Debt Forgiveness: A Christmas Jubilee Opportunity

There are two kinds of indebtedness that are at best semi-voluntary:  medical bills and educational loans.  To receive the service or benefit, often results in debt.

Debt forgiveness is vital anytime, but at Christmas, especially welcome.

As significant issuers of consumer loans, credit unions know the benefits and the burden of debt.

The example of Canvas Credit Union’s forgiving a member’s debt recorded the highest number of views of any post written this year.

Biden’s proposal to eliminate $10,000 or $20,000 student debt is a political and legal hot button.  It is an ongoing, front page debate between the parties.

What is much less visible is medical bill cancellation. Following are two examples of organizations which have facilitated medical debt relief.  They show how a small donation can be leveraged into a very high impact on consumers and communities.

Churches Initiate Relief

The first article is an edited version of church congregations leading this effort from a  December 15 story from Presbyterian Outlook.

“Nearly 15,000 people facing crippling medical debt will receive an early Christmas present this year thanks to congregations in the Synod of Mid-America and in neighboring states.

“Congregations in Kansas, Missouri and southwestern Illinois raised almost $58,000 as part of Project Jubilee during a coordinated effort to buy $13.3 million in medical debt held by low-income people in five states. Churches and mid councils partnered with RIP Medical Debt, a national nonprofit that to date has eliminated nearly $7.4 billion in medical debt held by low-income individuals.

“RIP Medical Debt used the money raised through Project Jubilee to purchase past due, unpayable medical debt on the open debt collection market at a substantial discount. The Project Jubilee campaign also opted to extend its reach to acquire medical debt portfolios in Kentucky and Tennessee, in addition to the participating congregations’ three home states.

“The 14,815 people benefitting from Project Jubilee are receiving letters this month informing them their medical debt has been forgiven in full. Medical debt abolishment is source-based and therefore cannot be requested. RIP purchases and abolishes medical debt for people who are four times or below the federal poverty level or have a medical debt that is 5% or more of their gross annual income.”

Local Governments Step Up

The non-profit journalism site Next City, describes examples of local governments meeting this need and the critical role of the 501C3 nonprofit RIP Medical.

“Toledo City Council just approved a plan to turn $1.6 million in public dollars into as much as $240 million in economic stimulus, targeted at some of the Ohio metro’s most vulnerable residents.

“It’s really going to help people put food on the table, help them pay their rent, help them pay their utilities,” says Toledo City Council Member Michele Grim, who led the way for the measure. “Hopefully we can prevent some evictions.”

“The strategy couldn’t be simpler: It works by canceling millions in medical debt.

“Working with the New York City-based nonprofit RIP Medical Debt, the City of Toledo and the surrounding Lucas County are chipping in $800,000 each out of their federal COVID-19 recovery funds from the American Rescue Plan Act. The combined $1.6 million in funding is enough for RIP Medical Debt to acquire and cancel up to $240 million in medical debt owed by Lucas County households that earn up to 400% of the federal poverty line.

“It could be more than a one-to-100 return on investment of government dollars,” Grim says. “I really can’t think of a more simple program for economic recovery or a better way of using American Rescue Plan dollars, because it’s supposed to rescue Americans.”

“Under the RIP Medical Debt model, there is no application process to cancel medical debt. The nonprofit negotiates directly with local hospitals or hospital systems one-by-one, purchasing portfolios of debt owed by eligible households and canceling the entire portfolio en masse.

“One day someone will get a letter saying your debt’s been canceled,” Grim says. It’s a simple strategy for economic welfare and recovery.

“RIP Medical Debt was founded in 2014 by a pair of former debt collection agents. Since inception it has acquired and canceled more than $7.4 billion in medical debt owed by 4.2 million households — an average of $1,737 per household.

The Medical Debt Burden

“An estimated one in five households across the U.S. have some amount of medical debt, and they are disproportionately Black and Latino, according to the U.S. Census Bureau. The average amount owed is $2,000. And the problem isn’t limited to the uninsured. Many households with health insurance still end up with unpaid medical bills because the only health insurance plans affordable to them are high-deductible plans.

“Acquiring medical debt is relatively cheap: hospitals that sell medical debt portfolios do so for just pennies on the dollar, usually to investors on the secondary market. The purchase price is so low because hospitals and debt buyers alike know that medical debt is the hardest form to collect. Nearly 60% of all debt held by collection agencies is medical debt owed by some 43 million households, according to the Consumer Financial Protection Bureau.

“Two years ago, RIP Medical Debt started going directly to hospital systems and offering to buy the debt that they were holding on their balance sheets.

“I couldn’t tell you where it comes from, but generally the number that’s out there is that only somewhere between 20% and 30% of hospitals overall sell their debt,” RIP’s CEO says. “That’s a lot of hospitals that don’t sell their debt on the secondary market, but those same hospitals will sell their debt to us because we’re doing it for a different purpose. So we’ve been able to open up part of the market to buy debt from hospitals that don’t otherwise sell their debt.”

“Today nearly 50% of the debt the nonprofit has canceled was acquired directly from hospitals, and that segment of its portfolio is growing much faster than medical debt purchased from the secondary market.

The process is straightforward. After explaining RIP Medical Debt and its mission, they answer any questions including about reimbursement or regulatory issues, Sesso says. “And then we take it from there. We sign a non-disclosure agreement, we get a file from them, we analyze it, we come back to them and tell them what the analysis has shown, how much of it qualifies, what we would pay, and then we sign another agreement that transfers the debt to us, we send them a wire, and we start sending out letters.”

“Just like that, hundreds of lives are changed.

“Under IRS regulations, debts canceled under RIP Medical Debt’s model do not count as taxable income for households.”  End

Cancelling Debt: A Jubilee Initiative and Coop Benefit

As credit unions consider yearend bonus dividends, employee gain-share payouts and community donations, RIP is one of the most effective and consequential debt relief programs I have seen.

The nonprofit would be the perfect partner for all consumers carrying medical debt in a credit union’s market area.  It is the ideal compliment to the lending side of the business.

Or imitate Canvas Credit Union.   A cooperative could review its own portfolio of loans for medical expenses, look at each members’ circumstances and initiate its own debt forgiveness program.