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/

Senator Charles Schumer cries bitter tears over Trump's travel ban on people coming to U.S. from countries that export terror: Where are the grownups?

I knew in my heart that President Trump had done a bad thing--a terrible thing--when he imposed a temporary ban on people traveling to the U.S. from countries that export terrorism. But I did not grasp the enormity of his iniquity until I saw Senator Charles Schumer break down in sobs over Trump's foul deed.

After all, as President Trump admitted, Senator Schumer is not a crier. He has witnessed some truly awful things during his long political career. Yet he never broke down--not once.

Senator Schumer was dry-eyed after the San Bernardino shootings and the Orlando massacre. I don't think he shed a single tear after the Russians shot down that airliner in Ukraine. As far as I know, Senator Schumer kept a stiff upper lip after the terrorists killing sprees in Paris, Brussels, and Nice.

So why did President Trump's executive order--his ill advised and poorly implemented executive order--cause Schumer to go into near hysterics?

I do not; I honestly do not know.

But this I do know. This country has some serious problems, and only grownups can solve them. And here are just a few of them:

• The number of Americans on food stamps grew by almost 20 million people over the last eight years.
• Accumulated student-loan debt has reached $1.4 trillion, and 8 million people are in default.
• Mortality rates for working class Americans have spiked upward, driven by suicide and deaths related to drug and alcohol abuse.
• Suicide rates among middle-aged people have gone up alarmingly, and crushing personal debt may be a factor.

But let's not cry about this sad news. Let's do something about it. So please, Senator Schumer, treat yourself to a nice long cry and then go back to work.

I assure you, Senator Schumer, if you begin acting like a grownup and start working on the nation's problems, you will feel much better. On the other hand, if you break down in tears every time President Trump does something you don't like, you're going to need a lot of handkershiefs.

People acting like grownups after the San Bernardino shooting

References

Alan Bjerga. Food Stamps Still Feed One in Seven Americans Despite Recovery, Bloomberg.com, February 3, 2016.

Jillian Berman. When your Social Security check disappears because of an old student loan. MarketWatch, June 25, 2015.  Accessible at: http://www.marketwatch.com/story/when-your-social-security-check-disappears-because-of-an-old-student-loan-2015-06-25

Anne  Case and Angus Deaton. Rising morbidity and mortality in midlife among white
non-Hispanic Americans in the 21st century.  Accessible at: http://www.pnas.org/content/early/2015/10/29/1518393112.full.pdf

Editorial. Death AmongMiddle Aged Whites. New York Times, November 5, 2015.

General Accounting Office. Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Borrowers. GAO-14-866T. Washington, DC: General Accounting Office. http://www.gao.gov/products/GAO-14-866T

Katherine A. Hempstead and Julie A. Phillips. Rising Suicide Among Adults Aged
40–64 Years: The Role of Job and Financial Circumstances.  American Journal of Preventive Medicine 84(5):491-500 (2015).

Gina Kolata. Deaths Rates Rising Middle-Aged White Americans, Study Finds. New York Times, November 3, 2015.

Betsy McKay. The Death Rate Is Rising for Middle-Aged Whites. Wall Street Journal, November 3, 2015. 

ECMC abuses the bankruptcy process: Hann v. Educational Credit Management Corp.

Last week I posted a blog about Bruner-Halteman v. ECMC, which was decided last April. In that case, a Texas bankruptcy judge awarded punitive damages against Educational Credit Management Corporation for repeatedly garnishing the wages of a bankrupt Starbucks employee in violation of her legal rights.  ECMC got slapped with $74,000 in punitive damages.

Brunner-Halteman is not the first case in which ECMC has been found guilty of abusing the bankruptcy process. In Hann v. ECMC, decided in 2013, the First Circuit Court of Appeals upheld a lower court decision  against ECMC for continually trying to collect on student loans it claimed were owed by Barbara Hann, even though a bankruptcy judge had ruled that Hann owed ECMC nothing.

Hann v. ECMC: Sanctions are imposed on ECMC for abusing the bankruptcy process

Here is a brief rendition of the facts. Barbara Hann filed for bankruptcy in November 2004, and she dutifully listed all her debts.  ECMC filed a proof of claim in the case, alleging Hann owed ECMC more than $54,000 for unpaid student loans (including accrued interest and collection costs).

