Recent Navient and National Collegiate Student Loan Bankruptcy Rulings – March 2017: A Must-Read Article by Steve Rhode

If you are overwhelmed by your student loans and thinking about filing for bankruptcy, you should read this essay by Steve Rhode. Mr. Rhode examined recent bankruptcy court adversary proceedings in which student borrowers brought complaints against Navient or National Collegiate Student Loan Trust. As Mr. Rhode relates, debtors often won significant relief in these lawsuits--sometimes through settlement agreements.

Why is Mr. Rhode's article important to you?

First, his article contains links to adversary complaints that were drafted by attorneys. If you file your own adversary complaint against your student-loan creditor, you can use these complaints as templates to file your own complaint.

Second, the proceedings Mr. Rhode examined show various theories under which debtors sought to have their loans discharged. Some of those theories might work for you.

I am frankly surprised that debtors were so successful in the cases Mr. Rhode analyzed. I wonder whether Navient and National Collegiate Student Loan Trust are more amenable to settlement than Educational Credit Management Corporation and the U.S. Department of Education. ECMC and the Department of Education have opposed bankruptcy relief in a multitude of cases, even in cases where it was clear the debtor was desperate. (See for example, Roth v. ECMC and Abney v. U.S. Department of Education.)

Mr. Rhode has presented us with a very useful analysis of recent adversary proceedings against Navient and National Collegiate Student Loan Trust. A trend may be developing toward better bankruptcy outcomes for distressed student-loan debtors. Wouldn't that be a terrific development?

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Out of curiosity I decided to take a look at recent bankruptcy Adversary Proceedings that had closed against Navient and National Collegiate Student Loan Trust. I looked at a number of cases and it appears people who filed their own Adversary Proceeding against their student loan holders had a less favorable outcome. Those people represented by an attorney, fair better.

At the very least, while the debt may not have been completely eliminated there were certainly some very deep discounts in the amount owed. Also the outcomes in all cases is not always apparent.

For example in Medina v. National Collegiate Student Loan Trust there was an apparent settlement agreement that contained a “release of liability. The Adversary Proceeding was then dismissed. – Source

Medina had asserted in his lawyer prepared complaint that his student loans should be discharged because his flight school was a “sham,” the loans were not used for a qualified educational purpose, and the school was not properly certified. These are issues raised over in this article. – Source

In the case Ard-Kelly v Sallie Mae the debtor owed $913,997 in loans. Of those loans all but $250,595 could be included in a $0 monthly Income Contingent Repayment plan. – Source

It appears all but $219,070 was found to be dischargeable in bankruptcy. While $219,070 is still a lot of money, it’s only 24% of the original balance stated. – Source

In Cotter v. Navient, the debtor had filed a Chapter 13 bankruptcy but was said to have still owed about $29,000 in student loan debt. Cotter stated, “Plaintiff incurred this student loan attending a school named ComputerTraining.com. The campus was located at 550 Polaris Parkway Westerville Ohio 43082. The Plaintiff started classes at said school on November 16, 2007 and was able to finish however the education he received was substandard, outdated and useless to him. Furthermore the school promised lifetime job placement assistance along with assistance with interviewing and resumes. The school he attended closed soon after he finished. The school in question is currently part of a class action lawsuit for fraud.” – Source

Following the court action regarding this debt the $29,000 balance was reduced to $2,500 with payments of $35.79 per month at 1% interest. This is about a 92% reduction in the amount owed. The debt will be fully repaid in 72 months. – Source

In Proctor v. Navient the debtor had co-signed for student loans for someone who was not a relative or dependent and said to not be qualified student loans protected in bankruptcy. – Source

The $188,787 balance was reduced to $15,535 at 3% interest and payments of $107.28 per month for 180 months. This is about a 92% reduction in the amount owed. – Source

So as you can see, recent closed bankruptcy Adversary Proceeding cases do result generally in some significant reductions in debt owed.

Steve Rhode
Get Out of Debt Guy – Twitter, G+, Facebook

This article by Steve Rhode first appeared on Get Out of Debt Guy and was distributed by the Personal Finance Syndication Network.

ECMC and the Department of Education are a couple of bullies: The Scott Farkus affair that never ends

Fortunately, we only see Scott Farkus once a year. He comes around every Christmas eve, when TBS runs The Christmas Story for 24 hours. Farkus, you remember, is the yellow-eyed bully that picks on Ralphie Parker and his little brother Randy. Farkus is always accompanied by his pint-sized sidekick, Grover Dill.

ECMC & DOE are real-life bullies for student debtors.

Scott Farkus, of course, is a fictional bully, but destitute student borrower are tormented by a real-life bully--Educational Credit Management Corporation. ECMC,a so-called fiduciary of the U.S Department of Education, gets well paid to hound student-loan debtors who naively try to shed their student loans in bankruptcy to get a fresh start.

Would you like some examples of ECMC's bullying behavior? Here are a few:

• ECMC opposed bankruptcy relief for Janet Roth, a woman in her 60s with chronic health problems, who was living on Social Security income of $774 a month. 

• ECMC successfully blocked Janice Stephenson, a woman in her fifties, from discharging her student loans in bankruptcy--loans that were almost 25 years old. At the time Stephenson filed for bankruptcy, she was living on about $1,000 a month and had a history of homelessness.

• Last year, a bankruptcy judge slapped ECMC with punitive damages for repeatedly garnishing the wages of Kristin Bruner-Halteman, a bankrupt student debtor who worked at Starbucks. ECMC violated the automatic stay provision more than 30 times, the bankruptcy court ruled. And how much money was at stake? Ms. Bruner-Halteman only owed about $5,000.

So Scott Farkus, in a corporate form, is alive and well in American bankruptcy courts.

And Grover Dill, Farkus's little toadie, is also alive and well. The Department of Education itself bullies student borrowers in bankruptcy, almost as cruelly as ECMC.  And here are a few examples:

• In Myhre v. Department of Education, DOE fought Bradley Myhre, an insolvent quadriplegic who tried to discharge a modest student loan in bankruptcy. DOE lost that one. The court commended Mhyre for his courage: he was working full time but he had to employ a caregiver to feed and dress him and drive him to work. 

• DOE tried unsuccessfully to persuade a Missouri  bankruptcy court to deny bankruptcy relief to Michael Abney, a single father in his 40s who was living on $1,300 a month and was so poor he rode a bicycle to work because couldn't afford a car. 

• Just a few months ago, the Eighth Circuit Bankruptcy Appellate Panel ruled against DOE, which had tried to keep Sara Fern from discharging her student debt in bankruptcy. Fern is a single mother of three children who takes home $1,500 a month from her job and supplements her income with food stamps and public rent assistance.

