ED CENTRAL: Student Loan Bankruptcy Servicer Seeks Its Own Special Bankruptcy Exemption
Career College Central Summary:
The proposed sale between troubled Corinthian Colleges and the Education Credit Management Corporation (ECMC), a student loan debt collection agency, is full of sad ironies. Here’s a company that makes its money by collecting on defaulted student loans buying most of a college chain that produces about 20,000 defaulters a year. Meanwhile, the Education Department is getting Corinthian to only forgive as much student loan debt as a bunch of Occupy Wall Street folks already did on their own this year.
Now we have another twist—a company whose special role involves fighting student loan borrowers tooth and nail from discharging their loans in bankruptcy is asking Congress for special treatment in Chapter 11.
According to multiple sources, ECMC is asking Congress to make a special change to the rules that govern a college’s eligibility for federal student aid once it declares bankruptcy. Under current law, a bankrupt college is no longer considered to be an institution of higher education, a change that immediately triggers its loss of federal student aid. While we do not know exactly why ECMC is pursuing this exemption for Corinthian, it presumably would help the sale still go through if Corinthian cannot stay solvent until the deal closes. It also might stop creditors from going after Corinthian and further insulate ECMC from the troubled for-profit college chain.
Denying bankrupt colleges access to federal student aid makes a lot of sense. An institution in this situation is extremely fragile financially, increasing the risk that further aid dollars could get wasted or that students will take on debt at a campus that is likely closing. In fact, a fair case can be made that these financial viability considerations are the only real form of accountability in higher education, since monetary problems, not educational issues, are almost always the cause of colleges losing accreditation and closing.
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