In response to the COVID pandemic, the Department of Education allowed student-loan debtors to skip their monthly loan payments without penalty until September 30, 2021. That pause was recently extended to January 30, 2022.
Thanks to the Department’s forbearance, millions of college-loan borrowers are enjoying a respite from making loan payments, knowing that DOE will not charge interest and penalties during this grace period and that their wages will not be garnished due to nonpayment.
But guess what? Loan guaranty agencies continued garnishing the wages of student-loan borrowers despite the federal moratorium. According to the Student Borrower Protection Center, the guarantee agencies garnished $27.2 million in May 2021 and $12.9 million in June 2021.
Will student borrowers recover these lost wages? Probably. But it will probably take a long time. After all, the Department of Education didn’t forgive all student loans taken out by people who were defrauded by ITT Tech until five years after the for-profit college filed for bankruptcy.
The federal student loan program has enormous problems, and some of them will be difficult to fix. But surely, the Department of Education can require the loan guarantee agencies to abide by Department policy and the law.
But apparently, the guaranty agencies think they are above the law. In 2016, Educational Credit Management was assessed punitive damages for repeatedly garnishing the wages of a bankrupt student debtor in violation of the Bankruptcy Code.
In an earlier case, ECMC was sanctioned for violating the Bankruptcy Code by repeatedly trying to collect on a debt discharged in bankruptcy.
Perhaps, you might conclude, the guaranty agencies inadvertently violate the law because they don’t have the infrastructure necessary to keep track of their legal obligations. But that conclusion would be incorrect. According to a report issued by the New Century Foundation in 2016, Educational Credit Management, a nonprofit corporation, had more than $1 billion in nonrestricted assets.
Congress has a lot to do to clean up the student-loan mess, but it might start by holding hearings to examine the practices of the guaranty agencies. Congress might begin by asking why some of the guaranty agencies are so rich. It might also inquire into the agencies’ attorney fees to pursue distressed student-loan debtors into the bankruptcy courts.
Finally, Congress might determine how much the guaranty agencies are paying their senior management. More than ten years ago, Bloomberg reported that the current CEO of ECMC was making more than $1 million a year. What do you think the current CEO makes? My guess–somewhere in the high seven figures.