Have I described bullying behavior by ECMC and DOE? Of course I have. Every single time DOE or ECMC shows up in bankruptcy court, the argument is the same: "This deadbeat doesn't deserve bankruptcy relief, your honor. Put the worthless son of a b-tch in a 20- or 25-year income-based repayment plan."

In the past, bankruptcy courts were persuaded by these callous arguments, but judges are beginning to return to their duty. I predict the day is soon coming when a federal appellate court will overrule the precedents that have favored ECMC and DOE--most notably the harsh Brunner ruling that most federal circuits have adopted.

But for now, the bullying goes on.  Just like Scott Farkus and Grover Dill, ECMC and DOE lie in wait for hapless debtors who stagger into bankruptcy court. ECMC has accumulated $1 billion in unrestricted assets while engaging in this shameful behavior, and the federal government pays ECMC's legal fees. 

References

Abney v. U.S. Department of Education, 540 B.R. 681 (W.D. Mo. 2015).


Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).

Fern v. FedLoan Servicing, 563 B.R. 1 (8th Cir. BAP 2017).

Myhre v. U.S. Department of Education, 503 B.R. 698 (W.D. Wis. 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/

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

Stevenson v. Educational Credit Management Corporation, 463 B.R. 586 (Bankr. D. Mass. 2011). aff'd, 475 B.R. 286 (D. Mass. 2012).

Student Debtors in the Bankruptcy Courts and the Battle of Britain: "Never have the few come from the ranks of so many"

The Battle of Britain was perhaps the most thrilling episode of the Second World War. During the summer and autumn of 1940, Hitler sent the Luftwaffe to bomb London, hoping to pummel the British into submission.

But Hitler failed. A handful of young pilots in the Royal Air Force clawed their way into the skies day after day and inflicted unacceptable casualties on the German Air Force. Before the year was out, Hitler gave up, and the Battle of Britain was won.

You may think it inappropriate to attach a military analogy to the ongoing battle between oppressed student borrowers and the federal government's debt collectors that is taking place now in the bankruptcy courts. But the comparison is apt.

Eight million people have defaulted on their student loans and at least 15 million more aren't paying them back.  If these people were indebted for any other reason than college loans, they would get relief from their debt in the bankruptcy courts.

But most oppressed debtors don't even try. Jason Iuliano reported that almost a quarter of a million people with student loans filed for bankruptcy in 2007, but only a few hundred even attempted to discharge their student loans.

But a few brave souls have filed adversary proceedings, where they've fought the U.S. Department of Education and its loan collectors--notably Educational Credit Management Corporation. Incredibly, some of them have been successful, and important appeals are now in the federal appellate courts.

Alexandra Acosta Conniff, an Alabama school teacher, acting without an attorney, defeated ECMC in 2015. ECMC appealed, but Alexandra is now represented by an eminent attorney, retired bankruptcy judge Eugene Wedoff.  I believe Alexandra will ultimately prevail.

Alan and Catherine Murray, a Kansas couple in their late 40s, beat ECMC last year, winning a partial discharge of their student loans, which had ballooned to almost a third of a million dollars. They were ably represented by George Thomas, a Kansas lawyer and ex-Marine.  Again, ECMC appealed, but I am confident Mr. Thomas and the Murrays will win through.

Overburdened student-loan debtors have been hounded and harassed by the U.S. government and its predatory agents for years, but some are now fighting back and they are beginning to find sympathetic bankruptcy judges.

Winston Church, in one of the immortal sentences in the English language, paid this tribute to the pilots of the RAF. "Never was so much owed by so many to so few."

And Boris Johnson, author of The Churchill Factor, pointed out that most of the RAF pilots came from the English working and middle classes. Few Oxford men climbed into those Hurricane fighter planes during the summer of 1940. And so Johnson added this fitting epitaph to Churchill's tribute: "Never have the few come from the ranks of so many."

So here is a message for the millions of oppressed student-loan debtors: Hang on! A few courageous individuals, aided by sturdy lawyers, are fighting for you in the federal courts. And they will ultimately win. The bankruptcy laws are going to change and become more compassionate toward honest but unfortunate individuals who were victimized by our corrupt and unjust student loan program.

"Never have the few come from the ranks of so many."

References

Acosta-Conniff v. Educational Credit Management Corporation, No. 12-31-448-WRS, 2015 Bankr. LEXIS 937 (M.D. Ala. March 25, 2015).

Cloud, R. C. & Fossey, R. (2014). Facing the student debt crisis: Restoring the integrity of the federal student loan program. Journal of College and University Law, 40, 101-32.

In re Roth, 490 B.R. 908 (9th Cir. BAP 2013).

Iuliano, J. (2012). An Empirical Assessment of Student Loan Discharges and the Undue Hardship Standard. American Bankruptcy Law Journal, 86, 495-525.

Murray v. Educational Credit Management Corporation, Case No. 14-22253, ADV. No. 15-6099, 2016 Bankr. LEXIS 4229 (Bankr. D. Kansas, December 8, 2016).

Bank of America hit with $45 million punitive damages award for violating automatic stay provision of Bankruptcy Code: ECMC take notice!

A few days ago, Judge Christopher Klein, a California bankruptcy judge, struck a breathtaking blow for justice when he assessed $45 million in punitive damages against Bank of America for violating the automatic-stay provision of the Bankruptcy Code. You may recall that a Texas bankruptcy judge hit Educational Credit Management Corporation with a $74,000 punitive damages award for the same offense.

Here are the opening words of Judge Klein's Bank of America decision:

Frank Kafka lives. This automatic stay violation case reveals that he works at Bank of America. 

The mirage of promised mortgage modification lured [Erick and Renee Sundquist] into a kafkaesque nightmare of stay-violating foreclosure and unlawful detainer, tardy foreclosure rescission kept secret for months, home looted while the debtors were dispossessed, emotional distress, lost income, apparent heart attack, suicide attempt, and post-traumatic stress disorder for all of which Bank of America disclaims responsibility. 

Judge Klein then detailed Bank of America's offenses in detail--his opinion is 107 pages long! And at the end, Judge Klein spelled out how the punitive damages award should be apportioned:

The actual . . . damages are $1,074,581.50. The appropriate . . . punitive damages are $45,000,000.00.
The Sundquists are enjoined to deliver $40,000,000 (minus applicable taxes) to public service entities that are important in education in consumer law and deliver of legal services to consumers: National Consumer Law Center ($10,000,000.00), National Consumer Bankruptcy Rights Center ($10,000,000.00), and the five public law schools of the University of California System ($4,000,000.00).

