Showing posts with label Dave Hawn. Show all posts
Showing posts with label Dave Hawn. Show all posts

Friday, September 30, 2016

The Century Foundation criticizes Educational Credit Management Corporation (ECM) in a recent report: Shining a light on a shady debt collector

INTRODUCTION: THE CENTURY FOUNDATION SHINES A DIM LIGHT ON ECMC
AND OTHER STUDENT LOAN GUARANTY AGENCIES


The Century Foundation recently issued a report criticizing the federal student-loan guaranty agencies--including Educational Credit Management Corporation (ECMC), which has earned a reputation as a heartless student-loan debt collector. The report explains the complicated history of the loan guarantee agencies and is well worth reading.

Collectively, these guaranty agencies hold more than $5.4 billion in unrestricted assets, most of it obtained from collecting on defaulted student loans.  Four agencies--ECMC, Lumina Foundation, Great Lakes Higher Education Corporation, and USA Funds each hold more than a billion dollars in unrestricted funds.

According to The Century Foundation, most of this money was acquired from the agencies' student-loan debt collection activities. The Foundation did not explain the fee structure for collecting student-loan debt, but in some cases at least, the guaranty agencies slap an 18.5 percent penalty on defaulted loans--18.5 percent of the loan balance and accumulated interest.

In other words, a student who takes out a student loan of $15,000 and sees the debt grow to $20,000 due to accumulated interest, can get a $$3,700 penalty attached to the loan balance if the student defaults. Thus, a $15,000 debt can grow to $23.700 in a relatively short period of time. And this is where the guarantee agencies make a lot of money.

What do these so-called charitable agencies do with their money? The guaranty  agencies spend some of their money distributing grants for purported charitable purposes, but the biggest share of these grants (25 percent) goes to "Policy Organizations." Unfortunately, the Century Foundation did not name the policy organizations that are getting the money; but my guess is that the money goes to the various think tanks and policy groups that churn out reports proclaiming that the student loan program is under control.

I wonder, for example, whether the Urban Institute and the Brookings Institution got some of this money.  Both organizations have been soft peddling the student loan crisis for years.

The Century Foundation did not examine the guaranty agencies' loan collection practices, but the Foundation gently suggested that the agencies should take a more compassionate approach to collecting on defaulted student loans. "Lacking the profit motive," the report observed mildly, "a guarantee agency might be more humane in its treatment of borrowers, even if it resulted in less revenue from collections."

Ya think? ECMC in particular has savagely fought bankruptcy discharge for distressed student loan debtors for years. In the Roth case, for example, ECMC opposed bankruptcy discharge for an elderly debtor with chronic health problems who was living on less than $800 a month!  Indeed, there has been nothing charitable about ECMC's attacks on student-loan debtors in the bankruptcy courts.

Notably, the guarantee agencies awarded no grants to legal aid groups that could represent student-loan debtors in legal actions against fraudulent for-profit colleges. No money goes for legal aid to help student loan debtors in bankruptcy. Quite the contrary, ECMC and other loan guarantee agencies are spending millions of dollars paying attorneys to fight destitute debtors in the bankruptcy courts. ECMC hired six attorneys to fight Alexandra Costa-Conniff, who is fighting ECMC's appeal of her bankruptcy discharge before the 11th Circuit Court of Appeals.

The Century Foundation leveled several specific criticisms of ECMC:

ECMC handsomely compensates its trustees and CEO. First, the Foundation reported that ECMC, a nonprofit charitable organization, pays its trustees annual compensation ranging from $76,000 to $142,000. According to the Foundation, it is highly unusual and controversial for a charitable organization to pay trustees such outrageous sums for what should be public service. And the Foundation says ECMC's CEO makes more than $1 million a year.

ECMC created a subsidiary to buy and run more than 50 campuses of the bankrupt Corinthian Colleges. The Century Foundation also raised questions about ECMC's purchase of more than 50 campuses from the bankrupt Corinthian Colleges system.  ECMC, which has no experience running a college, created a nonprofit subsidiary called Zenith Education Group to operate the chain of schools.

The Century Foundation asked a reasonable questions about this transaction:
Is this the case of a charity that, in purchasing the Corinthian campuses, made a noble if misguided attempt to transform a corrupt enterprise? Or is this just a corporate board seeing if they can make a buck? 
And, as TCF pointed out, the trustees for Zenith are the same people who are the trustees for ECMC. The Foundation charged that ECMC hid the fact that the Zenith trustees were being paid as ECMC trustees when it filed Zenith's application for IRS tax-exempt status. The Foundation also pointed out that the IRS apparently did no more than a cursory review of Zenith's application, approving the new organization's tax-exempt status in only six weeks (far faster, apparently, than the Tea Party groups' applications).

