- Austin Smith spent years helping student loan borrowers cancel debt they wrongly assumed was exempt from
bankruptcy . - Smith argued that courts had systematically misinterpreted the federal bankruptcy code in lenders' favor.
- Dismissed by some as a crusader, his argument caught traction. Now, Smith is changing course.
When Lesley Campbell sued Citibank in March 2015 to get a portion of her
Then, she got a text from an unknown number advising her that there was a legal way to discharge her debt - along with an offer to help do just that.
Campbell thought it was a joke.
It was Austin Smith, a newly-minted lawyer who had previously worked as a headline writer at The Onion. Except he wasn't joking. Smith believed courts had systematically misinterpreted the federal bankruptcy code in favor of lenders over student borrowers. He was on the hunt for a client to test his legal theory.
A year later, Smith succeeded in convincing a federal judge that the unpaid portion of Campbell's $15,900 bar exam study loan from Citibank could be cancelled in bankruptcy.
The victory marked the starting point for what's become Smith's raison d'être to help as many student loan borrowers as possible. At 39, Smith estimates that he has prevailed in about 75 cases, leading to the canceling of some portion of his clients' student debts. Bankruptcy judges have cited the Campbell case at least 20 times, court records show.
Smith has also resorted to unconventional methods that blend hard-knuckle lawyering with public pressure campaigns, advocacy and a relentless stream of YouTube broadcasts that document his quest to help student loan borrowers find a lifeline. In the process, he's borrowed hundreds of thousands of dollars to keep their legal fights alive while pursuing his own life-or-death struggle with
"This is not exactly a normal law firm," Smith wrote in an email to his team last October. "We do not charge our clients an hourly rate, nor do we seek out the most profitable types of lawsuits such as medical malpractice or securities fraud. We seek out groups of people who are being tormented and we make it stop."
Seth Frotman, former student loan ombudsman for the Consumer Financial Protection Bureau, says that Smith's battle makes clear that America's student loan system, in which obtaining relief for borrowers is difficult even when the law is on their side, is broken. "When you talk to Austin, you see the culmination of hearing from these borrowers day-in and day-out and the predatory practices they've been forced to endure," Frotman says.
Smith's legal victories upended years of case law that had steadily built up in lenders' favor; one lawyer who has worked with Smith credits him with providing the "intellectual genesis" behind a whole line of cases that are now undoing that case law.
Yet even after five years of non-stop litigation, Smith's goal seems as distant as ever. The niche area of bankruptcy law that he's identified can only help some borrowers who took out privately-issued student loans - a small chunk of the total $1.7 trillion owed by Americans. And even for them, getting relief can sometimes take years. That hasn't deterred Smith, who was once called the "Don Quixote of student debt," by a federal bankruptcy judge, according to an attorney who witnessed the exchange. The hero of Miguel de Cervantes' 17th century novel, "Don Quixote" has come to refer to people with lofty but unrealistic ambitions to change the world for the better.
It's a moniker Smith readily accepts. He ended up buying a Don Quixote print to hang over his desk, calling it a "good reminder that you never know if what you're about to do is quite stupid."
Lenders have had more choice words for him. Lawyers for Navient Corp., the giant student loan servicer, have accused Smith of running a "media crusade riddled with falsehoods" and recently sought about $600,000 in costs and attorneys' fees, a figure that could have potentially crushed his fledgling legal practice. A federal judge awarded Navient about one-tenth of the sum after it successfully fought off a bold attempt by Smith to push its loan-servicing arm into bankruptcy through an involuntary bankruptcy petition.
In mid-March, after confessing to his YouTube followers that the gambit had amounted to an "epic failure," Smith decided to change tack: He filed paperwork to run for Congress in
"If we are unsuccessful in the judicial branch then maybe there is a solution in the legislative branch," Smith said in an interview, adding a touch of bravado that colors much of his legal briefs: "I can get that done."
Chance encounter
In some ways, Austin Connell Smith was an unlikely candidate to champion the cause of America's overly-indebted student borrowers. Smith grew up in an affluent
When Smith first turned his attention to law school in 2006, he wondered if then-FBI director Robert Mueller might write a letter of recommendation for him, according to an email exchange with his father. Smith's father had gone to law school with Mueller and Mueller's wife is godmother to one of Smith's sisters. His dad wrote back that Mueller was not the right person to ask for a recommendation. Mueller didn't respond to a request for comment.