Of course, Bank of America will appeal Judge Klein's punitive damages award, and who knows how that will go. But regardless of what happens on appeal, Judge Klein has turned a glaring spotlight on Bank of America's outrageous behavior.

And if the damages award is upheld, money will flow to entities that can help distressed debtors fight the predatory tactics of the banks.  That would be a great blessing for American society.

And this brings me to Educational Credit Management Corporation, the predatory student-loan debt collector that violated the automatic stay provision of the Bankruptcy Code more than 30 times by repeatedly garnishing the wages of Kristin Bruner-Halteman, a student-loan debtor who worked for Starbucks.  In a 2016 decision, Judge Harlin DeWayne Hale, a Texas bankruptcy judge, awarded Bruner-Halteman $74,000 in punitive damages for ECMC's misbehavior.

But $74,000 is a pittance for ECMC; it probably has that much cash in loose change that slipped under its couch cushions.  According to a report by the Century Foundation, ECMC has $1 billion in unrestricted assets. That's billion with a B.

So--listen up distressed student-loan debtors. If you file for bankruptcy in  a case opposed by ECMC and ECMC violates the Bankruptcy Code's automatic stay provision as it did in the Bruner-Halteman case, you need to ask for several million dollars in punitive damages. How about $10 million--that's only one percent of ECMC's assets.

References

Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).

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/

Sundquist v. Bank of America,  Adv. Pro. No. 204-0228, Case No. 10-35624-B-13J (Bankr. E.D. Calif. March 23, 2017).

Trump and DeVos give aid and comfort to For-Profit Colleges: The Democrats should hold hearings on this sleazy industry

As Senator Dick Durbin once observed, the for-profit colleges "own every lobbyist in town." And indeed they do. David Halperin, in a terrific article for The Nation, explained how the for-profit colleges have effectively used lobbyists and lawyers to fight off federal efforts to regulate their sleazy industry.

And now the for-profits don't even have to pay their lobbyists and attorneys. Secretary of Education Betsy DeVos pays them directly!

As the New York Times reported, DOE hired two for-profit insiders to help shape DOE's policy toward the for-profit industry. Robert Eitel is taking an unpaid leave of absence from his job as vice president for regulatory legal services at Bridgepoint Education, Inc.  to take a paid job on the Department's "beachhead team." Bridgepoint, a for-profit education provider, is currently being investigated by the Securities and Exchange Commission. Former Senator Tom Harkin, a longtime critic of the for-profit college industry, called Bridgepoint a "a scam, an absolute scam."

And DOE also hired Taylor Hansen, a former for-profit lobbyist, to be a consultant. At least Hansen had the decency to resign his DOE position after a public outcry was raised.

These hires, along with DOE's decision to delay compliance deadlines for for-profit colleges to meet DOE's "gainful employment" regulations, are a strong indication that the Trump administration will not vigorously regulate this bandit industry.

Senate Democrats could put enormous pressure on Trump and DeVos if they would hold hearings on the for-profit colleges. I would like to see Senators Elizabeth Warren and Bernie Sanders question some of the so-called educators who run these diploma mills.  Nearly half of the students who took out federal loans to attend for-profit colleges default on their loans within five years of beginning repayment.

And Senate Democrats also need to examine the student-loan debt collectors who slap huge fees on student-loan defaulters and engage in high-pressure collection tactics.  Educational Credit Management Corporation (ECMC), for example, was hit with punitive damages last year for repeatedly garnishing the wages of a bankrupt student-loan debtor in violation of the Bankruptcy Code's automatic stay provisions.

Senator Warren might ask Janice Hines, ECMC's CEO, to disclose her compensation package--surely well over $1 million a year. And Senator Sanders might ask Hines how ECMC amassed $1 billion in assets.

Great political theater! So why don't the Democrats get busy and schedule those hearings? I tell you why. Too many politicians--Republicans and Democrats alike--are in bed with the for-profit college industry.  Read David Halperin's article in The Nation for details.

Janice Hines: How much money do you make running ECMC?

References

Patricia Cohen. Betsy DeVos's Hiring of For-Profit College Official Raises Impartiality Issues, New York Time, March 17, 2017.

Patricia Cohen. For-Profit Schools, an Obama Target, See New Day Under Trump. New York Times, February 20, 2017.

Danielle Douglas-Gabriel. Trump administration rolls back protections in default on student loans. Washington Post, March 17, 2017.

David Halperin. The Perfect Lobby: How One Industry Captured Washington, DC. The Nation, April 3, 2014.

 Shahien Nasiripour. , Betsy DeVos Hands Victory to Loan Firm Tied to Advisor Who Just Quit. Bloomberg News, March 20, 2017.
  
Predator Colleges May Thrive Again (editorial). New York Times, March 23, 2017, p. A 24.

Hillary Clinton had a good idea for addressing the student loan crisis: The Trump administration should implement her plan

Although many people have forgotten, Hillary Clinton introduced a sensible plan for addressing the student loan crisis while she was campaigning for the Presidency. She proposed a 90-day moratorium on student-loan payments to give college debtors an opportunity to refinance their loans at a lower interest rate.

This is a good idea. Forty-three million people have outstanding student loans, and many borrowed at high interest rates--much higher than today's rates.

For example, in the Murray bankruptcy case, decided last year, a married couple in their late forties consolidated their student loans at an interest rate of 9 percent.  At the time of consolidation, the Murrays owed $77,000; and they paid back 70 percent of that amount. Nevertheless, there were periods when the Murrays did not make payments due to financial stress; and they now owe $311,000, with the growth largely due to their loan's high interest rate.

Likewise, Brenda Butler, whose bankruptcy case was also decided last year, borrowed $14,000 and paid back $15,000. Like the Murrays, Ms. Butler's loans were in deferment from time to time. By the time she entered bankruptcy--almost 20 years after graduating from college--she owed $33,000, more than double what she borrowed. Again, the growing loan balance was largely due to accrued interest.

As Senator Elizabeth Warren has pointed out, millions of student-loan debtors took out student loans at interest rates far above the federal government's current cost of borrowing money.  Therefore, if these people were permitted to refinance their loans at a lower interest rate, as Hillary Clinton proposed last year, their student-loan debt would be a lot easier to manage.

As I said, Hillary Clinton's idea is a good one, but I would like to propose an amendment.  In addition to allowing college borrowers to refinance their loans at lower interest rates, the government should forgive all the default penalties that have been assessed against student-loan  defaulters.

Currently there are 8 million people in default on their student loans, and most of them had a 25 percent penalty attached to the amount they borrowed plus accumulated interest. I have a friend whose daughter borrowed $5,000 to attend college, made loan payments for awhile and then defaulted. How much does she owe now? $12,000!