CONCLUSION:

THE CENTURY REPORT ON LOAN GUARANTEE AGENCIES IS A GOOD START BUT GLARING QUESTIONS REMAIN UNANSWERED

The Century Foundation's report is a useful document. In particular, the report explains how the guaranty agencies were formed and how they make their money. But some glaring questions remain unanswered, including:

Exactly how much do the executive officers of the loan guaranty agencies get paid each year? The Century Foundation's report said that ECMC's CEO makes more than a million dollars a year, but we've known that for some time.  Bloomberg reported in 2013 that Richard Boyle, ECMC's CEO at the time, made $1.1 million in 2010 and that the ECMC's CFO made a half million.  Surely Jane Hines, ECMC's current CEO, makes more than Boyle did in 2010. How much did Dave Hawn make when he served as ECMC's CEO?

How much are other ECMC executives making now?  And how much are the senior officers making at the other guaranty agencies?

Which policy foundations get paid by the guaranty agencies? If we see the list, I'll bet we'll find the guaranty agencies are funding think tanks that support the status quo in the student loan program.

How much does ECMC pay the attorneys it hires to harass destitute student-loan debtors who file for bankruptcy? The Department of Education said in 2015 that loan collectors shouldn't fight bankruptcy discharge for student loan debt when it is not cost effective to do so, but ECMC and DOE itself appear to be fighting every college-loan borrower who seeks to discharge student debt in bankruptcy. ECMC must be spending millions on lawyers, but I would like to know exactly how much.

Are the guaranty agencies paying lobbyists; and if so, how much? Corinthian Colleges filed a list of its creditors when it filed for bankruptcy awhile back, and that list showed that Corinthian had hired several Washington lobbyists to represent its interests. It would not surprise me to learn that the guaranty agencies have also  hired lobbyists to protect their operations.

In short, The Century Foundation report just scratched the surface regarding the loan guaranty agencies. All we know for sure about them is that they have accumulated more than $5 billion, most of it from distressed student-loan debtors and that one of them pays its trustees unseemly amounts of money.

Let's find out more. Maybe those Senators who are so outraged by Wells Fargo could vent some of their pent-up spleen toward the loan guarantee agencies.



References

John Hechinger. Taxpayers Fund $454,000 Pay for Collector Chasing Student Loans. Bloomberg.com, May 15, 2013. Accessible at: http://www.bloomberg.com/news/2012-05-15/taxpayers-fund-454-000-pay-for-collector-chasing-student-loans.html

Brown, M., Haughwout, A., Lee, D., Mabutas, M., and van der Klaauw, W. (2012). Grading student loans. New York: Federal Reserve Bank of New York. Accessible at: http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

Natalie Kitroeff. Loan Monitor Is Accused of Ruthless Tactics on Student Debt. New York Times, January 1, 2014.  http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html
Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP  2013). 
Robert Shireman and Tariq Habash. Have Student Loan Guaranty Agencies Lost Their Way? The Century Foundation, September 29, 2016. Accessible at https://tcf.org/content/report/student-loan-guaranty-agencies-lost-way/





Monday, September 8, 2014

There's No Fool Like an Old Fool: The New York Times Just Doesn't Get It When It Comes to the Student Loan Crisis

Today, the New York Times published an editorial on the Obama administration's efforts to encourage student-loan  servicers to be less rapacious.  According to the Times, the government is changing the incentive structures so that loan-collection companies have a financial incentive to help rehabilitate student loans that are delinquent instead of pushing borrowers into default.

The Times approves of reforms that will encourage students to sign up for Income-Based Repayment Plans, plans that will have borrowers paying a percentage of their income for the next 25 years. Some reform!  The Times also likes the new rule that will give more weight to customer satisfaction surveys "in determining how well servicers do their jobs."  That idea is about as radical as Aunt Sadie's Buick Regal.

The Times editorial then goes on to say that Obama's reform efforts don't go far enough. So what does the Times suggest? "More should be done to improve competition and transparency [among loan servicers]," the Times recommends.  Borrowers should be able to jump from one loan servicer to another, the Times adds, and "set significant penalties for poor practices and create a portal where borrowers can get information about their accounts and report abuses to the Education Department instead of to the abusers."

This is the kind of timid advice you would expect from a newspaper that gets a lot of its revenue from advertising luxury goods that are targeted at its fat cat readers. I'm glad the Times wasn't in charge of negotiating with Adolph Hitler during World War II. It probably would have editorialized that Hitler needed to paint the concentration-camp barracks a more soothing color.

