ECMC buys Corinthian Colleges

Last week, Corinthian Colleges, a for-profit higher education company, announced the controversial sale of 56 campuses to one of the Department of Education’s largest loan guarantors and debt collectors, Educational Credit Management Corporation.[1] Earlier this year Corinthian nearly went bankrupt and the Department of Education decided it was too big to fail. Through emergency aid worth $35 million, the Department of Education saved Corinthian from financial collapse. In exchange, Corinthian agreed to sell or close the 97 campuses in an orderly manner.[2]

Before the collapse Corinthian was a troubled company that was under investigation by nearly half the states and multiple federal agencies.[3] [4]  California’s attorney general, in a news release announcing the suit, described the business model as a “predatory scheme devised by executives at Corinthian Colleges, Inc.,” which is “[d]esigned to rake in profits and mislead investors,” and target “some of our state’s most particularly vulnerable people — including low income, single mothers and veterans returning from combat.”[5]

Unfortunately, the company purchasing 56 Corinthian campuses, ECMC, is no saint itself. The NY Times reported accusations that the guarantor engaged in “ruthless” collection tactics[6]  and Bloomberg reported criticism that the collection agency is “reaping a bonanza from former students’ pain.”[7] See below for the complete “rap sheet” on ECMC.

ECMC “Rap” Sheet

ECMC reaps huge profits from student debt.

  • Bloomberg reported criticism that the company earns a “bonanza from students’ pain.” Debt collector bonuses were as much as $454,000[8] and executive bonuses frequently topped base-salary.[9] ECMC was forced to change its incentive policy to make a $150,000 bonus hard to exceed.[10]
  • Bloomberg found the organization can receive as much as 37% of a borrower’s student loan and typically collects 31%.

ECMC “Ruthless Tactics” collecting student debt. [11]  

  • ECMC told a cancer patient, “the possibility of recurrence is not enough,”[12] despite the slim chance to repay her student debt, faced with growing medical bills and a condition with a low 5% survival rate. [13]
  • ECMC argued a borrower was spending too much money “dining out” in reference to a $12 meal at McDonald’s.
  • ECMC garnished the wages of bankrupt borrower who had already repaid her student debt. Barbara Hann provided evidence that she had already paid her student loans in full, but ECMC disputed this claim, despite not attending her bankruptcy hearing. After her bankruptcy case ended, ECMC garnished her Social Security to repay the loan she had already paid off.

ECMC’s uses “bulldog tactics” to scare away borrowers seeking relief.

  • A 10-year review of the student loan bankruptcy appeals landscape found ECMC is the creditor in 68% of adversary proceedings against debtors who filed for bankruptcy. [14]
  • Law Professor Rafael Pardo estimates that the company oversteps into dubious legal terrain in dozens of cases per year.[15]  He told reporters, “[w]e should be outraged when a student-loan creditor like ECMC can use bulldog tactics to scare away someone who has a legitimate claim for relief.”[16]

Congress says ECMC’s methods are aggressive and insensible.

  • Members of Congress have accused ECMC of “aggressively challenging debtors’ efforts to show undue hardship.”[17] Congress found ECMC’s lengthy legal challenges and appeals against bankrupt student borrowers insensible.[18]

Judges say ECMC wastes government resources.

  • A U.S. Bankruptcy Appellate Panel found “ECMC’s legal theory unsound” and a “waste of judicial resources.” The Panel concluded “ECMC’s continued collection activities…constituted an abuse of the bankruptcy process and defiance of the court’s authority….”[19]

ECMC is sloppy with data and accused of anti-competitive behavior.

  • A data breach at ECMC led to the theft of 3.3 million social security numbers, adversely affecting as many as 5% of all federal student-loan borrowers at the time.[20]

[1] http://online.wsj.com/articles/corinthian-colleges-to-sell-campuses-to-zenith-education-1416496244

[2] http://consumerist.com/2014/07/07/corinthian-colleges-to-sell-off-85-campuses-close-12-others/

[3] http://investors.cci.edu/secfiling.cfm?filingID=1104659-14-50216&CIK=1066134

[4] http://www.huffingtonpost.com/2014/11/20/corinthian-ecmc-for-profit-colleges_n_6195354.html

[5] http://oag.ca.gov/news/press-releases/attorney-general-kamala-d-harris-files-suit-alleged-profit-college-predatory

[6] http://nyti.ms/KlmOGK

[7] http://bloom.bg/JPxsSK

[8] http://www.bloomberg.com/news/2012-05-15/taxpayers-fund-454-000-pay-for-collector-chasing-student-loans.html

[9] ECMC Group FY2012 Form 990

[10] http://www.bloomberg.com/news/2012-05-15/taxpayers-fund-454-000-pay-for-collector-chasing-student-loans.html

[11] http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html

[12] http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html

[13] https://www.tuition.io/blog/2014/01/3-outrageous-tales-of-bankruptcy-nightmares-over-student-loan-forgiveness/

[14] http://law.emory.edu/ebdj/content/volume-30/issue-1/comments/student-loan-discharge.html

[15] http://www.nytimes.com/2014/01/02/us/loan-monitor-is-accused-of-ruthless-tactics-on-student-debt.html?_r=0

[16] http://www.nacba.org/News/tabid/89/ID/633/Loan-Monitor-Is-Accused-of-Ruthless-Tactics-on-Student-Debt.aspx

[17] http://democrats.judiciary.house.gov/press-release/conyers-members-congress-urge-education-secretary-bring-more-fairness-struggling

[18] http://democrats.judiciary.house.gov/press-release/conyers-members-congress-urge-education-secretary-bring-more-fairness-struggling

[19] http://media.bap1.uscourts.gov/cgi-bin/bpgetopn.pl?OPINION=11-084P

[20] http://online.wsj.com/news/articles/SB10001424052702304434404575150024174102954?mod=WSJ_hpp_MIDDLENexttoWhatsNewsForth&mg=reno64-wsj&url=http%3A%2F%2Fonline.wsj.com%2Farticle%2FSB10001424052702304434404575150024174102954.html%3Fmod%3DWSJ_hpp_MIDDLENexttoWhatsNewsForth

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