Are there any downsides to Hillary Clinton's proposal as I have amended it? Yes, the student-loan collectors who have gotten rich chasing down student-loan defaulters would make less money.

But there are no downsides for the government. Why? Because millions of student-loan defaulters and millions more in income-driven repayment plans will never pay off their student loans.  The income-driven repayment plans are nothing more than a fraud on the public that allows the government to claim that people in these plans are not in default.

But in actuality they are in default. Educational Credit Management Corporation, for example, wanted to put the Murrays into an income-drive repayment plan that would cost them around $900 a month. The bankruptcy judge, to his credit, rejected that idea, pointing out that the Murrays' debt was accruing interest at the rate of $2,000 a month. Even if the Murrays made regular payments for 25 years, their debt would balloon from $311,000 to about half a million dollars.

So here's my suggestion. Senator Elizabeth Warren should dust off Hillary Clinton's moratorium idea and propose it to the Trump administration, adding a proviso that default penalties would also be waived.

Donald Trump is not everyone's cup of tea, but I believe he comprehends the world of finance.  He will understand that the government is running a shell game, telling the public that the student loan program is under control when in fact it is a train wreck.

If Republicans, Democrats, and President Trump would adopt Hillary Clinton's amended plan, they would provide immense relief to millions of Americans who are being buried alive by their student loans.

Wouldn't that be a lovely outcome?

References

Butler v. Educational Credit Management Corporation, No. 14-71585, Adv. No. 14-07069 (Bankr. C.D. Ill. Jan. 27, 2016).

Anne Gearan and Abby Phillip. Clinton to propose 3-month hiatus for repayment of  student loans. Washington Post, July 5, 2016. Accessible at https://www.washingtonpost.com/news/post-politics/wp/2016/07/05/clinton-to-propose-3-month-hiatus-for-repayment-of-student-loans/?

Murray v. Educational Credit Management Corporation, Case No. 14-22253, ADV. No. 15-6099, 2016 Banrk. LEXIS 4229 (Bankr. D. Kansas, December 8, 2016).

Ruth Tam. Warren: Profits from student loans are 'obscene.' Washington Post, July 17, 2013.

Congressional Democrats should pressure DeVos to clean up the student-loan collection business

Democrats are critical of Betsy DeVos, President Trump's new Secretary of Education, but one concern is particularly valid, which is this: DeVos has business ties with a student-loan debt collector.

Those ties, which were explained in a Washington Post article are complicated. Here is what the Post said:

Education Secretary nominee Betsy DeVos and her husband have extensive financial holdings through their private investment and management firm, RDV Corporation. . . .

RDV is affiliated with LMF Portfolio, a limited liability corporation listed in regulatory filings as one of several firms involved in a $147 million loan to Performant Financial Corp., a debt collection agency in business with the Education Department.

Twenty-three percent of Performant's revenue is directly tied to its dealings with the Education Department, which had 14 contracts worth more than $20 million with the company in fiscal 2016.

According to the Post, Performant lost a recent contract bid with the Department of Education and is protesting DOE's decision with the Government Accountability Office.

DeVos's complicated ties with a student-loan debt college company is a legitimate worry to Democrats because as Secretary of Education, "DeVos would be in a position to influence the award of debt collection, servicing and recovery contracts, in addition to the oversight and monitoring of the contracts." In addition, the Post article points out, DeVos will also "have the authority to revise payments and fees to contractors for rehabilitating past-due debt--all of which has Senate Democrats concerned."

Senator Elizabeth Warren criticized DeVos because DeVos has no experience in higher education. "As Education Secretary," Warren charged, "Betsy DeVos would be in charge of running a $1 trillion student loan bank. She has no experience doing that." In fact, Warren correctly observed, "Betsy DeVos has no experience with student loans, Pell Grants, or public education at all."

Like Senator Warren, most Senate Democrats senators opposed DeVos to be Secretary of Education primarily on the ground that she has no experience in higher education, which is true. But I think a bigger concern is the fear that DeVos won't regulate the for-profit college industry aggressively and that she won't monitor the government's debt collectors, including the student loan guaranty agencies, which have a ruthless record of collection activities against distressed student loan debtors.

I confess I did not take DeVos's ties with a debt collection agency into consideration during the nomination process. I thought, perhaps naively, that DeVos's lack of experience in higher education might be a plus, since she could look at the student loan program with fresh eyes.

And perhaps she will. But the Democrats can smoke her out by moving aggressively for transparency and an accounting in the student-loan collection business and calling for a reduction in the collection fees and penalties the debt collectors are slapping on defaulted student loans.

Senator Warren could lead the charge by holding hearings on the activities of the student loan guaranty agencies: Educational Credit Management Corporation and the others. The Century Foundation reported that four of these agencies, which are nonprofit organizations, each hold $1 billion in assets.

If Secretary DeVos does not move aggressively to rein in the for-profits and clean up the debt collection business, then the Democrats will have a legitimate charge against her. The best way to see how DeVos will handle her new responsibilities is to hold hearings and introduce legislation to clean up the student loan industry.

If DeVos opposes legitimate calls for reforming the federal student loan program, then the Democrats are right about her.

References

Danielle Douglas-Gabriel. Dems raise concern about links between DeVos and debt collection agency. Washington Post, January 17, 2017. 

Eugene Scott. Warren grills DeVos: 'I don't see how she can be the Secretary of Education.' CNN, January 18, 2017.

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/

Educational Credit Management Corporation is a bad actor: Rafael Pardo's article about ECMC's litigation misbehavior

In recent blogs, I discussed two cases in which Educational Credit Management Corporation, the Department of Education's most ruthless student-loan debt collector, was sanctioned by a court for misbehavior. In the Bruner-Halteman case, a Texas bankruptcy judge assessed punitive damages against ECMC for garnishing the wages of a bankrupt Starbucks employee in violation of the Bankruptcy Code's automatic stay provision. The judge awarded Ms. Bruner-Halteman $74,000 in punitive damages--$2,000 for each of the 37 times ECMC wrongly garnished her wages.

In the Hann case, the First Circuit Court of Appeals upheld sanctions against ECMC for trying to collect on a student loan debt in spite of the fact that a federal bankruptcy judge had ruled that the debt had been paid.

Are these isolated cases of misbehavior? No they are not. In 2014, Rafael Pardo published an article in the University of Florida Law Review that documents how often ECMC's attorneys engage in "pollutive litigation" in cases against hapless bankrupt student-loan debtors.