Instead of law school, Smith joined Sen. John McCain's presidential campaign as a fundraiser and later cashed-out the trust fund to support himself while working as an unpaid intern writing headlines for The Onion in New York. A 2008 masthead lists Smith as one of satirical paper's "slaves" and a 2009 story plan lists him as a contributor to one of its many headlines lampooning then-Vice President Joe Biden: "Vice-President Joe Biden curses HotGunner79 for outbidding him at last minute on 1970's Navy bomber jacket."
When Smith got passed up for a full-time job at The Onion, he finally turned to law school. He enrolled at the University of Maine Law School, where he often spent his mornings at a coffee shop near campus writing a satirical novel and searching for a topic to dig into for a law review article. A chance encounter with another regular at the coffee shop, Bill Wilson, provided the spark he was looking for.
Wilson was the byproduct of a different era. A retired litigator, he attended Maine Law some 35 years before Smith, when tuition was so cheap that he could easily pay for law school by working a union job at a paper mill during the summers. By the time they met in 2014, tuition was so high that Smith still owes about $170,000 for his law degree.
Wilson was in the midst of examining bankruptcy rules surrounding student loans. He was surprised to learn that educational debt was exempt from discharge unless it met certain exceptions. He encouraged Smith to research them and see if they were as ironclad as everyone believed they were.
"Austin took it and ran with it," Wilson recalls.
Thicket of confusion
Each year, about a quarter million student loan debtors file for bankruptcy. Of those, fewer than three hundred get their educational debt discharged in bankruptcy. That's a success rate of 0.1%, according to calculations by Jason Iuliano, law professor at Villanova University who specializes in bankruptcy and student loan issues.
But those figures don't tell the whole story. In 2017, for instance, only 447 out of the 241,000 student loan borrowers who filed for bankruptcy actually sought to have their educational loans discharged. The remaining 99.8% didn't bother trying. But of those who did, around 60% managed to get a discharge of some portion of their student debt, Iuliano found.
"When you look at the people who bring these cases, they're by and large very successful," Iuliano says. But few borrowers bother trying to cancel their student loans when they file for bankruptcy because doing so requires an extra step - a lawsuit petitioning a judge to discharge the loans. And thanks to a widely-held belief that student debt is categorically exempt from discharge, few are willing to take that chance.
Until recently, a presentation titled "Bankruptcy Mythbusters" posted on the website of one of the nation's most prominent bankruptcy courts, the Southern District of New York, said that student loans are not dischargeable in bankruptcy along with the mea culpa, "yeah, sorry about that." But in Jan. 2020, the court's chief judge, Cecelia Morris, made headlines when she canceled about $220,000 of student loans owed by a U.S. Navy veteran named Kevin Rosenberg.
"Most people (bankruptcy professionals as well as lay individuals) believe it impossible to discharge student loans," Judge Morris wrote in her decision. "This Court will not participate in perpetuating these myths."
The court updated the incorrect language in its presentation after Business Insider asked Morris about it. The truth is that there are exceptions. Borrowers can have their student debts canceled in bankruptcy if they can show that paying them off would impose an "undue hardship," which is what Rosenberg proved in his case. Typically, that requires a borrower to demonstrate that they cannot maintain a minimal living standard, that their circumstances are unlikely to change, and that they've made good-faith efforts to repay their loans.
Rosenberg had kept current on his undergrad and law school loans even as the balance swelled from less than $200,000 to nearly $400,000 over the course of 14 years. After his camping and hiking gear store collapsed in 2017, he researched bankruptcy rules and decided to seek discharge of his private and federal student debts. His lenders either settled or lost in court; when one of them appealed, Smith stepped in to handle the appeal for free. Meanwhile, Rosenberg, freed from his debts, is getting ready to start a new life in Norway as a tour guide for Arctic and sub-Arctic expeditions. "I want people to know that this is a viable option," he says.
Iuliano estimates that, of the more than 2.6 million student loan debtors who filed for bankruptcy between 2011 and 2019, at least 29% would have been able to prove "undue hardship" if they sought to do so in court. It's the only way for bankruptcy filers to get rid of any student loans owned or backed by the federal government, which are projected to nearly double to $3 trillion by 2030.
