers customers the same youthful styling and sporty performance packaging as the hatchback (right).

These principles break down when it comes to gasoline grades. “Premium” gas is not better gas. It has a different application. “Regular” gas is as good as premium when used in a car designed to run on lower octane fuel. Part of the problem may be that higher-octane gas is called premium when it is not qualitatively better than regular. If the manufacturer does not specify a higher octane, there is no benefit to spending the extra money for premium, according to John Nielsen, AAA’s managing director of Automotive Engineering and Repair.

Filling up with premium instead of regular can be quite expensive. While the price differential used to be 10 – 15%, in some regions it can be close to 50%. When it comes to gasoline, ‘premium’ does not mean ‘better’ if your vehicle doesn’t require it,” continued Nielsen. “Drivers looking to upgrade to a higher quality fuel for their vehicle should save their money and select a TOP TIER™ gasoline, not a higher-octane one.” Erin Stepp, “U.S. Drivers Waste $2.1 Billion Annually on Premium Gasoline” (AAA NewsroomSeptember 20, 2016),”

Top Tier retailers include 76, Aloha Petroleum, Amoco, ARCO, Beacon, BP, Break Time, Cenex, Chevron, CITGO, Conoco, Co-op, Costco, CountryMark, Diamond Shamrock, Entec, Esso, Express, Exxon, Holiday, Kwik Star Stores, Kwik Trip, Mahalo, MFA, Mobil, Ohana Fuels, Petro-Canada, Phillips 66, PUMA, QT, Quik Trip, Road Ranger, Shamrock, Shell / Shell V-Power, Sinclair Standard, SuperAmerica, SuperFuels, Tempo, Texaco, Tri-Par, and Valero. Jeff Bartlett, “Study Shows Top Tier Gasoline Worth the Extra Price.”  The latest roster of Top Tier brands may be found on the Top Tier website.

It makes sense to pay a nickel a gallon more for Top Tier gasoline, which protects the engine better than a non-Top Tier product. However, paying a large price differential for premium for a car does not need it is a huge waste.

There is a caveat concerning Top Tier gasoline. According to the Top Tier website, the product is endorsed by eight major auto manufacturers as increasing engine life, gas mileage and performance. This may all be true, but the consumer never really knows.  They could also claim that Top Tier gas reduces the risk of stroke or heart disease and cures hypertension and an ordinary motorist could not prove them wrong.  Still, the relatively small price differential makes the risk that it is just a marketing gimmick acceptable.

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200

©2016 John B. Payne, Attorney

Second Amendment Blues

I’m on the south side of Chicago
And I’ve got guns on every side.
When I stroll Madison Street;
I am ready to duck, dive and hide.

LaPierre and the NRA Honkies
Say more guns will keep us unharmed.
I can draw down and shoot back.
So I’m safe as long as I’m armed.

But Tina got caught in a crossfire
When she was about to turn four.
The bullet that killed little André
Came through the apartment front door.

The white folks of Kansas and Utah
Vote by the NRA line.
Their gospel is the Second Amendment
And they think self defense is divine.

They fear having their firearms takenguns
If we elect the wrong party this year.
As if the government could make
four hundred million guns disappear.

They are not in the middle of a gang war.
So they prattle their God-given right.
It’s like their right to stay dry while
We’re outside all the rainy night.

Topeka is not Chicago.
Though we all have a right to be free.
The freedom to carry a gun
In a war zone does not comfort me.

It’s not that we don’t know better.
We want to live well just like you.
Help us stop the river of handguns.
All we need is a statute or two.

Children should not carry pistols
And felons have no right to pack heat.
Suppliers of guns should go down
When their guns cause death on the street.

We track all the transfers of cars.
You must have a license to drive.
With a little more control of our guns
We could keep more children alive.

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200

©2016 John B. Payne, Attorney

Medicaid and Long-Term Care Insurance Partnership

Qualifying for Medicaid for care in a nursing home can be an ordeal. First, there are strict asset limits – $2,000 for a single person and an amount between $23,844 and $119,220 for a couple, if one spouse is not in long-term care. Second, the gauntlet an applicant or the applicant’s representative must run can be grueling and hazardous because the Medicaid agency is likely to flyspeck the last five years’ financial transactions in relentless pursuit of gifts. Finally, much of the “information” about Medicaid qualifications offered to the public is false or misleading. Michigan recently initiated a program to allow Medicaid applicants keep more assets if they purchase certain long-term care insurance (LTCI) policies, but the Department of Health and Human Services totally screwed up what could otherwise be a good idea.