The Times does not seem to realize that people who fall into the hands of the student-loan servicers are dealing with truly heartless entities.  Here are some examples:

  •  Educational Credit Management Corporation (ECMC) opposed bankruptcy relief for a 63-year old man who had been unemployed for 12 years, whose home was going into foreclosure, and who had been living with his wife below the poverty level.  This man had accumulated student-loan debt in the neighborhood of $240,000. Murphy v. Educational Credit Management Corporation (2014). 
  •  ECMC opposed bankruptcy relief for an elderly student-loan defaulter who had chronic health problems and who was living solely on Social Security checks of less than $800 a month. Roth v. Educational Credit Management Corporation (2013). 
  •  ECMC opposed bankruptcy relief for another elderly woman with student-loan debt that was more than twenty years old and who had a salary of about $500 per month and a history of homelessness. Stevenson v. Educational Credit Management Corporation (2011).

How much do ECMC executives pay themselves to chase down poor and elderly student-loan debtors? A lot. Bloomberg reported in 2012 that Richard Boyle, ECMC's Chief Executive at the time, made $1.1 million  in 2010. I could not find more recent compensation information on Educational Credit Management Corporation's new CEO, a guy named Dave Hawn, but I'll bet that Hawn is making at least as much as Boyle made four years ago.

So, New York Times editorialists, take your tepid and inadequate editorial recommendations and stick them "where the sun don't shine"--which is within your timid and obsequious little hearts.

You want to clean up the student-loan collection business? Here are some suggestions:

1) First, President Obama and Secretary of Education Arne Duncan should instruct all the student-loan servicers not to oppose bankruptcy relief for any elderly student-loan debtor who is living solely on Social Security, who has suffered long-term unemployment, or who has no real prospect of every paying off student-loan debt.  And they should follow up with regulations or legislation that would make those instructions stick.

2)  The government needs to put an upper-limit on fees and accrued interest that get tacked on to student-loan defaulters' total loan obligations.  Several bankruptcy decisions have documented that debtors' original student loan balances had more than doubled by the time they filed for bankruptcy due to accrued interest, penalties and fees.

3) The Obama administration should propose amendments to the bankruptcy laws that will allow distressed student-loan debtors who took out loans in good faith to discharge their student loans in the bankruptcy process without going through expensive and traumatic adversary proceedings.

4) Obama should propose legislation to reinstate a reasonable statute of limitation on the collection of delinquent student-loan debt--say six years, which is the same time period that applies to the collection of most monetary obligations.

5) The President should demand legislation that would stop the federal government from garnishing the Social Security checks of elderly student-loan defaulters who are totally dependent on their Social Security pensions.

6) All the companies participating in the student-loan servicing industry should be required to post the compensation of all its senior executives online so that Americans can see just how much money so-called non-profit agencies are making on the suffering of student-loan debtors.

All these recommendations are reasonable and all are more humane than the puny little recommendations the Times made in its editorial page.  If the Times can't offer any suggestions more robust than it offered in its September 8th issue, then it should keep its mouth shut about the student-loan crisis and admit that all it is really concerned about when it comes to domestic economic issues is supporting Barack Obama and maintaining Democratic control of the White House.

References

A Fairer Shot for Student Debtors. New York Times, September 8, 2014, p. A16. 

John Hechinger. Taxpayers Fund $454,000 Pay for Collector Chasing Student Loans. Bloomberg.com, May 15, 2013. Accessible at: http://www.bloomberg.com/news/2012-05-15/taxpayers-fund-454-000-pay-for-collector-chasing-student-loans.html

Brown, M., Haughwout, A., Lee, D., Mabutas, M., and van der Klaauw, W. (2012). Grading student loans. New York: Federal Reserve Bank of New York. Accessible at: http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (7th Cir. 2013).
Lockhart v. United States, 546 U.S. 142, 126 S. Ct. 699 (2005).

Murphy v. Educational Credit Management Corporation, 511 B.R. 1 (D. Mass. 2014).

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).

Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011). 

Friday, November 15, 2013

Educational Credit Management Corporation makes good money chasing destitute student-loan debtors: The Obama Administration should take action

Richard Boyle, CEO of ECMC
He made $1.1 million in 2010
Educational Credit Management Corporation is a nonprofit company that collects on defaulted student loans for the federal government. Just because it is nonprofit, however, doesn't mean its employees don't make a lot of money. According to a news story posted on Bloomberg.com, Richard Boyle, ECMC's chief executive officer, made $1.1 million in 2010.

