Trinity Law School Law Review - Fall 2014 by Trinity Law School

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VOLUME 20

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ARTICLES

LOOSING OUR RELIGION: HOW THE HHS CONTRACEPTIVE MANDATE UNCONSTITUIONALLY BURDENS CATHOLIC ORGANIZATION’S FREE EXERCISE RIGHTS Eric Carstens ......................................................................................... # RELIGIOUS PRETENDERS IN THE COURTS: UNMASKING THE IMPOSTERS John O. Hayward .........................................................................................# THE STUDENT LOAN BUBBLE: A PENDING CRISIS OR OVERBLOWN THREAT? Jesse L. Noa ..................................................................................................#

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ISSN # 1548-9434 CITE AS: 20 TRINITY L. REV. (2014)

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FALL 2014 EDITORIAL BOARD GEORGE BASELUOS EDITOR-IN-CHIEF SANDRA STASH EXECUTIVE EDITOR STEPHANIE REYES LEAD ARTICLES EDITOR JOE LARA SENIOR RESEARCH EDITOR

JUAN SALAS SENIOR RESEARCH EDITOR

MEMBERS AT LARGE

TIMOTHY ALMOND GLORIA MORENO-ARAGON JASON FLORES MARYAM HEMMATI

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ADELINE ALLEN FACULTY ADVISOR

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TRINITY INTERNATIONAL UNIVERSITY BOARD OF REGENTS JUDY BRADISH HOMEMAKER LARRY COLLETT CHAIRMAN OF THE BOARD CASS INFORMATION SYSTEMS, INC. HOWARD A. DAHL PRESIDENT & CEO, AMITY TECHNOLOGY , LLC PETER ETIENNE SENIOR COUNSEL, BAXTER INTERNATIONAL INC. MAUREEN GIRKINS FORMER CEO, ZONDERVAN WILLIAM HAMEL PRESIDENT, EVANGELICAL FREE CHURCH OF AMERICA

STEVE HAWN EFCA NATIONAL BOARD OF DIRECTORS, MODERATOR EVANGELICAL FREE CHURCH OF AMERICA BILL JONES SENIOR PASTOR, FIRST EVANGELICAL FREE CHURCH CHARLENE KALEBIC ATTORNEY, SCHIFF HARDIN LLP ROBERT KLEINSCHMIDT EXECUTIVE VICE PRESIDENT AND DEVELOPMENT OFFICER, CARLSON HOTELS WORLDWIDE PAUL MANG PRINCIPAL, MCKINSEY & COMPANY JAMES MATSON PRINCIPAL, PERFORMANCE TRUST

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TRINITY INTERNATIONAL UNIVERSITY BOARD OF REGENTS (CONT.)

MELODY MCSPARRAN VOLUNTEER MENTOR/TUTOR

EDMOND L. SOLIDAY INDIANA STATE REPRESENTATIVE

MARK NEAMAN PRESIDENT & CEO, NORTHSHORE UNIVERSITY HEALTH SYSTEM

KENDALL SPENCER CEO, JACKSONVILLE BANK

THOMAS NELSON SENIOR PASTOR, CHRIST COMMUNITY EVANGELICAL FREE CHURCH BOB NIENHUIS SENIOR PASTOR, LIBERTY BIBLE COLLEGE NEIL NYBERG VICE PRESIDENT/ CHIEF ETHICS AND COMPLIANCE OFFICER KELLOGG COMPANY (RETIRED) BILL OLTHOFF PRESIDENT, DUTCH VALLEY GROWERS, INC.

W. CHARLES THOR SENIOR VICE PRESIDENT, JEWEL COMPANIES, INC. (RETIRED) HENRY VAN DIXHORN GENERAL PARTNER, COLLEGE PARK ATHLETIC CLUB CHUCK WEBB PRESIDENT (RETIRED), SPRING ARBOR UNIVERSITY LARRY WEE PARTNER, PAUL WEISS PAUL WHEELER VICE PRESIDENT, INLAND REAL ESTATE

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TRINITY LAW SCHOOL FACULTY MYRON STEEVES DEAN

PROFESSORS ADELINE ALLEN

LORA FRIEDMAN

GISSELLE AMINI

R. CASEY HANNEGAN

CHRISTOPHER BAUER

BRUCE HARBIN

DANA C. CLARK

CRAIG HAWKINS

ROY COMER

BRYAN KAZARIAN

ANDREW DELOACH

RYUL KIM

THOMAS DUNN

PETER LEE

ERIC FITZGERALD

HON. DANIEL S. LOPEZ

LOYST FLETCHER

ANDREW MCCARRON

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TRINITY LAW SCHOOL FACULTY (CONT.) KENNETH M. MCDONALD

LISA RUNQUIST

ERIN P. MORIARTY

BRAD SCHOENLEBEN

MELANIE NICHOLS

MICHAEL SCHUTT

GRACE OGBURN

STEPHEN SHEPARD

WILLIAM OVERTOOM

LISA STRIBLING

MICHAEL PARKER

BETHANY TAYLOR

MICHAEL PEFFER

DAVID TOBERTY

MICHAEL PETERS

RACHEL TOBERTY

JULIE RESNER

THADDEUS WILLIAMS

R. NEIL RODGERS

GLEN WORTHINGTON

LOSING OUR RELIGION: HOW THE HHS CONTRACEPTIVE MANDATE UNCONSTITUTIONALLY BURDENS CATHOLIC ORGANIZATIONS’ FREE EXERCISE RIGHTS Eric Carstens* I.

Background On March 23, 2010 the Patient Protection and Affordable Care Act (hereinafter

“ACA”) was signed into law by President Obama. 1 The law aims to offer low-cost medical services and insurance to all Americans and broaden the base of those covered by public health services. The ACA requires that all individuals maintain insurance coverage. 2 In an effort to avoid First Amendment violations, the ACA carves out a religious conscience exemption. The exemption states that the individual responsibility requirement does not apply to any person who has been certified to be “a member of a recognized religious sect or division thereof . . . and an adherent of established tenets or teaching of such sect or division as described in such section.” 3 The ACA also requires group health plans and health insurance issuers who offer health insurance coverage to provide coverage for certain preventative health services without imposing any cost sharing requirements. 4 Preventative care was left undefined, and the Act commissioned the Health Resources and Services Administration (hereinafter “HRSA”) to define the * Eric Carstens, J.D. 2014, The George Washington University Law School, 2015 L.L.M. Candidate, Georgetown University Law Center 1 Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111–148, 124 Stat. 119 (2010). 2 26 U.S.C. § 5000A (2012). 3 Id. at 5000A(d)(2)(A). 4 42 U.S.C. § 300gg–13 (2012).

scope of preventative care. 5 HRSA, an agency within the Department of Health and Human Services (hereinafter “HHS”), commissioned a private third-party organization to recommend what preventative services should be included. That third party was the Institute of Medicine (hereinafter “IOM”), which made its recommendations in a July 2011 report. 6 The report stated that IOM recommends “the full range of Food and Drug Administration (hereinafter “FDA”) approved contraceptive methods, sterilization procedures, and patient education and counseling for women with reproductive capacity.” 7 Notably “FDA-approved contraceptive methods” include oral contraceptives, “emergency contraceptive” abortifacients (such as Plan “B” and “Ella”), and intrauterine devices. 8 After being presented with the IOM recommendations, HRSA adopted an Interim Final Rule on August 1, 2011 that included all FDA-approved contraception methods and contraceptive counseling. 9 The law carved out two main exceptions to the contraceptive requirement: Grandfathered Plans and the very narrow Religious Employer Exception. 10 A health insurance plan is “grandfathered” if at least one person was enrolled on March 23, 2010, and the plan has continuously covered at least one individual since that date. 11 To remain grandfathered an employer must provide annual notice of “grandfathered”

Id. at 300gg–13(a)(4). See INST. OF MEDICINE, CONSENSUS REPORT, CLINICAL PREVENTATIVE SERVICES FOR WOMEN: CLOSING THE GAPS (2011). 7 Id. at 109-10. 8 FDA, Birth Control Guide (Aug. 2012), available at: http://www.lb7.uscourts.gov/documents/12-38411.pdf. 9 Group Health Plans and Health Insurance Issuers Relating to Coverage of Preventive Services Under the Patient Protection and Affordable Care Act, Fed. Reg. 46621-01 (Aug. 3, 2011) (to be codified at 26 C.F.R. pt. 54, 29 C.F.R. pt. 2590, 45 C.F.R. pt. 147). 10 Grandfather Exception, see 26 C.F.R. § 54.9815–1251T(c)(1); 42 U.S.C. § 18011; 45 C.F.R. § 147.130(a)(1)(iv)(B)(1)-(4); Religious Employer Exception, see 26 C.F.R. § 54.9815–2713T; 29 C.F.R. § 2590.715–2713. 11 42 U.S.C. § 18011(a)(2); 26 C.F.R. § 54.9815–1251T(a), (g); 45 C.F.R. § 147.140(a), (g); 29 C.F.R. § 2590.715–1251(a), (g). 5 6

status. There are no limitations on the number of years an employer can claim grandfathered status. 12 According to government estimates, 191 million Americans belong to plans that may be grandfathered under the ACA. 13 The religious employer exception allows only employers that meet all of the following criteria to be eligible for an exemption: “(1) The inculcation of religious values is the purpose of the organization. (2) The organization primarily employs persons who share the religious tenets of the organization. (3) The organization serves primarily persons who share the religious tenets of the organization. (4) The organization is a nonprofit organization as described in § 6033(a)(1) and § 6033(a)(3)(A)(i) or (iii) of the Internal Revenue Code of 1986, as amended.” 14 As the head of Catholic Charities USA observed, “the ministry of Jesus Christ himself” would not qualify for the exemption. 15 Nor will Catholic Charities, Catholic Relief Services, Catholic hospitals, food banks, homeless shelters, most Catholic schools, and even many or most diocesan offices, much less Catholic business owners who strive to conduct their businesses in accordance with their religious beliefs. 16 The interim rule was open for public comment for a little less than two months and was then finalized on February 15, 2012. The final rule contained no changes to the interim proposed rule; however, it delayed enforcement on all religiously opposed groups

Id. Interim Final Rules for Group Health Plans and Health Insurance Coverage Relating to Status as a Grandfathered Health Plan Under the Patient Protection and Affordable Care Act, 75 Fed. Reg. 34538-01 (Jun. 17, 2010) (see “5. Estimates of Number of Plans and Employees Affected”). 14 O’Brien v. Dep’t of Health & Human Serv., 894 F. Supp. 2d 1149, 1155 (E.D. Mo. 2012) (referencing 45 C.F.R. § 147.130(a)(1)(iv)(B); 76 Fed. Reg. 46621-01, 46623). 15 Edward Whelan, The HHS Contraception Mandate vs. the Religious Freedom Restoration Act, 87 NOTRE DAME L. REV. 2179, 2180 (2012) (citing Press Release, Rev. Larry Snyder, President, Catholic Charities USA (Jan. 20, 2012), available at: http://www3.nd.edu/~ndlrev/archive_public/87ndlr5/whelan.pdf. 16 Id. 12 13

until August 1, 2013. 17 Kathleen Sebelius, the former Secretary of HHS, released a statement that the “compromise” strikes a good balance between religious rights and increasing women’s access to preventative services. 18 On March 21, 2012, prior to the effective date, HHS issued an Advance Notice of Proposed Rulemaking (hereinafter “ANPRM”). 19 An ANPRM is usually a generalized statement of what the agency purports to do. Once the ANPRM is published in the Federal Register there is a public comment period, in this case lasting until June 19, 2012. After that it can take months, sometimes years, to analyze the issues raised before promulgating another proposed final rule or ANPRM. Once the ANPRM is published in the Federal Register, the comment period is approximately six months. The agency can take around another year to analyze those comments before promulgating the final rule. When a final rule is promulgated, it does not take effect right away. Usually the agency gives the regulated community a grace period to change their practices accordingly. Many commentators view the ANPRM process as a way for federal agencies to avoid litigation by simply stating that they intend to fix a problem. The ANPRM process is in no way binding and HHS is not prohibited from adopting the exact same final rule adopted in February 2012 after analyzing the comments received. Furthermore, it is a well-known fact that Kathleen Sebelius had a poor history with the Catholic Church during her time spent as Governor of Kansas after she vetoed laws seeking to limit lateterm abortions. 20 Therefore, while the ANPRM may have avoided litigation in the past,

17 Coverage of Preventive Services Under the Affordable Care Act, 78 Fed. Reg. 39870-01, 39870 (2013); RIN 1545-BJ60. 18 "U.S. Dep’t of Health and Human Serv. A Statement by U.S. Department of Health and Human Services Secretary Kathleen Sebelius. (Jan. 20, 2012), http://www.hhs.gov/news/press/2012pres/01/20120120a.html. 19 Certain Preventive Services Under the Affordable Care Act, 77 Fed. Reg. 16501-01 (2012). 20 Burke, Daniel, Kansas Gov. Sebelius Told Not to Take Communion, USA TODAY (May 13, 2008), http://usatoday30.usatoday.com/news/religion/2008-05-12-communion-abortion_N.htm.

the February 15 Final Rule remains binding law and no diversion is expected from the pro-choice bureaucracy Sebelius left behind. This current binding law is in violation of the First Amendment Free Exercise Clause for Catholic-based companies, non-profits, universities, hospitals, and schools not included in the “grandfather” or “religious employer” exceptions. Leaders in these groups are being forced to choose between violating one of the fundamental tenets of their faith and violating the law. Under the current text of the ACA and Internal Revenue Code, the penalty for refusing to provide insurance coverage to employees is massive. 21 The civil penalty is a fine calculated by taking the number of full-time employees in excess of 51 and subtracting 30, then multiplying that number by $2,000 per year. 22 These penalties began to accrue on Jan. 1, 2014. 23 For example, the University of Notre Dame, reporting 16,445 employees on a recent return filed with the IRS, would be subject to a fine of $32,830,000 per year. 24 Catholic Charities for the Archdiocese of Washington would owe $2,176,000 a year for their 1,118 employees. 25 There are dozens of other Catholic universities and organizations with the same objection, each being forced to choose between paying $1-2 million per year in fines and violating one of the fundamental tenets upon which they were founded. 26

21 Shared Responsibility For Employers Regarding Health Coverage, 26 U.S.C. § 4980H (2010) (applying after Dec. 31, 2013); see also Robin Fretwell Wilson, The Calculus of Accommodation: Contraception, abortion, Same-Sex Marriage, and Other Clashes Between Religion and the State, 53 B.C. L. Rev. 1417, 1498 (2012). 22 See Whelan, supra note 15, at 2184. 23 Penalties for Employers Not Offering Affordable Coverage Under the Affordable Care Act Beginning in 2014, The Henry J. Kaiser Family Foundation, available at: http://www.premierlifesales.com/marketing/penalties.pdf. 24 Fretwell, supra note 21, at 1499. 25 Id. at FN 325. 26 See, e.g., O'Brien v. U.S. Dep't of Health & Human Services, 894 F.Supp.2d 1149 (E.D. Mo. 2012), stay granted, 12-3357, 2014 WL 4401187 (8th Cir. Sept. 8, 2014); Legatus v. Sebelius, 901 F. Supp. 2d 980 (E.D. Mich. 2012); Belmont Abbey Coll. v. Sebelius, 878 F. Supp. 2d 25 (D.D.C. 2012), reconsideration denied, CIV.A. 11-1989 JEB, 2012 WL 3861255 (D.D.C. Sept. 5, 2012); Ave Maria Univ. v. Sebelius,

The House of Representatives has proposed dozens of different pieces of legislation to repeal the ACA in full or amend the section on coverage of preventative health services. 27 While the Senate has not acted on any of these pieces of legislation, notable opposition to the contraceptive mandate remains in Congress and across America. 28 Notably, the Blunt Amendment was proposed that "would have allowed employers to refuse to include contraception in health care coverage if it violated their religious or moral beliefs." 29 To the dismay of Catholics across the nation, the Senate narrowly struck it down on March 1, 2012. 30 Given the inability of Congress to take the necessary measures to avoid the inevitable violation of religious rights for millions of Catholics across the nation, HHS should have followed through with their intentions presented in the March 2012 ANPRM and limited their losses to a minimum. The failure to do so exhibits the stubbornness and bureaucratic bliss of Sebelius and her HHS cronies. This failure to cut their losses has led

2:12-CV-88-FTM-99SPC, 2012 WL 3128015 (M.D. Fla. July 31, 2012); Zubik v. Sebelius, 911 F. Supp. 2d 314 (W.D. 2012); Newland v. Sebelius, 881 F. Supp. 2d 1287 (D. Colo. 2012); Roman Catholic Archdiocese of New York v. Sebelius, 907 F. Supp. 2d 310 (E.D.N.Y. 2012); see also Hobby Lobby Stores, Inc. v. Sebelius, 870 F. Supp. 2d 1278 (W.D. Okla. 2012); Nebraska ex rel. Bruning v. U.S. Dept. of Health & Human Services, 877 F. Supp. 2d 777 (D. Neb. 2012); Wheaton Coll. v. Sebelius, 887 F. Supp. 2d 102 (2012); Tyndale House Publishers, Inc. v. Sebelius, 904 F.Supp.2d 106 (D.D.C. 2012). 27 B ILL TEXT  112TH CONGRESS (2011-2012), Library of Congress. Database custom search: “preventative service + Affordable Care Act.” Nov. 12, 2012, http://thomas.loc.gov/cgi-bin/thomas. 28 Elizabeth Harrington, Congressman: 'We're Still Home of the Brave, But We're Not the Land of the Free Anymore', CYBERCAST NEWS SERVICE, (Aug. 1, 2012), http://cnsnews.com/news/article/congressmanwere-still-home-brave-were-not-land-free-anymore (noting a group of Representatives that have vowed to stand against the regulation); see also Sahil Kapur. Boehner: Birth Control Mandate Is Unconstitutional, TPM MEDIA LLC, (Feb. 2, 2012), http://tpmdc.talkingpointsmemo.com/2012/02/boehner-birth-controlmandate-is-unconstitutional.php. 29 B ILL SUMMARY & STATUS: 112TH CONGRESS (2011 - 2012) S.AMDT.1520. The Library of Congress Thomas, http://thomas.loc.gov/cgi-bin/bdquery/z?d112:sp1520:. 30 United States Senate. U.S. Senate Roll Call Votes 112th Congress - 2nd Session. U.S. Senate: Roll Call Vote, Motion to Table Blunt Amdt. No. 1520. Web. 08 Dec. 2012, https://www.senate.gov/legislative/LIS/roll_call_lists/roll_call_vote_cfm.cfm?congress=112&session=2&v ote=00024.

to over 100 cases being pursued across the states, 31 with two reaching the United States Supreme Court on the merits this summer. 32 For former Secretary Kathleen Sebelius and

31 Korte

v. Sebelius, 735 F.3d 654 (7th Cir. 2013), cert. denied, Burwell v. Korte, 134 S. Ct. 2903 (U.S. 2014); Belmont Abbey Coll. v. Sebelius, 878 F. Supp. 2d 25 (D.D.C. 2012), reconsideration denied, CIV.A. 11-1989 JEB, 2012 WL 3861255 (D.D.C. 2012), and appeal held in abeyance, Wheaton Coll. v. Sebelius, 703 F.3d 551 (D.C. Cir. 2012); Colorado Christian Univ. v. Sebelius, No. 11-cv-03350, 2013 WL 93188 (D. Colo. Jan. 7, 2013); Eternal Word TV Network, Inc. v. Sebelius, 935 F. Supp. 2d 1196 (N.D. Ala. 2013); Priests for Life v. Sebelius, 12-CV-753 FB, 2013 WL 1563390 (E.D.N.Y. Apr. 12, 2013); Geneva Coll. v. Sebelius, 929 F. Supp. 2d 402 (W.D. Pa. 2013); Franciscan Univ. of Stubenville v. Sebelius, No. 12-CV-440, 2013 WL 1189854 (S.D. Ohio Mar. 22, 2013); Ave Maria Univ. v. Sebelius, No. 12-cv-88, 2013 WL 1326638 (M.D. Fla. Mar. 29, 2013); Criswell Coll. v. Sebelius, No. 12-CV-4409 (N.D. Tex. Apr. 9, 2013); Wenski v. Sebelius, No. 12-CV-23820 (S.D. Fla. Mar. 5, 2013); Roman Catholic Diocese of Dallas v. Sebelius, 927 F. Supp. 2d 406 (N.D. Tex. 2013); Conlon v. Sebelius, 923 F. Supp. 2d 1126 (N.D. Ill. 2013); Archdiocese of St. Louis v. Sebelius, 920 F. Supp. 2d 1018 (E.D. Mo. 2013); Roman Catholic Archbishop of Washington v. Sebelius, 920 F. Supp. 2d 8 (D.D.C. 2013), appeal held in abeyance, 13-5091, 2013 WL 3357814 (D.C. Cir. 2013); Catholic Diocese of Peoria v. Sebelius, No. 12cv-01276, 2013 WL 74240 (C.D. Ill. Jan. 4, 2013); Catholic Diocese of Biloxi v. Sebelius, No. 12-cv00158, 2012 WL 6831407 (S.D. Miss. Dec. 20, 2012); Zubik v. Sebelius, 911 F. Supp. 2d 314 (W.D. Pa. 2012); Univ. of Notre Dame v. Sebelius, No. 12CV253, 2012 WL 6756332 (N.D. Ind. Dec. 31, 2012); Catholic Diocese of Nashville v. Sebelius, No. 12-0934, 2012 WL 5879796 (M.D. Tenn. Nov. 21, 2012); O'Brien v. U.S. Dept. of Health and Human Services, 894 F. Supp. 2d 1149 (E.D. Mo. 2012); Tyndale H. Publishers, Inc. v. Sebelius, 904 F. Supp. 2d 106 (D.D.C. 2012), appeal dismissed, 13-5018, 2013 WL 2395168 (D.C. Cir. 2013); Grote v. Sebelius, 708 F.3d 850 (7th Cir. 2013); Catholic Diocese of Beaumont v. Sebelius, 1:13-CV-709, 2014 WL 31652 (E.D. Tex. 2014); Priests for Life v. U.S. Dept. of Health and Human Services, CV 13-1261 (EGS), 2013 WL 6672400 (D.D.C. 2013); Roman Catholic Archdiocese of New York v. Sebelius, 987 F. Supp. 2d 232 (E.D.N.Y. 2013); Southern Nazarene U. v. Sebelius, CIV-131015-F, 2013 WL 6804265 (W.D. Okla. 2013); Eternal World TV Network, Inc. v. Burwell, CIV.A. 130521-CG-C, 2014 WL 2739347 (S.D. Ala. 2014); Little Sisters of the Poor Home for the Aged v. Sebelius, No. 13-CV-2611-WJM-BNB, 2013 WL 6839900 (D. Colo. 2013), injunction granted, 134 S. Ct. 1022 (2014); Michigan Catholic Conf. v. Sebelius, 989 F. Supp. 2d 577 (W.D. Mich. 2013) aff'd sub nom., Michigan Catholic Conf. and Catholic Fam. Services v. Burwell, 755 F.3d 372 (6th Cir. 2014); Ave Maria Found. v. Sebelius, 991 F. Supp. 2d 957 (E.D. Mich. 2014); Gilardi v. U.S. Dept. of Health and Human Services, 733 F.3d 1208 (D.C. Cir. 2013), cert granted, 134 S. Ct. 2902 (2014); Newland v. Sebelius, 881 F. Supp. 2d 1287 (D. Colo. 2012) aff'd, 542 Fed. Appx. 706 (10th Cir. 2013) (unpublished) cert. denied, 134 S. Ct. 2902 (U.S. 2014); Nebraska ex rel. Bruning v. U.S. Dept. of Health and Human Services, 877 F. Supp. 2d 777 (D. Neb. 2012); Legatus v. Sebelius, 901 F. Supp. 2d 980 (E.D. Mich. 2012); Roman Catholic Archdiocese of New York v. Sebelius, 907 F. Supp. 2d 310 (E.D.N.Y. 2012); Autocam Corp. v. Sebelius, 730 F.3d 618 (6th Cir. 2013); Michigan Catholic Conf. and Catholic Fam. Servs v. Burwell, 755 F.3d 372 (6th Cir. 2014); Catholic Benefits Ass'n LCA v. Sebelius, CIV-14-240-R, 2014 WL 2522357 (W.D. Okla. 2014); Beckwith Elec. Co., Inc. v. Sebelius, 960 F. Supp. 2d 1328 (M.D. Fla. 2013); U. of Notre Dame v. Sebelius, 988 F. Supp. 2d 912 (N.D. Ind. 2013) aff'd, 743 F.3d 547 (7th Cir. 2014); Schools v. Sebelius, 988 F. Supp. 2d 935 (N.D. Ind. 2013); Persico v. Sebelius, 919 F. Supp. 2d 622 (W.D. Pa. 2013); Tonn and Blank Const., LLC v. Sebelius, 968 F. Supp. 2d 990 (N.D. Ind. 2013); Roman Catholic Archdiocese of Atlanta v. Sebelius, 1:12-CV-03489-WSD, 2014 WL 1256373 (N.D. Ga. 2014), on reconsideration in part, 1:12-CV-03489-WSD, 2014 WL 2441742 (N.D. Ga. 2014); E. Texas Baptist U. v. Sebelius, 988 F. Supp. 2d 743 (S.D. Tex. 2013); Am. Pulverizer Co. v. U.S. Dept. of Health and Human Services, 12-3459-CV-S-RED, 2012 WL 6951316 (W.D. Mo. 2012); Diocese of Ft. Wayne-S. Bend, Inc. v. Sebelius, 988 F. Supp. 2d 958 (N.D. Ind. 2013); Annex Med., Inc. v. Sebelius, 13-1118, 2013 WL 1276025 (8th Cir. 2013); Monaghan v. Sebelius, 931 F. Supp. 2d 794 (E.D. Mich. 2013); MK Chambers Co. v. Dept. of Health and Human Services, CIV.A. 13-11379, 2013 WL 1340719 (E.D. Mich. 2013); Sharpe Holdings, Inc. v. U.S. Dept. of Health and Human Services, 2:12 CV 92 DDN, 2013 WL 6858588 (E.D. Mo. 2013); Hotze v. Sebelius, 991 F. Supp. 2d 864 (S.D. Tex. 2014); Briscoe v. Sebelius, 927 F.

HHS, this stance has limited the contraceptive mandate to what is required by the Free Exercise Clause, with the potential to limit it even further due to the significant amount of pending litigation across America. II. The Religious Freedom and Restoration Act of 1993 The free exercise of religion, as protected by the First Amendment’s Free Exercise Clause, is a fundamental constitutional right. 33 The Free Exercise Clause states, “Congress shall make no law respecting an establishment of religion, or prohibiting the free exercise thereof.” 34 The history of free exercise case law was fairly simple prior to the Supreme Court decision of Employment Division v. Smith in 1990. 35 Courts relied on two cases, which were representative of two frameworks under which free exercise rights could be violated. 36 Under the Sherbert framework, when individuals are forced to choose between following the tenets of their faith and receiving a government benefit there is a valid free exercise claim. 37 The same is true under the Yoder framework, when individuals are coerced to act contrary to their religious beliefs by threat of criminal or civil sanctions. 38

Supp. 2d 1109 (D. Colo. 2013); Eden Foods, Inc. v. Sebelius, 733 F.3d 626 (6th Cir. 2013), cert. granted, judgment vacated sub nom., Eden Foods, Inc. v. Burwell, 134 S. Ct. 2902 (U.S. 2014); Mersino Mgt. Co. v. Sebelius, 13-CV-11296, 2013 WL 3546702 (E.D. Mich. 2013); M & N Plastics, Inc. v. Sebelius, 997 F. Supp. 2d 19 (D.D.C. 2013); Liberty U., Inc. v. Lew, 733 F.3d 72 (4th Cir. 2013) cert. denied, 134 S. Ct. 683 (U.S. 2013); Dobson v. Sebelius, No. 13-CV-03326-REB-CBS, 2014 WL 1571967 (D. Colo. 2014). 32 Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751 (U.S. 2014); see also Conestoga Wood Specialties Corp. v. Sec. of U.S. Dept. of Health and Human Services, 724 F.3d 377 (3d Cir. 2013), cert. granted, 134 S. Ct. 678 (U.S. 2013), rev'd and remanded sub nom., Burwell v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751 (U.S. 2014). 33 Johnson v. Robison, 415 U.S. 361 (1974). 34 U.S. CONST. amend. I, cl. 1-2, (highlighting the Establishment and Free Exercise Clause, together forming the “religious clauses”). 35 Emp’t Div., Dep’t. of Human Res. of Oregon v. Smith, 494 U.S. 872 (1990). 36 Sherbert v. Verner, 374 U.S. 398 (1963) (establishing the model for violation of free exercise by being forced to choose between following the tenets of their faith and receiving a government benefit); Wisconsin v. Yoder, 406 U.S. 205 (1972) (establishing the model for violations by being coerced to act contrary to their religious beliefs by threat of criminal or civil sanctions). 37 Sherbert, 374 U.S. 398. 38 Yoder, 406 U.S. 205.

