Welcome

Doug Plummer, Key 2 Recovery CEO

Gird Your Loins for Receivables Battle

Doug Plummer, Key 2 Recovery CEO

Gird Your Loins for Receivables Battle

Doug Plummer, Key 2 Recovery CEO

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.

Disclaimer

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

The Helmet of Wisdom

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

The Helmet of Wisdom (2)

Portfolio Make-Up and Construction◦ Work Effort, Data, Size, Type and Criteria

Fee Rates

Collection Costs

Waiver Protocols

Sword of the Agency

What’s Really HappeningHave a PlanCommunicate the Plan

Provide IncentivesChampion Challenger

Be ConsistentGauge the Performance

Over Time & Against Your Plan

Performance Measurements

Be Careful of the ReportsCreate Your Own Reports Also

Watch the NumbersAdministrative Closures

Bankruptcies DeceasedCancellations Deferment/Forb.Closed Accounts Per Clients Request

Adjustments & WaiversNetback Dollars are Key

Performance Measurements Cont.

Speed of Placement/ActivityLetter SeriesLooming LitigationPay Attention to the PPA Inbound CallsDocumentation RequestsCollector Incentives

House AccountsAdjustments in PPA

Other Factors

Collection & Company PhilosophyClient CommunicationReporting & Placement FlexibilityService & AttentionComplimentary Correspondence

What’s Really Important

11 U.S.C. § 523(a)(8)

(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

Breastplate of Bankruptcy

(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.

Breastplate of Bankruptcy

Internal Revenue Code § 221(d)(2)

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…

Breastplate of Bankruptcy

Section 472 of the HEA 20 U.S.C. 1087ll

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.

Breastplate of Bankruptcy

Federal Debt vs. Institutional Debt

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)

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.

Breastplate of Bankruptcy

The only way out

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.

Breastplate of Bankruptcy

Undue Hardship

The Majority Test – See Brunner v. New York State Higher Educ. Services Corp., 831 F.2d 395 (2d Cir. 1987).

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.

Often you will see an intervening circumstance that has dramatically affected the debtor’s earning potential.

Breastplate of Bankruptcy

Confirm a bankruptcy was actually filed◦ Case #, filing date, and attorney name

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.

I’ve filed for bankruptcy!

Statute of Limitations◦ 6 years vs. 3 years

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

Shield of Compliance

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.

Why should we be sure?

Questions & Thank You