The Educational Credit Management Corporation, the primary private entity retained by the Department of Education to challenge student debtors who file for bankruptcy on federal loans, is facing scrutiny over the ruthless nature of its tactics. Court documents and interviews with consumer advocates, experts, and bankruptcy lawyers suggest questionable pursuit of student borrowers by the organization.
Emory University law professor Rafael Pardo estimates that the agency goes too far in dozens of cases per year. A panel of bankruptcy appeal judges in 2012 denounced a “waste of judicial resources” by Educational Credit and said that its collection activities “constituted an abuse of the bankruptcy process and defiance of the court’s authority.” Rep. Steve Cohen (D-Tenn.) has introduced a bill to limit predatory tactics.
The case that prompted the remark by the bankruptcy judges involved Barbara Hann, who filed for bankruptcy in 2004, and Educational Credit's claim that she owed more than $50,000 in outstanding debt. Hann provided evidence that she had already repaid her student loans in full, and her bankruptcy case ended in 2010; but Educational Credit began hounding her again and, on behalf of the government, garnished her Social Security to repay the same student loan. Educational Credit has had a major impact in shaping the meaning of the phrase “undue hardship,” the standard required since the 1970s for relief from student debt. The agency persuaded the United States Court of Appeals for the Eighth Circuit to adopt stricter standards in 2009, arguing that if student borrowers who sought bankruptcy could qualify for a repayment plan connected to their incomes then they were, by definition, ineligible for relief.