Here is how the Medicaid policy manual describes the program:

Long term care insurance partnership policies are health insurance and are not counmoneytable as assets. However, there are special asset rules for individuals who use long term care insurance partnership policies to pay for long term care.

At the initial eligibility determination there is an asset disregard (starting with countable assets first) equal to the amount that the long term care policy has paid to, or on the behalf of, the applicant. The asset disregard can increase at redetermination or case closure. The countable asset limit for Extended Care category remains the same. Assets of any type can receive the disregard. These disregarded assets are also disregarded (protected from) estate recovery.
BEM 400, at 45 (July 1, 2016).

A more-extensive explanation of the Partnership was published in December 2015. According to the “Partnership Program Notice,” a Partnership Program insurance policy must:

● Be issued to an individual after December 31, 2007;
● Cover an individual who was a resident of Michigan when coverage first becomes
effective under the insurance policy;
● Be tax-qualified under Section 7702(B)(b) of the Internal Revenue Code of 1986;Meet prescribed consumer protection standards, and
● Provide the following inflation protections:
• For ages 60 and younger – provide compound annual inflation protection,
• For ages 61 through 75 – provide some level of inflation protection,
• For ages 76 and older – inflation protection may be offered but is not required.

Furthermore, the Department warns that “changes to the insurance policy may disqualify you as eligible for the Partnership Program” policies, that the policies are generally not portable from state to state, and that changes in the law could eliminate the asset protection the policy affords with regard to Medicaid.

What we have here is a specialized LTCI product with a substancial cost that may become worthless if the purchaser tries to make a change in the terms of the policy or moves to a different state, or if they change the law. This is like selling expensive computers that become junk if the purchaser tries to make a change to the operating system, while the producer of the operating system is allowed to introduce upgrades that render current hardware obsolete. Wouldn’t that be ridiculous?

Assume that the potential Medicaid applicant purchases an LTCI Partnership policy, and does not move out of state or try to change the policy, and the State does not change the law. This type of insurance is still of extremely limited utility unless the consumer can afford a benefit level that covers the entire cost of long-term care.

Consider this statement, “At the initial eligibility determination there is an asset disregard (starting with countable assets first) equal to the amount that the long term care policy has paid to, or on the behalf of, the applicant.” What this means is that when the person applies for Medicaid, the increase in allowable assets is only for the amount the Partnership policy has already paid for the applicant’s care.

Consumers generally do not purchase LTCI for the full cost of nursing care. That would be too expensive. Nursing care is expected to cost $400 per day in a few years. LTCI with a daily benefit of $400 for any appreciable benefit period would be quite expensive. However, if Merle has such a policy and goes on-claim for two years, the benefits paid would be $292,000 and Merle could be eligible for Medicaid, keeping assets of $294,000.

Burl, in comparison, purchased an LTCI Partnership policy with a $200 per day benefit for two years. If he became a nursing-home resident at $400 per day, he would have to pay $12,167 monthly out of pocket in addition to the LTCI payments. He could not qualify for Medicaid until he had spent down to $2,000 plus the LTCI payments already made on his behalf. His policy would pay out approximately $146,000, but the increase in protected assets would only be $73,000.

Therefore, the purchaser must purchase an LTCI Partnership policy to cover the full expected cost of care for the benefit period. Any policy with a lower benefit level would be of dubious value.

The ink on Michigan’s Partnership Program is barely dry, but at least two LTCI companies are offering policies – Genworth and Mutual of Omaha. Michael McDonnell, at, provided a proposal that was represented to conform to the Michigan Partnership Program from each of those companies. Insurance of this kind should be considered in estate planning, but the value of a Partnership policy with regard to Medicaid asset preservation can only be gauged with the assistance of an attorney who is knowledgeable about Medicaid qualification.

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200

©2016 John B. Payne, Attorney

Long-Term Care Insurance – Smart Buy or Not?

In another blog, a man in his late 60s was complaining that long-term care insurance (LTCI) he bought at age 65 was costing him $3,600 per year. He bemoaned not buying it younger so it would cost less.

It would have cost less because he would have paid premiums longer. Very few find themselves in nursing homes before age 85 — less than 4%. That is a 96% chance that if you buy LTCI at age 65 you will pay on it for 20 years – assuming that you do not get priced out of the market in that time.

Some agents selling LTCI promise that there will be no “rate” increase. However, that does not mean that the premium cannot go up. The company is still free to increase the cost of insurance for a class of customers. Insurance companies intend to make a profit. The executives would rather tarred and feathered than absorb increased claims costs without commensurate premium increases.

