A federal agency charged with fighting student loan bankruptcy cases overstepped its bounds in over a dozen cases in 2012, from trying to force a woman to repay her debts twice to claiming Stage II pancreatic cancer did not meet “undue hardship” requirements.
The Educational Credit Management Corporation (ECMC), a nonprofit agency founded in Minnesota in 1994, conducts ferocious legal battles on behalf of the federal government against the few Americans who file for bankruptcy to discharge student loans.
One woman, Stacy Jorgensen, borrowed $43,000 for her undergraduate, masters and PhD degrees, but was diagnosed with Stage IIB pancreatic cancer before she could repay her loans. The combined costs of her mounting medical bills and student loan payments drove her to file for bankruptcy and prove she suffered from “undue hardship.” But the ECMC would have none of it in court. Lawyers claimed that the possibility that Jorgenson’s cancer could return to kill her did not diminish her capability to pay back her loans, according to The New York Times — “The mere possibility of recurrence is not enough,” one argued.
“Survival rates for younger patients tend to be higher,” said another. Victims suffering from pancreatic cancer have only a 19 percent chance of survival the first year following their diagnosis, which drops to a mere five percent in five years. Jorgensen was 42.
The ECMC maintained that Jorgensen was cured of her cancer after undergoing massive surgical procedures and four rounds of chemotherapy. Eventually, the Ninth Circuit Court discharged Jorgeson of most of her student loan debt.
“While the court’s decision was a success for the debtor, it points out the scrutiny a debtor goes through to prevail in discharging student loans,” wrote a North Carolina bankruptcy agency specializing in bankruptcy cases in a blog post. “In this case, despite cancer and a lifetime set back in income, the debtor was not allowed to discharge student loan debt equal to what was determined to be imprudent or unnecessary expenses.” (RELATED: Poll: Students fault colleges for burdening them with enormous loan debt)
Another woman, Karen Lynn Schaffer, 54, borrowed a student loan for her son. Both she and her husband Ronney worked fulltime jobs and made payments on time.
But Ronney Schaffer was soon diagnosed with a hat trick of ailments — liver cancer, Hepatitis C and diabetes. Left to care for her poor bedridden husband, Schaffer woke at 4 in the morning to tend to him, worked full time as a security guard and began charging her son for many expenses to ease the crushing burden of medical bills and debt.
Schaffer was by all accounts broke. Incredibly, the ECMC successfully argued that Schaffer did not qualify for undue hardship, since she dined out too much — their evidence based on a receipt from McDonald’s totaling $12, according to Schaffer, who said she was often “too darned tired” to fix dinner and she and her husband split a small value meal.
Schaffer’s forgiven debts would also be considered taxable income, her lawyer argued, putting an income-based payment plan — and a crushing tax bill for money Schaffer would never see — out of the question.
Federal ECMC agents even targeted a woman filing for bankruptcy charges unrelated to student loans. New Hampshire resident Barbara Hann repaid her $50,000 student loans in full, only to be dragged into a hearing ECMC did not bother to attend to learn the agency demanded she pay back her loans — again. Hann concluded her bankruptcy case in 2010 after proving she owed no more student loan debt.
Undeterred, the ECMC garnished her Social Security checks, disregarding evidence Hann provided in court that she had, in fact, repaid her loans. Hann was forced to go to court again to beat back the agency, but the ECMC appealed the case — twice — earning it a reprimand from a First Circuit Court judged who declared it abused the bankruptcy process.
The ECMC’s saber-rattling and ruthless treatment of cancer patients may serve to frighten other debtors from defaulting or negotiating reduced payments. Student loans comprise over 95 percent of consumer loans borrowed per year, totaling $1.2 trillion with over $1 trillion owed to the federal government. Increased rates of default could put the economy at risk.