In 1990 everything changed when the Supreme Court ruled in Smith that government could burden the free exercise of religion, as long as the burden was the product of a “valid law of general applicability.” 39 This judicially created limitation on free exercise rights was not viewed favorably by religiously motivated individuals across the nation, and it did not take long for Congress to notice the restriction it created on religious liberty. Therefore, in 1993 Congress passed legislation to “restore religious freedom.” The Religious Freedom and Restoration Act (hereinafter “RFRA”) stated that: “(1) the framers of the Constitution, recognizing free exercise of religion as an unalienable right, secured its protection in the First Amendment to the Constitution; (2) laws “neutral” toward religion may burden religious exercise as surely as laws intended to interfere with religious exercise; (3) governments should not substantially burden religious exercise without compelling justification; (4) in Employment Division v. Smith, 494 U.S. 872 (1990) the Supreme Court virtually eliminated the requirement that the government justify burdens on religious exercise imposed by laws neutral toward religion; and (5) the compelling interest test as set forth in prior Federal court rulings is a workable test for striking sensible balances between religious liberty and competing prior governmental interests.” 40 The law went even further to explicitly state the purpose of RFRA in a manner that is hard to misinterpret: “(1) to restore the compelling interest test as set forth in Sherbert v. Verner, 374 U.S. 398 (1963) and Wisconsin v. Yoder, 406 U.S. 205 (1972) and to guarantee its application in all cases where free exercise of religion is substantially Smith, 494 U.S. 872. Congressional findings and declaration of purposes, 42 U.S.C.A. § 2000bb (West 2012) (noting that “prior Federal court rulings” is referring to Yoder and Sherbert). 39 40

burdened; and (2) to provide a claim or defense to persons whose religious exercise is substantially burdened by government.” 41 Today, much of the confusion stems from courts differing in their treatment of free exercise challenges with respect to the relationship between RFRA and the First Amendment. 42 Many courts have treated RFRA as a lens through which First Amendment “religion clause” claims are to be analyzed. Other more stubborn courts, particularly in the Second Circuit, have analyzed constitutional and statutory claims separately. 43 This has led to Employment Division precedent, specifically relating to dismissal when there are laws of general applicability, to be applied to free exercise claims in some cases, but not others. 44 Courts are not given the discretion to pick and choose which valid laws to apply, and any free exercise claim that is dismissed on the ground of Smith clearly disregards the purpose and unambiguous statutory language in RFRA. To confuse things even more, the Supreme Court held in 1997 that as “broad as the power of Congress is under the Enforcement Clause of the Fourteenth Amendment, RFRA contradicts vital principles necessary to maintain separation of powers and the federal balance.” 45 Subsequent courts have interpreted Flores to invalidate RFRA only as applied to state and local governments, not as applied to the federal government through

Id. Id. 43 See Hobby Lobby Stores, Inc. v. Sebelius, 870 F. Supp. 2d 1278 (W.D. Okla. 2012) (applying different tests for free exercise and RFRA violations); see also Campos v. Coughlin, 854 F. Supp. 194 (S.D.N.Y. 1994); Francis v. Keane, 888 F. Supp. 568 (S.D.N.Y. 1995); but see Legatus v. Sebelius, 901 F.Supp.2d 980 (E.D. Mich. 2012) (applying RFRA as the Congressionally-prescribed interpretation for claims of First Amendment violations). 44 Id. 45 City of Boerne v. Flores, 521 U.S. 507, 536 (1997). 41 42

Congress' Article I enforcement powers. 46 Therefore, the contraceptive mandate, a federal regulation created by HHS, a Federal Agency, clearly falls within the jurisdiction of a RFRA analysis. Looking holistically at case law, history and statutory language of RFRA, Congress intended RFRA to be a means through which First Amendment free exercise claims should be analyzed by courts. “A person whose religious exercise has been burdened in violation of this section may assert that violation as a claim or defense in a judicial proceeding and obtain appropriate relief against a government.” 47 Thus, this analysis will proceed as such. III. Standing Prior to any case being heard in federal court, plaintiffs bear the burden of proof to show the threshold issue of standing is satisfied, which has incorporated both constitutional and prudential elements. 48 According to RFRA, “[s]tanding to assert a claim or defense under this section shall be governed by the general rules of standing under Article III of the Constitution.” 49 The constitutional minimum of Article III standing requires plaintiffs to show: (1) injury in-fact that is (a) concrete and particularized and (b) actual or imminent, not conjectural or hypothetical, 50 (2) the injury has to be “fairly ... trace[able] to the challenged action of the defendant,” 51 and (3) it is likely, as opposed to merely “speculative,” that the injury will be “redressed by a 46 Gonzales v. O Centro Espirita Beneficente Uniao do Vegetal, 546 U.S. 418 (2006); United States v. Wilgus, 638 F.3d 1274 (10th Cir. 2011); Hankins v. Lyght, 441 F.3d 96 (2d Cir. 2006); Redhead v. Conference of Seventh-Day Adventists, 440 F. Supp. 2d 211 (E.D.N.Y. 2006), adhered to on reconsideration, 566 F. Supp. 2d 125 (E.D.N.Y. 2008); O'Bryan v. Bureau of Prisons, 349 F.3d 399 (7th Cir. 2003); Sutton v. Providence St. Joseph Med. Ctr., 192 F.3d 826 (9th Cir. 1999). 47 Congressional findings and declaration of purposes, 42 U.S.C.A. § 2000bb-1. 48 See Allen v. Wright, 468 U.S. 737, 751 (1984); Joint Stock Soc'y v. UDV N. Am., Inc., 266 F.3d 164 (3d Cir. 2001). 49 Congressional findings and declaration of purposes, 42 U.S.C.A. § 2000bb-1. 50 Lujan v. Defenders of Wildlife, 504 U.S. 555, 560 (1992) (citing Allen v. Wright, 468 U.S. 737 (1984); Warth v. Seldin, 422 U.S. 490, 508 (1975); Los Angeles v. Lyons, 461 U.S. 95, 102 (1983)). 51 Lujan, 504 U.S. at 560-61(citing Simon v. Eastern Ky. Welfare Rights Organization, 426 U.S. 26, 41-42 (1976)).

favorable decision.” 52 Since the plaintiffs here are Catholic non-profit organizations, businesses, hospitals, and schools, standing must be evaluated through this lens. Recently the Ninth Circuit held that a pharmacy had standing to assert the free exercise rights of its owners because the company “[did] not present any free exercise rights of its own different from or greater than its owners' rights.” 53 This notion should extend to any Catholic business, charity, school or hospital that merely seeks to protect the free exercise rights of its leaders. Here, organizations seeking constitutional standing must meet the minimum requirements. Acting through the rights of their founders, presidents, CEO’s, Deans or Board of Directors organizations can show a sufficient invasion of their free exercise rights to satisfy injury in-fact. Being coerced to act against the tenets of one’s faith surely satisfies the first standing requirement. It is certain that without amending the current final rule, the rights of these non-grandfathered groups, vis-à-vis their owners, will be violated on Aug. 1. 2013. 54 This is imminent enough to require court intervention now, as it can take years for a case to reach the Supreme Court and denial of standing will lead to the violation of free exercise rights for thousands of Catholic business owners, university presidents, and hospital directors across the nation. 55 The second requirement of standing

Simon, 426 U.S. at 38, 43. Stormans, Inc. v. Selecky, 586 F.3d 1109, 1120 (9th Cir. 2009) (citing E.E.O.C. v. Townley Eng'g & Mfg. Co., 859 F.2d 610 (9th Cir. 1988)); Legatus v. Sebelius, 901 F.Supp.2d 980 (E.D. Mich. 2012) (holding that a for-profit business had standing to assert the free exercise rights of its President, who opposed providing contraceptive coverage for religious reasons); see also Citizens United v. Fed. Election Comm'n, 558 U.S. 310, 342 (2010) (extending First Amendment free speech rights to corporations). 54 Certain Preventive Services Under the Affordable Care Act, 77 Fed. Reg. 16501-01 (proposed Mar. 21, 2012) (stating “[t]he temporary enforcement safe harbor is in effect until the first plan year that begins on or after August 1, 2013”). 55 See Florida ex rel. Atty. Gen. v. U.S. Dep’t of Health & Human Servs, 648 F.3d 1235, 1242-43 (11th Cir. 2011), cert. granted, 132 S. Ct. 603 (U.S. 2011), and cert. granted in part, 132 S. Ct. 604, 181 L. Ed. 2d 420 (U.S. 2011), and aff'd in part, rev'd in part sub nom. Nat'l Fed'n of Indep. Bus. v. Sebelius, 132 S. Ct. 2566 (U.S. 2012) (granting standing to a women in 2011 to whom harm would occur in 2014. Even the government “expressly conceded” standing). 52 53

is also easily met because without the HHS mandate there would be no injury to Catholic organizations that are opposed to providing contraceptives. Finally, the third requirement is met because is it likely that injury will be redressed favorably. 56 This final requirement only calls for “a substantial likelihood that injury in fact can be remedied by judicial decision.” 57 Here, a favorable judicial decision would remedy the injury in fact that Catholic organizations assert. Further favoring the various Catholic groups from being granted standing is the prudential “associational standing” doctrine. Under this judicially created theory, an association has standing to bring suit on behalf of its members, even in the absence of injury, if: (1) members have standing to sue on their own; (2) the interests the association seeks to protect are germane to its purpose; and (3) the proposed claim and relief does not require individual participation in the suit. 58 The applicability of associational standing is contingent on the type of relief sought. 59 If the association seeks declaratory relief, an injunction or some other form of prospective relief, it can reasonably be assumed that the remedy, if granted, will benefit the members of the association actually injured. 60 Applying this logic to the present dilemma, members of groups such as the Washington Archdiocese would have standing to sue on their own. In addition the Archdiocese seeks to protect the spiritual well-being of its members, which is critical to its purpose. The proposed claim would not require individual participation in the suit. 56 See O'Brien v. U.S. Dep't of Health & Human Servs., 12-3357, 2014 WL 4401187 (8th Cir. Sept. 8, 2014) (granting contraceptive mandate challenging appellants motion for stay pending appeal); see also Legatus v. Sebelius, 901 F. Supp. 2d 980 (E.D. Mich. 2012) (finding favorably for challenger to the mandate); Liberty Univ. v. Geithner 133 S. Ct. 679 (U.S. 2012) (granting a writ of certiorari to further consider the validity of the Affordable Care Act). 57 Freeman v. Corzine, 629 F.3d 146 (3d Cir. 2010). 58 Hunt v. Washington State Apple Adver. Comm'n, 432 U.S. 333, 342-43 (1977); Warth v. Seldin, 422 U.S. 490, 511 (1975). 59 Hunt, 432 U.S. at 343. 60 Id.

Thus, many Catholic-based groups, such as the Archdiocese of Washington have associational standing to sue on top of the minimum Article III standing requirements. Since the plaintiffs clearly have standing to sue, the analysis proceeds to the threshold issues proscribed by RFRA. IV. Threshold Issues a. Religious Conduct In any RFRA or First Amendment analysis, the courts must first determine whether religion and sincerely held religious beliefs are involved. Due to the subjective nature of the element of sincerity, this requires a case-specific inquiry. It is not within the scope of the judicial inquiry to question the centrality of particular beliefs or practices to a faith or the validity of a particular interpretation of those creeds. Rather, “[t]he Court's inquiry is limited to ‘whether a [person] sincerely holds a particular belief and whether the belief is religious in nature.’” 61 “It is not within the judicial function and judicial competence to inquire” whether a party is correctly understanding his religious doctrine as “[c]ourts are not arbiters of scriptural interpretation.” 62 While courts have held that ridiculous claims are not “religion” under RFRA, surely Roman Catholicism is one of the most well established religions in the world with an estimated 1.2 billion followers and transparent doctrinal opposition to the use and promotion of contraceptives and other sterilization methods. 63 According to Humanae

61 Sample v. Lappin, 424 F. Supp. 2d 187, 193 (D.D.C. 2006) (quoting Jolly v. Coughlin, 76 F.3d 468, 476 (2d Cir. 1996). 62 Thomas v. Review Bd. of Indiana Employment Sec. Div., 450 U.S. 707, 716 (1981). 63 See United States v. Meyers, 95 F.3d 1475 (10th Cir. 1996) (holding that the “Church of Marijuana” did not satisfy requirements for “religion” under RFRA); but see Hartwig v. Albertus Magnus Coll., 93 F. Supp. 2d 200 (D. Conn. 2000) (finding a Catholic college sufficiently affiliated with Roman Catholic Church to invoke protections of Free Exercise Clause); E.E.O.C. v. Catholic Univ. of Am., 83 F.3d 455 (D.C. Cir. 1996) (finding that a department religious cannon law within Catholic University of America

Vitae, an encyclical written by Pope Paul VI and issued on July 25, 1968 by the Roman Catholic Church, contraception is forbidden by natural law. 64 Pope Paul VI writes, about the prohibition of contraception: “[e]qually to be excluded . . . is any action which, in anticipation of the conjugal act, or after its accomplishment . . . whether as an end or as a means, to render procreation impossible.” 65 This was reiterated in the Catechism of the Catholic Church: "every action which, whether in anticipation of the conjugal act, or in its accomplishment, or in the development of its natural consequences, proposes, whether as an end or as a means, to render procreation impossible is intrinsically evil." 66 Any action, including providing abortifacients and contraceptives for employees to use, taken to destroy or prevent a life from being created is sinful and contrary to a fundamental tenet of the Catholic faith. Thus, so long as the court finds the individual or group to be sincere, the religious threshold is met by anyone who has been baptized and completed the confirmation program required by the Roman Catholic Church. b. Substantial Burden The second threshold issue required by a RFRA free exercise analysis is proof of a substantial burden. “Government shall not substantially burden a person's exercise of religion even if the burden results from a rule of general applicability, except as provided in subsection (b) of this section.” 67 Government action imposes a “substantial burden” on

was operating under the direct supervision of the Holy See in Rome, and consequently an arm of a clearly religious body with a religious function, protected from governmental interference by RFRA). 64 POPE PAUL VI & MARC CALIGARI, HUMANAE VITAE: ENCYCLICAL LETTER OF HIS HOLINESS POPE PAUL VI, ON THE REGULATION OF BIRTHS (Ignatius Press) at 11 (1983). 65 Id. at 14 (citing Council of Trent Roman Catechism, Part II, ch. 8; Pius XI, encyc. letter Casti connubii: AAS 22 (1930), 559-561; Pius XII, Address to Midwives: AAS 43 (1951), 843; to the Society of Hematology: AAS 50 (1958), 734-735 [TPS VI, 394-395]; John XXIII, encyc.letter Mater et Magistra: AAS 53 (1961), 447 [TPS VII, 331]. 66 LIBRERIA EDITRICE VATICANA, CATECHISM OF THE CATHOLIC CHURCH § 2370 (Libreria Editrice Vaticana) (2d ed. 2000). 67 Congressional findings and declaration of purposes, 42 U.S.C.A. § 2000bb-1(a).

the free exercise of religion only when government action forces individuals to choose between following tenets of their religion and receiving a governmental benefit or coerces them to act contrary to their religious beliefs by threat of civil or criminal sanctions. 68 Any lesser burden is not a "substantial burden" within meaning of RFRA. 69 A majority of federal courts have ruled that a “substantial burden” is more than an inconvenience. 70 The Supreme Court has held that “putting substantial pressure on an adherent to modify his behavior and to violate his beliefs” substantially burdens a person's exercise of religion. 71 Accordingly, courts often simply assume that a law substantially burdens a person's exercise of religion when claimed. 72 Given the current state of the law, plaintiffs are charged with the burden of proving that their case fits into either the Sherbert or Yoder framework if the court does not simply assume the mandate substantially burdens the exercise of religion. 73 This set of facts does not neatly fit into a Sherbert framework because Catholics are not being forced to choose between following tenets of their faith and receiving a government benefit.

68 Navajo Nation v. U.S. Forest Serv., 535 F.3d 1058 (9th Cir. 2008); United States v. Lafley, 656 F.3d 936 (9th Cir. 2011); Ruiz-Diaz v. United States, 703 F.3d 483 (9th Cir. 2012). 69 Id. 70 Id.. See also Worldwide Church of God v. Philadelphia Church of God, Inc., 227 F.3d 1110 (9th Cir. 2000); Multi Denominational Ministry of Cannabis and Rastafari, Inc. v. Gonzales, 474 F. Supp. 2d 1133 (N.D. Cal. 2007); Rocky Mountain Christian Church v. Bd. of Cnty. Comm'rs. of Boulder Cnty., Colo, 481 F. Supp. 2d 1213 (D. Colo. 2007). 71 Legatus v. Sebelius, 901 F. Supp. 2d 980, 991 (E.D. Mich. Oct. 31, 2012) (citing Thomas v. Review Bd. of Ind. Emp't Sec. Div., 450 U.S. 707, 718 (1981)). 72 See Legatus v. Sebelius, 901 F.Supp.2d 980, 991 (E.D. Mich. 2012) (stating “the court assumes that the Weingartz plaintiffs are likely to show at trial that the HRSA Mandate substantially burdens the observance of the tenets of Catholicism”); see also U.S. v. Lee, 455 U.S. 252, 257 (1982) (stating “[w]e therefore accept appellee's contention that both payment and receipt of social security benefits is forbidden by the Amish faith”); May v. Baldwin, 109 F.3d 557, 563 (9th Cir. 1997) (stating “we will assume that undoing May's dreadlocks imposes a substantial burden on his exercise of Rastafarianism”); Hamilton v. Schriro, 74 F.3d 1545, 1552 (8th Cir. 1996) (stating “we assume that the regulations and policies at issue in the present case substantially burden Hamilton's exercise of his religion”). 73 Supra, note 36.

To have a valid RFRA and free exercise claim, Catholic organizations must show that their current free exercise crisis fits within the Yoder framework. In Yoder members of the Amish religion were convicted of violating a Wisconsin law that required their children to attend school until the age of sixteen, under the threat of criminal sanctions for the parents. 74 Importantly here, the fine imposed was $5 each per child in 1968, but the maximum penalty under the law was a fine and three months in jail. 75 When adjusted for inflation, the penalty would equal approximately $32 in 2011. 76 The Amish parents sincerely believed that a child’s attendance in high school was contrary to their Amish faith and way of life. 77 Therefore, the Supreme Court held the application of the compulsory school-attendance law unduly burdened the exercise of their religion, in violation of the Free Exercise Clause. 78 Furthermore, “the Wisconsin law affirmatively compel[led] [the defendants], under threat of criminal [or civil] sanction, to perform acts undeniably at odds with fundamental tenets of their religious beliefs.” 79 The HHS mandate, as applied to Catholic organizations, fits directly into the Yoder framework. Just as Catholics sincerely believe that providing contraceptives to themselves and others is a sin, the HHS mandate compels Catholics to perform acts at odds with the fundamental tenets of the Catholic faith. Providing birth control and other abortifacients under threat of heavy civil sanction satisfies the threshold of establishing substantial burden under the Yoder coercion framework, establishing a prima facie case for a free exercise violation under RFRA. A fine of $2,000 per year per employee, which is 60

Yoder, 406 U.S. at 207-08. Id. at 239 n. 2. 76 THE INFLATION CALCULATOR, http://www.westegg.com/inflation. 77 Yoder, 406 U.S at 209. 78 Id. at 234. 79 Id. at 218. 74 75

times greater than the fine imposed on the Amish parents per child, even after being adjusted for inflation, should be “substantial” enough to convince any court of this burden. 80 V.

Strict Scrutiny The final step in a RFRA analysis is to determine if the governmental interest in

violating the free exercise rights of Catholics passes strict scrutiny. “Government may substantially burden a person's exercise of religion only if it demonstrates that application of the burden to the person: (1) is in furtherance of a compelling governmental interest and (2) is the least restrictive means of furthering that compelling governmental interest.” 81 Notably at this stage of a RFRA analysis, the burden of proof shifts from the plaintiff to the government. 82 Once plaintiffs show a substantial burden, the government has effectively lost the case (with a few exceptions). In the words of one court, “only those interests of the highest order and those not otherwise served can overbalance legitimate claims to the free exercise of religion.” 83 The government has, and likely will continue to advocate that they have several compelling interests worth substantially burdening Catholics. a. Compelling Interest

80 Compare id. and Navajo Nation v. U.S. Forest Serv., 535 F.3d 1058, 1070 (9th Cir. 2008) (finding no substantial burden on a Native American tribe for their religious use of a mountain in part because they were not fined or penalized in any way for practicing their religion on the Peaks). 81 42 U.S.C.A. § 2000bb-1 (b). 82 Gonzales v. O Centro Espirita Beneficente Uniao do Vegetal, 546 U.S. 418, 430 (2006) (holding that the government has the burden of proving a compelling interest in accordance with RFRA). 83 Sample v. Lappin, 424 F. Supp. 2d 187, 195 (D.D.C. 2006) (quoting Wisconsin v. Yoder, 406 U.S. 205, 215 (1972)). See also O Centro Espirita Beneficiente Uniao Do Vegetal v. Ashcroft, 389 F.3d 973, 1001 (10th Cir. 2004) (aff'd and remanded sub nom). See also Gonzales 546 U.S.

A main point the government will likely argue is that they have a compelling interest in the uniform application of ACA. 84 Contrarily, the current “grandfather” exception deliberately excludes 191 million individuals, in a very non-uniform manner. 85 “[A] law cannot be regarded as protecting an interest of the highest order . . . when it leaves appreciable damage to that supposedly vital interest unprohibited.” 86 In comparison, the Court in Lee found a “broad public interest in maintaining a sound tax system of such a high order, religious belief in conflict with the payment of taxes affords no basis for resisting the tax.” 87 The whole tax system would suffer from individuals having the ability to reject taxes on a religious basis. Without taxes, government services would be cut or eliminated; therefore, the government interest in a uniform tax code is compelling enough to require participation, even if it burdens religious freedom. This is not the case for the HHS mandate: the “grandfather” exemption completely undermines any compelling interest in applying the preventive care coverage mandate to Catholics to ensure uniformity. Unlike not paying taxes, not providing contraceptive coverage does not impose the cost sharing concern that is voiced as a primary reason for having uniformity of tax obligations. If a Catholic business or university excludes contraceptives from their coverage, and the insurance companies charge the same premium as if contraceptives were included, it will not make non-

84 Gonzales, 546 U.S. at 421 (“The Government has not shown that granting UDV an exemption would cause the kind of administrative harm recognized as a compelling interest in, e.g. Lee”). 85 Supra, note 13. 86 Church of the Lukumi Babalu Aye, Inc. v. City of Hialeah, 508 U.S. 520, 547 (1993); See also United States v. Friday, 525 F.3d 938, 958 (10th Cir.2008). 87 United States v. Lee, 455 U.S. 252, 260 (1982). See Hernandez v. C.I.R., 490 U.S. 680, 699-700 (1989); Adams v. C.I.R., 170 F.3d 173, 178 (3d Cir. 1999). See also United States v. Philadelphia Yearly Meeting of the Religious Soc'y of Friends, 322 F. Supp. 2d 603 (E.D. Pa. 2004) (finding a tax levy on Quakers substantially burdened the organization's exercise of religion within meaning of RFRA, but the levy furthered government's compelling interest in quickly and inexpensively discharging employee's deficiency).

Catholic companies and organizations premiums go up. Therefore, the only burden would be administratively on insurance companies, not the rest of the American public like in Lee. Since the ACA is itself a monumental administrative burden on insurance companies, it is likely that they already have the human capital to handle such burden. 88 The government will likely also argue that allowing Catholics to be excluded would undermine their ability to satisfy Congress's goals of improving the health of women. It is well settled that the interest asserted in this case, the promotion of public health, is at times a compelling government interest. 89 Everyone can agree that many important women’s public health benefits stem from the contraceptive mandate. 90 That is not the question in a RFRA compelling interest analysis. “RFRA requires the Government to demonstrate that the compelling interest test is satisfied through application of the challenged law to . . . the particular claimant whose sincere exercise of religion is being substantially burdened.” 91 Therefore, one must ask whether the contraceptive mandate benefits public health by forcing Catholics to provide contraceptives against their will. Here, the government may have a compelling interest to work with, although not all courts have been so sure. 92

Supra, note 1. Newland v. Sebelius, 881 F. Supp. 2d 1297 (D. Colo. 2012). (citing Buchwald v. Univ. of N.M. Sch. of Med., 159 F.3d 487, 498 (10th Cir. 1998)); See also Regents of Univ. of Cal. v. Bakke, 438 U.S. 265, 310 (1978) (stating “[i]t may be assumed that in some situations a State's interest in facilitating the health care of its citizens is sufficiently compelling to support the use of a suspect classification”); Mead v. Holder, 766 F.Supp.2d 16, 43 (D.D.C.2011) (stating “[t]he Government clearly has a compelling interest in safeguarding the public health by regulating the health care and insurance markets”). 90 Chad Brooker, Making Contraception Easier to Swallow: Background and Religious Challenges to the HHS Rule Mandating Coverage of Contraceptives, 12 U. Md. L.J. Race, Religion, Gender & Class 169, 173 (2012) (describing in detail the statistical benefits of including contraception in preventative care). 91 Gonzales, 546 U.S. at 430–31. 92 See Legatus v. Sebelius, 901 F. Supp. 2d 980, 995 (E.D. Mich.2012) (stating that “[t]he court has no doubt that every level of Government has an interest in promoting public health as a general matter, but remains uncertain that the Government will be able to prove a compelling interest in promoting the specific interests at issue in this litigation). See also Tyndale House Publishers, Inc. v. Sebelius, 904 F. Supp. 2d 88 89

Finally, the government may argue a compelling interest in equalizing the coverage of preventive services for women and men so that women who choose to do so can be part of the workforce on an equal playing field with men (hereinafter “gender equality”). It is a well-known fact that women, because of their gender-specific reproductive needs, pay more than men for necessary preventative measures not covered under many insurance plans. 93 This interest in gender equality is persuasive, but well outweighed by the public interest in the free exercise of religion. 94 b. Least Restrictive Means On a challenge under RFRA alleging that a federal law that burdens religious exercise is not the least-restrictive means to advance a compelling governmental interest, “the government's burden is two-fold: it must support its choice of regulation, and it must refute the alternative schemes offered by the challenger.” 95 The government fails this test by having regulations that are over broad and under inclusive, or possibly both. 96 Here, the regulations are under-inclusive because they exclude somewhere around 100 million women of reproductive age from access to contraceptive coverage. 97 Moreover, they are also too broad, and could be more narrowly tailored to get more American women access to contraceptive coverage, while respecting the religious rights of Catholics. Some may question whether this mandate will even benefit women’s public 106, 129 (D.D.C. 2012) (finding no compelling interest and stating, “the plaintiffs have shown a strong likelihood of success on the merits of their RFRA claim”). 93 See 2009 WL 4280093; 155 Cong. Rec. S12021–02, S12027 (daily ed. Dec. 1, 2009) (statement of Sen. Gillibrand) (stating “in general women of childbearing age spend 68 percent more in out-of-pocket health care costs than men”). 94 Compare free exercise rights (fundamental and subject to strict scrutiny) and gender equality (not a suspect class, subject to intermediate scrutiny). It has been the opinion of the courts and the founding fathers that freedom of religion is of the utmost importance—valued even higher than gender equality. 95 U.S. v. Wilgus, 638 F.3d 1274, 1289 (10th Cir. 2011). 96 Church of the Lukumi Babalu Aye, 508 U.S. at 543 (finding that regulations protecting public health and preventing animal cruelty were “under-inclusive for those ends”). 97 Supra note 6 (calculated by taking roughly half of 191 million people).

health at all, considering 85 percent of large employers and 62 percent of small employers already offer coverage of FDA-approved contraceptives. 98 Even if a court were to find a compelling interest in public health, the most likely out of the three options, coercing Catholics to provide contraceptive coverage against their will, is not the least restrictive means. There are many ways in which the government’s interest in promoting women’s reproductive health can be served, without violating the free exercise rights of Catholic-based organizations. One way would be to expand the “religious employer” exception to allow groups who are morally opposed to have plans that don’t include contraceptives. Women’s health will still be better off than it was prior to the contraceptive mandate, and the government would get the maximum number of women covered without violating the rights of Catholic-based groups and businesses. HHS may also want to consider eliminating the “grandfather” exception and making it administratively easier on themselves: either an organization is a religious employer (not required to include contraceptives) or not (still must include contraceptive coverage). Another possible way to achieve the interest of women’s reproductive health would be to allow women who work for a Catholic employer to request (outside of work) for insurance companies to provide a separate contraceptive card that would allow all the necessary services the government wishes these women to have. The Catholic businesses and universities would not be charged a discounted rate for denying contraceptive coverage on their plan, therefore insurance companies would be able to use the money Id. at 109 (stating “[a] more recent 2010 survey of employers found that 85 percent of large employers and 62 of small employers offered coverage of FDA-approved contraceptives.”) Citing Claxton, G., B. DiJulio, B. Finder, J. Lundy, M. McHugh, A. Osei-Anto, H. Whitmore, J. D. Pickreign, and J. Gabel. 2010. Employer health benefits—2010 Annual Survey. Menlo Park, CA: The Kaiser Family Foundation and Health Research & Educational Trust.

they save from not subsidizing contraceptives to make a separate program or plan that covers contraceptives only available for employees of groups that are exempt from contraceptive coverage. The Catholic organizations would not directly provide contraceptive coverage to employees and these same employees would have the option to get no-cost contraceptive coverage if they elect to do so. The initial implementation of having a separate “contraceptive plan” would be a minimal administrative burden on insurance companies at first, but would be a viable option in the long run. Another possible way of achieving adequate low-cost contraceptive coverage for all women who desire it would be to have the government-run Planned Parenthood expand to offer contraceptives to employees of Catholic-based businesses and universities. They already offer contraceptives to low-income individuals and minors at no-cost. Proof of employment at a company that fits within the new and improved “religious employer” exception would be another means by which free birth control and services would be provided. This is less restrictive on the Catholic organizations’ free exercise rights, yet offers health coverage to women who wish to receive it. In terms of funding, costs could be made refundable by the well-known scheme of credits offered by the Internal Revenue Service. Unless the government can more adequately support its choice of expanding women’s contraceptive coverage and refute the three proposed alternatives being less restrictive on the rights of Catholic organizations, they fail to meet the least restrictive means analysis under RFRA. VI.