Pardo's article is long (77 pages) and a bit dense and technical (477 footnotes).  I will limit my discussion of his impressive essay to a few of the highlights:

Failure to file corporate ownership statement

The Federal Rules of Bankruptcy Procedure require corporate parties in adversary proceedings to file a "corporate ownership statement" that identifies any corporate party that directly or indirectly owns 10 percent or more of the corporate party's equity interests. According to Pardo's analysis of a random sample of cases, ECMC failed to file its corporate ownership statement 81 percent of the time during 2011 and 2012.

What is the significance of ECMC's noncompliance This is what Pardo said:

The significance of such procedural noncompliance is that, in the overwhelming majority of these adversary proceedings, ECMC has failed to provide the presiding judge with the information necessary to determine whether [the judge] has a financial interest in ECMC that would warrant self-disqualification. Even assuming that ECMC would not have had to report any entity in the corporate ownership statement if ECMC had been procedurally compliant, the failure to file the statement casts a cloud on the legitimacy of the outcomes of proceedings that ended favorably for ECMC. (p. 2149)

Motion Practice 

Pardo also documented incidents when ECMC failed to abide by the Federal Rules of Civil Procedure in its motion practice.  First, in some adversary proceedings a student-loan debtor fails to name ECMC as a defendant, probably because the debtor did not know the name of the correct party to sue. In such cases, ECMC is required to state with particularity that the debtor's student-loan debt has been assigned to ECMC and that it is the proper party to litigate whether the debt is dischargeable.

Pardo found that ECMC often asserted itself as the proper party in an adversary proceeding without filing the appropriate representations about its interests. First, Pardo found that in 9.2 percent of a random sample of cases, ECMC didn't file any motion to become a named party; it simply entered into the litigation as if it had been named in the student-debtor's complaint. (p. 2153)

Furthermore, when ECMC did file a motion to join the litigation, the motion contained a substantive deficiency 80 percent of the time (in the cases Pardo examined).  Deficiencies included failing to allege assignment of the loan, failure to provide documentation of a loan's assignment, and failure to indicate which of the Federal Rules entitled it to be granted relief.

One might respond to Pardo's findings with a yawning so-what, but as Pardo pointed out, "Such procedural noncompliance is significant because it calls into question the legitimacy of a court's decision to allow a movant who may not have a valid basis to join the litigation" (p. 2153). Moreover, the fact that bankruptcy courts have allowed ECMC to get away with these procedural violations suggests that the courts aren't looking closely enough to determine whether ECMC has the right to insert itself into a student-debtor's adversary proceeding.

Responsive-Pleading Practice

Pardo's research found that student debtors named ECMC as a named defendant about 24 percent of the time. In such cases, ECMC filed an improper response in about one case out of four. (p. 256)

In the majority of the cases Pardo examined, the debtor did not name ECMC as a defendant. In those cases, ECMC was required to file a motion to intervene on the grounds that it was the proper named party. In the cases Pardo reviewed, ECMC filed an improper response 89 percent of the time. For example, ECMC would sometimes answer a student debtor's complaint before it had served its motion to intervene.

How these irregularities affects a student-debtor's interest is a bit complicated, and I invite you to read Pardo's discussion on that issue. But it is remarkable, in my view, that ECMC, a sophisticated debt collector, fails to abide by the Federal Rules of Procedure on so many occasions.

Discovery Practice

Pardo also found significant rules violation in ECMC's discovery practices. In particular, Pardo found a case in which ECMC moved for summary judgment based on a student debtor's deemed admissions even though ECMC had wrongly asked the debtor to admit to a conclusion of law.

In my mind, ECMC engages in serious misconduct when it formally asks a bankrupt student-loan debtor to admit to conclusions of law--especially an unsophisticated debtors who is not represented by an attorney.  Not only are such requests impermissible under the Federal Rules, but student debtors may not know that; and they may also not know that an unanswered Request for Admission is deemed to be admitted.

Conclusion: ECMC engages in "pollutive litigation" and it uses taxpayer's money to do so

Pardo characterized ECMC's bankruptcy-case behavior as "pollutive litigation," and that's putting the matter mildly. ECMC gets reimbursed by the federal government for its attorney fees--fees that are often spent harassing unsophisticated debtors who do not even have lawyers.

Moreover, ECMC frequently wears student debtors down just by prolonging the litigation. Janet Roth, for example, an elderly woman living on Social Security income of less than $800 a month, filed for bankruptcy in January 2009. Her case was not concluded until April 2013, more than four years later.

There are a lot of things Congress can do to clean up the student-loan mess and bring relief to millions of suffering student debtors. But shutting down ECMC would be a big step in the right direction.

The Department of Education Should Shut This Bad Boy Down.

References

Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).

Hann v. Educational Credit Management Corporation, 711 F.3d 235 (1st Cir. 2013).

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

Natalie Kitroeff. Loan Monitor is Accused of Ruthless Tactics on Student Debt. New York Times, January 1, 2014. Acccessible at http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html?_r=0

Rafael Pardo. The Undue Hardship Thicket: On Access to Justice, Procedural Noncompliance and Pollutive Litigation in Bankruptcy. 66 Florida Law Review 2101-2178.

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/

A Texas bankruptcy court slaps ECMC with punitive damages for repeatedly garnishing a Starbucks employee's paychecks in violation of the automatic stay provision: "The Ragged Edge"

Anyone who has dealt with Educational Credit Management Corporation as a debtor knows that it is a ruthless and heartless organization. As one of the federal government's student-loan debt collectors, it has harassed hapless creditors thousands of time. It was ECMC that opposed bankruptcy relief for Janet Roth, an elderly woman with chronic health problems who was living on less than $800 a month.

But the Roth case does not fully display ECMC's callousness.  A better illustration of its merciless behavior is found in Bruner-Halteman v. ECMC, decided by a Texas bankruptcy court last April.

Bruner-Halteman was a single mother who worked at Starbucks, living, as the bankruptcy court observed, "on the ragged edge where any adversity can be catastrophic." She owed about $5,000 on a student loan issued by Sallie Mae, and she was in default.

In 2012, ECMC garnished Bruner-Halteman's  Starbucks wages, and she filed for bankruptcy, which, under federal law, triggers an automatic stay of all garnishment activities. ECMC received notice of the bankruptcy filing, and even participated as a creditor in Bruner-Halteman's bankruptcy proceedings. But it continued to garnish Bruner-Halteman's wages for almost two years.

In fact, ECMC garnished Bruner-Halteman's wages 37 times AFTER she filed for bankruptcy--a clear violation of the law. Moreover, ECMC had no reasonable excuse for its misbehavior. In fact, ECMC refunded the wages it garnished on 17 occasions but kept on garnishing this poor woman's wages. Indeed, the garnishments did not stop until Bruner-Halteman  filed a lawsuit for damages in the bankruptcy court.