Other ECMC employees are also making good money.  Dave Hawn, ECMC's chief operating officer, made about half a million dollars in 2010. Joshua Mandelman, an ECMC debt collector, made $454,000. And ECMC directors also do pretty well. According to the Bloomberg story, they make as much as $90,000 a year.

How does ECMC make its money? It gets a small fee for helping distressed student-loan borrowers avoid default. But it makes much more money when it collects money from student borrowers who defaulted. By law, ECMC (and other similar companies) "can receive as much as 37 percent of a borrower's entire loan amount, half in collection costs and half in taxpayer-funded commissions" (Bloomberg.com).

What a sleazy business.  People are getting rich chasing down student-loan defaulters, many of whom are unemployed and destitute.

But perhaps the most disturbing aspect of ECMC's business is the position it takes when student-loan debtors file for bankruptcy. In several cases, ECMC has argued that bankrupt student-loan debtors should not have their loans discharged in bankruptcy. Instead, ECMC has argued, these debtors should be placed in income-based repayment plans that can last as long as 25 years.

Roth case: Elderly woman with health problems seeks bankruptcy relief from student loans

For example, in a recent case, Janet Roth, a 64-year old woman, filed for bankruptcy, seeking to discharge $95,000 in student loan debt.  Actually, she only borrowed $33,000, but her debt tripled due to fees and accrued interest.

At the time of the bankruptcy proceedings, Roth was unemployed and living entirely on her monthly Social Security check--only $774.  In addition, she suffered from several serious health conditions, including diabetes, macular degeneration, and depression.

Now most people would think that Ms. Roth was a good candidate for bankruptcy. But in court proceedings, ECMC challenged her request for bankruptcy relief from her student loans. ECMC argued she should have signed up for a 25-year income-based repayment plan, a plan that would have ended when she was almost 90 years old!

Fortunately, the Bankruptcy Appellate Panel for the Ninth Circuit Court of Appeals was sympathetic to Ms. Roth's plight. The court said Ms. Roth had acted in good faith regarding her student-loan obligations, and it discharged her of the debt.

Can you imagine? A company run by a guy who makes more than a million dollars a year argued that an elderly woman with health issues and living on her Social Security check should make monthly payments on her student loans for 25 years! These ECMC guys make Ebenezer Scrooge look like Mother Teresa.

Want another example? In In re Stevenson (2011), an elderly woman with a history of homelessness  and who was living on less than $1,000 a month, was denied relief from her student-loan debt by a bankruptcy court in Massachusetts. ECMC opposed her effort to have her student loans discharged, and a court essentially forced Ms. Stevenson into a 25-year income-based repayment plan. Like Ms. Roth, Ms. Stevenson will be nearly 90 years old when her student-loan debt is discharged.

And take a look at the Krieger case. In Krieger v. Educational Credit Management Corporation (2013), ECMC opposed the discharge of a 53 year old woman's student-loan debt even though she was unemployed and had never made more than $12,000 a year during her entire working life.

President Obama Should Take Executive Action to Aid Elderly Student Loan Debtors

Ms. Roth, Ms. Stevenson and Ms. Krieger are not alone. According to a report prepared for the Federal Reserve Bank of New York, about five percent of people who are behind on their student-loan payments are 60 years old or older. Undoubtedly, many of these people are living almost solely on their Social Security checks or are destitute.

Surely, elderly student-loan defaulters are entitled to some relief. Unfortunately, their Social Security checks are subject to garnishment, and some of them are running into opposition when they file for bankruptcy.

President Obama likes to get things done through executive orders.  So how about this for a plan? President Obama should direct all student-loan collection agencies not to oppose elderly people's efforts to discharge their student loans in bankruptcy.  And he should stop the garnishment of elderly people's Social Security checks for the purpose of collecting on student loans.

President Obama can talk all he wants about how he wants to ease the burden on people who borrow money to attend college. But there are things he can do--simple things--that would ease the burden on elderly student-loan defaulters. So why doesn't he take action?

References

John Hechinger. Taxpayers Fund $454,000 Pay for Collector Chasing Student Loans. Bloomberg.com, May 15, 2013. Accessible at: http://www.bloomberg.com/news/2012-05-15/taxpayers-fund-454-000-pay-for-collector-chasing-student-loans.html

Brown, M., Haughwout, A., Lee, D., Mabutas, M., and van der Klaauw, W. (2012). Grading student loans. New York: Federal Reserve Bank of New York. Accessible at: http://libertystreeteconomics.newyorkfed.org/2012/03/grading-student-loans.html

Krieger v. Educational Credit Management Corporation, 713 F.3d 882 (7th Cir. 2013).
Lockhart v. United States, 546 U.S. 142, 126 S. Ct. 699 (2005).

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013).

Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011).