But borrowers who owe privately-issued loans have even more exceptions they can rely on. That's because "private" student debt isn't defined anywhere in the U.S. bankruptcy code. Instead, the law refers to "qualified education loans" - those made for direct education expenses like tuition, books, room and board at accredited colleges and universities. Private student loans meeting that definition - such as a $20,000 loan that's used to pay tuition at a four-year state university - can't be cancelled in bankruptcy, absent a showing of "undue hardship."
Smith noticed that over the last 20 years, banks originated various loans which resembled student debt but didn't fit the qualified loan definition - like Campbell's Citibank loan, which she used to cover rent and groceries while studying for her bar exam in 2009 (A spokeswoman said Citi has since exited the student loan business and declined further comment).
Even after Smith succeeded in getting Campbell's bar exam loan cancelled, she still owes about $360,000 in federal student debt for her Pace University law degree. The amount has more than doubled over the years even as she continued to make payments since the interest is accruing faster than the payments she's making - a phenomenon known as negative amortization. Some 60% of student loans owed by millennials are experiencing negative amortization, according to a recent study.
Campbell didn't seek to have her federal loans discharged when she filed for bankruptcy. "I did not know about this case!!!!!!!" she said in a text message when informed of Judge Morris's ruling.
A life's cause
Smith noticed these discrepancies when he dug into the bankruptcy code at Wilson's behest. Once he graduated law school and joined a corporate law firm, he published his findings in an article, arguing that "the common belief that all student loans are protected from discharge in bankruptcy is based on a misunderstanding" of federal bankruptcy law. The article helped him convince his higher-ups to let him test his legal theory by litigating the issue pro-bono, at no cost to his clients.
The permission slip set Smith off on a search for the perfect plaintiff. Smith often worked late into the night, digging through internet chat forums and court records for several months before finally stumbling across Campbell in May 2015. After prevailing in her case in the spring of 2016, Smith left his corporate law job to start representing borrowers like Campbell full-time. The search began for others like her.
Instead, prospective clients were soon finding him. Smith's inbox filled up with emails from borrowers whose lives had been crushed by student debt. "I was so despondent that I considered suicide as the only viable way of getting out from under these loans," one email reads. "I have $50k student debt, no degree, was a victim of attempted murder, out of work, and homeless," reads another. "I'm so desperate. Please help. I make $65K a year. I can't even afford the monthly interest that accrues on my loans (all federal)," reads a third from a borrower who owed about $225,000. Another borrower who owed $598,000 wrote about seeing no viable future for herself.
Such emails hit a nerve with Smith. Despite his upper-class upbringing, he had grown up with a sense of empathy for those less fortunate than him. When he was in junior high school, his mom got a call from another parent thanking Smith for helping her son when he saw him being bullied by older kids after school. Without being prompted, Smith had intervened to help put an end to it, she recalls.
But helping student loan borrowers is tricky - and costly. The best plaintiffs are often the ones least able to pay legal fees. Class-action lawsuits, while often more lucrative for lawyers, are hard to organize due to the intricacies of bankruptcy courts and student loan plaintiffs' unique circumstances.
To help run the firm, Smith borrowed $100,000 from a bank, and another $125,000 from his father. He turned to litigation finance firms - which specialize in funding cases that hold out the promise of large payouts - to cover the rest.
As his practice grew, Smith won acclaim for making novel legal arguments to help borrowers discharge their student debts. Meredith Jury, a former California bankruptcy judge who has provided pro bono assistance to Smith in one of his cases, said Smith began making legal arguments that judges hadn't heard before. "Very few lawyers understand the loans well enough to even raise them," she said.
Then, life took an unexpected turn: In Jan. 2017, Smith was diagnosed with stage two testicular cancer. One doctor said he might have six months to live, though others gave him better odds. "I felt so ashamed at that moment," he recalls, "like I had an expiration date." He signed up for chemotherapy and lost all his hair. As he laid in bed, he said that he would often occupy his mind thinking about what he would do if he had a chance to live longer.
Eventually, he says, he vowed to make it his life's cause to help the student loan borrowers. "The calls, the emails, the stories. I felt so responsible for it," he thought. "You have to finish this or at least die trying."
Bold gamble
Navient provided Smith the challenge he was looking for.