Hobby Lobby and Beyond

The scene in the Federal Courts across America can be best described as a judicial nightmare. The HHS contraceptive mandate has sparked a wave of litigation by religious organizations and closely held companies seeking to be excluded from the aforementioned burden that is being imposed on their free exercise rights. 99 Federal District Courts, the Circuit Courts, and now the U.S. Supreme Court have attempted to settle many of the nearly two dozen issues raised surrounding this ongoing litigation, often doing so in contradictory ways. The Supreme Court decision in Burwell v. Hobby Lobby was an enormous victory for similarly situated plaintiffs and sets a strong precedent protecting religious freedom going forward; however, it did not completely invalidate the contraceptive mandate or ACA. 100 The majority opinion, written by Justice Alito, declared that familyowned corporations like Hobby Lobby cannot be forced to pay for insurance coverage for contraception for employees over their religious objections. In effect, this ruling is significant because it means that (1) RFRA applies to corporations, 101 (2) the contraceptive mandate places a substantial burden on similarly situated companies, 102 and (3) HHS has not chosen the least restrictive means to further a compelling governmental interest. 103

Supra, note 31. v. Hobby Lobby Stores, Inc., 134 S. Ct. 2751 (2014). 101 Id. at 2768 (stating that “it is important to keep in mind the purpose of the fiction [that corporations are people] is to provide protection for human beings”). 102 Id. at 2759 (holding that “if they do not comply, they will pay a very heavy price—as much as $1.3 million per day, or about $475 million per year, in the case of one of the companies. If these consequences do not amount to a substantial burden, it is hard to see what would”). 103 Id. (holding that “[t]here are other ways in which Congress or HHS could equally ensure that every woman has cost-free access to the particular contraceptives at issue here and, indeed, to all FDA-approved contraceptives”). 99

100 Burwell

Due to the fact that the case did not completely overrule the ACA, the District and Circuit Courts will continue to define the issues that were not specifically addressed in Hobby Lobby, such as whether publicly traded or privately held yet non-conforming corporations are entitled to receive the same protection that RFRA provides to closely held businesses. Notably in Hobby Lobby, both companies were owned and controlled by members of a single family and the sincerity of their religious beliefs was not disputed. 104 In addition, it will be interesting to see how HHS reacts to the ruling and whether their efforts to decrease the substantial burden on these organizations going forward will hold true. Over 100 cases remain pending in the Federal Courts and nearly 20 issues that the Hobby Lobby decision did not settle. In order to completely protect Catholic based organizations and businesses going forward, the Supreme Court must continue to firmly hold that these religious organizations are protected by the Free Exercise Clause, and limit application of the HHS contraceptive mandate. As groups such as the Becket Fund, the American Center for Law and Justice, and the Alliance Defending Freedom continue to fight it out with Kathleen Sebeliusâ&#x20AC;&#x2122; successor, Sylvia Burwell, it is in the best interest of all parties involved to reach a compromise that both (1) allows Catholics to maintain their religious freedom, and (2) for women across the nation to have increased access to the contraceptive care they deserve. As suggested by Justice Alito and many others, this can be done by simply expanding the â&#x20AC;&#x153;religious employerâ&#x20AC;? exception to include all faith-based groups, businesses and organizations alike, religiously opposed to providing contraceptive coverage. Religious liberty may have won the battle, but the war is still on going and with

104

Id. at 2774.

a narrow 5-4 decision, things can change quickly with a new set of facts or change of heart of one of the nine Justices.

RELIGIOUS PRETENDERS IN THE COURTS: UNMASKING THE IMPOSTERS By John O. Hayward ABSTRACT & OUTLINE Abstract: When courts decide First Amendment “Free Exercise” cases, they often are confronted with the daunting task of defining what exactly a “religion” is. This article examines how judicial definitions and interpretations of religious faith have evolved over many decades, including legal recognition of Wicca (modern day witchcraft) and Hare Krishna as “religions,” as well as courts steering clear of the issue whenever possible, for example, when faced with an adherent of the “Church of Body Modification” who claims her employer’s dress code violates her religion. It also explores how courts have sought to uncover deception and fraud hiding behind disingenuous invocations of religious belief, especially regarding marijuana use. Finally, it advances a definition of “religion” in the hope of advancing judicial appreciation and understanding of this age-old human phenomenon. Outline: I.

INTRODUCTION

II.

WHAT IS A “RELIGION”? A. Definitional Difficulties B. Judicial Interpretations of Religion C. Religious Inclusiveness • Dettmer v. Landon • International Society for Krishna Consciousness, Inc. v. Barber

III.

RELIGIOUS PRETENDERS A. Alleged Religious Justification for Marijuana Use 1. The “Great Pretender” of Religious Pretenders 2. The Court Puts “Religion” to the Test 3. A Sincere Religious Pretender

4. An Insincere Religious Pretender B. A Religious Pretender in the Workplace – Facial Jewelry & The Church of Body Modification IV.

A MODEST PROPOSAL DEFINING “RELIGION”

CONCLUSION

RELIGIOUS PRETENDERS IN THE COURTS: UNMASKINGS THE IMPOSTERS By John O. Hayward * First Amendment protection [can be denied] to so-called religions which tend to mock established institutions and are obviously shams and absurdities and whose members are patently devoid of religious sincerity. 1

INTRODUCTION When courts decide First Amendment “Free Exercise” cases, they often are confronted

with the daunting task of defining what exactly a “religion” is. This article examines how judicial definitions and interpretations of religious faith have evolved over many decades, including legal recognition of Wicca (modern day witchcraft) and Hare Krishna as “religions,”

as well as courts steering clear of the issue whenever possible, for example, when faced with an adherent of the “Church of Body Modification” who claims her employer’s dress code violates her religion. 3 It also explores how courts have sought to uncover deception and fraud hiding behind disingenuous invocations of religious belief, especially regarding marijuana use. 4 Finally, it advances a definition of “religion” in the hope of advancing judicial appreciation and understanding of this age-old human phenomenon.

M.P.A., Harvard Univ., J.D. & A.B., Boston Univ.; Adjunct Senior Lecturer, Bentley University, Waltham, MA. Ainsworth, C.J., in Theriault v. Carlson, 495 F.2d 390, 395 (5th Cir. 1974). 2 See Dettmer v. Landon, 799 F. 2d 929, 934 (4th Cir. 1986); see also Int’l Soc’y for Krishna Consciousness, Inc. v. Barber, 650 F.2d 430, 447 (2d Cir. 1981). 3 Cloutier v. Costco Wholesale Corp., 390 F. 3d 126, 128 (1st Cir. 2004), cert. denied. 545 U.S. 1131 (2005); see infra Section III B. 4 See infra Section III A. 1

II.

WHAT IS A “RELIGION”?

A. Definitional Difficulties Defining “religion” is no easy matter. The word derives from the Latin religare [“to bind fast”]. 5 Of course, one can always use the dictionary definition, 6 but its utility is rather limited when deciding Free Exercise cases. To give the reader a proper understanding of the profound implications of the concept, it is worthwhile to recall the comments of a respected authority on the subject: All religions say in one way or another that man does not, and cannot, stand alone. He is vitally related with and even dependant on powers in Nature and Society external to himself. Dimly or clearly, he knows that he is not an independent center of force capable of standing apart from the world. 7 Although belief in God in the higher religions has sometimes led men to think meanly of the world around them, in the faith that they are pilgrims and strangers here on earth, and heaven is their home, this belief is far from typical of men’s religions in general; it is in fact a special sort of belief produced under special conditions. The general attitude is that the relation between man and his world is organic and vital, not accidental and external. If the outer face of Nature is sometimes mistrusted, it is usually in the name of something deeper within that is assigned a higher degree of reality. 8 As these excerpts illustrate, the existence of God or a Supernatural Being is not a requirement for a religion as the U.S. Supreme Court in Torcaso v. Watkins 9 acknowledged, thereby seemingly repudiating Chief Justice Hughes in United States v. MacIntosh. 10 It has been argued that courts should not define religion and that any attempt to do so could violate religious

W.L. REESE, DICTIONARY OF PHILOSOPHY AND RELIGION: EASTERN AND WESTERN THOUGHT 488 (1980). THE AMERICAN HERITAGE DICTIONARY OF THE ENGLISH LANGUAGE 1099 (1971) (defining religion as “the belief in and reverence for a superhuman power recognized as the creator and governor of the universe.”) 7 JOHN BOYER NOSS, MAN'S RELIGIONS 2 (3rd ed. 1963). 8 Id. 9 Torcaso v. Watkins, 367 U.S. 488, 495-96 (1961); see also SAMUEL J. LEVINE, A Look At The Establishment Clause Through The Prism Of Religious Perspectives: Religious Majorities, Religious Minorities, And Nonbelievers, 87 CHI.-KENT L. REV. 775 (2012) (discussing the Court's adjudication of Establishment Clause cases in the context of different religious perspectives, including religious majorities, minorities, and nonbelievers). 10 U.S. v. Macintosh, 283 U.S. 605, 633-34 (1931) (“The essence of religion is belief in a relation to God involving duties superior to those arising from any human relation.”) 5 6

freedom because it would dictate to religions what they must be. 11 On the other hand, it has also been said that failing to define religion could violate the principle of the Free Exercise Clause. 12 Nonetheless, the plain language of the First Amendment requires a definition of “religion” specific enough to allow courts to distinguish between religious belief and non-religious belief. 13 But as Chief Justice Burger said in Thomas v. Review Board, “The determination of what is a ‘religious’ belief or practice is more often than not a difficult and delicate task …” 14 While definitions of religion vary, it is recognized that a common thread uniting all belief systems that can be termed “religious” is: [T]hat they are in some way connected with “the eternal”, whether that is understood as an eternal Being outside man – God, or as the eternity of man’s own being – immortality. We see that it is possible for a religion to be strictly godless, as in the case of early Buddhism, which recognizes neither God nor Absolute, yet is nonetheless a religion and generally recognized as such…. [I]n all religions there are, in different proportions, three main ingredients – faith, a desire to ‘belong’ and a desire for ‘escape’.” 15 Faith means either belief in the ‘mission’ of a certain individual or group – prophet, incarnate god or church – or assent to a particular interpretation of existence, which enjoys the authority of antiquity or of human sages of proved experience. Faith in a personal god expresses itself in practical worship; faith in a given interpretation of existence finds its practical application in the schooling of the mind and body in an effort to realize the spiritual state [that] this interpretation of existence claims is man’s spiritual goal. 16 The desire to ‘belong’ is not, of course, a specifically religious phenomenon, but it is present, to a greater or lesser degree, in all religions. It may manifest itself in all kinds of ways. At its simplest it is the desire to be incorporated into a spiritual See Ben Clements, Defining "Religion" in the First Amendment: A Functional Approach, 74 CORNELL L. REV. 532, 533, n.6 (1989) (citing Jonathan Weiss, Privilege, Posture and Protection: "Religion" in the Law, YALE L.J. 593, 604 (1964). 12 Id. at 533, n.8 (citing LAURENCE H. TRIBE, AMERICAN CONSTITUTIONAL LAW §14-6, (2d ed. 1988) at 1314). 13 Id. at 533. 14 Thomas v. Rev. Bd. of Ind. Emp’t Sec. Div., 450 U.S. 707, 714 (1981). 15 ENCYCLOPEDIA OF THE WORLD'S RELIGIONS 393 (R.C. Zahner ed.1997). See generally Jesse H. Choper, Defining Religion in the First Amendment, U. ILL. L. REV. 579 (1982); James M. Donovan, God is as God Does: Law, Anthropology, and the Definition of "Religion," 6 SETON HALL CONST. L.J. 25 (1995). On the related topic of what is a church; see also Mason Powell, Ecclesia Semper Reformanda Est: Radical Reformation and the IRS. 101 KY. L.J. 207 (2012-13). 16 ENCYCLOPEDIA OF THE WORLD'S RELIGIONS 393 (R.C. Zahner ed.1997). 11

society and to become integrated within it, as a part of the body is in the body itself. Alternatively, as in nature mysticism, it may express itself as a merging in the ‘all’. In its extreme form…this merging in the ‘all’ is transcended, and the individual, by the act of casting off individuality, becomes identical with the ‘all’. 17 The desire to ‘escape’ … is present in all religions. … It is on the matter of that from which release is sought that religions so profoundly disagree. The Christian seeks release from the bondage of sin; the Buddhist seeks release from human existence as such. Islam, on the other hand, which accepts this world as God’s creation and field of operation, was nevertheless unable wholly to resist the pressure of its own mystics who turned their backs on this world entirely. 18 One commentator, “[w]riting mainly of the Abrahamic traditions of the West, but with perceptive comparisons to Buddhism, … explains religion in terms of belief in an agency or power that transcends the immanent order – by which he means the operations of the natural world.” 19 For this observer, [R]eligion relates to “the beyond,” to an otherworldly order of things, but not in just any way. He posits three specific dimensions. First, religion asserts that there is some higher good or ultimate end beyond ordinary human flourishing. Second, it includes the possibility of personal transformation, to insure that the higher good is achieved. This, in turn, involves the existence of a transformative and transcendent power. Third, the religious account of our possible transformation involves a sense of human life extending beyond “this life.” 20 In summary, this furnishes us with a useful framework to interpret religious beliefs for Free Exercise cases. Namely, an otherworldly order of things and an otherworldly dimension to human lives; an ultimate good that transcends worldly kinds of flourishing; the possibility of spiritual transformation, and the existence of transcendent and transformative powers. B. Judicial Interpretations of Religion Before we turn to how American courts have wrestled with defining religion (or avoiding defining it), it would be instructive to note how the High Court of Australia dealt with the issue

Id. Id. at 393-94. 19 RUSSELL B LACKFORD, FREEDOM OF RELIGION AND THE SECULAR STATE 6 (2012) (citing CHARLES TAYLOR, A 17 18

in a case involving whether Scientology was a “religion.” 21 In Church of the New Faith v. Commissioner of Pay-Roll Tax (VIC), 22 five members of the court considered whether the Church of the New Faith, i.e. Scientology, was a “religious institution” exempt from pay roll taxes in the state of Victoria. To do so required the justices to determine whether the beliefs, practices and observances could properly be described as a “religion”. All five concluded that indeed Scientology was a religion, though for different reasons. 23 Two of the justices based their decision on two criteria: a belief in a supernatural Being, Thing or Principle and the acceptance of cannons of conduct that gave effect to that belief. 24 Another justice held that the organization was “religious” if (1) its beliefs or practices revived or resembled those of earlier cults; (2) it claimed belief in a supernatural being or beings, such as gods or spirits, whether they were visible, invisible, or abstract; or (3) it offered a way to find meaning and purpose in life. 25 The remaining two justices developed a conception of religion from empirical observation of accepted religions. They identified several indicia that they considered helpful in deciding whether a set of ideas or practices amounted to a “religion” for purposes of the law: (1) ideas and/or practices involving belief in the supernatural (a reality extending beyond what can be perceived by the senses); (2) ideas relating to humanity’s nature and place in the universe, and its relationship to the supernatural reality; (3) acceptance by the adherents that the ideas require or encourage them to observe standards or codes of conduct, or to participate in practices with supernatural significance; (4) the adherents forming an identifiable group or groups; and possibly, (5) their perception of the collection of ideas and/or practices as constituting a

SECULAR AGE 15 (2007)). 20 Id. at 15-20 (citing TAYLOR). 21 Id. at 7-10. 22 (1983) 154 CLR 120 (Vict.) (Cited in B LACKFORD at 18). 23 BLACKFORD, supra note 19 at 8. 24 Id. at 9. 25 Id.

religion. 26 These definitions are rather conventional and, it can be argued, lack theological depth and breath. Early U.S. Supreme Court cases attempting to define religion usually did so “very narrowly in terms of a God or a Creator.” 27 For example, in 1890 the Court stated that “[t]he term 'religion' has reference to one's views of his relations to his Creator, and to the obligations they impose of reverence for his being and character, and of obedience to his will." 28 But as was mentioned earlier, in Torcaso v. Watkins 29 the Supreme Court abandoned faith in God as the touchstone for religious belief, 30 remarking that "among religions in this country which do not teach what would generally be considered a belief in the existence of God are Buddhism, Taoism, Ethical Culture, Secular Humanism and others." 31 Perhaps the most wide-ranging deliberations on the meaning of religion courts have ever provided are in cases interpreting the conscientious objector exemption from military service. In United States v. Seeger 32 the Court interpreted the Universal Military Training and Service Act 33 that exempted from combat persons who objected to participation "by reason of religious training and belief." The Act defined "religious training and belief" as "an individual's belief in a

Id. at 9-10. Clements, supra note 11, at 536-537. 28 Id. at 537, see also id. FN 24 ”Davis v. Beason, 133 U.S. 333, 342 (1890); see also United States v. MacIntosh, 283 U.S. 605, 633-34 (1931) (Hughes, C.J., dissenting) ("the essence of religion is belief in a relation to God involving duties superior to those arising from any human relation”)”. 29 Id. at 537, see also id. at FN 25 citing Torcaso, 367 U.S. 488 (1961); see also Kent Greenawalt, Religion as a Concept in Constitutional Law, 72 CAL. L. REV. 753, 757-58 (1984); see also Note, Toward a Constitutional Definition of Religion, 91 HARV. L. REV. 1056, 1060 n.26 (1978). 30 Id. at 537, see also id. at FN 26 citing United States v. Ballard, 322 U.S. 78, 8687 (1944) (suggesting a less rigid approach to the concept of religion) (“[F]reedom of religious belief . . . embraces the right to maintain theories of life and of death and of the the thereafter which are rank of heresy to followers of the orthodox faiths.”). 31 Id. at 537, citing Torcaso, 367 U.S. at 495 n. 11 (1961). 32 United States v. Seeger, 380 U.S. 163 (1965); see also Robert L. Rabin, When is a Religious Belief Religious: United States v. Seeger and the scope of Free Exercise, 51 CORNELL L.Q. 231 (1966); see also Clark, Guidelines for the Free Exercise Clause, 83 HARV. L. REV. 327, 340 (1969) (arguing “[T]he principal interest protected by the free exercise clause is an individual’s interest in not being forced to violate the compelling requirements of conscience.”). 33 Military Selective Service Act, 50 U.S.C. app. §§ 451473 (2006). 26 27

relation to a Supreme Being involving duties superior to those arising from any human relation, but [excluding] essentially political, sociological or philosophical views or a merely personal moral code." 34 Despite Congress' apparent intent to limit the exemption to objections based on traditional religious beliefs, the Court held that this definition applied to Seeger who had stated that "he preferred to leave the question as to his belief in a Supreme Being open," and that his objection was based on a "belief in and devotion to goodness and virtue for their own sakes, and a religious faith in a purely ethical creed." 35 The Court held that "Congress, in using the expression 'Supreme Being' rather than the designation 'God,' was merely clarifying the meaning of religious training and belief so as to embrace all religions and to exclude essentially political, sociological, or philosophical views." 36 The Court then held that the test for "belief in a relation to a Supreme Being is whether a given belief that is sincere and meaningful occupies a place in the life of its possessor parallel to that filled by the orthodox belief in God of one who clearly qualifies for the exemption." 37 The Court offered no insight as to the meaning of “occupying a place in the life of the possessor parallel to that filled by the orthodox belief in God” especially given the differences in content and strength of various religious convictions. The Court expanded Seeger in Welsh v. United States, 38 where a plurality of the Justices ruled that: if an individual deeply and sincerely holds beliefs which are purely ethical or moral in source and content but that nevertheless impose upon him a duty of conscience to refrain from participating in any war at any time, those beliefs 34 Compare Id. § 456(j), with Blackford, supra note 22, at 109-14 (arguing that religiously-based conscientious objector status for health care workers should be limited and narrowly construed). 35 Seeger, 380 U.S. at 166. 36 Id. at 165. 37 Id. at 165-66. See Malnak v. Yogi, 592 F.2d 197 (3d Cir. 1979) (Adams, J., concurring) (relying on Seeger, Judge Adams concludes that "the modern approach looks to the familiar religions as models in order to ascertain, by comparison, whether the new set of ideas or beliefs is confronting the same concerns, or serving the same purposes, as unquestioned and accepted 'religions.'"); Id. at 207; see also Africa v. Pennsylvania, 662 F.2d 1025, 1030 (3d Cir. 1981); Greenawalt, supra note 29, at 760-61 ("[T]he Supreme Court's broad statutory construction of religion [in Seeger and Welsh] . . . has led other courts and scholars to assume that the constitutional definition of religion is now much more extensive than it once appeared to be."). 38 Welsh v. United States, 398 U.S. 333 (1970).

certainly occupy in the life of that individual "a place parallel to that filled by God" in traditionally religious persons. 39 In Wisconsin v. Yoder 40 the Court made a distinction between philosophical beliefs and religious ones. In Yoder, the Court held that a group of Amish plaintiffs, who claimed that the state's requirement of compulsory education beyond the eighth grade violated their religion, were entitled to a religious exemption. They Justices remarked that "to have the protection of the Religion Clauses, the claims must be rooted in religious belief," and then they stressed the religious nature of the Amish beliefs, by contrasting these beliefs with philosophical beliefs: [I]f the Amish asserted their claims because of their subjective evaluation and rejection of the contemporary secular values accepted by the majority, much as Thoreau rejected the social values of his time and isolated himself at Walden Pond, their claims would not rest on a religious basis. Thoreau's choice was philosophical and personal rather than religious, and such belief does not rise to the demands of the Religion Clauses. 41 In Yoder the definition of “religion” was not an issue, since the state agreed that the nature of the Amish’s practices were religious. 42 C. Religious Inclusiveness Not only are courts called upon to define religion, but also from time to time they are asked to decide whether particular practices constitute a “religion” for purposes of the Free Exercise Clause. 43 Two prominent and highly instructive cases in this regard are Dettmer v.