Hann objected to ECMC's claim on the grounds that she had paid her student loans in full. The bankruptcy judge held a hearing on the matter, which ECMC did not attend.

At the hearing, Hann testified that she had paid off her student loans and produced documentary evidence to support her testimony. After considering Hann's evidence, the bankruptcy judge ruled that Hann owed ECMC nothing.

Hann probably thought her student debts were behind her, but she was wrong. After her bankruptcy case was concluded, ECMC renewed its efforts to collect on Hann's old student loans. In fact, it even garnished her Social Security.

Richard Gaudreau, Hann's lawyer, contacted ECMC and told the company that Hann's student-loan debt had been discharged in bankruptcy. Nevertheless, ECMC continued trying to collect the debt.

 Gaudreau then reopened Hann's bankruptcy case and asked a new bankruptcy judge to order ECMC to stop its collection efforts.   ECMC showed up for the hearing, where it, argued that the former bankruptcy judge, who had retired, had never adjudicated the amount of ECMC's claim and that student-loan debt is generally nondischargeable. ECMC, did not, however, quantify how much it claimed Hann still owed.

Again, a bankruptcy judge ruled in Hann's favor, and the judge awarded sanctions against ECMC.  ECMC appealed this order to the First Circuit's Bankruptcy Appellate Panel, and the Panel upheld the bankruptcy court.  The BAP specifically approved the sanctions against the debt collector, explaining that ECMC's continued collection activities in spite of the bankruptcy court's ruling, "constituted an abuse of the bankruptcy process and defiance of the court's authority."

Did ECMC get the message? Apparently not. ECMC then appealed the BAP's ruling to the First Circuit Court of Appeals,  On March 29, 2013, almost nine years after Hann filed for bankruptcy, the First Circuit ruled in Hann's favor yet again. Hann owed ECMC nothing, the appellate court ruled; and the bankruptcy court had appropriately sanctioned the debt collector for abusing the bankruptcy process.

Implications of the First Circuit's ruling in Hann v. ECMC

The Hann case is extraordinary for two reasons. First, ECMC defended its right to collect on Hann's student loans all the way to the First Circuit Court of Appeals, despite its "repeated inability to identify or quantify [Hann'] outstanding debt obligation" to the bankruptcy court.

Second, the sanctions that ECMC fought were not large: only about $9,000. Clearly, it made no economic sense for ECMC to fight a pitifully small sanction award at two appellate levels. Surely, ECMC's attorney fees were many times the amount of the sanctions award.

Taken together, the Bruner-Halteman decision and the Hann decision portray ECMC as  a pretty rough outfit. It has appeared in hundreds of court cases involving student-loan debtors, and surely it knows the Bankruptcy Code. Yet it was willing to garnish Bruner-Halteman's wages 37 times in defiance of settled law and to continue trying to collect on student loans that had been discharged in bankruptcy.

Who paid ECMC's attorney fees in these two wild-hare cases? It is not entirely clear, but the Century Foundation's report on ECMC and other student-loan guaranty agencies suggests that the federal government is paying ECMC's fees.

If that is true, then you, Mr. and Ms. Taxpayer, are paying ECMC's lawyers to hound distressed student-loan debtors through the federal courts. Don't you think we should find out? And wouldn't that be a good question for the U.S. Senate to explore through its hearing process?


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

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/

Alan and Catherine Murray are Poster Children for the Student Loan Crisis: Income-Driven Repayment Plans for Distressed Student-Loan Debtors are Insane

In a recent post, I wrote about Alan and Catherine Murray, who won a partial discharge of their student-loan debt in a bankruptcy case decided in December 2016.  Educational Credit Management (ECMC), the creditor in their case, is appealing the decision. We should all hope ECMC loses the appeal, because the Murrays are the poster children for the student-loan crisis.

Alan and Catherine Murray: Poster Children for the Student-Loan Crisis

Alan and Catherine Murray, a married couple in their late forties, took out 31 federal student loans to get bachelor's degrees and master's degrees in the early 1990s. In all, they borrowed about $77,000, not an unreasonable amount, given the fact that they used the loans to get a total of four degrees.

