Student Loan Monitor Accused of Ruthless Court Practices

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By Consumers Union on Thursday, January 2nd, 2014

It may be a new year, but for millions of consumers with student loans it’s just more of the same: bills to pay, a weak job market, and little relief from student loan debt.  To make things worse, there’s a government-appointed loan monitor that fights any attempts borrowers make to get bankruptcy relief for their loans – and some say their heavy-handed tactics are causing major harm.

The front page of today’s New York Times reports that Educational Credit Management Corporation – the main private entity hired by the Department of Education to fight student debtors who file for bankruptcy on federal loans – is facing scrutiny over its courtroom tactics.

The Times reviewed court documents from cases involving ECMC, and spoke with consumer advocates and bankruptcy experts.  They report that ECMC has some vocal critics – including bankruptcy judges themselves.  A panel of judges in 2012 stated that the agency’s practices led to a “waste of judicial resources,” and said that the agency’s collection activities “constituted an abuse of the bankruptcy process and defiance of the court’s authority.”

In plain English, here’s what we’re talking about: Barbara Hann, a consumer who spoke with the Times, said that when she filed filed for bankruptcy, ECMC claimed that she owed over $50,000 in outstanding debt. In a hearing that Educational Credit didn’t even attend, Ms. Hann provided ample evidence that she had, in fact, already repaid her student loans in full.

And then there’s Karen Lynn Schaffer, who told the Times that she took out a loan for her son to attend college but struggled to pay the bills after her husband’s Hepatitis C got worse and he couldn’t work anymore.  When she tried to get relief in bankruptcy, ECMC argued in court that Ms. Schaffer wasn’t suffering undue hardship, and claimed that she had been spending too much money on dining out.  According to Ms. Schaffer, that was a reference to the $12 she spent at McDonald’s.

We here at Consumers Union believe that student loan borrowers should be treated WAY better than that when they’re struggling with financial hardships!  We’ve called on the federal government and private lenders to work with borrowers, providing them with fair and flexible options to prevent their loans from becoming a lifelong burden.  To read our recent report on student loans, featuring policy recommendations and real consumer stories, click here.

Have you ever dealt with ECMC, or tried to get relief from student loans in court?  If so, please share your story with us.

 

 

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