Id. at 340. Wisconsin v. Yoder, 406 U.S. 205 (1972). One legal commentator believes the case should be overruled. See David Gan–Wing Cheng, Individual Rights: Wisconsin v. Yoder: Respecting Children’s Rights & Why Yoder Should Be Overruled, 4 CHARLOTTE L. REV. 45 (2013). See also Yoder, 406 U.S. at 241-46 (Douglas, J., dissenting in part) (disagreeing with majority opinion that schooling decision should be parents alone, rather after a certain age, children should be able to decide for themselves how much and what kind of education they should pursue). See also Rebecca Redwood French, From Yoder to Yoda: Models of Traditional, Modern, and Postmodern Religion in U.S. Constitutional Law, 41 ARIZ. L. REV. 49 (1999) (urging the legal academy to begin a conversation about the models of religion being used by the Supreme Court and arguing that traditional religions pose very different kinds of jurisprudential problems for the Court). Id at 91-92. 41 Yoder, 406 U.S. at 216. 42 Id. at 219. 43 Major world religions include Judaism, Christianity, Protestantism, Islam, Zoroastrianism, Hinduism, Jainism, Buddhism, Shinto, Confucianism, Taoism, and Sikhism. See R.C. Zaehner, supra note 16. 39 40

Landon 44and International Society for Krishna Consciousness, Inc. v. Barber. 45 The first involved the Church of Wicca (contemporary witchcraft) 46 and the second a group popularly known as the “Hare Krishnas.” The decisions may startle and surprise some, but they stand as a testament to religious tolerance and diversity. Dettmer v. Landon - In 1982 Herbert Dettmer, a prisoner in a Virginia Correctional Facility, began studying witchcraft in a correspondence course provided by the Church of Wicca. Within a year he started meditating, following ceremonies for private meditation described in the correspondence course and in other writings that he had gathered. Dettmer decided that he needed the following items to aid and protect him while meditating: a white robe with a hood, sea salt or sulfur to draw a protective circle on the floor around him, candles and incense to focus his thoughts, a kitchen timer to awaken him from short trances, and a small, hollow statue of "one of the gods or goddesses of the deity," to store spiritual power called down during meditation. 47 Prison officials denied his request. He sued in federal district court to obtain them. The court properly considered whether the Church occupies a place in the lives of its members "parallel to that filled by the orthodox belief in God" in religions more widely accepted in the United States (citing Seeger). It found that members of the Church of Wicca "adhere to a fairly complex set of doctrines relating to the spiritual aspect of their lives." These doctrines concern ultimate questions of human life, as do the doctrines of recognized religions [citations omitted]. 48 The court remarked that the contents of many of these doctrines parallel those of more conventional religions. The Church of Wicca, the court said, believes in another world and has a

Dettmer v. Landon, 799 F.2d 929 (4th Cir. 1986). Int’l Soc’y for Krishna Consciousness, Inc. v. Barber, 650 F.2d 430 (2d Cir. 1981). 46 W IKIPEDIA, http://wikipedia.org/wiki/Main_Page (enter Wicca in search bar) (Defining Wicca as a “modern pagan, witchcraft religion,”). 47 Dettmer, 799 F.2d at 930. 48 Id. 44 45

"broad concern for improving the quality of life for others." Dettmer testified to his belief in a "supreme being." 49 The district court also noted: [T]he Church's doctrines teach ceremonies parallel to those of recognized religions. Members of the Church of Wicca worship both individually and corporately. Members also follow spiritual leaders. 50 Dettmer testified that he planned to conduct ceremonies privately and hoped to have the aid of a spiritual leader from the outside community in conducting ceremonies for other inmates. The record showed that he had sought guidance from Wiccan leaders and for several years had been studying the doctrines of the Church of Wicca as expressed by these leaders in books, pamphlets, and a correspondence course of study. Another objective criterion showing the Church of Wicca to be parallel to recognized religions is witchcraft's long history [citation omitted]. Dettmer's evidence includes a handbook for chaplains published by the United States, which states that witchcraft enjoyed a following in Northern Europe during the Middle Ages as an ancient pagan faith, losing public expression when systematic persecution began in the fifteenth century. 51 It regained some popularity after repeal of English witchcraft laws, and the handbook estimates that there are between 10,000 and 100,000 adherents in America. 52 Based on this information, the district court held that the Church of Wicca is a religion, and entered an order allowing Dettmer to have the items he requested. 53 On appeal, the appellate court upheld the district courtâ&#x20AC;&#x2122;s determination that the Church of Wicca was a religion 54 but denied him access to the materials he sought on the grounds that no other prisoner is allowed to have such items and that they could impair institutional security. 55 It held prison officials afforded him a reasonable opportunity to practice his faith comparable to that offered to adherents of other religions. 56

Id. Id. th 51 See generally WITCHCRAFT 6 (Barbara Rosen ed., 6 ed. 1969) (describing the trials, experience, interpretation and punishment of witchcraft in Elizabethan and Jacobean England). 52 Dettmer, 799 F.2d at 932. 53 Id. at 931. 54 Id. at 932. Accord Austin v. Crosby, 866 So. 2d 742, 743 (Fla. Dist. Ct. App. 2004). 55 Dettmer, 799 F.2d at 933. 56 Id. (citing Cruz v. Beto, 405 U.S. 319, 322 (1972)). 49 50

International Society for Krishna Consciousness, Inc. v. Barber – In this case the U.S. Court of Appeals for the Second Circuit engaged in a detailed, conscientious and thoughtful legal analysis when asked to decide if the organization Krishna Consciousness was a “religion.” The dispute involved whether a district court’s total ban on their solicitation activities, which they alleged was a “religious activity,” violated their First Amendment Free Exercise rights. 57 The court began by extolling the virtues of religious tolerance and diversity, to wit: Tolerance of the unorthodox and unpopular is the bellwether of a society's spiritual strength. A community sufficiently confident of its moral and political underpinnings trusts its members to employ reasoned and considered judgment in evaluating novel theories that seek to explain the meaning and purpose of life. The coercive mechanisms of restraint, violence, and suppression are not required to confront strange ideologies and unfamiliar rituals, however obnoxious they may be. This freedom to explore diverse political and religious doctrines, derived from the establishment and free exercise clauses of the First Amendment, permits our citizens to follow the dictates of conscience. By fostering this voluntarism, our nation is strengthened, for the people respect a government that treats its charges as free-willed, discerning moral beings. Our republic prides itself on the enormous diversity of religious and political beliefs which have been able to find acceptance and toleration on our shores. 58 Disavowing the competence of a court of law to inquire into spiritual matters (“[c]ourts temporal are not ideally suited to resolve problems that originate in the spiritual realm” 59), the court nevertheless declared that such an inquiry is unavoidable. 60 After a rather lengthy review of the history, beliefs and background of the International Society for Krishna Consciousness (ISKCON), 61 the court addressed its requirement that an essential part of their faith is solicitation [“Sankirtan”]. To quote:

Int’l Soc’y for Krishna, 650 F.2d 430, 432 (2d Cir. 1981). Id. (citing United States v. Seeger, 326 F.2d 846, 853 (2d Cir. 1964) aff’d, 380 U.S. 163 (1965)). 59 Int’l Soc’y for Krishna, 650 F.2d at 432-33. 60 Id. at 433. 61 Id. (“The International Society for Krishna Consciousness (ISKCON), plaintiff in this case, is a not-for-profit New York corporation, one of many worldwide Krishna Consciousness associations. The Krishna movement in this country was founded in the mid-1960s, when A.C. Bhaktivedanta Swami Prabhupada left India at the behest of his Spiritual Master to open a religious center in New York City. Krishna Consciousness falls under the broad theological umbrella of the Vaishnava Tradition of Bhakti Hinduism, formalized in the ninth century in Southern 57 58

Sankirtan is also an essential part of the Krishna faith. Under the Chaitanya tradition, the goal of this practice is to invoke the community in worship, carrying the name of God to as many people as possible. The solicitation of contributions and the distribution of literature is permitted, but, in doing so, the devotees are supposed to use "true and gentle speech," first identifying their religious order and spiritual leader. Moreover, devotees cannot touch potential donors without their consent. 62 The court continued its inquiry by declaring that to determine whether the Krishna beliefs and credo as well as the particular practice of sankirtan, were sufficiently "religious" in nature to warrant the protection of the Free Exercise guarantee, they needed to look at its underlying purposes 63 They commented that is seeks to “promote the inviolability of individual conscience and voluntarism, recognizing that private choice, not official coercion, should form the basis for religious conduct and belief.” 64 The court then declared that if any belief is "arguably religious,” it should be considered "religious" for the sake of the Free Exercise analysis. 65 After reviewing U.S. Supreme Court cases defining “religion” in terms of a distinction between belief and

India. The canonical sources for the Hindu faith are the Vedic scriptures, and all practicing Hindus believe in their authenticity. The Veda consists of two parts: Samhita, which deals with ritual and contains the incantations directed to the Vedic deities; and the Upanishadas, which is the metaphysical interpretation of the ritualistic scripture. 1 Secondary texts and commentaries, known as smriti, include the Bhagavad-gita and Srimad Bhagavatam, compiled 500 and 1500 years after the Vedic scriptures, respectively. Hinduism is an extraordinarily diverse tradition; embracing many sects and movements. The Bhakti movement, based on devotion to personally chosen deity, can be traced to the times of the Bhagavad-gita. Sankirtan, an aspect of which is at issue in this case, was first identified as a religious ritual in the Srimad Bhagavatam, during the ninth century A.D. In the broad Bhakti tradition, sankirtan involved congregational chanting of the name of the deity or that of a teacher and included highly stylized thespian and dancing action. Sankirtan was intended to bring a devotee closer to God and invoke others in such worship. Other forms of observance include Puja, a worship of a deity or its image through ritualistic offerings, and chanting in a temple. When a temple priest performs a particular ritual for lay members of a sect, donations are offered. Krishna Consciousness is an outgrowth of the Chaitanya movement of Bengal, which derives from the Bhakti tradition. Bhaktiedanta Swami Prabhupada was the eleventh in a chain of disciples of Sage Chaitanya, who lived from 1486-1533 and was understood by his followers to be an incarnation of God, or Krsna. Lord Chaitanya made the chanting of the Hare Krishna mantra central to sankirtan. He opened up the process of spiritual liberation to the masses by bringing into his movement people who were outside the standard Hindu community and the caste system and proclaimed that one day his name will be chanted in every town and village of the world. His biography, Sri Caitanya Caritamrta, is considered part of the scriptures by the Krishna Consciousness Movement.”). 62 Id. at 433-34. 63 Id. at 434. 64 Id. at 438 (citing Walz v. Tax Comm’n, 397 U.S. 664, 694 (1970)). 65 Id. at 439 (citing LAWRENCE H. TRIBE, AMERICAN CONSTITUTIONAL LAW 828 (Lawrence H. Tribe, 1st ed 1978)). See Pfeffer, Freedom and/or Separation: The Constitutional Dilemma of the First Amendment, 64 MINN. L. REV. 561 (1980).

conduct 66 and then requiring faith in a “Creator,” 67 the court acknowledged that judicial definitions of “religion” eventually evolved to encompass a “more subjective definition of religion, which examines an individual's inward attitudes towards a particular belief system.” 68 The Court noted that the availability of a Free Exercise defense cannot depend on the objective truth or verity of a defendant's religious beliefs. 69 Where a belief is asserted and acted upon in good faith, Courts must inquire into an adherent's sincerity and then invoke Free Exercise analysis. 70 Belief in the traditional concept of “God” is not a required element for a religion (citing Torcaso71) the court reasoned, and then relying on Seeger 72 announced that The test for identifying an individual's belief " "in a relation to a Supreme Being'," the Court noted, is "whether a given belief that is sincere and meaningful occupies a place in the life of its possessor parallel to that filled by the orthodox belief in God…. 73 Continuing to rely on Seeger, the court adopted a functional, phenomenological investigation of an individual's "religion" advocated by liberal theologian Paul Tillich 74 where, in the absence of a belief in "God," this approach treats an individual's "ultimate concern" as his “religion” whatever that concern may be. A concern is "ultimate" when it is more than "intellectual" and it is more than intellectual when a believer would categorically "disregard

66 Id. (citing Reynolds v. United States, 98 U.S. 145 (1878) (Mormon practice of polygamy not protected as free exercise of religion). 67 Id. (citing Davis v. Beason, 133 U.S. 333, 342 (1890) ("the term ‘religion’ has reference to one's views of his relations to his Creator "); see also Cleveland v. United States, 329 U.S. 14 (1946) (upholding Mann Act conviction of Mormon fundamentalist who crossed state lines with his wives). 68 Id. See generally Note, Religious Exemptions Under the Free Exercise Clause: A Model of Competing Authorities, 90 YALE L.J. 350, 353 & n.20 (1980) (discussing the practice of religious solicitation as protected activity under the free exercise clause). 69 Id. (citing United States v. Ballard, 322 U.S. 78, 86 (1944)); see also Thomas v. Review Board, 450 U.S. 707, 714 (1981) ("religious beliefs need not be acceptable, logical, consistent, or comprehensible to others in order to merit First Amendment protection"). 70 Id. For an analysis of the court’s often inconsistent application and interpretation of the Establishment Clause in Free Exercise cases, see L. Scott Smith, From Typology To Synthesis: Recasting The Jurisprudence Of Religion, 34 CAP. U. L. REV. 51 (2005). 71 Torcaso, 367 U.S. 488. 72 Seeger, 380 U.S. 163. 73 Int’l Soc’y for Krishna, 650 F.2d at 440. (quoting Seeger at 166).

elementary self-interest in preference to transgressing its tenets." 75 The court adopted this methodology and then proceeded to determine the role that Krishna Consciousness played in the life of an ISKCON devotee. 76 After a careful analysis, the court concluded that Krishna Consciousness is a "religion" for Free Exercise purposes because “Adherence to the sect's theological doctrines is an ‘ultimate concern’ of the devotees.” 77 These devotees, the court remarked, [Forsake] the pleasures of the material world, donning strange clothing and altering one's diet, arising daily at 4 a. m. to chant religious prayers, and perhaps experiencing the scorn and derision of non-believing friends and family, ISKCON devotees govern their life by a "religious" philosophy. 78 Further prove that Krishna Consciousness is a “religion” in the traditional sense, according to the court, is that it is “an outgrowth of the ancient and diverse Hindu tradition” and has “attracted thousands of devotees throughout the world.” 79 Finally, following an inquiry into the sincerity of the devotee’s belief in the practice of “sankirtan” as central to their religious activity, the court held that it is indeed a "religious activity" deserving of Free Exercise protection. 80 It resolved the dispute by reversing the lower court ruling that banned solicitation because, in its view, protecting the public from fraud was obtainable through less restrictive means, 81 though the court made clear that it did not “condone the odious tactics of swindling and harassment hidden beneath a veneer of religion.” 82 The court concluded by commenting that it would not “sacrifice legitimate First Amendment rights at the altar of law enforcement” and that

Id. (citing Seeger, 380 U.S. at 187); see also PAUL TILLICH, DYNAMICS OF FAITH 1-2 (1st ed. 1958). Id. at 440 (citing United States v. Kauten, 133 F.2d 703, 708 (2d Cir. 1943)). 76 Id. 77 Id. 78 Id. 79 Id. 80 Id. at 443. 81 Id. at 445-46. 82 Id. at 447. 74 75

The unpopular traditions, practices, and doctrines of alien religions need not receive our approval or support, but must be tolerated if our freedoms are to be preserved. 83 A more vigorous and robust defense of religious tolerance and freedom can scarcely be found. III.

RELIGIOUS PRETENDERS While the above cases demonstrate sincere religious beliefs and convictions, courts

unfortunately are too often confronted with disingenuous invocations of religious faith. All too frequently many of these “religious pretenders” grow, distribute, or use marijuana and when apprehended, invoke the Free Exercise Clause as their defense. It is to several of these more prominent cases that we now turn. D. Alleged Religious Justification for Marijuana Use 1. The “Great Pretender” of Religious Pretenders Without doubt the “Great Pretender” of religious pretenders is the Neo-American Church, whose head is Chief Boo Hoo, which, in 1968, found one of its “primates” (analogous to a bishop) indicted in the District of Columbia for unlawfully obtaining and transferring marihuana (sic) and for the unlawful sale, delivery and possession of LSD. 84 In this commentator’s view, the Neo-American Church and its doctrines impugn the honesty and integrity of genuine religious institutions. So that readers may judge for themselves, the court’s description of the “church” is as follows: The Neo-American Church was incorporated in California in 1965 as a nonprofit corporation. It claims a nationwide membership of about 20,000. At its head is a Chief Boo Hoo. Defendant Kuch is the primate of the Potomac, a position analogized to bishop. She supervises the Boo Hoos in her area. There are some 300 Boo Hoos throughout the country. In order to join the church a member must subscribe to the following principles: 83 84

Id. United States v. Kuch, 288 F. Supp. 439, 443 (1968).

(1) Everyone has the right to expand his consciousness and stimulate visionary experience by whatever means he considers desirable and proper without interference from anyone; (2) The psychedelic substances, such as LSD, are the true Host of the Church, not drugs. They are sacramental foods, manifestations of the Grace of God, of the infinite imagination of the Self, and therefore belong to everyone; (3) We do not encourage the ingestion of psychedelics by those who are unprepared. Building on the central thesis of the group that psychedelic substances, particularly marihuana and LSD, are the true Host, the Church specifies that "it is the Religious duty of all members to partake of the sacraments on regular occasions." [emphasis in original] A Boo Hoo is ‘ordained’ without any formal training. He guides members on psychedelic trips, acts as a counselor for individuals having a "spiritual crisis," administers drugs and interprets the Church to those interested. The Boo Hoo of the Georgetown area of Washington, D.C., testified that the Church was pantheistic and lacked a formal theology. Indeed, the church officially states in its so-called ‘Catechism and Handbook’ that ‘it has never been our objective to add one more institutional substitute for individual virtue to the already crowded lists.’ In the same vein, this literature asserts ‘we have the right to practice our religion, even if we are a bunch of filthy, drunken bums.’ The members are instructed that anyone should be taken as a member ‘no matter what you suspect his motives to be.’ 85 The court then proceeds to discuss how difficult it is to define “religion” but counsels that, Those who seek the constitutional protections for their participation in an establishment of religion and freedom to practice its beliefs must not be permitted the special freedoms this sanctuary may provide merely by adopting religious nomenclature and cynically using it as a shield to protect them when participating in antisocial conduct that otherwise stands condemned. In a complex society where the requirements of public safety, health and order must be recognized, those who seek immunity from these requirements on religious grounds must at the very least demonstrate adherence to ethical standards and a spiritual discipline. 86

85 86

Id. at 443. Id. at 443-44.

Thus the court announces that it won’t be hoodwinked into sanctioning illegal conduct simply by invoking a religious declaration. It reviews the “Catechism and Handbook” which contain some insightful revelations as to the true aims of this so-called church: Reading the so-called "Catechism and Handbook" of the Church containing the pronouncements of the Chief Boo Hoo, one gains the inescapable impression that the membership is mocking established institutions, playing with words and totally irreverent in any sense of the term. Each member carries a "martyrdom record" to reflect his arrests. The Church symbol is a three-eyed toad. Its bulletin is the "Divine Toad Sweat." The Church key is, of course, the bottle opener. The official songs are "Puff, the Magic Dragon" and "Row, Row, Row Your Boat." In short, the "Catechism and Handbook" is full of goofy nonsense, contradictions, and irreverent expressions. 87 The court mentions that this supposed church has attributes of religion but only for tactical purposes 88 and that the overall effect of all the evidence and the catechism is “agnostic, showing no regard for a supreme being, law or civic responsibility.” 89 It remarks that its seal is a three-eyed toad with the name of the Church at the top and across the bottom is the Church motto: "Victory over Horseshit!" 90 The court doubts whether the Neo-American Church is a religion within the First Amendment and states that the defendant Kuch “has totally failed in her burden to establish her alleged religious beliefs.” 91 At this point the court could rule that based on the evidence, the Church is not a “religion” for First Amendment Free Exercise purposes, but declined to do so. Instead it took the position that assuming for the sake of argument that the Church is a genuine religion, its practices must still comply with the law. 92 While the First

Id. at 444. Id. at 445. 89 Id. 90 Id. 91 Id. 92 Id. (citing Leary v. United States, 383 F.2d 851, 859 (5th Cir. 1967) (upholding the constitutionality of the federal Marihuana Tax Act of 1937 against claims that it violated the Fifth Amendment’s prohibition against selfincrimination) rev’d on other grounds, 395 U.S. 6 (1969). In response Congress passed the Controlled Substances Act to continue the prohibition of certain drugs in the U.S; see 21 U.S.C. § 801. 87 88

Amendment protects religious beliefs, actions done pursuant to religious beliefs must conform to the law. 93 The court then provides some vivid examples: Mormons were not permitted to practice polygamy. 94 Nor would the Constitution protect the practice of religions requiring infanticide, the killing of widows [suttee], or temple prostitution, as some religions have done in the past. 95 After rejecting defendant’s arguments that since peyote is allowed in religious activities, to deny her use of marijuana would violate Equal Protection, 96 the court held that “the NeoAmerican Church is not an establishment of religion and the defendant did not sustain her burden of demonstrating that her religious beliefs require her to ingest psychedelic drugs.” 97 Furthermore, the court held that the “statutes under which she stands indicted are in aid of a substantial government interest and have a rational and constitutional basis. These laws, enacted to preserve public safety, health and order, will be enforced.” 98 Thus rightly ended the NeoAmerican Church’s pretense that it was a religious establishment exempt from compliance with anti-drug laws.

93 Id. at 445. Accord Rheuark v. State, 601 So.2d 135 (Ala. 1992) (possessing marijuana is unlawful, it does not matter that it was for religious use); Nesbeth v. United States, 870 A.2d 1193 (D.C. 2005) (Free Exercise clause does not allow defendant to possess and use marijuana for religious purposes); State v. Sunderland, 168 P.3d 526 (Haw. 2007); State v. Bullard, 148 S.E.2d 565, 568-69 (N.C. 1966) (First Amendment permits freedom of religion, but does not authorize committing acts which threaten the public safety, morals, peace and order); State v. Flesher, 585 N.E.2d 901 (Ohio Ct. App. 1990) (even if marijuana use was a necessary and indispensable part of religion and the state did not have a compelling interest in banning it, its use can be proscribed); Commonwealth v. Nissenbaum, 536 N.E.2d 592 (Mass. 1989); State v. Venet, 797 P.2d 1055 (Or. Ct. App. 1990); Burton v. Texas, 194 S.W.3d 686 (Tex. Ct. App. 2006); State v. Rocheleau, 451 A.2d 1144, 1149 (Vt. 1982) (doubtful defendant was practicing his religion by smoking marijuana in a nightclub restroom, but even if so, compelling state interest overrides Free Exercise claim); Washington ex rel. Hendrix v. Waters, 951 P.2d 317 (Wash. 1998) (custody case; father claims marijuana use was part of his religion; court finds use illegal and not protected by Free Exercise clause); Whyte v. United States, 471 A.2d 1018 (D.C. 1984) (Congress’s interest in regulating use and distribution of drugs and public’s interest in enforcement of drug laws outweigh Free Exercise clause). See generally Jay Liederman Law, available at: http://jayleiderman.com/htm/presentations/Religious_Use_Marijuana_Cases_Aspen.pdf (collecting cases involving Free Exercise Clause in defense of marijuana use). 94 Id. at 446 n.6 (citing Reynolds v. United States, 98 U.S. 145 (1878)), see also Int’l Soc’y for Krishna, 650 F.2d at 432-33. 95 Id. at 446. Perhaps the court is referring to worship of the god Baal, whose followers practiced licentious fertility rites and human sacrifice; see R. J. ZWI WERBLOSKY, THE ENCYCLOPEDIA OF THE JEWISH RELIGION 53 (R. J. Zwi Werblosky & Geoffrey Wigoder eds. 1st ed. 1965). 96 Id. at 451. The Native American Church’ peyote exemption is codified in 21 C.F.R. § 1307.31 (1990). 97 Id. at 452.

2. The Court Puts “Religion” to the Test A particularly noteworthy case where the defendant claimed religious use of marijuana and the court went to great lengths to define “religion” is United States v. Meyers. 99 In that case the issue squarely before the court was whether the "Church of Marijuana" was a bona fide religion that triggered the protections of the Religious Freedom Restoration Act ("RFRA"). 100 Meyers was convicted in a jury trial of conspiracy to possess with intent to distribute and to distribute marijuana, 101 and aiding and abetting possession with intent to distribute marijuana. 102 After a conscientious and thoughtful review of judicial endeavors to define religion for First Amendment and RFRA purposes, 103 the court determined that "religion" under RFRA was the same as "religion" under the First Amendment. 104 It admonished Meyers that he simply could not “raise a RFRA defense by asserting that his possession and use of marijuana is a central tenet of his religion.” 105 He needed to show that his beliefs constituted a "religion" and that the "The Church of Marijuana" was a bona fide religion for RFRA purposes. 106 Otherwise, counseled the court, the “RFRA could easily become the first refuge of scoundrels if defendants could justify illegal conduct simply by crying "religion." ” 107 The court then announced that it had canvassed the cases on religion and catalogued the many factors that courts have used to determine whether

Id. United States v. Meyers, 906 F.Supp.1494 (D. Wyo. 1995) aff’d 95 F.3d 1475 (10th Cir. 1996); see United States v. Zielinski, No. 1:11-CR-533, 2013 U.S. Dist. LEXIS 82014, (N.D.N.Y May 15, 2013) (criminal defendant’s refusal to attend sexual disorder therapy because it violated his religion of “Objectivism” denied because court could find no evidence that “Objectivism” is a religion); Gen. Conference Corp. of Seventh-Day Adventists v. McGill, 617 F.3d 402 (6th Cir. 2010) (court rejects defendant’s pastor argument that his sincerely held religious beliefs require him to violate trademark law to use a symbol of a competing church). 100 42 U.S.C. § 2000bb (1993) (providing under RFRA that government may burden a person’s religious exercise only if they demonstrate a compelling interest and use the least restrictive means of furthering that interest). 101 21 U.S.C. § 846. 102 21 U.S.C. §§ 841(a)(1), (b)(1)(C). 18 U.S.C. § 2. 103 Meyers, 906 F.Supp. at 1496-99. 104 Id. at 1499. 105 Id. at 1498. 106 Id. 107 Id. 98

a set of beliefs is "religious" for First Amendment purposes. 108 These factors provide some structure for the word “religion” according to the court, and it would use them to decide whether Meyer’s beliefs were “religious,” though it would err on the side of inclusion rather than exclusion, 109 giving him the benefit of the doubt. 110 These factors were: 1. Ultimate Ideas: Religious beliefs often address fundamental questions about life, purpose, and death. As one court has put it, "a religion addresses fundamental and ultimate questions having to do with deep and imponderable matters." (citing Africa v. Commonwealth, 662 F.2d 1025, 1032 (3rd Cir. 1981)). These matters may include existential matters, such as man's sense of being; teleological matters, such as man's purpose in life; and cosmological matters, such as man's place in the universe. 2. Metaphysical Beliefs: Religious beliefs often are "metaphysical," that is, they address a reality that transcends the physical and immediately apparent world. Adherents to many religions believe that there is another dimension, place, mode, or temporality, and they often believe that these places are inhabited by spirits, souls, forces, deities, and other sorts of inchoate or intangible entities. 3. Moral or Ethical System: Religious beliefs often prescribe a particular manner of acting, or way of life, that is "moral" or "ethical." In other words, these beliefs often describe certain acts in normative terms, such as "right and wrong," "good and evil," or "just and unjust." The beliefs then proscribe those acts that are "wrong," "evil," or "unjust." A moral or ethical belief structure also may create duties -- duties often imposed by some higher power, force, or spirit -- that require the believer to abnegate elemental self-interest. 4. Comprehensiveness of Beliefs: Another hallmark of "religious" ideas is that they are comprehensive. More often than not, such beliefs provide a telos, an overreaching array of beliefs that coalesce to provide the believer with answers to many, if not most, of the problems and concerns that confront humans. In other words, religious beliefs generally are not confined to one question or a single teaching. Africa, 662 F.2d at 1035. 5. Accoutrements of Religion: By analogy to many of the established or recognized religions, the presence of the following external signs may indicate that a particular set of beliefs is "religious": a. Founder, Prophet, or Teacher: Many religions have been wholly founded or significantly influenced by a deity, teacher, seer, or prophet Id. at 1501. Id. 110 Id. 108 109

who is considered to be divine, enlightened, gifted, or blessed. b. Important Writings: Most religions embrace seminal, elemental, fundamental, or sacred writings. These writing often include creeds, tenets, precepts, parables, commandments, prayers, scriptures, catechisms, chants, rites, or mantras. c. Gathering Places: Many religions designate particular structures or places as sacred, holy, or significant. These sites often serve as gathering places for believers. They include physical structures, such as churches, mosques, temples, pyramids, synagogues, or shrines; and natural places, such as springs, rivers, forests, plains, or mountains. d. Keepers of Knowledge: Most religions have clergy, ministers, priests, reverends, monks, shamans, teachers, or sages. By virtue of their enlightenment, experience, education, or training, these people are keepers and purveyors of religious knowledge. e. Ceremonies and Rituals: Most religions include some form of ceremony, ritual, liturgy, sacrament, or protocol. These acts, statements, and movements are prescribed by the religion and are imbued with transcendent significance. f. Structure or Organization: Many religions have a congregation or group of believers who are led, supervised, or counseled by a hierarchy of teachers, clergy, sages, priests, etc. g. Holidays: As is etymologically evident, many religions celebrate, observe, or mark "holy," sacred, or important days, weeks, or months. h. Diet or Fasting: Religions often prescribe or prohibit the eating of certain foods and the drinking of certain liquids on particular days or during particular times. I. Appearance and Clothing: Some religions prescribe the manner in which believers should maintain their physical appearance and other religions prescribe the type of clothing that believers should wear. j. Propagation: Most religious groups, thinking that they have something worthwhile or essential to offer non-believers, attempt to propagate their views and persuade others of their correctness. This is sometimes called "mission work," "witnessing," "converting," or proselytizing. 111 The court then presented beliefs that it presumed to be â&#x20AC;&#x153;religious.â&#x20AC;? They included: Judaism, Christianity, Islam, Hinduism, Buddhism, Shintoism, Confucianism, [] Taoismâ&#x20AC;ŚHare Krishnas, Bantus, Mormons, Seventh Day Adventists, Christian Scientists, Scientologists, Branch Davidians, Unification Church Members, and Native American Church Members (whether Shamanists or Ghost Dancers). 112 111 112

Id. at 1502-03. Id. at 1503

Not wishing to exclude any belief, they court then added “Paganism, Zoroastrianism, Pantheism, Animism, Wicca, Druidism, Satanism, and Santeria” as well as the ancient beliefs or "mythology" of “Greek religion, Norse religion, and Roman religion.” 113 Having covered the waterfront of religious beliefs so to speak, the court next rhetorically asked what was been left out. Answering its own question, the court disclosed that “[P]urely personal, political, ideological, or secular beliefs” have been excluded 114 and proceeded to explain that these included “nihilism, anarchism, pacifism, utopianism, socialism, libertarianism, Marxism, vegetism, and humanism.” 115 The moment of truth for Meyer’s beliefs and "The Church of Marijuana" was at hand. Out of the presence of the jury, Meyers furnished the following responses to the court’s questions: 116 1. Although he lived in Ethiopia for a while, he apparently never joined the Ethiopian Zion Coptic Church, which is a Christian sect that uses marijuana as a sacrament; 117 2. He began worshipping marijuana because it brought peace into his life; 3. In 1973 he founded the "Church of Marijuana" which allegedly has 800 members and one designated meeting spot. The church's "religion" is to grow, possess, and distribute marijuana; 4. The church's "bible" is a ponderously titled book: Hemp & the Marijuana Conspiracy: The Emperor Wears No Clothes -- The Authoritative Historical

Id. at 1504. Id. 115 Id. 116 Id. 117 See Olsen v. DEA, 878 F.2d 1458, 1468 (D.C. Cir. 1989) (DEA denial of limited religious exemption for sacred use of marijuana in the sacramental practices of the Church upheld); See also Jeffrey T. Lawrence, Note, The War on Drugs and Denominational Preferences: Farewell to Strict Scrutiny Analysis, BYU L. REV. 1083 (1990) (discussing Olsen at length). 113 114

