Cohen, Grijalva, Takano Call for Scrutiny of Deal to Sell For-Profit College Campuses to Ruthless Student Debt Collector

Statement

Congressmen Steve Cohen (TN-09), Raul Grijalva (AZ-03), and Mark Takano (CA-41) today called on U.S. Secretary of Education Arne Duncan to closely scrutinize a proposal by Educational Credit Management Corporation (ECMC) to purchase a total of 56 campuses owned by defunct for-profit Corinthian Colleges Inc., which agreed to sell or close all of its campuses after failing to address concerns about its educational outcomes and recruiting practices. ECMC has no prior experience operating institutions of higher learning, but it does have a checkered history that includes using ruthless collection tactics against student loan debtors who should have reasonably qualified for bankruptcy relief.

"Any sale of Corinthian's campuses should be approved by the Department of Education only if it, unlike Corinthian's practices, puts students first," wrote the Congressman in a letter to Secretary Duncan today. "We are concerned that [ECMC has no] previous experience in operating an academic institution. Rather, the ECMC Group, as one of the largest student loan guaranty agencies in the United States, has benefited by collecting loan payments from students, sometimes using dubious tactics. Serious consideration should be given before transitioning management of Corinthian's campuses from one company that profited off deceptive lending practices to an umbrella company that also has a checkered history in student loans."

Congressman Cohen is also the lead sponsor of the Private Student Loan Bankruptcy Fairness Act of 2013 with Congressman Danny Davis (IL-07), which aims to restore fairness in student lending by treating privately issued student loans the same as other types of private debt in bankruptcy. In 2005, the law was unjustifiably changed to give private student loans the same privileged bankruptcy treatment as government loans, even though private student loans have vastly different terms and fewer consumer protections. The Congressman's bill would amend the Bankruptcy Code to restore the dischargeability of debt from private loans made by for-profit lenders, which was available before 2005.

"Congress taking action on student loan debt is long overdue," said Congressman Cohen when he introduced this legislation (H.R. 532). "People who seek higher education to better their futures should not be dissuaded from doing so by the threat of financial ruin. The bankruptcy system should work as a safety net that allows people to get the education they want with the assurance that, should their finances come under strain by layoffs, accidents, or other unforeseen life events, they will be protected. Our bill takes a modest but important step in achieving this goal."

Congressman Cohen has long opposed ECMC's use of aggressive tactics against students and middle class families. Earlier this year, he joined U.S. Senators Dick Durbin (D-IL), Jack Reed (D-RI) and Elizabeth Warren (D-MA) as well as U.S. Representatives John Conyers (D-MI), Elijah Cummings (D-MD), and Hank Johnson (D-GA) in urging Secretary Duncan to bring more fairness to struggling students by establishing clear standards of eligibility for "undue hardship" discharge of federal student loans in bankruptcy. Additional guidance would benefit the most vulnerable student loan debtors by bringing consistency to the manner in which the Department of Education's contractors like ECMC handle undue hardship claims. Such guidance would further enable the Department of Education to focus student loan collection efforts on cases where there is a more realistic opportunity for loan recovery.

"Federal law does provide that bankruptcy discharge is available for student loans in cases of undue hardship,' and while the courts have established a high legal standard for a debtor to show "undue hardship" there are some debtors who should be able to avail themselves of this option," wrote the Members at the time. "However, the path to an undue hardship discharge is often blocked by Department contractors, such as the Educational Credit Management Corporation (ECMC), which have a practice of aggressively challenging debtors' efforts to show undue hardship. While we recognize the Department's prerogative to fairly collect on student loan debts owed to it, we do not find it sensible or cost-effective for the Department or its contractors to engage in lengthy legal challenges and appeals against bankrupt student loan borrowers who have demonstrated a clear and legitimate inability to repay their loans."

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