The bankruptcy court held a three-day trial on Bruner-Haltman's claims and heard plenty of evidence about the stress Bruner-Halteman experienced due to ECMC's illegal garnishments.  On April 8, 2016, the court awarded her actual damages of  about $8,000, attorney fees, and $74,000 in punitive damages.

Here is how the bankruptcy judge summarized ECMC's conduct:

ECMC's systematic, knowing, and willful disregard of the automatic stay and the protections afforded a debtor by the bankruptcy system was particularly egregious and offends the integrity of the the bankruptcy process. . . The indifference shown by ECMC to the Plaintiff and the bankruptcy process is gravely disturbing.

The court was particularly offended by the fact that ECMC repeatedly refunded the amounts it garnished but did not stop the garnishment process. "The callousness of the refund process is particularly rattling," the court wrote.

"In order to process a refund," the court noted, "an ECMC employee had to make the determination that the debtor had an active bankruptcy case, but that did nothing to convince ECMC that it should be cancelling the wage garnishments . . ." Instead, ECMC processed the refunds "at whatever pace it chose" while Bruner-Halteman "was doing everything she could to make ends meet."

At the conclusion of its opinion, the court summarized ECMC's behavior as follows:

A sophisticated creditor, ECMC, active in many cases in this district and across the country, decided that it could continue to garnish a debtor's wages with full knowledge that she was in a pending bankruptcy case. The Plaintiff, a woman who suffers from a severe medical condition, was hurt in the process. She was deprived of the full use of her paycheck. She incurred significant attorneys' fees in trying to fix the situation. A garnishment of a few hundred dollars may not be much to everyone, but to Kristin Bruner-Halteman, it meant a lot.

I will make just two comments about ECMC's merciless and cruel behavior in the Bruner-Halteman case. First, $74,000 might be a significant punitive-damages award for some organizations, but 74 grand is peanuts to ECMC.  After all, the Century Foundation reported recently that ECMC, a nonprofit organization, has $1 billion in cash and unrestricted assets. A punitive damages award of a million dollars would have been more appropriate.

Second, Ms. Bruner-Halteman was not awarded damages for ECMC's outlaw conduct until April 8, 2016, almost exactly four years after ECMC's first  wrongful garnishment.  Obviously, ECMC knows how to stretch out the litigatin process  to wear down its adversaries.

ECMC's name has appeared as a named party in more than 500 court decisions. A little dust-up like the one it had with Bruner-Haltemann is simply the price of doing business in the dirty commerce of harassing student-loan defaulters. And you can bet no one at ECMC missed a meal or lost any sleep because of the Bruner-Halteman case.

Perhaps Senator Elizabeth Warren, who publicly bemoans the excesses of the student loan industry, should hold Senate hearings and ask ECMC's CEO a few questions. Questions like: How much do ECMC executives pay themselves? How did ECMC accumulate $1 billion in unrestricted assets? And who is paying ECMC's attorney fees for hounding all those American student-loan borrowers--millions of whom, like Bruner-Halteman, are living "on the ragged edge"?

References

Bruner-Halteman v. Educational Credit Management Corporation, Case No. 12-324-HDH-13, ADV. No. 14-03041 (Bankr. N.D. Tex. 2016).

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/

A Kansas bankruptcy court discharged all the accrued interest on a married couple's student loans: Murray v. ECMC

Do you remember political consultant James Carville's famous line during the 1992 presidential campaign? "It's the economy, stupid," Carville supposedly observed. That eloquently simple remark became Bill Clinton's distilled campaign message and helped propel him into the presidency.

Something similar might be said about the student-loan crisis: "It's the interest, stupid." In fact, for many Americans, it is the interest and penalties on their student loans--not the amount they borrowed--which is causing them so much financial distress.

The Remarkable case of Murray v. Educational Credit Management Corporation

This truth is starkly illustrated in the case of Murray v. Educational Credit Management Corporation, which was decided last December by a Kansas bankruptcy judge.  At the time they filed for bankruptcy, Alan and Catherine Murray owed $311,000 in student-loan debt, even though they had only borrowed about $77,000. Thus 75 percent of their total debt represented interest on their loans, which had accrued over almost 20 years at an annual rate of 9 percent.

As Judge Dale Somers explained in his ruling on the case, the Murrays had taken out 31 student loans back in the 1990s to obtain bachelor's degrees and master's degrees. In 1996, when they consolidated their loans, they only owed a total of $77,524.

Over the years, the Murrays made loan payments when they could, which totaled $54,000--more than half the amount they borrowed. Nevertheless, they entered into several forbearance agreements that allowed them to skip payments; and they also signed up for income-driven repayment plans that reduced the amount of their monthly payments. Meanwhile, interest on their debt continued to accrue. By the the time the Murrays filed for bankruptcy in 2014, their $77,000 debt had grown to almost a third of a million dollars.

The Murrays' combined income was substantial--about $95,000. Educational Credit Management Corporation (ECMC), the creditor in the case, argued that the Murrays had enough discretionary income to make significant loan payments in an income-driven repayment plan.  In fact, under such a plan, their monthly loan payments would be less than $1,000 a month,

But Judge Somers disagreed. Interest on the Murrays' debt was accruing at the rate of $65 a day, Judge Somers pointed out--about $2,000 a month. Clearly, the couple would never pay off their loan under ECMC's proposed repayment plan. Instead,  their debt would grow larger with each passing month.

On the other hand, in Judge Somers' view, the Murrays had sufficient income to pay off the principle of their loan and still maintain a minimal standard of living. Thus, he crafted a remarkably sensible ruling whereby the interest on the Murrays' debt was discharged but not the principle. The Murrays are still obligated to pay the $77,000 they borrowed back in the 1990s plus future interest on this amount, which would begin accruing at the rate of 9 percent commencing on the date of the court's judgment.

Judge Somers Points the Way to Sensible Student-Debt Relief

In my view, Judge Somers' decision in the Murray case is a sensible way to address the student debt crisis.  Eight million people have defaulted on their loans, and 5.6 million more are making token payments under income-driven repayment plans that are often not large enough to cover accruing interest. Millions of Americans have obtained loan deferments that allow them to skip their loan payments; but these people--like the Murrays--are seeing their loan balances grow each month as interest accrues.

Judge Somers' decision doesn't solve the student-loan crisis in its entirety, but it is a good solution for millions of people whose loan balances have doubled, tripled and even quadrupled due to accrued interest, penalties, and fees.