Record of the Cannabis Plant, Marijuana Prohibition, & How Hemp Can Still Save the World ("Hemp"); 5. The church does not have a formal clergy, but does have approximately 20 "teachers" but no hierarchy or governing body; 6. The church does not attempt to propagate its beliefs in any way, and does not assert that everyone should smoke marijuana. Nonetheless, part of the "religion" is to work towards the legalization of marijuana; 7. He testified that he prays to the marijuana plant and that the church's only ceremony revolves around smoking and passing of joints; 8. Joint smoking apparently results in a sort of "peaceful awareness" that he did not assert is a religious state; 9. There are no formal church services; 10. The church’s only moral code is “to give a hand up, but not a hand out." Finally, Meyers stated that the church had no teachings on "ultimate ideas" such as life, death, and purpose, but that he was a Christian though the church was not a Christian sect or denomination. 118 Based on this information, the court concluded that “The Church of Marijuana” satisfied few criteria for a “religion” 119 and that Meyers’ beliefs were more aptly characterized as “medical, therapeutic, and social,” especially since he repeatedly referred to its medicinal benefits. 120 Therefore, as Meyers used marijuana, it was as for its “medical, therapeutic, and social effects” which are secular, not religious, concluded the court. 121 The courts wrapped up its analysis by pointing out that:

Meyers, 906 F.Supp. at 1504. Id. 1508. 120 Id. 121 Id. 118 119

Had Meyers asserted that the Church of Marijuana was a Christian sect, and that his beliefs were related to Christianity, this Court probably would have been compelled to conclude that his beliefs were religious. Under these hypothetical circumstances, Meyers would have been able to fit his beliefs into a tradition that is indisputably religious. If Meyers had linked his beliefs to Christianity, the Court could not have inquired into the orthodoxy or propriety of his beliefs, no matter how foreign they might be to the Christian tradition. 122 Although the court, under Ballard, could not inquire into the validity of Meyers’ Christian beliefs as to the use of marijuana, it does not follow, as the court seems to suggest, that his invoking Christianity would have extended Free Exercise protection to his use of the substance. It has generally been held that the substance must be an indispensable part of the religion in order for Free Exercise protection to attach. 123 Thus the court held that Meyers’ beliefs did not constitute a “religion” for RFRA purposes because they meet almost none of the criteria that are the hallmarks of religious belief, and they were secular (i.e., medical, therapeutic, and social). 124 3. A Sincere Religious Pretender While Meyers involved an extensive and far ranging inquiry into the nature, purpose and eschatology of religion, Rupert v. City of Portland 125 dealt with more mundane matters, namely request for return of a marijuana pipe [commonly known as a “bong”] 126 seized by police as drug paraphernalia. It is also notable in that the defendant in the case, one Erwin L. Rupert, 127 claimed

122 Id. (citing United States v. Ballard, 322 U.S. 78 at 87 (courts cannot assess validity of beliefs) and Teterud v. Burns, 522 F.2d 357, 360 (8th Cir. 1975) (courts cannot determine religious orthodoxy)). 123 See People v. Mullins, 50 Cal. App. 3d 61, 70 (1975) (marijuana use not an “indispensable part of the religion professed by the Universal Life Church of Christ Light and so Free Exercise protection does not extend to growing marijuana plants for religious purposes). Accord: Leary v. United States, 383 F. 2d 851 (1967); State v. Blake, 695 P. 2d 336 (Haw. 1985); People v. Crawford, 328 N.Y.S.2d 747 (1972). 124 Meyers, 906 F.Supp.at 1509 125 Rupert v. City of Portland, 605 A.2d 63 (Me. 1992). 126 W IKIPEDIA, http://en.wikipedia.org/wiki/Bong (last visited Sept. 9, 2013). 127 Rupert, 605 A.2d at 63.

membership in the “New World Church” whose deity was methylenedioxymethamphetamine and whose sole member was the defendant! 128 As set forth in the court’s Opinion, Rupert was walking away from the Portland Public Library when he was stopped by a Portland police officer for allowing his dog, "Little Bear," to run at large. Upon frisking Rupert, the officer found a container of vegetable matter and took Rupert to the police station to be searched. The search produced a small amount of marijuana and a pipe containing marijuana residue. The marijuana pipe and bag were wrapped in a United Nations flag…. The police seized the pipe and the marijuana. Subsequently, the City filed two civil complaints against Rupert, one for possession of less than 1 1/4 ounces of marijuana and the other for allowing his dog to run at large. Those civil complaints were later dismissed when no police officer appeared in court for the scheduled hearing. Rupert then wrote to the police department requesting the return of his marijuana pipe. The police refused to return the pipe on the ground that it was drug paraphernalia under the state’s Drug Paraphernalia Act, 129 and that the act empowered the law enforcement officers to confiscate it as contraband. 130 Rupert admit[ed] that at the time the police confiscated his pipe, he used it to smoke marijuana and that he wanted to recover [it to continue using] … it. He [conceded that it was] … "drug paraphernalia," [but argued] … that because he smoked marijuana only for religious purposes, his use of the pipe was protected by the Free Exercise Clauses of the Maine … [and U.S. Constitutions].131 Rupert [claimed he was] … a clergyman of the Native American Church of the United States of America and described the manner of worship of his church as "shamanic." [He also claimed that] "church members experience the deity of nature by ritually ingesting psychedelic plants" that they "bear true faith in the sacrality of marijuana." [He alleged] his marijuana pipe was a registered medicine pipe of the New World Church, [of which he is] … the secretary and sole member [as well as being] … the "medicine pipe registrar." 132 He [told the court] … that "the pipe is central to Native American worship and constitutes the altar from which prayers ascend to God" and that he held a Master of Divinity degree from Harvard University for which he wrote a thesis on the historical use of hallucinogenic mushrooms in Indian religion. 133 Over the years Rupert had a considerable amount of correspondence with the United States Drug Enforcement Administration (DEA), in which he has sought, without success, to obtain religious exemptions for various [prohibited] … drugs, Id. at 65. 17-A M.R.S.A. § 1111-A (1983), Subsection 1. 130 Rupert, 605 A.2d at 64-65. 131 Id. at 65. 132 Id. 133 He also informed the court that he was a graduate of the United States Air Force Academy and a former U.S. Air Force officer as well as a graduate of Georgetown University Law Center. Id. note 2. 128 129

[including] … use of "North American Deity Psilocybin Mushrooms" in holy communion in that church and the use of marijuana in the Rastafarian Church of America founded by him. 134 Whereas many “religious pretenders” in court appear to behave in a “tongue-in-cheek” attitude, Rupert’s sincerity is not in doubt as the court dutifully acknowledges. 135 The court admits that he has carried his burden to show that his religious belief is sincerely held and that the challenged regulation restrains the free exercise of that belief. 136 Then the burden shifts to the State. It can prevail only by proving that the challenged regulation is motivated by a compelling public interest and that a no less restrictive means can adequately achieve that compelling public interest. 137 The court then declares that the State has a compelling public interest in preventing the distribution and use of illegal drugs, including marijuana, which the legislature has determined poses a threat to individual health and social welfare. 138 In addition, the court announces that the State has met its second burden of showing that the regulation of drug paraphernalia as applied to Rupert's marijuana pipe is the least restrictive means by which the compelling public interest in controlling drugs and drug paraphernalia can be accomplished. 139 The court ruled that a religious exemption to use the pipe to smoke marijuana, as Rupert proposed, would “severely hamper the public's effort to control the amount of marijuana in circulation.” So Rupert’s creative proposal to use his marijuana pipe exclusively for religious purposes did not outweigh the government’s compelling interest in controlling the illicit substance.

Id. Id. at 66. 136 Id. (citing Blount v. Dep’t of Educ. & Cultural Serv., 551 A.2d 1377, 1379 (Me. 1988). 137 Id. (citing Blount, 551 A.2d at 1385). 138 Id. 139 Id. at 67. Rupert had proposed a scheme by which he would give notice to the police or the courts of his intention to use the pipe for smoking marijuana exclusively in the exercise of his religion and the pipe would then be identified with a tag that would permit him to smoke marijuana in it. 134 135

In a final coup de grace to Rupert’s proposal, the court cites the U.S. Supreme Court case of Employment Div., Dept. of Human Resources v. Smith 140 for the proposition that laws of general application that burden a particular religious practice, if enacted without hostility to religion, need not be justified under the First Amendment by a compelling governmental interest. 141 Quoting the high Court, "the right of free exercise of religion does not relieve an individual of the obligation to comply with a valid and neutral law of general applicability on the ground that the law proscribes (or prescribes) conduct that his religion prescribes (or proscribes)" and that "if prohibiting the exercise of religion . . . [is] merely the incidental effect of a generally applicable and otherwise valid provision, the First Amendment has not been offended." 142 So Rupert’s marijuana pipe stayed securely ensconced in police custody. 4. An Insincere Religious Pretender Although sincerity of defendant’s religious belief was not an issue in Rupert, lack of it played a decisive part in State v. Pederson, 143 where the court held that defendant’s medicinal use of marijuana was not a sincerely held religious belief 144 and that her attempt to demonstrate how her medicinal use of marijuana was supported or advocated by Essenic or Messianic Judaism was not corroborated by any evidence in the record. 145 Defendant Ariel Suzette Pedersen was stopped for speeding. When the officer approached her vehicle he detected an odor of marijuana coming from it. He asked Pederson if she had any marijuana and she admitted "yes, a little." During a search of the vehicle the officer discovered 529.3 grams of marijuana. She was later charged with felony possession of a

Emp’t Div., Dep’t of Human Res. Of Oregon v. Smith, 494 U.S. 872 (1990). Rupert, 605 A.2d at 67 (citing Emp’t Div., Dep’t of Human Res. Of Oregon 494 U.S. 872)(“if enacted without hostility to religion, need not be justified under the First Amendment by a compelling governmental interest.”) 142 Id. at 67-68. 143 State v. Pedersen, 679 N.W.2d 368 (Minn. 2004). 144 Id. at 373-74. Accord State v. Brashear, 593 P.2d 63 (N.M. Ct. App. 1979)(defendant’s belief that God gave man 140 141

controlled substance crime in the fifth degree under Minnesota law and possession of marijuana in a motor vehicle. 146 She moved to dismiss contending that the criminal statutes under she was prosecuted were unconstitutional as applied to her because they violated the Freedom of Conscience Clause of the Minnesota Constitution, article I, section 16. 147 At a hearing a physician testified she suffered from various maladies. She testified that while legal drugs improve her condition, marijuana is the most effective pharmacological remedy and her physician agreed. 148 As regards her religious beliefs and use of marijuana, Pederson testified that her medicinal use of cannabis is consistent with her religious beliefs as a Messianic Jew and cited various biblical passages to support this contention. 149 She declared that Messianic Jews have been using cannabis since the beginning of time for incense and oils and medicinal purposes and that in the book of Exodus the Bible authorizes the use of cannabis for medicinal purposes. According to Pederson, "God was explaining to Moses all the ingredients to put into the incense for the temple. Within this confinement of the five ingredients was sweet cane. Sweet cane is cannabis in Hebrew, meaning scented reed or sweet smelling reed." 150 A minister who had been ordained into the Baptist Missionary Ministry testified that he had knowledge of Essenic teachings and that the medicinal use of marijuana is consistent with the teachings of Essenic Judaism and Messianic Judaism. 151 The district court denied Pedersonâ&#x20AC;&#x2122;s motion to dismiss and

every herb-bearing seed not a â&#x20AC;&#x153;religious beliefâ&#x20AC;?). 145 Id. at 375-76. 146 Id. at 371. 147 Id. Article I, section 16, provides "the right of every man to worship God according to the dictates of his own conscience shall never be infringed . . . nor shall any control of or interference with the rights of conscience be permitted." 148 Id. 149 Id. at 371. She cited Genesis 1:11-12, 29; 9:3 stating that the book of Genesis instructs that "God gives us every plant bearing seeds inside itself for our consumption and for our health." Id. at 372. 150 Id. at 371-72. 151 Id. at 372.

after a trial to the court on stipulated fact, she was convicted of a felony controlled substance crime in the fifth degree. 152 She appealed. The appeals court pointed out that the Minnesota Supreme Court has interpreted the Freedom of Conscience Clause to afford greater protection than the Free Exercise Clause of the United States Constitution. 153 Thus, the court explained the language in the Minnesota Constitution â&#x20AC;&#x153;is of a distinctively stronger character than the federal counterpart.â&#x20AC;? 154 Accordingly, the lower court instructed that in order to determine whether an individual's rights under the Freedom of Conscience Clause are violated, the compelling-state-interest test articulates the standard to apply 155 Therefore, "once a claimant has demonstrated a sincere religious belief intended to be protected by section 16, the state should be required to demonstrate that public safety cannot be achieved by proposed alternative means." 156 Therefore, the lower court had to first determine whether Pedersonâ&#x20AC;&#x2122;s medicinal use of marijuana was a sincerely held religious belief intended to be protected by section 16. While she argued that the medicinal use of marijuana is consistent with her sincerely held religious beliefs as a Messianic Jew, the district court was not persuaded, and concluded that her beliefs in connection with the use of marijuana were personal beliefs, based on a personal, rather than communal, interpretation of religious significance.

157

The court admitted that whether the medicinal use of marijuana is a sincerely held religious belief entitled to protection under the Freedom of Conscience Clause is an issue of first

Id. Id. at 373 (citing State v. Hershberger, 462 N.W.2d 393, 397-98 (Minn. 1990)). 154 Id. (citing Hershberger, 462 N.W.2d at 397). 155 Id. (citing Hershberger, 462 N.W. 2d at 398). 156 Id. at 373. 157 Id. at 373-74. 152 153

impression for the court. 158 While noting that it is difficult to determine what is a “sincerely held religious belief,” other courts have wrestled with this issue and they take counsel and advice from their decisions. 159 The court points out that Pederson in support of her purported religious belief did not address three of the Meyers criteria--ultimate ideas, metaphysical beliefs, and comprehensiveness of beliefs; and only generally addressed the moral or ethical dimension of her belief and its purported scriptural foundation. 160 Furthermore, she failed to provide the court with any evidence that her medicinal use of marijuana involves a religious ceremony, a principle, tenet, or dogma pertaining to the spiritual or eternal, or that she uses marijuana to communicate with any supreme being. 161 Addressing her testimony that the Bible supports her use of marijuana, the court had this to say: Moreover, even if we accept appellant's assertion that in the book of Exodus sweet cane refers to cannabis, this is the sole Biblical text cited by appellant that makes any reference to the use of marijuana for medicinal purposes. More importantly, other than citing this one verse, appellant fails to demonstrate how her medicinal use of marijuana is supported or advocated by Essenic or Messianic Judaism in the context of their fundamental tenets, precepts, scriptures or rites. Appellant's isolated and anecdotal citations to scriptures generally extolling the virtues of plant life are insufficient to prove that her medicinal use of marijuana is a communal religious belief. 162 Finally, the court comments that Pederson “has failed to provide any evidence that establishes a connection between the practice of her religion and the medicinal use of marijuana. In the court’s view, her belief in the medicinal use of marijuana is a personal, secular belief, driven more by her medical needs than any philosophical principle or religious tenet.” 163 Accordingly, it affirmed the district court's decision that Pederson did not have a sincerely held

Id. at 374. Id. (reviewing among others Wisconsin v. Yoder, supra note 43; Africa v. Pennsylvania, supra note 40; Employment Div., Dep't of Human Res. of Oregon v. Smith, supra note 143; United States v. Ballard, supra note 33; and United States v. Meyers, supra note 102). 160 Pederson, 679 N.W.2d at 376. 161 Id. 158 159

religious belief in the medicinal use of marijuana, because she failed to articulate a connection between her use of marijuana and the practices or central tenets of her religion. 164 To the court’s credit it was not taken in by Pederson’s attempt to link marijuana use with Biblical passages to justify its use. So thankfully in none of these cases did the “religious pretenders” prevail. In Kuch, the Neo-American Church’s preposterous claims to be a “religion” were so patently counterfeit as to present no real question as to its religious authenticity. In Meyers, the “Church of Marijuana” – just as bogus as the Neo-American Church – could not withstand the doctrinal and theological requirements of a conscientious and scholarly judge. In Rupert, sincerity was assumed but the legal commands of a secular state took precedence. We now turn to another arena where religious pretenders are to be found – in employment discrimination cases where plaintiffs refuse to comply with reasonable employer rules and policies on the basis they conflict with their religious beliefs. E. A Religious Pretender in the Workplace – Facial Jewelry & The Church of Body Modification Obviously there are instances where religious faith and the requirements of the workplace genuinely conflict and both sides act in good faith. 165 However, let’s examine a case where an

Id. Id. 164 Id. at 378. 165 See Sherbert v. Verner, 374 U.S. 398 (1963) (where the Court held that the Free Exercise Clause required the government demonstrate a compelling governmental interest before denying unemployment compensation to someone who was fired because their job conflicted with their religion). The case established the Sherbert Test, requiring demonstration of such a compelling interest in Free Exercise cases. But this test was overridden in Employment Div., Dep't of Human Res. of Oregon v. Smith, 494 U.S. 872 (1990), supra note 143. Congress revived it by passage of the Religious Freedom Restoration Act (RFRA), 42 U.S.C. § 2000 et seq. (1993). However, the Court in City of Boerne v. Flores, 521 U.S. 507 (1997), limited its application to federal laws only; see also Sánchez-Rodríguez v. AT&T Mobility P.R., Inc., 673 F.3d 1 (1st Cir. P.R. 2012) (where employee, a Seventh Day Adventist, could not work on Saturday, the court held employer’s combination of accommodations were reasonable and affirmed summary judgment in his favor). 162 163

employee argued with dubious sincerity that their employer’s policies interfered with the practice of her religion. 166 In Cloutier v. Costco Wholesale Corp., 167 Kimberly Cloutier alleged that her employer, Costco Wholesale Corp. (Costco), failed to offer her a reasonable accommodation after she alerted it to a conflict between the "no-facial-jewelry" provision of its dress code and her religious practice as a member of the Church of Body Modification. 168 She argued that this failure amounted to religious discrimination in violation of the Civil Rights Act 169 and the corresponding state statute. 170 The district court granted summary judgment for Costco, concluding that Costco reasonably accommodated Cloutier by offering to reinstate her if she either covered her facial piercing with a band-aid or replaced it with a clear retainer. 171 The appeals court affirmed, but on a different basis, holding that Costco had no duty to accommodate Cloutier because it could not do so without undue hardship. 172

166 The workplace is not the only location where religious pretenders are to be found. See Thompson v. Penn. Dep’t of Corrections, 2006 U.S. Dist. LEXIS 95008 (MD. PA, filed Feb. 1, 2007) (where a Pennsylvania federal district court rejected the religious claims of a Rastafarian prisoner who had been refused an exemption from a prison’s hair length requirements. Officials found that his religious beliefs were not sincere). 167 Cloutier v. Costco Wholesale Corp., 390 F.3d 126 (1st Cir. 2004), cert. denied 545 U.S. 1131 (2005). Accord Marchant v. Tsickritzis, 506 F. Supp. 2d 63 (D. Mass. 2007) (plaintiff’s desire to leave work early on certain weekdays to attend religious classes was a personal preference since the classes were offered at other times & places; court recommends summary judgment for employer); Brown v. F.L. Roberts & Co., 419 F. Supp. 2d 7 (D. Mass. 2006) (request of an employee, a Rastafarian, whose religious beliefs did not allow him to shave or cut his hair, that he be granted a blanket exemption from employer’s policy requiring all employees to be clean-shaven, held to constitute an undue burden on employer). The case has been the subject of numerous legal commentaries, see e.g. Danielle Gold, Note: Seeking Religious Validity For Body Piercings And Tattoos: How The Church Of Body Modification Should Gain Recognition As A Religion In The Modern Era, 13 RUTGERS J. LAW & RELIG. 148 (2011); Gowri Ramachandran, Freedom Of Dress: State And Private Regulation of Clothing, Hairstyle, Jewelry, Makeup, Tattoos, And Piercing, 66 MD. L. REV. 11 (2006); Michael W. Fox, Piercings, Makeup, And Appearance: The Changing Face Of Discrimination Law, 69 TEX. B. J. 564 (2006); Allison T. Steinle, Comment: Appearance And Grooming Standards As Sex Discrimination In The Workplace, 56 CATH. U.L. REV. 261 (2006); Rachel M. Birnbach, Note: Love Thy Neighbor: Should Religious Accommodations That Negatively Affect Coworkers' Shift Preferences Constitute An Undue Hardship On The Employer Under Title VII, 78 FORDHAM L. REV. 1331 (2009). 168 For the definition of a “church” for tax exemption purposes, see Mason Powell, Ecclesia Semper Reformanda Est: Radical Reformation And The IRS, 101 KY L.J. 207 (2012/2013). 169 Title VII, 42 U.S.C. § 2000e-2. 170 Massachusetts General Laws Chapter 151B, § 4(1A). 171 Cloutier, 390 F.3d at 128. 172 Id.

Cloutier began employment at Costco in 1997 and for the next four years was assigned various positions all intended to accommodate her facial jewelry, piercing and cutting habits. 173. When Costco began enforcing its no-facial-jewelry policy (except earrings) in June 2001, Cloutier did not comply and at that time did not indicate that the jewelry had religious or spiritual significance. 174 In late June, Cloutier was told to remove her facial jewelry or go home. At this point Cloutier indicated for the first time that she was a member of the Church of Body Modification (CBM), and that her eyebrow piercing was part of her religion. 175 The court noted that there was some dispute as to when Cloutier joined the CBM. The record included an application dated June 27, 2001, two days after Cloutier was first told to remove her facial piercing. However, she claimed that she first filled out an electronic application in March 2001, but that she had to reapply in June because the March application had not been processed due to a computer error. Giving her the benefit of the doubt, the court accepted her account. 176 The court stated that the CBM was established in 1999 and counts approximately 1000 members who participate in such practices as piercing, tattooing, branding, cutting, and body manipulation. Among the goals espoused in the CBM's mission statement are for its members to "grow as individuals through body modification and its teachings," to "promote growth in mind, body and spirit," and to be "confident role models in learning, teaching, and displaying body modification." 177 The church's website, apparently its primary mode for reaching its adherents, did not state that members' body modifications had to be visible at all times or that temporarily removing body modifications would violate a religious tenet. Still, Cloutier interpreted the call to

Id. at 128-29. Id. at 129. 175 Id. 176 Id. Note 2. 177 Id. 173 174

be a confident role model as requiring that her piercings be visible at all times and precluding her from removing or covering her facial jewelry. 178 While Cloutier and Costco continued to negotiate, she filed a complaint with the Equal Employment Opportunity Commission (EEOC). Eventually she was terminated due to absenteeism because she refused to go to work without her facial jewelry. 179 Earlier Costco had offered to let Cloutier return to work wearing either plastic retainers or a band-aid over her jewelry (the same accommodation that Cloutier had suggested prior to her termination). 180 However, she maintained that neither of these accommodations would be adequate because the CBM's tenets, as she interpreted them, required her to display all of her facial piercings at all times. Replacing her eyebrow piercing with a plastic retainer or covering it with a band-aid would thus contradict her religious convictions. Cloutier asserted that the only reasonable accommodation would be to excuse her from Costco's dress code, allowing her to wear her facial jewelry to work. Costco responded that this accommodation would interfere with its ability to maintain a professional appearance and would thereby create an undue hardship for its business. 181 In 2002 the EEOC determined that Costco's actions violated Title VII of the Civil Rights Act of 1964 and found her refusal to remove her facial jewelry was "religiously based as defined by the EEOC.â&#x20AC;? Further, it found that there was no evidence that allowing her to wear the jewelry would have constituted an undue hardship. 182 Based on the EEOCâ&#x20AC;&#x2122;s determination, Cloutier filed a lawsuit in federal district court against Costco alleging religious discrimination and a violation

178 179 180 181 182

Id. at129. Id. at 130. Id. Id. Id.

of state law. The district court granted Costco's motion to dismiss her state civil rights claim but allowed the federal and state discrimination claims to proceed. Costco then moved for summary judgment on the discrimination claims. 183 In ruling on that motion, the district court applied the two-part framework set forth in EEOC v. Union Independiente de la Autoridad de Acueductos y Alcantarillados de Puerto Rico, 184 First, the court evaluated Cloutier's prima facie case, which required her to show that (1) a bona fide religious practice conflicted with an employment requirement; (2) she brought the practice to Costco's attention; and (3) the religious practice was the basis for the termination. 185 The court expressed serious doubts as to whether Cloutier's claim was based on a "bona fide religious practice" for purposes of the first element, noting that even assuming arguendo that the CBM is a bona fide religion, it "in no way requires a display of facial piercings at all times. The requirement that she display her piercings, open and always, represents the plaintiff's personal interpretation of the stringency of her beliefs." 186 The court also questioned the sincerity of her personal interpretation, given that she initially offered to cover her piercing with a band-aid, an alternative that she now claims would violate her religion. 187 The district court ultimately avoided ruling on whether the CBM is a religion or whether Cloutier's interpretation of the CBM tenets is protected by Title VII. Instead, the court concluded that even if Cloutier had met her prima facie case, Costco should prevail because it fulfilled its obligations under the second part of the Title VII framework. Specifically, the court found that

Id. at 130-31. E.E.O.C v. Union Independiente de la Autoridad de Acueductos y Alcantarillados do Puerto Rico, 279 F.3d 49, 55 (1st Cir. 2002). 185 Id. 186 Cloutier, 390 F.3d at 131 (citing 311 F. Supp. 2d at 199). 187 Id. 183 184

Costco met its burden of showing that it had offered Cloutier a reasonable accommodation of her religious practice as a matter of law. 188 Before the appeals court, Cloutier vigorously asserted that her insistence on displaying all her facial jewelry at all times was the result of a sincerely held religious belief. 189 The court noted that there was no need to inquire whether her religious beliefs were sincerely held because assuming, arguendo, that Cloutier established her prima facie case, the facts of the case did not support a finding of impermissible religious discrimination. 190 The court found dispositive that the only accommodation Cloutier considered reasonable, a blanket exemption from the no-facialjewelry policy, would impose an undue hardship on Costco and in such a situation, an employer has no obligation to offer an accommodation before taking an adverse employment action. 191 After a review of judicial interpretations of “undue hardship” viewed in light of an employer’s need to maintain a professional appearance before the public, 192 the court concluded that Cloutier's insistence on a wholesale exemption from the no-facial-jewelry policy precluded Costco from using its managerial discretion to search for a reasonable accommodation. Exempting Cloutier from the dress code would have imposed more than a de minimis burden on Costco because it would impair its professional image before the public. Her refusal to consider anything less meant that Costco could not offer a reasonable accommodation without incurring an undue hardship. 193

Id. at 131. Id. at 132. 190 Id. 191 Id. at 132-33 (citing EEOC v. Ilona of Hungary, Inc., 97 F.3d 204, 211 (7th Cir. 1996); Toledo v. Nobel-Sysco, Inc., 892 F.2d 1481, 1490 (10th Cir. 1989)). 192 Id. at 134-36. 193 Id. at 137. 188 189

Based on the record before the court, a reasonable inference can be drawn that Cloutier’s sudden conversion to the CBM was simply a matter of convenience and lacked sincerity, as the district court astutely pointed out. 194 As a “religious pretender” and someone who eschewed any compromise, she has few equals. IV.

A MODEST PROPOSAL DEFINING “RELIGION” With some trepidation and a surfeit of modesty, this commentator hereby enters the lists

as to what is a “religion.” Drawing on an authority more knowledgeable than he, the following definition of “religion” is hereby put forth: An institution with a recognized body of communicants who gather together regularly for worship, and accept a set of doctrines offering some means of relating the individual to what is taken to be the ultimate nature of reality. 195 While most of the terms would appear to be self explanatory, only the “ultimate nature of reality” could be open to various interpretations. Perhaps is could be understood as “ultimate concern” 196 though of course that term has its share of definitional difficulties. 197 V.

CONCLUSION Even though the Free Exercise Clause grants vast freedom to conduct religious activities

according to the dictates of one’s conscience, this freedom can be abused and too often “religion” is invoked for purposes that have nothing whatsoever to do with religious conviction. Judges must remain ever vigilant against “religious pretenders” who would seek to subvert and make a mockery of not only the principles of religious faith but also the intent and rationale of the Free Exercise Clause.

194 195 196 197

Id. at 131. W.L. REESE, DICTIONARY OF PHILOSOPHY AND RELIGION: EASTERN AND WESTERN THOUGHT 488 (1980). See Seeger, 380 U.S. at 187 quoting PAUL TILLICH, THE SHAKING OF THE FOUNDATIONS (1948) at 57. See Greenawalt, Religion as a Concept in Constitutional Law, 72 CAL. L. REV. 753, 808 (1984), supra note 29.

