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Student Loan Law: 16.8.6.2.2 Student tuition recovery funds

Private student loan relief based on school misconduct may be available from state tuition recovery funds (STRFs), which are created and governed by state statutes.358 For example, if a school closes before a borrower is able to complete their education, the borrower may be eligible for partial or total relief on their private student loans depending on how the state law calculates relief. Relief may include refunds of payments made as well as the pay-off or cancellation of the outstanding balance.

Student Loan Law: 16.8.6.3.1 Terms of the Navient settlement

On January 13, 2022, thirty-nine state attorneys general announced that Navient, one of the nation’s largest originators of private student loans, will provide relief totaling approximately $1.71 billion to borrowers.362 The settlement will resolve allegations of Navient’s widespread abuses in its origination of predatory private student loans.

Student Loan Law: 16.9.2 Special Pleading Requirements; Limits on Default Judgments

A significant number of states have special pleading requirements for lawsuits seeking to collect consumer debt, and these should be applicable to collection lawsuits on private student loans. These pleading requirements are discussed in detail at NCLC’s Collection Actions.364 Note that some of these pleading requirements only apply where the plaintiff is a debt buyer.

Student Loan Law: 16.9.3 Infancy and Other Contract Defenses

Infancy is not available as a contract defense to federal student loan borrowers, but it is available for private student loans. The affirmative defense of infancy is well entrenched in the American legal system, but legislative actions by states have created exceptions that limit the availability and efficacy of the defense. In general, if a contract is signed by a minor, the minor can disaffirm the contract. However, an adult co-signer may continue to be liable on the contract.

Student Loan Law: 16.9.4.4 Computing the Limitations Period

When the applicable state’s limitations period has been identified, the next issue is computing whether the limitations period has expired, when the limitations period starts running, and whether the period has been tolled or revived. Although courts use varying terminology, the term “tolling” means the suspension of the running of the statute of limitations period, while “reviving” means restarting the running of the limitations period at zero days.

Student Loan Law: 16.9.5 Defenses for Servicemembers

The Servicemember Civil Relief Act (SCRA) limits collection tactics and enforcement of claims against active duty military personnel.432 In general, everyone on active duty is entitled to the benefit of the SCRA, whether or not they are stationed in a war zone and whether they enlisted or were called up. Active duty includes full-time training duty, annual training duty, and attendance at a military school while in active military service.433

Student Loan Law: 16.9.6.1 Generally

The plaintiffs in private student loan collection actions are not typically the original lenders, such as financial institutions or for-profit schools. The loans at issue have often been transferred, sometimes multiple times, to one or more other entities before the ownership of the loan is transferred to the plaintiff in a collection action.

Student Loan Law: 16.9.6.2 Business Entities Barred by State Law from Serving As Plaintiffs

State law may provide a basis to challenge a plaintiff’s right to serve as a named plaintiff in the state’s courts. With respect to trusts, some states, including Georgia and Louisiana, require that trustees, rather than the trusts themselves, serve as plaintiffs.442 Nevertheless, courts in both states have found that this does not apply to actions brought by a National Collegiate Student Loan Trust.

Student Loan Law: 16.9.6.5 Loan Holder As Real Party in Interest

To obtain a judgment, the plaintiff must establish that it is the real party in interest and has standing to sue.456 In other words, the plaintiff must show that it is the owner of the note or has the authority to sue on the actual owner’s behalf. Typically, state civil procedure rules require that actions be brought in the name of the real party in interest if standing to sue is to be conferred.457

Student Loan Law: 7.4.3.1 Generally

The rehabilitation process for FFEL Program loans and Direct Loans takes approximately a year from the borrower’s initial request for rehabilitation to the removal of the loan from default status—and the removal of the default notation from credit reports. Rules governing rehabilitation of Perkins Loans differ slightly and are addressed in § 7.4.5, infra.

Student Loan Law: 7.4.3.4 Requirement That Rehabilitation Payments Be Voluntary

The payments made under the rehabilitation agreement must be “voluntary.” This requirement excludes involuntary payments collected from the borrower by federal offset, garnishment, income or asset execution, or after a judgment has been entered on a loan.179 Garnishment or other involuntary payments will not count toward the nine required rehabilitation payments.180

Student Loan Law: 9.4.2.4.1 Overview of defenses and objections

The regulations allow borrowers to raise objections to garnishment concerning the existence, amount, or current enforceability of the debt,145 the rate of garnishment, and whether the borrower has been continuously employed less than twelve months after involuntary separation from employment.146 Borrowers may also raise eligibility for the statutory discharges, such as closed school and total and permanent disability.147 The borrower may also

Student Loan Law: 9.3.3 Grounds to Contest a Tax Offset

Borrowers may request review regarding the existence, amount, enforceability, or past-due status of the debt.38

While many borrowers report frustration in raising even the most meritorious defenses to a tax offset, the Department states that it will consider the following types of defenses:39

Student Loan Law: 9.3.2 Notice Requirements

The Secretary of Education can refer a debt for offset only after complying with certain procedures.32 The Secretary must mail to the borrower a written notice of the Secretary’s intent to seek the tax offset, using the borrower’s current address, as determined from the guaranty agency or Department records.33 The notice informs the borrower of the intent to refer a past-due debt to the Secretary of the Treasury for offset and provides the borrower with the opportunity to inspect and copy th

Collection Actions: 10.2.13.2 Department of Education: Student Loans

One of the most pervasive debt collection programs run by the federal government involves student loans. Through the last several decades, Congress has kept increasing the Department of Education’s arsenal of collection tools to deal with delinquent federal student loans. Department of Education student loan collection efforts are analyzed in detail in NCLC’s Student Loan Law.274

Student Loan Law: 7.4.2 Eligibility for Rehabilitation

Borrowers are limited to only one rehabilitation per loan.130 There is an exception for borrowers who rehabilitate their loans during the student loan payment pause—those borrowers will be able to rehabilitate their loans again if they default in the future.131 The one rehabilitation limit applies to loans rehabilitated on or after August 14, 2008, and applies only if the loan returns to default status following the rehabilitation.132