Doug Plummer, Key 2 Recovery CEO
Doug Plummer, Key 2 Recovery CEO
Doug Plummer, Key 2 Recovery CEO
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This presentation should be construed as an
overview of the issues discussed and not as
legal advice to anyone attending this
presentation or reading the accompanying
handout. Specific legal questions regarding
these concepts and their application to any
institution of higher education should be
directed to the institution’s legal counsel.
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Top Ten Ways to Leave Money on the Table
◦ Amnesty Programs & Extended Letter Campaigns
◦ Agency Fees not in Sync with Collectability
◦ Poor Documentation/Validation
◦ No Student Signatures
◦ No Threat of Litigation
◦ Not Assessing Collection Costs
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Top Ten Ways to Leave Money on the Table
◦ Long Retention Periods or No Recall at All
◦ Too Many Agencies / Not Enough Agencies
◦ Shelving Accounts
◦ No Settlement or Waiver Auth on A/R Balances
◦ Circumventing the Agency/Debtor Negotiation
◦ Agency Creaming
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Portfolio Make-Up and Construction
◦ Work Effort, Data, Size, Type and Criteria
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Fee Rates
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Collection Costs
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Waiver Protocols
 What’s
Really Happening
 Have a Plan
 Communicate the Plan
Provide Incentives
Champion Challenger
 Be
Consistent
 Gauge the Performance
Over Time & Against Your Plan
 Be
Careful of the Reports
Create Your Own Reports Also
 Watch
the Numbers
Administrative Closures
Bankruptcies
Deceased
Cancellations
Deferment/Forb.
Closed Accounts Per Clients Request
Adjustments & Waivers
 Netback
Dollars are Key
 Speed
of Placement/Activity
 Letter Series
 Looming Litigation
 Pay Attention to the PPA
 Inbound Calls
 Documentation Requests
 Collector Incentives
House Accounts
Adjustments in PPA
 Collection
& Company Philosophy
 Client Communication
 Reporting & Placement Flexibility
 Service & Attention
 Complimentary Correspondence
11 U.S.C. § 523(a)(8)
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(a) A discharge under … this title does not
discharge an individual debtor from any debt—
(8) unless excepting such debt from discharge under
this paragraph would impose an undue hardship on
the debtor and the debtor’s dependents, for
(A)(i) an educational benefit overpayment or loan
made, insured, or guaranteed by a governmental unit,
or made under any program funded in whole or in
part by a governmental unit or a nonprofit institution;
or
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(A)(ii) an obligation to repay funds received
as an educational benefit, scholarship, or stipend; or
(B) any other educational loan that is a qualified
education loan, as defined in section 221(d)(1) of the
Internal Revenue Code of 1986, incurred by a debtor
who is an individual.‖
Note the term ―qualified education loan‖ as defined
under federal law and whether this definition will
clear some of the current questions in our industry
about what type of debt is discharged.
Internal Revenue Code § 221(d)(2)
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Qualified higher education expense is defined
to mean:
◦ the cost of attendance (as defined in section 472 of
the Higher Education Act of 1965 as in effect on the
day before the date of enactment of this Act) as an
eligible educational institution…
Section 472 of the HEA 20 U.S.C. 1087ll
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Cost of Attendance =
Tuition/Fees normally assessed a student including
materials and equipment for students in the same course
of study.
Books/Supplies/Misc. Personal Expenses
Room & Board
The statute should be reviewed for the context of each
item listed above.
This definition is broader than the current interpretation.
Things such as room & board were historically challenged,
but are not clearly protected from discharge – assuming
the school’s debt qualifies as a ―loan.
Federal Debt vs. Institutional Debt
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What does the case law say about institutional debt?:
◦ Chambers, 348 F.3d 650 (7th Cir. 2003)
◦ Mehta, 310 F.3d 308 (3rd Cir. 2002)
◦ Renshaw, 222 F.3d 82 (2nd Cir. 2000)
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Basically – Funds need to have changed hands or there should be
a signed agreement whereby the school provides services and
allows for payment for those services at a later date.
The only way out
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When you are holding a non-dischargeable
student loan, the only way for the debtor to have
that debt discharged is to petition the court for
an adversary hearing and then to receive from a
judge a finding of ―undue hardship.
There is the possibility for a partial discharge
based on case law, but this is the minority rule
and appears to be a judicially created remedy.
Undue Hardship
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The Majority Test – See Brunner v. New York State Higher
Educ. Services Corp., 831 F.2d 395 (2d Cir. 1987).
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Three elements must be proven by a preponderance of the
evidence.
◦ Based on current income and expenses the debtor cannot
maintain a minimal standard of living.
◦ This situation is likely to persist for the duration of the repayment
period.
◦ A good faith effort has been made to repay the loans.
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Often you will see an intervening circumstance that has
dramatically affected the debtor’s earning potential.
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Confirm a bankruptcy was actually filed
◦ Case #, filing date, and attorney name
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Education loans generally non-dischargeable
Proof of Claim
Review Chapter 13 plans and object if the
plan discharges the education-related debt.
Undue hardship exception filed through an
adversary proceeding.
Release of transcript or registration.
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Statute of Limitations
◦ 6 years vs. 3 years
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Collection Cost
◦ Common Misconceptions
 Collection costs = the amount of the agency fees
 The federal regulations allow for collection costs on Perkins
loans so it is okay to set up institutional debt the same way
 Agreements have to be promissory notes
 Notifying the student in collection letters that a fee will be
added if the account is sent to an agency is sufficient
 There is a “right” to be “made whole” on institutional debt
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The Fair Debt Collection Practices Act states that it is
a violation to collect any amount that is not
“expressly authorized by the agreement creating the
debt or permitted by law.” See 15 U.S.C. 1692f.
Further, state consumer protection statutes and
unfair trade practices statutes may implicate creditors
(schools) that are not compliant with state
requirements regarding the addition of student paid
fees.
Agencies and Schools should demand compliance in
the contracts that govern their relationships.