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Organization under scrutiny for harsh tactics on student debt

A young woman who had taken out substantial student loans was suddenly diagnosed with pancreatic cancer. She survived the potentially fatal disease and was recovering when medical bills and past-due loan payments began to pile up, causing the young woman to attempt to seek bankruptcy relief. This is difficult to do, since student loans are typically not forgiven through bankruptcy unless undue hardship is shown. It is so difficult that only a few hundred people even attempt to seek relief from student loans this way each year.

When one declares bankruptcy and asks for consideration of undue hardship to have certain types of debt forgiven, a nonprofit organization with an exclusive government contract reviews the matter.

In this case, a lawyer representing the nonprofit said that because survival rates for pancreatic cancer were better for younger patients, undue hardship had not been shown. The reasoning presumably included the assumption that if the patient did not experience a recurrence of her cancer or did not die from the disease that she should be capable of paying back her student debt at some point.

This reasoning while technically logical does not take into account the extreme hardship of managing medical bills on top of other debt while a serious disease prevented the individual from working for a period of time. If that does not constitute an “undue hardship” worthy of an exception to the rule it is hard to imagine what does.

The nonprofit organization is now under scrutiny for this type of tactic and others that watchdogs believe are too harsh and ruthless for borrowers who need relief from student debt.

Source: New York Times, “Loan Monitor is Accused of Ruthless Tactics on Student Debt,” Natalie Kitroeff, Jan. 1, 2014.   

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