As a result of the run-up in claims in the last decade, longstanding customers have been subjected to large hikes in the premiums they pay. Many octogenarian insureds have been faced with the choice of absorbing a 100% increase in premiums or accepting a 50% decrease in promised benefits. A 65-year-old LTCI customer may be able to afford the premiums initially, but there is no guarantee he or she will not lose the coverage due to increased cost at the age it would likely be needed.

If invested, $3,600 per year would grow to almost $90,000, even at a measly 2% rate of return. Granted, the same policy might only cost $2,160 per year if purchased at age 55, but by age 85 the total paid in would be the same.

Compare the LTCI market 20 years ago to today’s. Many insurers no longer carry LTC policies and those that are still in that market charge much higher premiums. Do you think that LTCI will not change over the next 20 years? Consider investing an amount equal to the LTCI premium regularly instead of buying LTCI. For examples and further discussion, see “FAQ – Long-Term Care Insurance” at

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200

©2016 John B. Payne, Attorney

Vicious House Bill

A particularly curmudgeonly Medicaid “reform” has been introduced in Congress. Medicaid receives heaps and mounds of criticism, particularly related to nursing-home coverage. The coverage is expensive, both on an individual basis and as a program. However, individuals in nursing homes need that care and Medicaid is the last resort if they lack the ability to pay for it. The new bill is an unwarranted and unfair swipe at the “truly needy” that conservatives claim they want to protect.

“Medicaid planning,” advising potential or current nursing home residents and their families about legal financial plans to qualify for Medicaid while preserving income and assets, is particularly a target of derision of the long-term care insurance industry, conservative commentators and legislators, and welfare administrators. For example, in a Fordham Law Review article Milan Markovic strains to demonstrate that Medicaid planning is unethical. Milan Markovic, “Lawyers and the `Secret Welfare State,’” 84 Fordham L. Rev. 1845 (2016).

Timothy Takacs and David McGuffey, however, argue that Medicaid planning is a fair and reasonable response when dealing with a prohibitively expensive segment of the health care industry that is bound only by the rules of supply and demand and loosely-enforced regulations. Timothy L. Takacs & David L. McGuffey, “Medicaid Planning: Can It Be Justified?: Legal and Ethical Implications of Medicaid Planning,” 29 Wm. Mitchell L. Rev. 111, 131 (2002).

In my paper, the public-policy arguments that Medicaid should be reserved for the “truly needy” and that it is unethical to exploit loopholes in Medicaid law are addressed. John B. Payne, Ethical and Public Policy Considerations Related to Medicaid Planning, Pennsylvania Bar Association Quarterly, p. 139, October 2013, I urge that the citizen is as entitled to receive the benefit of favorable statutes in public benefits law as in tax law. I also argue that judges must apply the law as written, not according to their perception of public policy.

Congress has made many changes to Medicaid long-term care benefit eligibility over the last three decades. In 1988, the asset rules were changed to protect the financial security of non-institutionalized spouses of nursing home residents. The utility of asset-protection trusts was severely curtailed in 1993 and 2006. Furthermore, the divestment penalty rules were greatly toughened in the Deficit-Reduction Act of 2005, which was enacted in 2006. Congress knows how to find and revise Medicaid law. If opportunities for planning remain, the citizen should be able to rely on the law as written.brett guthrie

A House bill has been introduced that is presumably intended to curtail Medicaid planning. However, it is as related to Medicaid planning as a pitch pipe is to a pitchfork. The only effect of this bill would be to hurt citizens who need and qualify for Medicaid. The bill, HR-5626, introduced by Rep. Markwayne Mullin (R-OK) and Vice-Chair of the Energy and Commerce Subcommittee on Health, Brett Guthrie (R-KY), would eliminate the three-month retroactive eligibility period preceding the month of application for Medicaid.

Presumably, Mullin and markwayne mullinGuthrie believe that the three-month retroactive eligibility period represents a Medicaid-planning opportunity. While some states allow applicants to create asset eligibility retroactively by purchasing a funeral contract or paying medical bills, most others close the book on prior months. In those states, the applicant can only be approved for Medicaid benefits in the retroactive benefit period if he or she was below the income and asset limitations in each month for which Medicaid is requested. The applicant cannot go back and cure an asset problem. Therefore, the retroactive benefit period is only useful for applicants who were already eligible for the months in question.

The three-month retroactive eligibility period is far from a planning opportunity. It is a partial failsafe to go back and pick up lost eligibility due to honest mistakes or omissions when applications are submitted. It is also a way to recover from bureaucratic delays and Medicaid worker incompetence or obstructionism.