THE STUDENT LOAN BUBBLE: A PENDING CRISIS OR OVERBLOWN THREAT? By Jesse L. Noa* I.

Introduction The economies of the world are still recovering from the Great Recession. In the United

States, the stock market has finally reached pre-collapse levels, jobs are slowly coming back, and the economy as a whole has begun to turn around. Threatening the recovery is a one trillion dollar obstruction that may potentially pull the economy and its recent gains back into the depths of another recession. 1 Student loans, like the housing market, have been forming a bubble. Should it burst, the ramifications for the economic recovery may be dire. 2 Unfortunately, many of the same driving forces behind the Great Recession are inflating the student loan bubble. There are also significant differences between student loans and the housing industry. Will these differences prevent a systemic collapse or will we soon find ourselves back in the very same hole out of which we just dug? Further, if the threat of a bubble is indeed overblown, is the debt burden faced by students an issue that nevertheless must be addressed? This paper will analyze the similarities and differences between the causes of the housing bubble which lead to the 2008 financial collapse and the pending student loan crisis. It will discuss the potential ramifications of the bursting of the student loan bubble and raise potential solutions to deflate the bubble and options for student relief. It will also address the issues created by the increased burden of student loans on students and the economy. Part II will

* Jesse L. Noa is an associate with the law firm of Potter Anderson & Corroon LLP. He received his J.D., cum laude, from Villanova University School of Law in 2013. He received his B.A., summa cum laude, in economics from Rowan University in 2009. 1 See Corey Lockey, Student Debt: A Trillion Dollar Bubble, SEEKING ALPHA (Jan. 10, 2013), http://seekingalpha.com/article/1105261-student-debt-a-trillion-dollar-bubble. 2 See Caroline Salas Gage and Janet Lorin, Student Loans, The Next Big Threat to the U.S. Economy?, BLOOMBERG BUSINESSWEEK (Jan. 16, 2014), http://www.businessweek.com/articles/2014-01-16/student-loans-the-next-bigthreat-to-the-u-dot-s-dot-economy.

discuss the housing bubble and its causes. Part III will analyze the student loan market and the driving factors which are creating a new bubble. Part IV will compare the housing and student loan markets. Finally, Part V will discuss and give recommendations for various ways to either deflate the student loan bubble or provide relief to those caught in the system to mitigate the economic consequences of a bubble and student debt. II.

The Housing Bubble The financial collapse of 2007-08 was the worst economic crisis this country has faced

since the Great Depression, where giant, seemingly invincible banks went bust. The contagion in Wall Street quickly infected Main Street and threatened even the largest, most storied and sophisticated corporations.

The financial crisis spread across the globe, affecting both

industrialized and developing countries alike. 3

The result of which was one of the most

significant losses of wealth since the Great Depression, in addition to the loss of millions of homes and jobs. The causes of the collapse are as complex as it was destructive. A combination of greed, misregulation, under regulation, negative incentives, moral hazard, and human nature all played a part in creating the crisis. A.

Moral Choice and Housing Policy

Homeownership is one of the cornerstones of the American dream. The idea of success and homeownership go hand in hand. 4 This belief was fostered not only in the minds of the people but also by various government policies and programs. For example, homeownership is favored over renting in the Tax Code through its allowance of deductions of mortgage interest

JOSEPH E. STIGLITZ, ET AL. THE STIGLITZ REPORT: REFORMING THE INTERNATIONAL MONETARY AND FINANCIAL SYSTEMS IN THE WAKE OF THE GLOBAL CRISIS 11 (2010) (discussing global effects of financial crisis). 4 See JOHN A. ALLISON, THE FINANCIAL CRISIS AND THE FREE MARKET CURE, 53-55 (2013). 3

and exceptions from the capital gains tax for sales of homes. 5 The cultivation of this idea and its ensuing incentives helped, in part, to drive the collapse of the world economic system. The force behind the massive increase in homeownership began as early as the 1960’s with the Fair Housing Act of 1968 and later, the Community Reinvestment Act of 1977 (“CRA”) and the Equal Credit Opportunity Act of 1979. 6 Further supporting homeownership was the Tax Reform Act of 1986 and the Taxpayer Relief Act of 1997. 7 These government policies and programs helped groups of people who, at the time, were turned away from accessing credit markets as a result of racial discrimination. 8 The CRA was the most significant in this aspect because it pushed banks into extending mortgages to those with lower incomes. 9 The CRA became more effective after the revisions under the Clinton and Bush administrations put pressures on banks to extend credit to minority and low income borrowers. 10 This was effectuated by requiring banks to show that they actually made low income loans in order to get regulatory approval for mergers or expansions. 11 The effect of this change was that banks began lending to individuals who generally would not have met the banks’ typical underwriting requirements, such as appropriate debt-to-income ratios, or a twenty percent down payment, so that banks would not be prevented from expanding under the

See 26 U.S.C.A. § 121 (2010 West); 26 C.F.R. § 1.121–1. See ALLISON, supra note 4, at 55-56; see also Fair Housing Act, 42 U.S.C. § 3601 (2006); Community Reinvestment Act, 12 U.S.C. § 2901 (2006); Equal Credit Opportunity Act, 15 U.S.C. § 1691 (2006). 7 See Tax Reform Act of 1986, Pub. L. No. 99-514, 100 Stat. 2085 (codified as amended in scattered sections of 16 U.S.C., 19 U.S.C., 25 U.S.C., 26 U.S.C., 28 U.S.C., 29 U.S.C., 42 U.S.C., 46 U.S.C., and 49 U.S.C.); Taxpayer Relief Act of 1997, Pub. L. No. 105-34, 111 Stat. 788 (codified as amended in scattered sections of 5 U.S.C., 19 U.S.C., 26 U.S.C., 29 U.S.C., 31 U.S.C., 42 U.S.C., and 46 app.). 8 See ALLISON, supra note 4, at 55-56. 9 See id. at 57-59. 10 April A. Wimberg, Comparing the Education bubble to the Housing Bubble: Will Universities be too Big to Fail?, 51 U. LOUISVILLE L. REV. 177, 180 (2012). 11 Peter J. Wallison, Government Housing Policy and the Financial Crisis, 30 CATO J. 2, 400 (Spring/Summer 2010). 5 6

CRA and related regulations. 12 Ultimately, the CRA pressured banks to loosen their lending standards in order to meet the CRA housing goals. 13 Adding to the demand of housing was the passage of the affordable housing programs under the Bush Administration in the 1990’s.14 The Housing and Community Development Act of 1992 (“HCDA”) created a mandate requiring that government sponsored entities (“GSEs”), such as Fannie Mae and Freddie Mac, 15 make affordable housing loan purchases. 16 The HCDA was regulated and enforced by the Department of Housing and Urban Development (“HUD”) and effectively created a secondary market for mortgages by requiring the GSEs to purchase mortgages from banks. 17 For example, HUD required that “30 percent of the mortgages that the GSEs would buy had to be affordable housing loans.” 18 This requirement was later increased to fifty-five percent. 19 By buying the mortgages from the banks, the GSEs effectively allowed banks to clear their books and make more loans. 20 The consequence of this was that banks were able to engage in riskier lending practice with reduced accountability. HUD further exacerbated the problems of credit risk by relaxing the requirements needed to get certain mortgages. For example, rather than requiring the traditional twenty-percent down payment, Federal Housing

See id. at 400-01. See ALLISON, supra note 4, at 55-56. 14 See Wallison, supra note 11, at 399. 15 Fannie Mae was chartered in 1938 and its mission is to “provide liquidity to the housing market, help struggling homeowners, and create a sustainable housing finance system for the future.” 2011 Mission Report, FANNIEMAE.COM, http://www.fanniemae.com/portal/about-us/company-overview/mission-report.html (last visited Mar. 2, 2013). “Freddie Mac was chartered by Congress in 1970 to provide liquidity, stability, and affordability to the nation’s housing market.” About Freddie Mac, FREDDIEMAC.COM, http://www.freddiemac.com/corporate/about_freddie.html?intcmp=AF. 16 See Wallison, supra note 11, at 399. 17 See Wimberg, supra note 10, at 181. 18 See Wallison, supra note 11, at 400. 19 See id. 20 See Wimberg, supra note 10, at 181. 12 13

Authority (“FHA”) loans did not require any money down at all. 21 Important to this scheme was the implicit backing of the GSEs by the United States government. 22 Ultimately, these government policies and programs put pressure on banks and the GSEs “to reduce the requirements for a mortgage so that more Americans would be able to buy homes.” 23 This pressure forced the GSEs to take on riskier loans. The result of which was to significantly increase credit risk on the books of banks and, more particularly, the GSEs. For example, the GSEs traditionally operated with a leverage ratio of seventy-five to one, whereas prior to the financial crisis, they were operating with a leverage ratio of one-thousand to one. 24 B.

Deregulation and Its Effects

Contrary to the arguments that government policies and regulations fueled the financial crisis, it has been argued that the most significant contributing factor of the financial crisis was the “excessive deregulation of financial markets.” 25 The major premise championed by those who wanted deregulation was that due to “strong incentives to protect shareholders, [financial institutions] would regulate themselves by carefully managing their own risks” 26 Accordingly, regulation was considered by many, especially the Federal Reserve, to stunt economic growth, be overly burdensome, and add more costs than benefits. 27

However, for those that believe

deregulation was the cause, the premise put forth by the financial industry, proved false.

Id. at 182. See Wallison, supra note 11, at 402. 23 Id. at 399. 24 ALLISON, supra note 4, at 61; see also STIGLITZ, supra note 4, at 27 (noting how high leveraging exacerbated effects of poor lending practices on part of banks). 25 STIGLITZ, supra note 3, at 11; see also Phil Angelides, et. al, The Financial Crisis Inquiry Report, THE FINANCIAL CRISIS INQUIRY COMM’N, xviii, 53-64 (Jan. 2011), available at http://www.gpo.gov/fdsys/pkg/GPO-FCIC/pdf/GPOFCIC.pdf (detailing how industry-wide deregulation helped to create crisis); Robert Weissman, Deregulation and the Financial Crisis, HUFFINGTON POST (May 25, 2011), http://www.huffingtonpost.com/robertweissman/deregulation-and-the-fina_b_82639.html, (discussing “financial deregulation and unchecked financial innovation’s” role in financial crisis). 26 Angelides, supra note 25, at 53. 27 See id. at 54. 21 22

A prime example of the aversion to regulation was the industry-wide push to negate the effects of the Glass-Steagall Act (“GSA”). 28 With the backing of untold lobbying dollars, Congress and the Clinton administration signed the Gramm-Leach-Bliley Act (“GLBA”) into law. The GLBA effectively negated the provisions of the GSA, of which most notably was the distinction between commercial and investment banking. 29 Further inflating the bubble was the lack of regulation in the securitizations of residential mortgage backed securities (“RMBS”), collateralized debt obligations, credit default swaps (“CDS”), and other derivative products. 30 This lack of regulatory oversight allowed the value of these instruments to balloon, despite the risk in the underlying assets. 31 These securitized products were not regulated, and because of the false sense of security created by rating agencies, the amount of money invested in the derivative products swelled. Deregulation of the financial industry in general and the lack of regulation of the securitized instruments specifically, allegedly allowed corporations to run amuck. Greed, and the need to constantly maximize shareholder value in the short term, pushed companies into riskier and riskier investments. All would have been well had the housing market continued to increase in value, unfortunately the housing bubble burst and the majority of the securitized instruments became worthless, and the companies that sold CDSs could not fund the “run on the bank” and needed substantial government intervention to stay afloat. 32

28 See id. at 54-55 (detailing finance industry’s lobbying efforts to negate distinction between commercial and investment banking and subsequent push to repeal Glass-Steagall. Lobbying efforts on the part of the financial industry exceeded two billion dollars). 29 See id. at 55 (detailing effects of Gramm-Leach-Bliley (“GLBA”) Act of 1999, Pub. L. No. 106—102, 113 Stat. 1338). 30 See id. at 127-35. 31 See id. 32 See Adam Davidson, How AIG Fell Apart, REUTERS (Sept. 18, 2008), http://www.reuters.com/article/2008/09/18/us-how-aig-fell-apart-idUSMAR85972720080918 (discussing AIG’s role in CDS market).

Securitization of the Mortgage Market and the Originate and Sell Model

Securitization and investor demand had a significant role to play in inflating the housing bubble. Investor demand for RMBSs incentivized banks to make as many mortgages as they could. The strong demand for RMBSs existed even after the pool of creditworthy borrowers began to dry up. With the government incentives already in place for banks to lend to lower income borrowers, the banks began devising ways to extend even more mortgages to meet investor demands. 33 The securitization of assets is not a new phenomenon, but rather an investment practice that has been in existence for many years. Indeed, even RMBSs originally served a useful purpose as a prudent and secure investment tool for many investors. 34 Problems arose when the demand for such a product outpaced the supply of creditworthy borrowers. With the failure of rating agencies, as will be discussed below, pools of subprime mortgages were given AAA ratings regardless of the fact that much of the underlying mortgages in the security had high risks of default. 35 RMBSs, like most other asset backed securities, are created when banks sell of their mortgage portfolios to investment banks, which then create an independent legal entity which has title to the monthly mortgage payments from the borrowers. 36 That entity is then chopped up

See infra notes 38, 39, and 41 and accompanying text. See Types of Bonds: Collateralised Bond-Securitisation, Structured Products and Covered Bonds, AFME http://www.investinginbonds.eu/Pages/LearnAboutBonds.aspx?id=6346 (describing function and benefits of RMBS). 35 See infra Exhibit E (describing how toxic assets can receive high ratings). 36 See Chris Gallant, What is Securitization? INVESTOPEDIA, http://www.investopedia.com/ask/answers/07/securitization.asp (detailing securitization process of mortgages and other asset backed securities). 33 34

into individual securities which investors can then buy and sell. 37 The purpose is to allow investors to have a security with a steady income stream with above average interest with low risk. This securitization was possible due to the shift in lending models among the banks, which, in part, was the result of the aforementioned government policies. The shift that took place was from the originate-and-hold model to the originate-and-sell model. 38

Under the

traditional originate-and-hold model, banks would give loans to individuals they believed to be creditworthy and whom they thought would be able to pay back the loan. 39 Due diligence was paramount because the banks would extend the loans then hold them on their books to maturity. The importance of this model was that the banks had “skin in the game” and the incentives to loan money to anyone who walked through the door in order to raise fees simply was not there. 40 This structure began to change due to the pressures of the above mentioned housing policies, the insatiable demand for RMBSs, the need to meet investor expectations, and because banks were now allowed to sell off mortgages to the GSEs. 41 The paradigm shift resulted in the originate-and-sell model. Under this scheme, banks would originate loans and then sell them off to GSEs. 42 This effectively cleared the banks books, allowing them to make new loans, all of which allowed the banks to generate more fees.

See id. See Vitaly M. Bord & João A. C. Santos, The Rise of the Originate-to-Distribute Model and the Role of Banks in Financial Intermediation, 25-28 FED RESERVE BANK OF N.Y. ECON. POL’Y REV. (July 2012), available at http://www.newyorkfed.org/research/epr/12v18n2/1207bord.pdf (discussing shift in bank lending models and its effects). 39 See id. at 25 (describing originate-and-hold model). 40 See ALLISON, supra note 4, at 99-101 (discussing issues with change in lending model). 41 See Antje Berndt & Anurag Gupta, Moral Hazard and Adverse Selection in the Originate-to-Distribute Model of Bank Credit, 56 J. MONETARY ECON. 5, 1-3 (2009). Generally, if an officer or director was against this change, they would be replaced by those who were in favor; otherwise, investors would miss out of millions of dollars in fees and have a company that was less competitive. 42 See Bord, supra note 38, at 25-28. 37 38

Problems arose once the supply of credit worthy borrowers dried up and there was still strong demand for mortgages to create new RMBSs. 43 As a result, banks would not carry the credit risk if they sold their mortgage portfolios off, they could easily begin to make loans to individuals who typically would not have received a mortgage. Eventually the house of cards came crashing down as the underlying mortgages in the RMBSs defaulted. As more and more homes went into foreclosure, and as property values plummeted, the assets backing the RMBSs became toxic and nearly impossible to value. The result of which was the systemic failure of many banks, including giants such as Lehman Brothers and Bear Stearns. Even the insurance giant AIG would have gone bankrupt due to its CDS portfolio had the government not intervened. D.

The Subprime Mortgage Market and Predatory Lending

A major factor behind the devastating impact the housing bubble had on the larger economy was the fact that the bubble was built largely upon subprime or Alt-A (near prime) loans. 44 Pressure from the above mentioned government programs on banks to make affordable housing loans, the pressures from investor demand for RMBSs, the Federal Reserve monetary policy, as well as greed, caused banks to lower their lending standards. This can be seen by the fact that subprime lending increased sharply from eight percent in 2003 to twenty percent in 2005-06. 45 Though subprime mortgages made up only 8.4 percent of the outstanding mortgage

43 Ruth Simon, Rachel Louise Ensign, & Al Yoon, Student-Loan Securities Stay Hot, WALL ST. J. (Mar. 3, 2013), http://online.wsj.com/news/articles/SB10001424127887323293704578334542910674174 (last visited Oct. 7, 2014), (noting high demand for ABS prior to housing crisis). 44 See Angelides supra note 25, at 457-60 (Wallison, P. dissenting). 45 See The State of the Nationâ&#x20AC;&#x2122;s Housing 2008, 2 JOINT CENTER FOR HOUSING STUDIES OF HARV. UNI., 4 (2008), http://www.jchs.harvard.edu/sites/jchs.harvard.edu/files/son2008.pdf.

market, or approximately 1.2 trillion of the 10.1 trillion dollar market, they were a significant factor in the ultimate fall of the housing market. 46 On the demand side of the subprime problem were the homebuyers themselves. Their role in the crisis is both of a lack of personal responsibility and as the victims of predatory lending practices. As a matter of personal responsibility, many of the subprime borrowers simply took on mortgages that they could not afford. 47 Though many of these borrowers were not sophisticated, it is hard to excuse some for not looking closer at the debt they were taking on. This is illustrated by the steep drop in personal savings and sharp increase in household debt as a percentage of disposable income from seventy-seven percent to one hundred-twenty seven percent. 48 Ultimately though, their folly can be understood or, at the very least, not condemned. Why wouldn’t a borrower believe the broker, an “expert,” who tells them they can afford their dream house? The bank surely would not extend a mortgage to those who they did not believe could pay it back. Unbeknownst to the borrowers, this was exactly the case as the banks did not have skin in the game, but rather would sell off the risky loans as soon as they could. Because of this reliance on the “industry experts,” the massive wave of foreclosures that lead to the bursting of the housing bubble was first spurred on by the subprime borrowers who could no longer make ends meet.

These unfortunate individuals found themselves in this

position due to the high pressure and misleading sales practices of many now defunct mortgage

46 See

infra Exhibit A. See Eli Lehrer, Subprime Borrowers: Not Innocents, BUSINESSWEEK (Mar. 2008), http://www.businessweek.com/debateroom/archives/2008/03/subprime_borrowers_not_innocents.html (noting borrowers’ role in crisis). 48 See infra Exhibit C. 47

broker and lending companies. 49 Indeed, the amount of interest-only and other risky mortgage products increased from two percent in 2004 to twenty percent in 2005. 50 It is readily apparent that many of the people who were coaxed into purchasing homes under these pretexts could not afford them. 51 Even the wary borrower would be won over after being told that the products would fix their credit and that they would be able to refinance into a traditional loan in the future. History has shown that this was not the case. E.

“Free” Money

Another major factor that inflated the housing bubble was the monetary policy of the Federal Reserve (“Fed”) in the early 2000s. The Fed, largely in response to the bursting of the internet bubble and to address the Bush era tax cuts, decreased interest rates to as low as one percent and held them there for an extended period of time. 52 The effect of this policy was to give banks access to essentially “free” money which in turn fueled the massive lending efforts of the housing industry. 53 Further adding to the bubble was the speculation that arose out of the access to this cheap money. For example, speculators came into the market purchasing houses to later turn them around for a profit. 54 This speculation in part helped to drive up home prices as it created an artificial, rather than structural, demand for housing. 55

See Angelides, supra note 25, at 9-11. See The State of the Nation’s Housing 2008, supra note 45, at 2. Common loan products included stated loans which required no documentation from borrowers and hybrid adjustable loans that had teaser rates for two to three years, than adjusted sharply thereafter. 51 See Lehrer, supra note 47. 52 See infra Exhibit B; see also Joseph Stiglitz, How the Bubble Started, REAL CLEAR POLITICS (Aug. 09, 2007), http://www.realclearpolitics.com/articles/2007/08/how_the_bubble_started.html (last visited Oct. 7, 2014), (stating that the reason the Federal Reserve lowered interest rates was in response to President Bush’s tax cuts). 53 See ALLISON, supra note 4 at 22-35 (discussing Federal Reserve monetary policy and its negative externalities). 54 See Angelides, supra note 25, at 5 (noting effects of people wanting to ‘flip’ houses as an investment). 55 See id. 49 50

From 2004 to 2006 the free lunch ended and the Fed quickly and sharply increased interest rates. 56 This impact was immediately felt by those with adjustable interest rates mortgages. Those in the subprime markets discussed above found themselves with monthly payments they could no longer afford. This resulted in the increasing of foreclosures which, in turn, altered the supply of homes on the market. The increase in supply of homes as well as the drop in demand due to higher rates helped to reduce housing prices. This exacerbated the problems faced by those who were having difficulty making payments because they could no longer refinance a home that was upside down on their mortgage. Ultimately, the monetary policy helped to inflate and burst the housing bubble. F.

Misplaced Reliance on Rating Agencies

A driving force behind the inflation of the housing bubble was speculation and investor demand of RMBSs. Many investors of these products were institutional investors such as pension or endowment funds. 57 Essential to this type of investment is the mandate that investors can only purchase products with the highest of ratings from one of the three rating agencies. 58 Thus, the need for an AAA rating was paramount for the RMBS products to sell. Accordingly, there was a massive amount of pressure by the institutions selling the RMBSs on the rating agencies to give the highest rating possible. 59 Should an agency fail to give the requisite rating, the investment bank would simply go to another rating agency. 60 The message was clear - play ball or lose out on millions.

See infra Exhibit B. See Angelides, supra note 25, at 118-20. 58 See id. at 119. 59 See id. at 148-50. 60 See id. (discussing extreme pressure on rating agencies to give high ratings). 56 57

This problem was essentially created or, at the least, exacerbated by the SEC giving the implicit backing of the big three rating agencies which gave investors the impression a product with a triple A rating was a quality investment. This issue was aggravated by the shifting of the payment schemes for rating agencies. Originally, the agencies were paid by the investors to rate the security in question. 61 Now, rating agencies are paid by the issuer, creating strong pressures for the rating agencies to play ball. 62 Consequently, because the rating agencies failed in their duty, the demand for RMBSs was artificially sustained, which in turned helped drive the push for more mortgage loans to be made. This was distinctly important because subprime mortgages could be tranched in the RMBSs to essentially be repackaged with a higher rating than the risk actually reflected. 63 The effect of which was that investors held securities with substantially more risk than the stated rating. G.

Moral Hazard

Moral hazard played a significant role in exacerbating the above mentioned causes. The perceived lack of risk by banks, investors, and homeowners helped drive the crisis over the edge. A keen example of which was the moral hazard created by the monetary policy of the Fed and the “Greenspan Doctrine.” Under the Greenspan Doctrine, it was surmised that the Fed “could do nothing to stop asset bubbles from occurring, but would stand by to cushion the fall if they did occur.” 64 Additionally, the creation of the depositors insurance has been argued to have

See ALLISON, supra note 4, at 83-85. See David Evans & Caroline Salas, Flawed Credit Ratings Reap Profits as Regulators Fail Investors, BLOOMBERG (Apr. 29, 2009), http://www.bloomberg.com/apps/news?pid=newsarchive&sid=a6NdKd8CfR2A (discussing conflict of interest inherent in current payment scheme). 63 See infra Exhibit E. 64 See Kevin Dowd, Moral Hazard and the Financial Crisis, 29 CATO J. 141, 156 (Winter 2009) (noting the effects moral hazard had on the subprime mortgage market); see also STIGLITZ, supra note 3, at 37 (noting that 2008 bailouts “provided money to large failing institutions without penalizing them for their misallocation of resources.”). 61 62

stopped depositors from researching the safety and soundness of their banks and for bankers to focus less on sound management of deposits and more on increasing short-term revenues. 65 The advent of the originate-and-sell model also created moral hazard due to the reduction of risk to the bank’s bottom line when it makes loans to borrowers with lackluster credit because the bank could quickly sell the loan and clear its books, all the while making substantial amounts in fees. This lack of risk to banks created the moral hazard which allowed the rapid expansion of the subprime market. 66 A further example of how moral hazard helped drive the collapse was the massive investment in CDSs to hedge the risk on RMBSs. 67 By playing both sides of the game, the investors had little incentive to look closely into the quality of the assets underlying the securities. 68 The effect of the doctrine was to give an implicit guarantee that poor investments that ended up threatening the economy would be bailed out. 69 H.

Relief Programs

The government responded to the massive amount of foreclosures that occurred during the housing crisis with measures to help provide relief to homeowners. On the federal level there is the Home Affordable Modification Program (“HAMP”). 70 HAMP was created to help those who were taken advantage of due to predatory lending practices and to standardize the loan

See Dowd, supra note 64, at 158-60; See also ALLISON, supra note 4, at 37-52 (attributing lack of market discipline to FDIC). 66 See Dowd, supra note 64, at 143. 67 See id. at 145-48. Credit default swaps are swap contracts where “the purchaser of the swap makes payments up until the maturity date of a contract. Payments are made to the seller of the swap. In return, the seller agrees to pay off a third party debt if this party defaults on the loan.” Credit Default Swap, INVESTOPEDIA (last visited Mar. 9, 2013), http://www.investopedia.com/terms/c/creditdefaultswap.asp#axzz2NGxRw5oi. 68 See Dowd, supra note 64, at 145-48; see also Karl S. Okamoto, After the Bailout: Regulating Systemic Moral Hazard, 57 UCLA. L. REV. 183, 200-03 (2009) (discussing threat credit default swaps posed to economy during financial crisis). 69 See id. 70 See 15 U.S.C.A. §§ 5219-5220 (West 2008). 65

modification process. Essentially, loan modifications take the borrower out of default and brings them up-to-date with a lower monthly payment and possibly even a lower principal. 71 On the state level, the model program has been Philadelphia’s Mortgage Foreclosure and Diversion Program (“MFDP”). 72

MFDP’s purpose is to “divert from Sheriff Sale owner

occupied residential properties which are listed for Sheriff Sale because the homeowners are delinquent with their mortgage payments.” 73

The program “requires the two parties in a

foreclosure case to meet face-to-face and attempt to reach an agreement.” 74 These programs have been successful in stemming the wave of foreclosures but they also have been used to commit further fraud on unsuspecting borrowers and have created resentment in those who have paid their mortgages on time but have not received windfalls. 75 Nevertheless, the programs may help to prevent a further depression in the housing market by slowing defaults and reducing foreclosures. III.

The Trillion Dollar Bubble: The Student Loan Crisis Although there are signs that the US economy is recovering from the great recession, the

threat of a pending collapse of the student loan system may reverse recent gains. Students owe approximately 1.08 trillion dollars in student loan debt. 76 Further, a recent report has shown that

See Loan Modification Frequently Asked Questions, HUD.GOV, http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/sfh/nsc/faqlm. 72 See Residential Mortgage Foreclosure Diversion Program, THE PHILA. COURTS http://www.courts.phila.gov/mfdp/; see also Reports on Philadelphia Mortgage Foreclosure Diversion Program, THE REINVESTMENT GRP. (June 2011), http://www.palegalaid.net/sites/default/files/PHILADELPHIA%20FORECLOSURE%20DIVERSION%20PROGR AM%20REPORTS%20SUMMARIES.pdf (noting that MFDP is a model for other cities and states to follow). 73 See id. 74 William Alden, Philadelphia Foreclosure Relief Program Finds Success as Homeowners Meet Lenders, HUFFINGTON POST (Aug. 14, 2011), http://www.huffingtonpost.com/2011/06/14/philadelphia-foreclosureprogram_n_876637.html. 75 See Stop Loan Modification Scams! HUD.GOV, http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/prevent_loan_scams. 76 See QUARTERLY REPORT ON HOUSEHOLD DEBT AND CREDIT (February 2014), Federal Reserve Bank of New York, http://www.newyorkfed.org/householdcredit/2013-Q4/HHDC_2013Q4.pdf. 71

the default rates of for-profit universities of 22.7 percent, public institutions at 11 percent, and private non-profit institutions at 7.5 percent. 77 Indeed, the difficulty of students finding gainful employment upon graduation, the soaring costs of higher education, the predatory recruiting practices of for-profit universities, and the lending of “free” money to students amalgamate into a bubble that may threatens to pull the economy back into the depths of the recession. 78 Disturbingly, the causes of the student loan bubble reflect many of the causes of the housing bubble. Negative incentives, government policy, investor pressure, and greed are all playing a part in the run up of another possible crisis. This article will focus on student loans obtained from federal sources and private lending institutions, but it should be noted that universities and non-profit institutions also provide loans and grants. A.