While he was receiving treatment for cancer in 2017, Smith and his co-counsel sought class-action certification in a lawsuit against Navient centered on a Texas borrower in similar circumstances to Campbell. The complaint alleged that Navient had sought to collect on the borrower's bar exam study loan even though the debt had been discharged in bankruptcy and was no longer owed. Navient countered that the borrower hadn't been harmed by its collection efforts and couldn't pursue a nationwide class action.
The case wended its way through the legal system for years, until it finally landed in court-approved mediation in late 2020. By then, Smith had Boies Schiller Flexner LLP, the powerhouse law firm led by David Boies, at his side. Even so, Smith saw little possibility of a quick resolution.
"We've just been going and going and going and going," he told his potential class action clients in a December Zoom call streamed from the garage of the home he was renting in East Hampton, N.Y.
In February, Smith filed a new petition to try to force Navient's loan collection arm into bankruptcy. He alleged the company should be considered insolvent and placed in bankruptcy. That would protect the interests of three plaintiffs who alleged that Navient had wrongfully collected $45,684 in debt that had been discharged in bankruptcy. If Smith prevailed, the move would have flipped the calculus in his student loan litigation, turning his clients from borrowers who owed Navient money into creditors in a bankruptcy proceeding.
It was by far the biggest gamble of Smith's career. It meant withdrawing as counsel from the Texas case since other attorneys in that litigation didn't back the move. Within hours of filing the petition, Smith resigned from the case and six others, waiving all rights to compensation in legal battles that held out the promise of a big potential payday even as he racked up debts to run his law practice.
"Navient may well dismiss this as the desperate act of a small-time plaintiff's lawyer. In that they would not be entirely wrong; but it is desperation born of years of battling an adversary who . . . refuses to acknowledge the psychological toll its actions are having on people," Smith wrote in the bankruptcy petition against Navient.
Navient hired six partners, five associates and four paralegal and other staff across two law firms to seek expedited dismissal of the lawsuit, which it called "frivolous" and devoid of "reality, facts, or evidence."
Navient's attorneys logged over 630 hours on the case, according to a court filing. Meanwhile, Smith didn't file a response to their motion to dismiss. And when the hearing on the dismissal started-on Feb. 25, he was nowhere to be found.
A petitioner who joined the hearing on Smith's behalf explained that Smith had experienced a recurrence of his cancer and had flown to Chicago for treatment.
About thirty minutes after that exchange, the boldest case Smith had ever filed collapsed.
U.S. Bankruptcy Judge Martin Glenn dismissed the case, which he called an "ill informed" attempt by Smith to jump the queue in his other litigation. He also ruled that Smith had acted in bad faith and awarded Navient a small share of its attorney's fees and costs after determining that its defense was "overstaffed with too many lawyers and paralegals from two law firms."
Smith disputes filing the petition out of dishonest motives. A Navient spokesman said Smith "brought baseless but extremely serious claims against our company, so we mounted a serious defense" and "will continue to defend ourselves against any bad faith and baseless accusations in the future."
When Smith re-emerged from his treatment a few weeks later, he apologized to his clients for getting their hopes up of winning relief from their debts.
"I had heard increasing irritation, I believed, from a number of judges that led me to believe that this was potentially, or likely, a sort of novel way to approach this problem. And I got it wrong. I got it very wrong," he said in a March 12 YouTube video he labeled as a "somewhat overly bleak explanation of the events."
Smith vowed to fight on, but admitted that he wasn't quite sure how. "I still am trying to figure out exactly how to get this done in a way that doesn't leave three-fourths or half of you out in the cold," he added.
The same day, he launched his bid to run for Congress in 2022. He's seeking to represent Long Island's Eastern half as a Democrat, running on a platform of reforming student loan bankruptcy rules, increasing judicial oversight and demanding accountability for the January 6 attack on the Capitol.
The district has been in Republican hands since 2014. But its current congressman, Lee Zeldin, who voted to overturn the results of the last presidential election, announced last month that he plans to challenge Gov. Andrew Cuomo in 2022, opening up the seat.
When members of a Long Island Democratic group asked during a recent Zoom call why Smith wanted to go to Washington, he said one thing which no one should doubt: "I just want to be a footsoldier. I want to work twenty hours a day."
Cezary Podkul is an award-winning freelance journalist. He was previously a reporter at the Wall Street Journal, ProPublica, and Reuters.
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