Obviously, Judge Somers' solution should only be offered to people who dealt with their loans in good faith.  Judge Somers specifically ruled that the Murrays  had acted in good faith regarding their loans. In fact, they paid back about 70 percent of the amount they borrowed.

Unfortunately, but not surprisingly, ECMC appealed the Murray decision, hoping to overturn it. Nevertheless, let us take heart from the fact that a Kansas bankruptcy judge reviewed a married couple's financial disaster and crafted a fair and humane solution.


References

Murray v. Educational Credit Management Corporation, Case No. 14-22253, ADV. No. 15-6099, 2016 Banrk. LEXIS 4229 (Bankr. D. Kansas, December 8, 2016).

A Bipartisan Solution to the Student Loan Crisis: What if Betsy DeVos and Senator Elizabeth Warren Worked Together to Craft A Fix?

At the conclusion of Betsy DeVos's Senate hearing last week, Senator Elizabeth Warren refused to shake DeVos's hand. If this is a sign of enmity between Senate Democrats and the Trump administration over education policy, this is a scary development for distressed student-loan debtors.

Millions of borrowers are drowning in student loan debt--now pushing $1.4 trillion dollars. Eight million have defaulted, and millions more are teetering on the edge of default. Now is the time for Republicans and Democrats to work together.

What if Secretary of Education DeVos and Senator Warren cooperated to solve the student loan crisis? Thinks what they could achieve.

Here's a plausible scenario:

1. During the first month of the Trump administration,  Secretary of Education DeVos calls a press conference to announce that the federal government will stop garnishing Social Security checks of elderly student-loan defaulters.

At the press conference, Secretary DeVos is flanked by several U.S. Senators, including Senators Warren, Bernie Sanders, and Lamar Alexander. Senator Warren announces she will introduce legislation barring the government from garnishing Social Security checks of student-loan defaulters.

2. Next, DeVos issues a directive to DOE bureaucrats, ordering them to speed up the process for processing so-called "Borrower Defense" claims by students who are trying to get their student loans discharged on the grounds that their colleges defrauded them.

DOE responds quickly, and thousands of debtors who were scammed by shady for-profit colleges get their loans discharged. Warren and her Senate compadres issue press releases praising DeVos's action.

3.  Shortly thereafter, DeVos tells reporters that she agrees with the Obama administration's stance on arbitration clauses in student enrollment documents. The for-profits routinely require their students to sign these clauses, which forces students to arbitrate their fraud claims in unfriendly forums.  The Obama administration said it opposed these clauses but did not do anything to stop them from being used.

DeVos says, as of the day of her announcement, DOE will not allow any for--profit college to participate in the student-loan program that forces students to sign coercive arbitration agreements. Senators Warren and Senate Democrats applaud DeVos's step.

4.  In spring of 2017, Senator Warren holds Senate hearings on the student loan guaranty agencies, which rake in millions of dollars in fees from collecting student loans. Warren points out that four of these agencies have each amassed $1 billion in unrestricted assets, even though they are non-profit companies. She subpoenas the agencies' records and learns that the guaranty agencies' CEOs are paid millions in salaries and benefits for harassing destitute student borrowers.

DeVos testifies at Warren's Senate hearing, pledging DOE will do what it can to rein in the debt collectors.  DeVos makes good on her pledge by terminating its contract with Education Credit Management Corporation, perhaps the nation's most ruthless student-loan debt collector.

5. A bill passes Congress that disbands the student-loan guaranty agencies and abolishes all fees and penalties that have been applied to defaulted student loans over the past 20 years. President Trump signs the bill.

6. With bipartisan support and Trump's blessing, another bill is approved by Congress to amend the Bankruptcy Code to eliminate the restriction on discharging private student loans in bankruptcy.

Trump signs these bipartisan student-loan reform bills and give the bill-signing pens to Senator Warren. Senator Warren then shakes Secretary DeVos's hand.

What will it take for Senator Warren to shake Betsy DeVos's hand?

References

Paul Crookston. Betsy DeVos Hearing Ends with Handshakes — Except from Elizabeth Warren. National Review, January 18, 2017.

Natalie Kitroeff. Loan Monitor is Accused of Ruthless Tactics on Student Debt. New York Times, January 1, 2014. Acccessible at http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html?_r=0

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/

U.S. Department of Education. U.S. Department of Education Takes Further Steps to Protect Students from Predatory Higher Education Institutions. March 11, 2016. Accessible at http://www.ed.gov/news/press-releases/us-department-education-takes-further-steps-protect-students-predatory-higher-education-institutions?utm_content=&utm_medium=email&utm_name=&utm_source=govdelivery&utm_term=

Betsy DeVos, Trump's choice for Secretary of Education, has the power to ease the suffering of student-loan debtors

Betsy DeVos, Donald Trump's choice for Secretary of Education, has no experience in higher education, and that may be a good thing for student-loan debtors.

Most commentators on the student-loan crisis are insiders who want to maintain the status quo regarding the federal student loan program. The universities depend on regular infusions of student-loan money, which enables them to raise their tuition prices year after year at twice the rate of inflation.

But DeVos has no ties to higher education at all, and thus she has the capacity to look at the student-loan catastrophe from a fresh perspective. In fact, DeVos has the power to do one simple thing that could potentially bring relief to millions of distressed student-loan debtors.

Under current bankruptcy law, debtors cannot discharge their student loans in bankruptcy unless they can show that repaying the loans will cause them "undue hardship."  In nearly every case, the Department of Education and the student-loan guaranty companies argue that student-loan debtors should be denied bankruptcy relief under the undue hardship standard.

Instead, they routinely demand that distressed college borrowers enroll in long-term income-based repayment plans that can last for 20 or even 25 years.  And DOE and its debt collectors make this demand even when debtors' income is so low that they pay nothing or next to nothing under the terms of these plans.

Here are some examples:

• In the Edwards case, decided last spring, Educational Credit Management (ECMC) argued that Rita Gail Edwards, a woman in her mid-50s, should pay $56 a month for 25 years to service a debt of almost a quarter of a million dollars! 

• In the Roth case, ECMC opposed bankruptcy relief for Janet Roth, an elderly woman with chronic health problems who was living on Social Security income of less than $800 a month. Instead, ECMC wanted Roth to enter a long-term repayment plan even though ECMC conceded that Roth's income was so low that she would pay nothing under the plan. 

• In the Abney case, DOE wanted Abney, a 40-year-old father of two, to enter a 25-year income-based repayment plan. Abney was living on $1200 a month and was so poor he couldn't afford a car and rode a bicycle to get to his job.

In essence, DOE and the debt collectors maintain that almost no one is entitled to discharge their student loans in bankruptcy and that everyone should be placed in long-term, income based repayment plans.