The Moral Choice, Government Policy, and Negative Externalities

A college education is a hallmark of the American dream and a symbol of economic success. To be sure, recent generations have been bombarded by the idea that a college degree is paramount for achieving success. 79 Conversely, there are negative connotations and stereotypes that attach to those who do not seek higher education, but rather strive to make their way by other means, whether that be technical schools or other trades. This mentality has arisen both due to government programs and societal pressures. The result of which has been the drastically See First Official Three-Year Student Loan Default Rates Published, EDUC. DEP’T PRESS OFFICE (Sept. 28, 2012), http://www.ed.gov/news/press-releases/first-official-three-year-student-loan-default-rates-published (discussing results of a new study on student loan defaults). 78 Steven Greenhouse, Jobs Few, Grads Flock to Unpaid Internships, N.Y. TIMES (May 5, 2012), http://www.nytimes.com/2012/05/06/business/unpaid-internships-dont-always-deliver.html?pagewanted=all. Lockey, supra note 2; William D. Henderson & Rachel M. Zahorsky, The Law School Bubble: How Long Will it Last if Law Grads Can’t Pay Bills? ABA J. (Jan. 2012), http://www.vsb.org/docs/sections/education/conclave/2012_20th-Ann-Conclave_pt2.pdf; see also Rohit Chopra, Too Big to Fail: Student Debt Hits a Trillion, CONSUMER FIN. PROT. BUREAU. (Mar. 21, 2012), http://www.consumerfinance.gov/blog/too-big-to-fail-student-debt-hits-a-trillion/ (noting that excessive student debt has potential to stunt recovery of housing market). 79 See Valerie Strauss, Why Everyone Shouldn’t go to College, WASH. POST (Dec. 6, 2012), http://www.washingtonpost.com/blogs/answer-sheet/wp/2012/12/06/why-everyone-shouldnt-go-to-college/ (noting pressures to attend college). 77

increased demand for higher education and consequently, the increased percentage of young people with large amounts of debt. From a practical and general standpoint, government policies which promote education are inherently a good thing and foster the healthy development of the future workforce. Indeed, “[a] stable and democratic society is impossible without a minimum degree of literacy and knowledge on the part of most citizens. . . .” 80 The first major law that helped achieve this goal was the Higher Education Act of 1965 which through its creation of the Title IV - the Student Assistance Act, and the Stafford Loan Program, helped encourage college attendance and focuses on helping the poor. 81 The Stafford Loan Program was a success and sharply increased the demand for student loans. To help prevent problems of solvency created by the rush to the banks for loans, the government created, via the Higher Education Act, the Federal Family Education Loan Program (“FFELP”) in order to “insure student loans made by private banks.”82 Further, schools acted as “gatekeepers” between the students and the financial institutions funding the Stafford loans. 83 Originally, there was no direct lending from the government to students, rather funding came from the banks. This paradigm changed with the advent of the Federal Direct Loan program in 1993 where the federal government lends money directly to students. 84 The effect of

Milton Friedman, CAPITALISM AND FREEDOM, 86 (University of Chicago 2002) (emphasis added). See Higher Education Act of 1965, 20 U.S.C. § 1001 et seq. (2012); Joseph Sipley, For-Profit Education and Federal Funding: Bad Outcomes for Students and Taxpayers, 64 RUTGERS L. REV. 267, 270-71 (2011); Wimberg, supra note 10, at 184-85 (detailing the history of government programs and encouraging higher education). It should be noted that Stafford loans were originally funded by private institutions and guaranteed via the Federal Family Education Loan Program; see Private Student Loans, Report to the Senate Sub. Comm. On Banking, Housing and Urban Affairs, 11 CONSUMER FIN. PROT. BD. (Aug. 29, 2012), available at http://files.consumerfinance.gov/f/201207_cfpb_Reports_Private-Student-Loans.pdf. (discussing the history of student loans). 82 See Wimberg, supra note 10, at 185; see also Federal Family Education Loan Program, 20 U.S.C.A. § 1071 (West 2010). 83 See Private Student Loans, supra note 81, at 11. 84 See e.g., Wimberg, supra note 10, at 185-86; Sipley, supra note 81, at 271. 80 81

this shift, and the government backing of higher education, has been the sharp increase in the number of students enrolling in colleges and graduate universities, as well as the advent of the for-profit institution (“FPI”). The access to student loans is almost unfettered in most cases, allowing even those with poor credit histories to obtain significant amounts of loans. 85 Today, institutions must be eligible under the Title IV guidelines in order to receive federal loans or grants. 86 By creating the ease of access to financing to fund higher education, the government has helped increase the demand for higher education. This increased demand, in part, has helped fuel the dramatic increase in tuition costs. These costs have become so great that students typically hit the maximum amount they are allowed to borrow for education, but still have a gap in financing to be able to attend their institution. 87 This is where the private student loans (“PSL”) comes in. 88 Unlike federal student loans, there are checks on creditworthiness before a private lender will give a student a loan. Even where the student does not qualify, private lenders will still make a loan if a parent or other third party comes in and co-signs on the loan. The above policies, the relatively easy access to both federal and private funding, in addition to the increased prevalence of for-profit institutions that deliver high debt but low employment prospects, and the financial crisis which has shrunk the job market for new graduates threatens to potentially inflate the bubble to the point of bursting. B.

Ineffective and/or Lack of Regulation

See Can I Receive a Stafford Loan if I Have Bad Credit/Declared Bankruptcy / Have Late Payments on Credit Cards? STAFFORDLOAN.COM, http://www.staffordloan.com/stafford-loan-info/faq/can-i-receive-a-stafford-loanwith-bad-credit.php, (noting credit history is not checked for Stafford loans). 86 See Higher Education Act of 1965, 20 U.S.C. § 1001 (2012). 87 See infra Exhibit I (detailing maximum amounts students can borrow). 88 See id. 85

As stated above and axiomatically, there is a strong government presence in the lending of federal student loans. Accordingly, this section will focus on the lack of oversight of the FPIs. 89 The lack of regulation in the area of accreditation has contributed to the inflation of the bubble by allowing FPIs to out-game the system to the detriment of students. In order for students to have access to federal loans and grants, the institution they attend must be accredited by a regional accreditation agency. 90 If an institution is unable to get accreditation however, they can simply open a regional office in a different area that has an accreditation agency that will give them rubber stamp approval. This has created accreditation shopping and also gives the agencies the incentive to “play ball” because the agencies are paid by the member schools. 91 Another common means to side step the accreditation process is to simply purchase an institution that is already accredited. 92 It should be noted however, that this loophole has been addressed by some agencies through “change of control” policies that will increase the level of scrutiny before giving accreditation. 93 However, unless all accreditation agencies follow suit, the institution can merely change accreditation agencies to avoid this heightened scrutiny. 94 Another government policy which has proven ineffective in stemming the growth of the student debt is the 90/10 rule. 95 Under this regime, “for-profit institutions must obtain at least 10

89 It should be noted that much of the regulatory battlefield has been focused on FPIs. Whether this is appropriate or not is outside the purview of this article. 90 See Joseph Sipley, For-Profit Education and Federal Funding: Bad Outcomes for Students and Taxpayers, 64 RUTGERS L. REV. 267, 280 (2011); see also 20 U.S.C. § 1002(b)(1)(A)(ii)(II) (2006). 91 See id. 92 See id. (giving example of for-profit institution that simply purchased a floundering college rather than opening a college itself and going through accreditation process). 93 See id. at 280-81 (discussing steps taken by one regional accreditation agency to combat accreditation shopping). 94 See id. at 281-82 (detailing for-profit’s change of accreditation agency once it fell under heightened scrutiny). 95 See 20 U.S.C. § 1094(a)(24) (2006) (amended 2008).

percent of their revenues from sources other than the Department of Education.” 96 Should an institution not follow this rule for more than two years, they will lose their eligibility for federal funds for the following two years. 97 This rule has pitfalls as it merely requires students to fund ten percent of their education, and as discussed above, PSLs are able to bridge that gap. Further, FPIs can aggressively recruit veterans to bypass this rule because the Post 9/11 GI Bill benefits do not count as federal revenue under this rule. 98 Furthermore, regulations state that FPIs can lose their Title IV eligibility should their students default rates be too high. 99 This is accomplished using the Cohort Default Rate which “measures the number of students who default on their loans within two fiscal years following the year that the loan enters repayment.” 100 This rule is considered to be effective and creates positive incentives for FPIs to provide quality education and job prospects. The issues presented by FPIs have garnered national attention and there have been moves to prevent the fraudulent and predatory practices of many FPIs. For example, the Department of Education in late 2010 finished rulemaking that was focused on protecting students and taxpayers “against unlawful recruitment practices.” 101

Important progress was made by

strengthening program integrity by, among others, speaking directly on misrepresentation of information, prohibiting incentive compensation schemes, and requiring a showing of gainful

See Sipley, supra note 90, at 282. See 20 U.S.C.A. § 1094(a)(3)(A) (West); See also Sipley, supra note 91, at 282. 98 See Daniel J. Riegel, Closing the 90/10 Loophole in the Higher Education Act: How to Stop Exploitation of Veterans, Protect American Taxpayers, and Restore Market Incentives to the For-Profit College Industry, 81 GEO. WASH. L. REV. 259, 263-64 (2013). 99 See Sipley, supra note 90, at 283. 100 Id.; see also 20 U.S.C. § 1085(m) (2011). 101 See Title IV Federal Student Aid Program Integrity Final Regulations, NAT. ASSOC. FOR COLLEGE ADMIN. COUNSELING (Jan. 2011), available at http://www.nacacnet.org/issuesadvocacy/LegislativeNews/Documents/FinalRules.pdf (discussing new regulations). 96 97

employment. 102 It should be noted however, that there has been strong opposition by FPIs to these new regulations. Recently, FPIs won a key victory by having a federal court vacate the gainful employment rule. 103 On the consumer relief side of the equation, there has been a move to reverse the 2005 bankruptcy laws which made it “nearly impossible to have private student loan debt discharged.” 104 This would be accomplished by the Fairness for Struggling Students Act of 2013 (“FSSA”). 105 Although this act is in the form of relief for debt burdened students rather than regulation aimed at deflating the student loan bubble, the ability to discharge PSLs may help create strong incentives for banks to rethink their underwriting standards. 106 Additionally, in response to alleged abuses in debt collection practices, the newly formed Consumer Financial Protection Board (“CFPB”) plans to promulgate rules that will allow the CFPB to audit and have oversight on loan servicers. 107 The new rules will also allow the CFPB to levy fines against companies that violate federal statutes. 108 The recent move to regulate and attempt to address the growing problem of student debt is a promising sign. However, whether or not the steps taken will be effective, or if they will help prevent further inflation or the bursting of the student loan debt bubble is yet to be seen. C.

Securitization of Student Loans

See id. See Ass’n of Private Colleges & Universities v. Duncan, 870 F. Supp. 2d 133 (D.D.C. 2012) (vacating several provisions of Department of Education’s new Gainful Employment Rule). 104 See Tyler Kingkade, Fairness for Struggling Students Act Would Reform Private Student Loan Bankruptcy Rules, HUFFINGTON POST (Jan. 24, 2013), http://www.huffingtonpost.com/2013/01/23/fairness-for-struggling-studentsact_n_2538832.html, (discussing current state of bankruptcy law pertaining to student loans). 105 See Fairness for Struggling Students Act of 2013, S. 114, 113th Cong. (Jan. 23, 2013); see also Kingkade, supra note 104 (noting new push to allow for change in bankruptcy laws). 106 See id. (discussing FSSA’s provisions and goals). 107 See Eleazar David Melendez, CFPB Will Regulate Student Loan Debt Servicers, HUFFINGTON POST (Mar. 14, 2013), http://www.huffingtonpost.com/2013/03/14/cfpb-student-loan-debt_n_2877345.html, (detailing CFPB’s plans to have oversight on loan servicing process and companies). 108 See 12 U.S.C.A. § 5497 (West 2010) (authoring fines). 102 103

Student loans are securitized in a similar fashion as other asset backed securities as discussed above to create what is called a Student Loan Asset Backed Security (“SLAB”). 109 Government student loans, unlike private student loans, are not securitized. 110 The incentives created by the securitization and strong investor demand have been to create as much volume as possible while relaxing underwriting standards.

Ultimately, the

lending standards have been reduced in order to meet investor demand. 111 The strength of this demand can be seen by the fact that in the end of February 2013, SallieMae “sold $1.1 billion of securities backed by private student loans.” 112 In that deal, it was said that the demand for the riskiest level of loans exceeded the demand by approximately fifteen percent. 113 This demand has thus pushed banks and FPI’s to increase enrollment, thus contributing to the increase of student debt. D.

Predatory Recruiting Practices 1.

For-Profit Institutions

The misleading and predatory practices of FPIs have garnered national attention in the last few years and have also received the attention of Congress and the Obama Administration. FPIs make up more than twenty-five percent “of all the institutions in the country.”114 Additionally, FPIs have access to approximately 23.5 percent of federal loans. 115 FPIs are

109 See generally, Private Student Loans, supra note 82, at 17-18 (discussing similarity of PSL securitization and subprime market); Rachel Louise Ensign, supra note 44 (discussing securitization of student loans). 110 See Ensign, supra note 43 (discussing effects of investor demand on private student loans). 111 See id. See also infra Exhibit F. 112 Ensign, supra note 43 (discussing strength of investor demand). 113 Id. 114 Sipley, supra note 81, at 272-74 (discussing background of FPI industry). 115 See id. (noting that FPIs have been receiving an increased share of federal funding).

focused on maximizing shareholder value rather than delivering quality education. 116 Though the propriety of the FPI will not be the focus of this section or article, this dynamic is important to understand because of the incentives it creates. The business model for FPI is not primarily focused on providing quality education or ensuring employment prospects upon graduation, but rather to aggressively expand enrollment. 117 To meet their enrollment goals, the FPIs recruit aggressively in order to fill the classrooms. Many FPIs have engaged in tactics such as falsifying federal financial aid forms, misled prospective students into believing that their loans “would not be collected,” as well as helping students cheat on application tests.118 Further, there have been cases of students being told that the classes offered would certify them in their desired field, only for students to later find out that the FPI “certification” was not recognized. 119

Other FPIs have been caught

misrepresenting their accreditation status. 120 Moreover, and despite being prohibited by law, there are indications that FPIs recruiters are still being paid commissions for bringing in students. 121 Unfortunately, the students who are misled financially and academically in their attempts to access “higher education” are likely to be the very same students who have high risks of

See James M. Crotty, For-Profit Colleges Thrashed in Congressional Report, FORBES (Aug. 8, 2012), http://www.forbes.com/sites/jamesmarshallcrotty/2012/08/02/for-profit-colleges-thrashed-in-congressional-report/, (noting that many FPI are publicly held corporations traded on various stock markets). 117 See Jean Braucher, Mortgaging Human Capital: Federally Funded Subprime Higher Education, 69 WASH. & LEE L. REV. 439, 449-55 (discussing business model of FPI); see also supra note 1. See Sipley, supra note 81, at 268 (noting that FPIs typically spend more money on non-education items “such as marketing, administrative expenses, and executive compensation” than non-profit institutions). 118 See Braucher, supra note 117, at 451-52. 119 See Sipley, supra note 81, at 277. 120 See id. (discussing the Government Accounting Office’s investigation into FPI fraudulent and misleading practices). 121 See Braucher, supra note 117, at 452. 116

default. 122 This is because FPIs typically cost more than non-profit institutions (“NPI”) and enroll students that typically have backgrounds with lower-income and have parents with lower levels of education. 123 Essentially, FPIs are taking advantage of the hopes and dreams of individuals who want little more than to better their life and career prospects in order to maximize the company’s value. 2.

Non-Profit Universities

It has recently become apparent that even the traditional non-profit higher education institutions are not always sincere in their representations. Although the prospects of a quality education and ability to find employment are typically better at non-profits than FPIs, the former are still guilty of inflating their employment numbers and other statistics which mislead students. Recently, George Washington University, what is typically thought of as a pristine institution of higher education, was taken off the U.S. News rankings due to its admission of falsifying statistics regarding its freshman class. 124 Villanova University School of Law likewise plummeted in the law school rankings after it came to light that a few administrators had lied about admissions data for almost a decade. 125 Likewise, University of Illinois recently admitted to falsifying admissions data for its law school. 126

122 See Sipley, supra note 81, at 267-68, 274-76 (noting that FPIs have “higher drop-out rates [and] have students graduate with higher debt loads. . . .”). 123 See id. at 275 (discussing fact that majority of students at FPIs have higher risk of defaulting on loans); See also infra Exhibit G. 124 See Jenna Johnson, George Washington University ‘Unranked’ by U.S. News, WASH. POST (Nov. 14, 2012), http://www.washingtonpost.com/blogs/campus-overload/post/george-washington-university-unranked-by-usnews/2012/11/14/d07d2d76-2e83-11e2-9ac2-1c61452669c3_blog.html (last visited Oct. 25, 2014). 125 See Martha Neil, Villanova Says Inaccurate LSAT and GPA Data Were ‘Knowingly Reported’ to the ABA in Prior Years, ABA J. (Feb. 4, 2011), http://www.abajournal.com/news/article/new_villanova_law_dean/ 126 See Mark Hansen, U of Illinois Law School Admits to Six Years of False LSAT/GPA Data, ABA J. (Nov. 7, 2012), http://www.abajournal.com/news/article/illinois_law_admits_to_six_years_of_false_lsat_gpa_data/

While submitting false data to ranking agencies may not be as culpable as the predatory practices of the FPI, it still misleads students and prevents them from making informed choices on the true value of the education they seek. E.

“Free” Money 1.

Federal Student Loans

As discussed above, the government has made massive investments in the future of our nation and has put strong laws in place to encourage higher education. Unfortunately for some students, the access to federal student loans is given with almost no review about the ability to repay in the future. There are no checks for creditworthiness, there are no reviews regarding the student’s ability to complete prospective college programs, and there is no analysis on whether the chosen field of the student will ever give him/her the ability to repay their loans. 127 Currently the amount of outstanding federal student loan debt is approximately 1.096 trillion dollars.128 Ultimately what this has created is a new generation burdened by debt and has rapidly inflated the student loan bubble. 2.

Private Student Loans

Students also have almost unfettered access to the PSL market. Students typically will use PSLs when the maximum amount of federal funding does not cover the total costs of tuition or if the student is taking out a private loan for other educational expenses. 129 While, unlike

See What are the Differences Between Federal and Private Student Loans?, FED. STUDENT AID, http://studentaid.ed.gov/types/loans/federal-vs-private (noting that with the exception of PLUS loans, federal aid does not require a credit check). 128 See Federal Student Loan Portfolio, FED. STUDENT AID, https://studentaid.ed.gov/about/datacenter/student/portfolio, (summarizing amount of outstanding federal student loans). This figure includes Direct Loans, Federal Family Education Loans, and Perkins Loans. Id. 129 See Bradley J.B. Toben & Carolyn P. Osolinik, Nonprofit Student Lenders and Risk Retention: How the DoddFrank Act Threatens Students’ Access to Higher Education and the Viability of Nonprofit Student Lenders, 64 BAYLOR L. REV. 158, 161-63 (2012) (detailing how private funds can bridge funding gaps); See also infra Exhibit I (noting maximums students can borrow under federal programs). 127

federal loans, students do undergo credit history checks, the majority of borrowers are still approved. This occurs because parents co-sign the loan, lending standards have been relaxed due to strong investor demand for SLABs, or schools have increasingly been taken out of the role of gatekeeper between the students and the private loan market. 130 This ease of access has been fueling the bubble as can be seen by the amount of outstanding private student loan debt at approximately $150 billion and counting. 131 Important is the lack of the government backing of loans and the tendency for private student loans to focus on individuals who are less likely to be able to pay. This combination threatens to be the first domino to fall should the bubble burst. F.

Accreditation Agencies

There has been a lot of misplaced faith in the value of accreditation, especially in the realm of FPIs. Although the agencies serve an important purpose of measuring the quality of education, the process can be perverted to the detriment of students. This occurs, when as discussed above, regional agencies merely give rubber stamp approvals for FPIs, or where the agency was chosen through accreditation shopping. The negative incentives of regional agencies are well known. First, the agencies are funded by the very institutions they support which is accomplished through fees and membership dues. 132 The result of which is, at best, a lack of independence and, at worst, the agencies being captured by their institutions. Secondly, with the rubber stamp approval of some FPIs, students are given the explicit signal that the educational

See Private Student Loans, supra note 81, at 11. See QUARTERLY REPORT ON HOUSEHOLD DEBT AND CREDIT, supra note 76. 132 See Robert C. Dickeson, The Need for Accreditation Reform, U.S. DEPâ&#x20AC;&#x2122;T OF EDUC., 3 (2006) available at http://www2.ed.gov/about/bdscomm/list/hiedfuture/reports/dickeson.pdf (discussing predominant use of accreditation is for institutional purposes rather than public purpose and proposing shift to national accreditation). 130 131

institution is one of quality, and as discussed above, this is simply not the case in all circumstances. G.

Moral Hazard

Students are told at a young age that higher education is the ticket to a better life, a better career, and economic success. Many students however, are not exposed to the type of classes that teach them, in an in-depth sense, the time-value of money, importance of opportunity costs, or the power of compounding interest. 133 Further, students are given access to loan money without requirements to begin paying it back immediately. 134 The combination of age and inexperience, in addition to the deferral of payment, puts off the need to make tough life choices about where to attend college or what programs to focus on.

Although students have

undoubtedly heard tales of others who are hundreds of thousands of dollars in debt with no end in sight, most brush such tragedy aside with a simple, “it won’t happen to me” mentality. 135 This is a different type of moral hazard in that the lack of information, inexperience, and societal pressures and promises push students to taking on debt loads that many people of the past generation scratch their heads at. This delay in needing to face the reality of their choices helps foster the “generation of debt” by allowing students to access hundreds of thousands of dollars with little discussion about paying it back. Even though students with federal aid are required to take exit counseling in which students are educated about the repayment of their

See Daniel Bortz, Why Most High Schoolers Don’t Know How to Manage Their Money, U.S. NEWS (Oct. 9, 2012), http://money.usnews.com/money/personal-finance/articles/2012/10/09/why-most-high-schoolers-dont-knowhow-to-manage-their-money. 134 See What are the Differences Between Federal and Private Student Loans?, supra note 127 (discussing different repayment plans under both federal and private loans). 135 See Dave Segal, Is Law School a Losing Game?, N.Y. Times (Jan. 8, 2011), http://www.nytimes.com/2011/01/09/business/09law.html?pagewanted=7&_r=3&ref=general&src=me&, (noting bailout mentality of some graduate students). 133

loans, this occurs after the debt has accumulated. 136 In assessing the loans to be given to the student, there is no inquiry into the type of degree sought, nor the potential to pay back the loan after graduation. This “kick the can down the road” mindset has resulted in the increased burden of student loan debt placed on the shoulders of those who may not be able to carry it. H.

Student Relief Programs

There have been recent pushes to help relieve the increasing debt students face. The Health Care and Education Reconciliation Act (“HCERA”) for example, allows for the Income Based Repayment Plan (“IBR”). 137 The IBR allows students to cap their monthly payments based on their income and also allow any remaining debt forgiven after 20 years, although this program does not cover PSLs. Additionally, if passed, the above mentioned FSSA will allow students to discharge their PSLs in bankruptcy. 138 The efficacy of such programs will be further discussed below. IV.

Comparing the Housing Bubble to the Student Loan Bubble A.

Moral Preference and Government Policy in Housing and Education

The genesis of the housing and student bubbles can both be traced to the idea of homeownership and higher education as the hallmarks of success and the American dream. While homeownership may be ideological, education is a reality. 139 Without education, it is difficult to get ahead in society and further, a well-educated electorate is paramount to a healthy functioning democracy. 140 One issue that arises is the premium put on college education over other forms of self-development. As a matter that is outside the scope of this paper, the negative See What is Exit Counseling?, STUDENT LOAN CONSOLIDATION, http://www.studentloanconsolidation.pro/98what-is-exit-counseling.html. 137 See Income-Driven Repayment Plan, Fed. Student Aid, http://studentaid.ed.gov/repayloans/understand/plans/income-based (detailing IBR plan). 138 See Kingkade, supra note 104. 139 See Friedman, supra note 80, at 86. 140 See id. 136

connotations attached to some blue collar professions are wholly undeserved and should be rectified. But it needs to be noted that there are odd incentives at play for one to take on almost a hundred thousand dollars in debt for a degree that will never generate enough income to pay it back. Nevertheless, the importance of both education and housing has led to a strong demand in both markets. Government policies and programs have helped foster and increase these demands. 141 This has been accomplished by lowering barriers to entry in both markets, in addition to interfering with the supply side of the equation. Programs that have good intentions have been found to create negative incentives and neighborhood costs in practice. The increased demand, both from students/homeowners and from investors, has incentivized lenders to relax their underwriting standards for the sake of profit and lessen concern for risk. 142 Further, in the student loan realm, the federal government has taken on a massive amount of debt to allow students the opportunity to attend higher education, with almost no inquiry to creditworthiness. Accordingly, the incentives at play that created the housing bubble are similarly fueling the student loan bubble as well. B.

Deregulation and Lack of Regulation

The lack of regulation in both the subprime and securitization markets of the housing bubble closely resembles that of the PSL and FPI markets. Where the student loan bubble differs from the housing bubble and subsequent crisis is the acknowledgement that there is a problem. 143 There have been recent attempts, albeit slow and potentially ineffective, to address and mitigate

141 For a discussion regarding government policies in housing and education, see supra notes 4-24, 79-88, and accompanying text. 142 See Ensign, supra note 43. 143 There were few people who spoke out during the excesses of the early 2000s, but a simple Google search can bring up a plethora of scholarship on the student loan debt issue.

the formation of the student loan bubble, as well as protect potential students from the predatory practices of FPIs. 144 Nevertheless, the intervention has only begun in the last couple years and it is too early to tell if the bubble has inflated past a point of no return, or if the new regulations and future policies will be able to prevent the student loan bubble from turning into the next economic crisis. Further, outside the offering stage the lack of regulation in SLAB trading closely mirrors that of the ABS and CDO markets leading up to the bursting of the housing bubble. The only difference being that SLABs are only derived from private student loans. 145 While this may seem to reduce the market, the strong investor demand will likely push banks to lower underwriting standards further, much like in the case of the subprime crisis. Also it is important to note that the subprime bubble was the first to burst, which then cascaded into the housing bubble, then to all of Wall Street. What is yet to be seen, is if the SLAB bubble bursts, would it domino like the housing bubble, or will the private/public separation spare the markets? Given the size of the SLAB market and the fact that the majority of student loans are held by the government makes it unlikely that any burst in the SLAB market will create a contagion as we saw in the housing crisis. C.