In 1996, the Murrays consolidated all those loans, a sensible thing to do; and they began making payments on the consolidated loans at 9 percent interest.  Over the years they made payments totally $58,000--or 70 percent of what they borrowed.

Nevertheless, during some periods, the Murrays obtained economic hardship deferments on their loans, which allowed them to skip some payments. Interest continued to accrue, however; and by 2014, when the Murrays filed for bankruptcy, their $77,000 debt had ballooned to $311,000!

Fortunately for the Murrays, Judge Dale Somers, a Kansas bankruptcy judge, granted them a partial discharge of their massive debt. Judge Somers ruled that the Murrays had managed their student loans in good faith, but they would never be able to pay back the $311,000 they owed. Very sensibly, he reduced their debt to $77,000, which is the amount they borrowed, and canceled all the accumulated interest.

 Educational Credit Management Corporation (ECMC), the Murrays' student-loan creditor, appealed Judge Somers' ruling. The Murrays should have been placed in an income-driven repayment plan (IDR), ECMC argued, which would have required them to pay about $1,000 a month for a period of 20 years.

Obviously, ECMC's argument is insane. As Judge Somers pointed out, interest was accruing on the Murrays' debt at the rate of almost $2,000 a month. Thus ECMC's proposed payment schedule would have resulted in the Murrays' debt growing by a thousand dollars a month even if they faithfully made their loan payments. By the end of their 20-year payment term, their total debt would have grown to at least two thirds of a million dollars.

The Murrays' case is not atypical: Billions of dollars in student loans are negatively amortizing

You might think the Murray case is an anomaly, but it is not. Millions of people took out student loans, made payments in good faith, and wound up owing two, three, or even four times what they borrowed. In other words, millions of student loans are negatively amortizing--they are growing larger, not smaller, during the repayment period.

For example, Brenda Butler, whose bankruptcy case was decided last year, borrowed $14,000 to get a bachelor's degree in English from Chapman University, which she obtained in 1995. Like the Murrays, she made good faith efforts to pay off her loans, but she was unemployed from time to time and could not always make her loan payments.

By the time Butler filed for bankruptcy in 2014, her debt had doubled to $32,000, even though she had made payments totally $15,000--a little more than the amount she borrowed.

Unfortunately for Ms. Butler, her bankruptcy judge was not as compassionate as the Murrays' judge. The judge ruled that Butler should stay on a 25-year repayment plant, which would terminate in 2037, 42 years after she graduated from Chapman University.

Here is sad reality. Millions of people are seeing their total student-loan indebtedness go up--not down--after they begin repayment. According to the Brookings Institution,  more than half of the 2012 cohort of student-loan borrowers saw their total indebtedness go up two years after beginning the repayment phase.  Among students who attended for-profit colleges, three out of four saw their loan balances grow larger two years into repayment.

An analysis by Inside Higher Ed concluded that less that half of college borrowers (47 percent) had made any progress on paying off their student loans 5 years into repayment. In the for-profit sector, only about a third (35 percent) had paid anything down on their student loans  over a 5-year period.

And the Wall Street Journal reported recently that half the students at more than a thousand colleges and schools had not reduced their loan balances by one dime seven years after their repayment obligations began.

The Federal Student Loan Program is a Train Wreck

Awhile back, Senator Elizabeth Warren accused the federal government of making "obscene" profits on student loans because the interest rates were higher than the government's cost of borrowing money. Warren's charge might have been true if people were paying back their loans, but they are not.

Eight million people are in default and millions more are seeing their student-loan balances grow larger with each passing month.  The Murrays are the poster children for this tragedy because they handled their loans in good faith and still wound up owing four times what they borrowed.

In short, the federal student loan program is a train wreck. Judge Somers' solution for the Murrays was to wipe out the accrued interest on their debt and to simply require them to pay back the principle. This is the only sensible way to deal with the massive problem of negative amortization.

References

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

Paul Fain. Feds' data error inflated loan repayment rates on the College Scoreboard. Inside Higher Ed, January 16, 2017.

Andrea Fuller. Student Debt Payback Far Worse Than Believed. Wall Street Journal, January 18, 2017.

Adam Looney & Constantine Yannelis, A crisis in student loans? How changes in the characteristics of borrowers and in the institutions they attended contributed to rising default rates. Washington, DC: Brookings Institution (2015).

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.

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=