3 Outrageous Tales of Bankruptcy Nightmares Over Student Loan Forgiveness
January 16, 2014

Getting your student loans forgiven in bankruptcy can be a challenge, but it is possible. There are legal standards that have been established so that debt-ridden and cash-strapped borrowers can receive partial or total discharge of federal and private student loans. But some lenders and organizations are playing dirty with debtors to block legitimate bankruptcy claims. Here are some of the examples of shady tactics being employed:

#1 Harassing Cancer Patients

Stacy Jorgensen owed $43,000 when she developed pancreatic cancer. She survived the first bout but was then saddled with high medical bills. Not only that, the five year survival rate of the disease is only 5%. Education Credit Management Corporation (ECMC) works for the Department of Education and is tasked with fighting student loan bankruptcy claims. ECMC said, “the possibility of recurrence is not enough” despite the startlingly high odds she would fall ill again. The court took the debtor’s side and crushed the debt despite ECMC’s frivolous objections.  

#2 Pushing for Unreasonable Payments

By her late 40s, Cynthia R. Mathieu saw her $20,000 student loan balance grow to $140,000. She couldn’t make payments owing to her limited ability to work while she cared for her son who was born with severe learning disabilities and was then stricken with leukemia. She had no assets and her son’s care continued to absorb any disposable income she accumulated. ECMC proposed she make monthly payments of $340 until age 72, when she would be eligible for forgiven of the accrued $940,000 balance. The tax impact would be as great as the loan balance. The judge forgave her loans when confronted with this preposterous suggestion by ECMC.

#3 Pursuing Collections on Loans That Were Paid Off

Law school grad Barbara Hann took out $22,500 in Stafford loans for college but paid them off. She then struggled to get acknowledgment from her lender that her debts were cleared. Owing to other financial difficulties, she filed for Chapter 13 bankruptcy in 2004. ECMC then stepped in and filed a claim for $55,000 in what it said were unpaid student loans. She objected, they produced no documentation and the bankruptcy court sided with her. After her bankruptcy case ended in 2010, ECMC resumed collection efforts, forcing her back to the bankruptcy court for justice. This time, the court slapped ECMC with a bill for her legal costs and censure for their conduct. 

Even for those debtors that clearly meet the requirements for discharge of student loans in bankruptcy, ECMC pushes to keep cash-strapped consumers in debt and to worsen their circumstances beyond any hope for resolution. Where is the justice? When will Congress step in and make the process saner for those that desperately need relief and have made a good-faith effort to pay their student loans? 

For those dealing with college debt, Tuition.io offers a free student loan management tool to help you track and optimize your debt to get it paid down faster. Also enjoy our blog, which is loaded with student loan news and tips for borrowing less and strategies to repay loans faster.