The 45-day standard of promptness is a joke in many Medicaid offices. Even within a state the typical processing time for a Medicaid application can vary from two weeks to 20 or more weeks. In some Michigan and Pennsylvania counties Medicaid applications lie dormant for upwards of two months before a worker takes a first look at a case. Colleagues in other states make similar complaints. Retroactive eligibility is a vital facet of the Medicaid program because it is a way for applicants to recover from ill treatment by the local offices.

Many provisions in Medicaid policy manuals intended to require fair treatment for applicants are ignored in practice. Further, the deck is often stacked heavily in favor of the Medicaid agency if the applicant requests a “fair hearing.” It is not unusual for a perfectly eligible Medicaid applicant to re-file two or more times before the case is approved. The applicant may lose far more than three months of eligibility due to worker error.

One particular applicant filed for Medicaid in September, but the worker did not process the case until April. The worker improperly denied the case because she did not deduct the current month’s income from the asset total. The family requested a hearing, which was scheduled for August. Shortly before the hearing, the family hired me. At the hearing, I demonstrated the worker’s mistake and Medicaid was approved based on the original application date. It was fortunate that the worker had made a mistake and doubly fortunate that the administrative law judge was fair. Otherwise, there could have been a year of nursing care that Medicaid would not cover.

Another case took three applications, two administrative hearings and three trips to court over ten months before the State admitted its mistake and approved coverage back to the first application date. Each of these applications should have been open-and-shut approvals.

The three-month retroactive Medicaid eligibility period provides crucial protection against mistakes and worker intransigence. It would be shameful for Congress to pass the bill introduced by Reps. Mullin and Guthrie. It would not address medicaid planning. It would only hurt those most in need. Let your member of Congress know that punishing the innocent serves no good purpose.

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200

©2016 John B. Payne, Attorney

Whitman’s Sampler — with Tartrazine

whitman 3

A few days ago, the family member’s face and tongue mysteriously swelled up to an alarming degree. We knew it was tartrazine, but could not figure out what she ate that had yellow dye in it. After exhaustive examination of everything she had eaten, we looked on the Whitman’s Sampler box I had bought. There it was; along with Red 40, Yellow 6 and Blue 1!

Talk about existential disappointment! What is more quintessentially American than the Whitman’s Sampler? Hopeful beaux have been showing up for dates with bouquets and Whitman’s Samplers since the days of rumble seats and straw boaters. It was like finding out that there was no Norman Rockwell and all those charming pictures were produced in Chinese sweatshops.

whitman 2What is the point of putting all these artificial colors in chocolates? Apart from the white version, chocolates are all brown, anyway. Chocolate is the essence of brownness. It does not need artificial dye to make it brown, so why sneak it into products that would not be expected to contain dye? Adding food dyes to chocolate is like bleaching milk to make it white or adding bootblack to licorice whips. Estimates of tartrazine sensitivity range from one in 10,000 to one in 100,000, but unnecessary inclusion of tartrazine in foods and pharmaceuticals puts that small minority at risk despite the lack of any benefit.

There are many products that include tartrazine, although the color is irrelevant. For example, Sucrets honey-lemon throat, cough and dry mouth lozenges contain tartrazine. They are packaged in a metal tin and the lozenges are wrapped in foil. What is the point of adding tartrazine? The color of the lozenge has no effect on the sale of the product. After buying the product, opening the tin and unwrapping the lozenge, will the customer be concerned about the color? It is an unremarkable off-white, anyway!

Many prescriptions are colored with tartrazine. The drug manufacturers obviously have little regard for product safety, since the labeling of prescriptions as dispensed is unlikely to list dyes. Furthermore, patients will be concerned about the efficacy of the medication, not its appearance.whitman 1
Although it some sense to use artificial food coloring in candies and pastries, tartrazine and other food dyes are common in too many prepared foods that do not depend on attractive coloration. Even for jelly beans and frosting, natural color can be substituted for artificial dyes at only minor additional cost and labeling the products as free of artificial color would increase sales and profit.

Come on, Whitman’s, leave out the tartrazine. It will not cost you anything and may help your market penetration. It seems that you and other food and drug producers are using food dyes without considering the benefits of natural alternatives or whether food dyes are even useful in selling the products.

John B. Payne, Attorney
Garrison LawHouse, PC
Dearborn, Michigan 313.563.4900
Pittsburgh, Pennsylvania 800.220.7200

©2016 John B. Payne, Attorney