Securitization and Speculation

It has been recognized that the SLAB market and industry incentives “resemble[s] the subprime mortgage market.” 146 For example, during the pre-crisis boom, “high investor demand for [SLABs] allowed SLABS issuers to create structures with very low collateralization ratios.147

See supra notes 89-108 and accompanying text. See Ensign, supra note 43. 146 Private Student Loans, supra note 81, at 18; See also infra Exhibit F (displaying boom and bust cycle of SLABs which mirrored that of ABSs). 147 Id. 144 145

The result of which, generally was that “the buyer assumed all of the risk that the borrower would fail to repay the loan after such a transaction.” 148 The effect of this was to give PSL lenders the incentive to increase the volume of loans while at the same time reducing the incentives to ensure the creditworthiness of the borrowers underlying the loans. 149 Just like the buildup and collapse of the subprime and RMBSs markets, the demand for SLABs is much greater than the current supply, pushing lenders to try and find more borrowers. 150 In the areas of PSLs, there has been a steady increase in the amounts of loans “with a cosigner from 67% in 2008 to over 85% in 2009. 151 In 2011, over 90% of PSLs were cosigned.” 152 This indicates that the PSLs are becoming more risky and thus more borrowers need backing from their co-signers. This in turn shows both a high demand for such loans and the fact that banks are trying to meet investor demand. This action as alluded to above closely reflects that of the subprime, RMBS, and CDO markets prior to the collapse of the housing bubble. As if completely ignorant to what occurred in 2008, investors are clamoring for securitized student loans even as the default rates have begun to increase sharply. 153 D.

Predatory Lending and Predatory Recruiting

Like the subprime mortgage market, the PSL market and FPIs have arisen as areas with little oversight, yet both have the potential to do significant damage to the current economic recovery. Just like the lending practices of the subprime market, private banks have focused their attention on borrowers with damaged credit, minority borrowers, and those who attend

Id. See id. 150 See Ensign, supra note 43 (noting that demand for the riskiest tranche of a recent $1.1 billion dollar SLAB deal was “15 times greater than the supply”). 151 See id. 152 Id. 153 See Ensign, supra note 43. 148 149

FPIs. 154 This focus on the less sophisticated borrower mirrors the practices of the subprime brokers. Further, like the subprime market, private lenders have lessened their lending standards in order to generate more loans, more fees, and to meet investor demand for securitized student loans. Further mirroring the products of the subprime market is the fact that PSLs typically have adjustable interest rates which, as occurred with the housing bubble, could quickly rise and leave borrowers unable to repay their loans. 155 The FPI industry also has many reflections with the negative incentives that arose from the subprime market. FPIs also have made a living targeting those who are more easily mislead and have the higher likelihood of defaulting.

This parallel has even been noted by Gene

Sperling, the director of the National Economic Council, who stated that “[t]he for-profit education sector business model invokes much of the same characteristics of what happened with subprime housing and securitization, namely that the schools can capture all of the upside of increased volume while shifting all of the downside risk somewhere else. . . .” 156 E.

“Free” Money

The student loan bubble has many reflections of the housing bubble in the access to cheap and free money. Historically, a driving force behind the housing bubble were the low rates maintained by the Fed. 157 Like the early 2000’s, interest rates are currently at an all-time low and have been artificially held down by the Fed to try and spur on the economy. 158 It must be noted that the rates are actually lower now than those which helped drive the housing

For a discussion regarding the predatory practices FPIs, see supra notes 114-23 and accompanying text. See Private Student Loans, supra note 81, at 12 (discussing differences between federal and private student loans). Unlike private student loans, federal loans carry a fixed rate; id. 156 Chris Kirkham, For-Profit College Regulations: Obama Administration Issues Rules, HUFFINGTON POST (Aug. 1, 2011), http://www.huffingtonpost.com/2011/06/02/for-profit-college-regulations-obamaadministration_n_870085.html (discussing need for regulation of FPIs). 157 See supra notes 52-56 and accompanying text. 158 See infra Exhibit B. 154 155

bubble. 159 This has allowed banks to have access to cheap money that they can lend to students with at a premium interest rate when compared to other credit markets such as mortgages or auto loans. Perhaps banks, with 2008 still fresh in their mind will be more conservative in their lending - only time will tell. Like the housing bubble generally, and the subprime bubble in particular, student borrowers have almost unfettered access to student loans. This is particularly true for federal financial aid, which for the most part does not require a credit history check to get a loan. 160 In the private area there are some underwriting standards, but the requirements have been relaxed over the years and are usually overlooked if a co-signer is available. 161 This has allowed students who previously may not have qualified for the loan, access to new considerations. As discussed above, this was a major contribution to the financial crisis and as here, will continue to inflate the student loan bubble. F.

Rating Agencies and Regional Accreditation Agencies

There is a stark similarity between the failings of the rating agencies and the accreditation agencies insofar as the FPIs are concerned. Just as the rating agencies rubber stamped many of the subprime assets underlying the RMBSs and CDOs, regional accreditation agencies have given their boilerplate approval of for-profit universities. 162 This is exacerbated, just as in the case of rating agencies, by threats of FPIs to “shop” and simply go to another accreditation agency should the first not play ball. The negative incentives that were at play in the financial crisis are likewise at play with the accreditation agencies. The “play ball or don’t get paid” mentality is clearly present as both Id. See supra notes 127-28 and accompanying text. 161 See supra notes 129-31 and accompanying text. 162 See supra notes 90-94 and accompanying text. 159 160

the rating and accreditation agencies are paid by the very institutions they are to review. 163 Further, just like the misplaced reliance on AAA ratings during the housing bubble, students who attend the FPIs are lulled into a believing that they are obtaining a quality education that will be recognized by employers. They may understand that the FPIs are not Ivy League, but they nevertheless assume, and understandably so, that the FPIs would not be accredited if they did not provide a sound program.

Unfortunately, because of the mere rubber stamp of approval,

shopping, or simply buying an institution that is accredited, students find that after graduation they were not prepared for the labor force nor were they properly educated as they were promised. 164 It should be noted that the end result of the failings of both agencies are different but both threaten economic harm. In the housing bubble, investors were lulled into purchasing riskier investments than advertised and the end result was the loss of untold amounts of money. In the student loan bubble, students invest their time and future earnings into institutions that provide lackluster, if any real education at all. 165 The end result is being burdened with more debt than they can pay off, and thus, defaulting on their loans. This not only threatens the money placed in SLABs, but also represents enormous opportunity costs to not only the individual student but the greater economy at large as well. G.

Moral Hazard

The actions leading up to the crisis as well as the steps taken to qualm the financial crisis have undoubtedly created a moral hazard. While there has been no bailout of the financial

See id. See id. (discussing how FPIs can accreditation shop). 165 See Michael Startford, Senate Report Paints a Damning Portrait of For-Profit Higher Education, THE CHRONICLE OF HIGHER EDUCATION (July 30, 2012), available at http://chronicle.com/article/A-Damning-Portraitof/133253/ (noting lack of quality education at some FPIs). 163 164

institutions lending PSLs, there is little doubt that the actions of the government have created moral hazard on the part of the private student loan market. 166 Just as the early 2000 bailouts and government policies created the impression that the government would step in to bolster the housing market, the government has created programs and has begun to look at means to help support the student loan bubble. 167 These actions have created an expectation of a bailout in some student’s minds.168 Additionally, just as the interest rates were held artificially low, creating cheap money, the current interest rates are also being held low to spur economic recovery. 169 As if playing same tune in a different song, all the same incentives are at work with the student loan bubble as they were with the bursting of the housing bubble. Further, it takes little deduction to see that the Wall Street bailouts likely have given the impression that should the PSL and SLAB markets bottom out and threaten the economy, similar bailouts will ensue. Also important is the fact that FPIs and NPIs, like banks in the originate-and-sell model, have little skin in the game. With the exception of the criteria mentioned above, once students graduate, the schools are not on the hook for their student’s ability to find employment and payback loans. From a psychological standpoint, both homeowners and students share many of the same traits. The mentality that “it won’t happen to them” is present in both cases. 170 In the subprime area, borrowers were led to believe that their credit would be repaired and that they would be able to afford their homes. In the student loan area, borrowers are led to believe that they will 166 For a discussion regarding the moral hazard in the student loan context, see supra notes 133-36 and accompanying text. 167 For a discussion regarding the moral hazard created by relief programs in the housing and student loan context, see supra notes 64-74 & 133-38 and accompanying text. 168 See Segal, supra note 135 (quoting law school graduate that “[b]ank bailouts, company bailouts — I don’t know, we’re the generation of bailouts. . . . And like, this debt of mine is just sort of, it’s a little illusory. I feel like at some point, I’ll negotiate it away, or they won’t collect it.”). 169 See infra Exhibit B. 170 See Segal, supra note 135 at 5.

graduate with a degree that has value and they will be able to find gainful employment. Just as the mislead homeowners found out that they could not keep their homes, many students, particularly from FPIs, are beginning to find that they cannot find the gainful employment promised and are defaulting on their loans. It is happening to them. H.

Relief Programs

Both the housing and student loan bubble have been responded to with the creation of various relief programs. The difference between the two can be seen in timing. The relief programs for the housing crisis came only after the bursting of the bubble. Not only were the programs too late to stem the contagion, they were also too late for many to keep their homes. Unlike the housing relief programs, the student loan relief programs have been enacted before any bubble has burst.

Whether the programs are too little too late has yet to be seen.

Nevertheless, the fact that there has been such widespread response recognizing the student loan problem is in stark comparison to the massive ignorance shown by many officials in the run up to the housing crisis. 171 V.

Going Forward: Is There a Bubble, Deflating it if There is, and Student Relief A.

Is there a Bubble at All?

Notwithstanding the similarities between the housing bubble and the student loan bubble, important differences exist between the two that may prevent a reoccurrence of the 2008 financial collapse. Importantly, in its current form, the size, scope, and makeup of the student loan debt will likely prevent the crisis from becoming a systemic threat.

See Katherine Spillar, Will We Ignore Brooksley Born Again? HUFFINGTON POST (Nov. 3, 2009), http://www.huffingtonpost.com/katherine-spillar/will-we-ignore-brooksley_b_344242.html, (noting resistance to warnings about threats to financial markets posed by unregulated securities). 171

First and foremost, is the fact that almost eighty-five percent of the outstanding student loan debt is funded through the federal government – making a system-wide crash less likely. 172 Unlike the implicit guarantee of the GSEs in the case of the housing bubble, there is an explicit backing of the federal government because the government holds the majority of the student loan debt. Therefore, there would need to be a substantially higher default rate than the current 13.4 percent to create a problem for the government . 173 Further, it is unclear whether the $150 billion in PSLs is a significant enough amount currently to truly threaten the greater economy. 174 Another fact differentiating the scope of the issues is that the amount of funds invested in RMBS were significantly higher than what has been invested in SLABs. 175 This further displays that currently, student loans pose a substantially lower threat of systemic financial collapse than the housing market did. The total size of the market is also a factor that distinguishes the student loan issue from the housing crisis. The housing market was approximately 10.1 trillion dollars, whereas student loan debt has just breached the one trillion dollar mark. 176 Although the ballooning size of student debt is a serious concern, the above mentioned federal-private makeup in addition to the smaller size diminish the student loan bubble’s potential effects on the greater economy.

172 See Christopher Matthews, Viewpoint: Stop Calling Student Loans a “Bubble”!, TIME (Mar. 7, 2013), http://business.time.com/2013/03/07/viewpoint-stop-calling-student-loans-a-bubble/ (noting factors that make student loans different than other bubbles); See also QUARTERLY REPORT ON HOUSEHOLD DEBT AND CREDIT, supra note 76. 173 See infra Exhibit J. Note that although the default rates have been increasing sharply, they still represent under twenty percent of the total student loan borrowers. See also infra Exhibit K (comparing default rates of student loans with mortgages). 174 See Matthews, supra note 172. See also First Official Three-Year Student Loan Default Rates Published, supra note 78. 175 See infra Exhibit L (displaying amount of investment in RMBSs and SLABs amount other ABSs). 176 See infra Exhibit M (comparing size of total investment in both housing and student loan markets in addition to other consumer loan products).

Further, as noted above, many of the PSLs that are issued are co-signed. 177 Therefore, at least in theory, the loans have a backstop to defaulting. A contrary point may be made however, that PSL borrowers with disadvantaged backgrounds may not have a co-signer that is in a better position to pay. 178 Nevertheless, unlike the housing bubble, many student loans have the extra level of protection of an interested third party.

Even assuming the latter to be true, the

disadvantaged borrowers do not make up the entire field of PSLs, thus reducing the potential for system-wide defaults of PSLs. Finally, student loans cannot currently be discharged in bankruptcy. 179 While this may subject to change in the near future, the inability to write off the debt protects banks and investors in the long-run. 180 While investors and banks may see short-term issues with cash flow due to defaults, the fact that the debt does not dissipate, gives reassurance to patient investors. These factors point to a mitigation of similarities between the two crises insofar as a systemic collapse. Granting a robust economy, it would be strongly argued that the above facts would negate any present concerns about a student loan crisis. But with an economy still reeling from the 2008 collapse, any potential market failure may risk pulling the economy back into the throes of a recession. B.

If There Is A Bubble, Deflate It

Surpassing of the one trillion dollar mark has acted as a call-to-arms for legislatures and voters to turn their attention to the issues of mounting student debt. Although it is debatable whether student loans pose a systemic risk, there is no question that a bubble is nonetheless forming. In response to the increasing debt burden carried by students, the government is See supra notes 129-31. See id. 179 See Kingkade, supra note 104 (discussing present state of bankruptcy law). 180 See id. 177 178

currently taking steps to try and address the pending â&#x20AC;&#x153;burstâ&#x20AC;? by giving a bottom up approach, i.e., student relief, and a top down approach, by addressing Title IV eligibility. 1.

Letting The Bubble Deflate On Its Own

The amount of media attention has helped educate students, parents, and politicians on the dangers to taking on too much debt as well as put the spotlight on the predatory recruiting practices of FPIs. Due to this increased knowledge, there is the potential that the bubble will deflate on its own. Ironically, the bubble may begin to deflate, simply because students can no longer afford the skyrocketing tuition costs. 181 Moreover, unjustifiable prices coupled with the poor job market have reduced the number of applicants for higher education. 182 With more focus in the media and programs created to educate potential students, there is a chance that the demand for higher education simply putters out. Although out of the purview of this article, this is not a desirable outcome as the importance of higher education is clear and shutting students out of the market due to lack of funds will only increase the disparity of opportunity and wealth. Another factor to consider is that with the increased scrutiny and potential future rules, fraudulent FPIs will likely start to move out of the market, leaving legitimate FPIs to operate.183 This is because the incentives and opportunities will dwindle as more light is shown on the practices of the questionable FPIs.

See Catherine Rampell, The Skyrocketing Costs of Attending College, N.Y. TIMES (Oct. 20, 2009), http://economix.blogs.nytimes.com/2009/10/20/the-skyrocketing-costs-of-attending-college/ (discussing dramatic increase in costs of attending higher education institutions). 182 See Michael McDonald, Small U.S. Colleges Battles Death Spiral as Enrollment Drops, BLOOMBERG (Apr. 14, 2014), http://www.bloomberg.com/news/2014-04-14/small-u-s-colleges-battle-death-spiral-as-enrollmentdrops.html. Law schools in particular have seen the effect of this phenomena with plummeting applications and increasing budget issues due to the lack of incoming students. See Jennifer Smith, U.S. Law School Enrollment Falls: Lack of Jobs has Students Steering Away from Legal Career, W.S.J. (Dec. 17, 2103, 7:41 p.m.), http://online.wsj.com/news/articles/SB10001424052702304858104579264730376317914. 183 See supra notes 89-108; 132 and accompanying text. 181

Should these factors play a significant role in the decision to enroll in higher education, there may be a possibility that the bubble will slowly deflate over time, rather than bursting. Ultimately however, given the strong demand for education and the support enrollment receives from society and the government, it is more likely that proactive steps are needed to address the student debt problem and to deflate any potential bubble. 2.

Deflation Via Government Intervention

There have been new regulations put forth by the Department of Education to combat the fraud and misrepresentations that have been committed against students. Most of these new regulations, as discussed above, are focused on taking away Title IV eligibility from institutions that violate the new rules. Thus, as fraudulent institutions are weeded out, the most egregious effects of predatory recruiting will be diminished. Congress has stepped in by giving student relief, for example, the Health Care and Education Reconciliation Act (“HCERA”) allows for the Income Based Repayment Plan (“IBR”). Under IBR, eligible students who make their minimum student loan payments have any remaining debt forgiven after 20 years, although this program does not cover private student loans. 184 While relief programs represent more of a bottom to top approach, by lessening the amount of defaults, the programs will help reduce the chances of the bubble bursting. Another measure which would be controversial but nonetheless an option is to take the market over completely. Education is subsidized up until college, so government involvement is already pervasive. Likewise, federal loans make up almost eighty-five percent of the student loan market. By taking the other fifteen percent, the government would be able to prevent predatory lending practices and have a tighter rein on FPIs and NPIs, for better or for worse. See Income Based Repayment Plan, FED. STUDENT AID, available at: http://studentaid.ed.gov/repayloans/understand/plans/income-based (detailing IBR plan). 184

Alternatively, the government could directly subside via grants, scholarships, and other means, a larger portion of the costs of higher education. By reducing the amount students would pay for tuition, they would reduce the ultimate loan burden. However, as discussed above, this option may potentially create incentives to increase college tuition and costs even more than they are increasing now. C.

Student Relief 1.

The American Dream and Lost Opportunity Costs

Addressing the student loan problem effectively and quickly is of paramount importance to the continued economic success of the United States. It appears that there is a bubble, but it does not look likely to burst soon. Further, due to its current scope and makeup will not likely pose a systemic threat to the economy as a whole in its current form. Nevertheless, the burden faced by students represents a significant threat to the economy separate from a bubble bursting. Students caught under the weight of debt are robbed of making rational employment and life decisions. Aside from the obvious woes stemming from unemployment, underemployment represents a significant risk of lost opportunities not only for the individual, but also to the greater economy as a whole. Long-term prosperity is under threat where highly skilled and trained individuals take jobs that do not allow them to innovate nor create. Simply put, this country cannot afford to turn a blind eye or be slow and unresolved in its response to the student loan crisis. 2.

Lower Student Loan Interest Rates

Student loan interest rates, particularly PSLs are traditionally higher than most other loan products. 185 By lowering the interest rates on student loans, it will allow students to have reduced monthly payments while still allowing them access to higher education. This is not to say that the government should artificially deflate rates, but rather to reduce them to rates comparable with other consumer loan products. Alternatively, the government could enact a regulation which sets a flat rate for all student loans, whether public or private. This would prevent private loans or federal loans with adjustable rates from ballooning when interest rates rise. Thus, students would have a set monthly payment that they could plan around and not be ill-affected by the random shifts in the economy. Either of these approaches would help to reduce the debt burdens faced by students. Further, it would help reduce defaults by reducing monthly payments as well as giving consistency in the payments allowing for long term planning. Despite the negative incentives that may arise such as increased access to â&#x20AC;&#x153;cheaperâ&#x20AC;? money and moral hazard, this option should be looked into. 3.

Deferment without Compounding Interest

An important form of relief would be to allow deferment of repayment without compounding interest. Many students who are still in school or looking for jobs, may find that their loans have ballooned to such proportions that having gainful employment is simply not enough. This is through compounding interest while the loan is in forbearance or deferment. 186 To prevent this, regulations could be made to not allow any interest to accrue on the outstanding See Private Student Loans, FINAID, http://www.finaid.org/loans/privatestudentloans.phtml, (detailing various interest rates from various private student loan lenders); see also infra Exhibit H. 186 See Student Loan and Private Loan FAQs, SIMPLETUITION, http://www.simpletuition.com/faq_full (discussing interest accruing on student loans). 185

loan, or at the very least, only allow simple rather than compounding interest while students are at school or if the loan is in deferment or forbearance. The benefit of this to both students and investors is that the student, when they do find employment, will have a more manageable loan that they could start paying back, and investors will likely see cash flow sooner as well as reduce the risk that the loan will go into a long-term default. There may be an issue with moral hazard due to the cheapening of the loan, and there would need to be tough sanctions against malingers, but nevertheless, the potential benefits outweigh the costs and this option should be implemented. 4.

Loan Forgiveness

Complete loan forgiveness should be avoided. Not only would it create moral hazard in our current and younger generations, but it will also cause unrest and uncertainty in the financial markets. This is because first, students will forever have the mindset that the government will â&#x20AC;&#x153;bailâ&#x20AC;? them out when the situation becomes troubled. Future students will likely take on loans without reviewing the risks with the belief that the government will save the day should they falter. Second, institutional investors will no longer have any certainty in their investments. Pension funds, mutual funds, and 401(k)s for example that are invested in securitized student loans will lose their investment income and will be wary of sporadic government intervention in the private markets. The effect of which could be investment in other countries rather than the United States, further hurting the economy. Nevertheless, there may be circumstances where loans can be forgiven, or possibly have the balances transferred to the underlying institution, should the student fall victim to unlawful recruiting practices. As mentioned above, under the IBR plan, students can have their loans forgiven after twenty years of payments. This will allow banks and investors to profit and help

students not be shackled by debt. Because there is a set twenty-year time window on the forgiveness program, the issue of uncertainty is reduced. Furthermore, there are loan forgiveness programs that encourage work in certain areas such as public interest or government work which will forgive the loans after a period of years. 187 The moral hazard created by debt forgiveness is likely mitigated by the benefit of students working in fields that do not attract as many employees, doing public work and service, and because the forgiveness does not accrue until many years after beginning the programs. Accordingly, so long as fraud and abuse are strictly curtailed in these programs, they do serve a useful purpose and should be promoted. 5.

Student Loan Relief Fund

Another possible option for student relief is the creation of a student relief fund. This would operate much like the European Zone Bailout Fund or how funds are pooled to help prevent insurance company insolvency. 188 Here, institutions that are identified as “high risk,” likely FPIs, would be required as a matter of Title IV eligibility, to pool funds into an account controlled by the Department of Education. 189 When a student defaults on their loan payments, they could apply to have their balances brought out of default or have the total balance reduced. The students eligible for such treatment would need to prove they meet certain criteria such as employment and income, that they were victims of predatory practices, and that their graduating institution is one that falls into a high risk classification. If fraud could be curtailed, the effect of making institutions have skin in the game would likely help stem the moral hazard created by the See Public Service Loan Forgiveness, FED. STUDENT AID, http://www.studentaid.ed.gov/repay-loans/forgivenesscancellation/charts/public-service (detailing programs that forgive student loans for public service). 188 See Up Two Trillion: Europe Plans to Leverage Euro-Zone Bailout Fund, DER SPIEGEL (Sept. 24, 2012), http://www.spiegel.de/international/europe/european-leaders-plan-to-leverage-esm-bailout-fund-a-857565.html, (detailing aspects of Bail Out Fund). 189 As a matter outside the scope of this article, “high risk” would be a defined term as promulgated by the Department of Education. 187

federal and PSL loans systems and would hopefully promote better admission decisions on the part of covered institutions. 6.

Dischargeable Debts in Bankruptcy

Currently, it is nearly impossible to discharge student loan debt in a bankruptcy.190 Unlike housing, where a homeowner can simply walk away, graduates are burdened by their debt for their entire lives. 191 This is simply not an equitable situation, particularly in the case of students who were victims of the unlawful practices of FPIs. However dreary this current result is, there has been a push to allow students to discharge their PSLs in a bankruptcy. 192 Time will tell if this relief will become a reality or not but as it stands now the FSSA seems unlikely to pass. 193 It should be noted however that the effectiveness of this provision is questionable. Since the FSSA would only allow for the discharge of PSL, and because most of the bulk of the debt is federal, a student may discharge their PSL debt but still be in financial disrepair. VI.

Conclusion The housing bubble and the student loan bubble have many similarities but some

important differences. Currently, the differences will likely shield the greater economy from a system wide collapse as seen during the housing crisis. Nevertheless, it is paramount that the issue of the student loan debt be addressed now and steps taken towards real solutions in order to prevent any potential economic harm that will not only leave a generation of graduates who

See Kingkade, supra note 104 (discussing present state of bankruptcy law). It must be noted that though after a bankruptcy, banks traditionally did not sue former homeowners for the balance due after the house was foreclosed, but this practice has changed, and more and more banks are seeking redress after foreclosure. 192 See Fairness for Struggling Students Act of 2013, S. 114, 113th Cong. (Jan. 23, 2013); see also Kingkade, supra note 105 (discussing move to allow students to discharge debt in bankruptcy). 193 See Bill Fay, â&#x20AC;&#x2DC;Fairness for Struggling Students Actâ&#x20AC;&#x2122; is Struggling to be Heard, DEBT.ORG (Mar. 8, 2013), http://www.debt.org/2013/03/08/student-loan-bankruptcy/ (discussing problems faced in passing FSSA). 190 191

cannot meaningfully contribute to the economy, but may also pull the economy back into the throes of the great recession.

EXHIBIT A 194

194 See Scott Frame, Andreas Lehnert & Ned Prescott, A Snapshot of Mortgage Conditions with an Emphasis on Subprime Mortgage Performance, 4 REPORT TO FED. RESERVEâ&#x20AC;&#x2122;S HOME MORTGAGE INITIATIVES COORDINATING COMM. (Aug. 27, 2008), available at http://federalreserveonline.org/pdf/MF_Knowledge_Snapshot-082708.pdf.

EXHIBIT B 195 Effective Federal Funds Rates (1954-2013)

Graph: Effective Federal Funds Rate (FEDFUNDS), FRED ECON. DATA, http://research.stlouisfed.org/fred2/graph/?chart_type=bar&s%5B1%5D%5Bid%5D=FEDFUNDS.

EXHIBIT C 196

196 See The End of the Affair: Americaâ&#x20AC;&#x2122;s Return to Thrift Presages a Long and Deep Recession, The Economist (Nov. 20, 2008), http://www.economist.com/node/12637090?story_id=12637090 (noting sharp increase of consumer and mortgage debts).

EXHIBIT D 197

See Ben Gersten, The Scary Reality of the Student Loan Bubble in 5 Charts, MONEY MORNING (Mar. 5, 2013), http://moneymorning.com/2013/03/05/the-scary-reality-of-the-student-loan-bubble-in-5-charts/.

197

EXHIBIT E 198

198 See James R. Barth, et. al, The Rise and Fall of the U.S. Mortgage and Credit Markets: A Comprehensive Analysis of the Meltdown, 6 MILKEN INSTITUTE (2009), available at http://www.milkeninstitute.org/pdf/Riseandfallexcerpt.pdf.

EXHIBIT F 199

199

See Private Student Loans, supra note 81, at 18.

EXHIBIT G 200

See Ben Gersten, The Scary Reality of the Student Loan Bubble in 5 Charts, MONEY MORNING (Mar. 5, 2013), http://moneymorning.com/2013/03/05/the-scary-reality-of-the-student-loan-bubble-in-5-charts/.

200

EXHIBIT H 201

See Eric Zorn, Change of Subject, Chicago Tribune (Mar. 23, 2011), http://blogs.chicagotribune.com/news_columnists_ezorn/2011/03/more-college-tuition-inflation.html.

201

EXHIBIT I 202 Dependent Students (except students whose parents are unable to obtain PLUS Loans)

Independent Students (and dependent undergraduate students whose parents are unable to obtain PLUS Loans)

First-Year Undergraduate

$5,500—No more than $3,500 of this amount may be in subsidized loans.

$9,500—No more than $3,500 of this amount may be in subsidized loans.

Second-Year Undergraduate

$6,500—No more than $4,500 of this amount may be in subsidized loans.

$10,500—No more than $4,500 of this amount may be in subsidized loans.

Third-Year and Beyond Undergraduate

$7,500 per year—No more than $5,500 of this amount may be in subsidized loans.

$12,500 per year—No more than $5,500 of this amount may be in subsidized loans.

Graduate Professional Students

Not Applicable

$20,500

$31,000—No more than $23,000 of this amount may be in subsidized loans.

$57,500 for undergraduates—No more than $23,000 of this amount may be in subsidized loans.

Year

or Degree

Maximum Total Debt from Subsidized and Unsubsidized Loans

$138,500 for graduate or professional students—No more than $65,500 of this amount may be in subsidized loans. The graduate debt limit includes all federal loans received for undergraduate study.

202 See Subsidized and Unsubsidized Loans, FED. STUDENT AID, http://studentaid.ed.gov/types/loans/subsidizedunsubsidized (detailing maximum amount students can borrow).

EXHIBIT J 203

203 See James Quinn, The Great Deleveraging Lie, SEEKING ALPHA (Aug. 27, 2010), http://seekingalpha.com/article/222577-the-great-deleveraging-lie.

EXHIBIT K 204

204

Id.

EXHIBIT L 205

205 See V. V. Chari, Ali Shourideh & Ariel Zetlin-Jones, Damage Control? Analyzing Policies to Repair Credit Markets, Fed. Reserve Bank of Minneapolis (Oct. 22, 2010), http://m.minneapolisfed.org/article.cfm?id=4565.

EXHIBIT M 206

206

See Quinn, supra note 202.