What if Secretary DeVos simply decreed that DOE and the loan guaranty agencies will stop pushing long-term repayment plans in the bankruptcy courts and would consent to bankruptcy discharges for people like Roth, Edwards, and Abney? (Incidentally, in all three cases, the bankruptcy courts rejected the creditors' arguments and discharged the student loans in their entirety.)

By consenting to bankruptcy discharges for people like Abney, Edwards and Roth, the Department of Education would signal to the bankruptcy courts that it supports a less harsh interpretation of the "undue hardship" standard. That would open the door for thousands of people of distressed debtors to file bankruptcy to discharge their student loans.

Some people might argue that my proposal would unleash a flood of bankruptcy filings that would undermine the financial integrity of the federal student loan program. But let's face facts. People like Roth, Edwards and Abney would never have paid back their student loans, and placing them in 25-year repayment plans that would have obligated them to make token payments that would have done nothing more than maintain the cynical fiction that their loans weren't in default.

Wouldn't it be better for DOE to be candid about the student-loan crisis and admit that millions of people will never pay back their loans? Wouldn't it be better public policy to allow honest but unfortunate debtors to get the fresh start that the bankruptcy courts are intended to provide?

Betsy DeVos is fresh on the scene of the student-loan catastrophe. Let's hope she brings some fresh thinking to the U.S. Department of Education.

Mark http://www.nytimes.com/2016/11/23/us/politics/donald-trump-president-elect.html?action=click&contentCollection=Opinion&module=RelatedCoverage&region=EndOfArticle&pgtype=article

Educational Credit Management Corporation and the U.S. Department of Education: Are They Co-Conspirators in Accounting Fraud?

Last March, an Arizona bankruptcy court discharged $245,000 in student loan debt owed by  Rita Gail Edwards, a 56-year-old single woman earning a tenuous living as a counselor. Educational Credit Management Corporation (ECMC), her student-loan creditor, fought the discharge. ECMC wanted Edwards placed in a 25-year income-based repayment plan. Under such a plan, Edwards would only pay $84 a month on her loans for 25 years.

ECMC's position was absurd, of course. A woman in her late 50s  will never pay off a $245,000 loan by making monthly payments of $84. The only possible purpose that is served by jamming Ms. Edwards into a 25-year repayment plan is to carry her student-loan debt on the Department of Education's books as a performing loan.

In ruling for Ms. Edwards, the bankruptcy judge questioned the wisdom of a system that allowed Edwards to borrow so much money. "In hindsight, it is a shame that [Edwards] ever incurred these student loan debts," the court observed.

While her Ottawa University education may have given her the tools and credentials to work in an emotionally satisfying role [as a counselor] and may have provided a well needed skilled counselor in her rural community, the predictable economic burden was never likely to justify the massive economic burden she incurred.

The Edwards case demonstrates the insanity of the federal student-loan program. Our government allows people to borrow extravagant amounts of money for educational programs that will never pay off, and then it engages debt collectors to push borrowers into long-term income-based repayment plans that stretch out over 25 years and will almost never result in the loans being repaid.

And the Edwards case is not an anomaly. In the Roth case, ECMC opposed a bankruptcy discharge for an elderly woman with chronic health problems who was living on less than $800 a month. In fact, Roth's income was so low that ECMC acknowledged that Roth's monthly payments under an income-based repayment plan would be zero!

In the Halverson case, ECMC opposed a discharge for a man in his sixties making less than $14 an hour as a substitute teacher and who owed almost $300,000 in student loan debt. Mr. Halverson borrowed less than half the amount he owed when he filed bankruptcy and was never in default. His debt ballooned mostly due to accruing interest while his loans were in deferment.

The Department of Education itself has taken the same irrational stance regarding bankruptcy discharge for student debtors. In the Myhre case, DOE opposed a discharge for a quadriplegic, and in the Abney case, it opposed a discharge for  a single father of two children who was living on less than $1200 a month and could not even afford to own a car.

Why?

 I can think of only one reason. ECMC and DOE are engaged in a massive accounting fraud, trying to convince the public that the federal student loan program is solvent and fiscally sound. But in fact the student loan program is a disaster. Eight million people are in default and and one out of four debtors are either in default or behind on their loan payments.

ECMC benefits from the status quo--that is clear. According to a Century Foundation report, it has $1 billion in unrestricted assets, most of it obtained from its loan-collection activities. The Westlaw database shows that ECMC has  appeared as a named party in over 500 federal court rulings; it has spent literally millions of dollars in attorney fees chasing after people like Gail Edwards and Janet Roth.

And who pays those fees?  According to a law review article written by Rafael Pardo, ECMC draws money from a Federal Reserve Fund to finance its loan-collection activities and has access to "significant [federal] resources when litigating against student-loan debtors" (p. 2145).  Pardo cites a document showing that DOE allowed ECMC to keep a quarter of a billion dollars that it drew from DOE's Federal Reserve Fund to finance its activities in 2008 (p. 2145).

So you, Mr. & Ms American taxpayer, are paying ECMC to engage in unproductive litigation against impoverished debtors--litigation intended to keep the student-loan crisis under wraps.

And ECMC is a nonprofit organization--supposedly devoted to the public good.

But ECMC is not acting for the public good. On the contrary, ECMC is DOE's hit man--the entity DOE sends to beat down bankrupt student debtors and prevent them from getting the bankruptcy relief they deserve.

 ECMC's senior executives are getting well paid to be DOE's "Mac the Knife."  Its CEO makes at least a million dollars a year.

References

Annual Report of the CFPB Student Loan Ombudsman. Consumer Financial Protection Bureau, September 2016. Available at http://files.consumerfinance.gov/f/documents/102016_cfpb_Transmittal_DFA_1035_Student_Loan_Ombudsman_Report.pdf

Edwards v. Educational Credit Management Corporation, Adversary No.. 3:15-ap-26-PS, 2016 WL 1317421 (Bankr. D. Ariz. March 31, 2016). Available at http://www.azb.uscourts.gov/sites/default/files/opinions/024139558300_dmd.pdf

In re: Halverson, 401 B.R. 378 (Bankr. D. Minn. 2009).

Rafael Pardo. The Undue Hardship Thicket: On Access to Justice, Procedural Noncompliance and Pollutive Litigation in Bankruptcy. 66 Florida Law Review 2101-2178. Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2426744

Roth v. Educational Credit Management Corporation, 490 B.R. 908 (9th Cir. BAP 2013). Available at http://cdn.ca9.uscourts.gov/datastore/bap/2013/04/16/RothV%20ECMC%20opinion-FINAL%20AZ-11-1233.pdf