In 1991, Vicky Jo Metz borrowed $16,613 to pay for tuition; now she’s 59, and has paid back 90% of that money — and she still owes $67,277.
Metz is broke and has filed for bankruptcy. But thanks to a law signed by Bill Clinton, it’s almost impossible to discharge your student debt through bankruptcy. That’s why the US government sent their most notorious knuckle-breaking debt-collectors, the Educational Credit Management Corporation to argue against Metz’s debt being forgiven.
ECMC had a counteroffer: Metz could pay $203 per month for 25 years — until she was 84 years old — and then, the remaining debt (which would have ballooned to $152,277.88, 900% of her principal) would be forgiven.
The judge pointed out that Metz would be a formerly bankrupt person living on Social Security by then, and would be liable for taxes on the $152,277.88 in “debt forgiveness” that ECMC was generously extending to her.
The proposal was completely ordinary: ECMC makes this kind of deal for Americans all the time.
What was out of the ordinary was judge Robert E. Nugent’s response: he told them to pound sand. Instead, he ordered Metz to pay back the $16,613 she still owes on her principal and then have done with it.
As Richard Fossey writes, this highly unusual ruling is a breath of fresh air in the world of predatory government student debt-collection.
Vicky Jo Metz’s case is important for two reasons. First, Judge Nugent rejected ECMC’s argument, which it has made hundreds of times, that a distressed student-loan debtor should be forced into an income-based repayment plan as an alternative to bankruptcy relief. As Judge Nugent pointed out, an IBRP makes no sense at all when the debtor is older and the accumulated debt is already many times larger than the original amount borrowed.
Indeed ECMC’s argument is either insane or sociopathic. Why put a 59-year old woman in a 25-year repayment plan with payments so low that the debt grows with each passing month?
Second, the Metz case is important because it is the second ruling by a a Kansas bankruptcy judge that has canceled accrued interest on student-loan debt. In Murray v. ECMC, decided in 2016, Alan and Catherine Murray, a married couple in their late forties, filed for bankruptcy in an effort to discharge $311,000 in student loans and accumulated interest.
The Murrays took out a total of $77,000 in student loans back in the 1990s, and they made monthly payments totally 70 percent of what they borrowed. But, much like Vicky Jo Metz, the Murrays saw their student-loan debt grow larger and larger over the years until their debt totaled $311,000–four times what they borrowed.
Fortunately for the Murrays, Judge Dale Somers, a Kansas bankruptcy judge, granted them a partial discharge of their massive debt. Judge Somers ruled that the Murrays had managed their student loans in good faith, but they would never be able to pay back the $311,000 they owed. Very sensibly, he reduced their debt to $77,000, which is the amount they borrowed, and canceled all the accumulated interest.
Good News out of Kansas: A compassionate bankruptcy judge grants a 59-year-old debtor a partial discharge of her student loans [Richard Fossey/Condemned to Debt]
(via Naked Capitalism)