Skip to main content

Search

Student Loan Law: 18.2.2.4 Special Issues Involving Collection of Federal Student Loans

The FDCPA exception for “any officer or employee of the United States or any State”20 does not apply to collectors hired by the Department or a state, as the collector is not a governmental employee, but a private party contracting with a governmental entity.21 On the other hand, questions arise as to the FDCPA applicability because the HEA sets out certain collection standards in its due diligence collection rules.

Student Loan Law: 7.4.1 Introduction

A borrower can renew eligibility for new loans and grants and cure the loan default by “rehabilitating” the defaulted loan. To rehabilitate a Direct Loan or an FFEL Program loan, the borrower must make nine voluntary, reasonable, and affordable monthly payments—in amounts determined with the Default Resolution Group (DRG)120 or the collection agency—within twenty days of the due date during a period of ten consecutive months.

Student Loan Law: 9.3.5 The Review Process

A request for administrative review of an offset should be directed to the Department of Education, as it is the creditor agency. The IRS takes the position that there is no right to an administrative review of a tax intercept within the IRS.65

Student Loan Law: 9.4.1 Introduction

Both the Higher Education Act (HEA) and the Debt Collection Improvement Act (DCIA) of 1996 authorize administrative wage garnishment.106 Prior to 1996, the Department of Education (the Department) was the only federal agency with this authority. However, the enactment of the DCIA in 1996 extended this right to other federal agencies collecting debts owed to those agencies.107

Student Loan Law: 9.5.3.1 Notice and Hearing Rights

The offset process is managed by the Bureau of the Fiscal Service (BFS)340 of the Department of Treasury. Before referring a student loan debt to BFS for collection, the Department of Education is required to provide the debtor with a notice of intent to offset and an opportunity to review the basis for the debt.341 Guaranty agencies holding FFEL Program loans lack the authority to refer debts to the Treasury Offset Program.

Student Loan Law: 2.11 Master Promissory Notes

Master Promissory Notes (MPNs) allow borrowers to receive loans for a single period of enrollment or multiple periods of enrollment.271 If a school is not authorized for multi-year use of the MPN, a student or parent borrower must sign a new MPN for each academic year. Borrowers may receive more than one loan under each MPN over a period of ten years, as long as the school is authorized to make multiple loans and chooses to do so. Borrowers may elect not to receive more than one loan under an MPN.

Student Loan Law: 17.3.1 Brief History

Attracted by the financing provided by government student loan and grant programs, many predatory schools have exploited federally funded student assistance programs. Unfair and deceptive for-profit school practices are a tremendous source of frustration, financial harm, and loss of opportunity for consumers, particularly low-income students hoping to break out of poverty.

Student Loan Law: 5.5.1 Introduction

There are few laws specifically governing student loan servicer conduct. As described at § 5.4, supra, there are basic due diligence requirements in the FFEL and Perkins Loan regulations.

Student Loan Law: 5.6.1 Introduction

As discussed in § 5.3, supra, federal student loan servicers frequently misrepresent borrower options, misapply payments, fail to fully or accurately track payment histories or relevant qualifying payments for forgiveness programs, fail to timely process applications for loan relief options or consolidation, fail to respond to complaints or other inquiries, or otherwise engage in unfair or deceptive prac

Student Loan Law: 18.3.3.2 UDAP Claims

Every state has a statute broadly prohibiting deceptive practices and most states also prohibit unfair practices. These are generally referred to as unfair and deceptive acts and practices (UDAP) statutes. Every state provides a private UDAP remedy for actual damages. Most states also provide for attorney fees to the prevailing consumer, and in some cases statutory, multiple, or punitive damages. A state-by-state summary of all UDAP statutes is found at NCLC’s Unfair and Deceptive Acts and Practices.251

Student Loan Law: 18.2.7 Other Federal Claims

Two federal provisions apply to debt collectors that submit inaccurate information to consumer reporting agencies. The FDCPA makes it a per se violation for a debt collector to report to any person—including a consumer reporting agency—“credit information which is known or should be known to be false, including the failure to communicate that a disputed debt is disputed.”192

Student Loan Law: 18.3.1 Servicing Abuses Described

Regardless of whether a student loan is a Federal Direct Loan, a private student loan, or an older FFEL Program loan, an entity (often not the note holder itself) will service the loan—e.g., receive payments, apply interest and other charges, compute the outstanding balance, answer borrower queries, and advise about payment options.

Student Loan Law: 18.4.1 Introduction

This section focuses on pursuing consumer protection claims and related causes of action against schools. Such claims may relate to school advertising, recruitment or enrollment practices, breaches of promises, failures to provide required disclosures or refunds, and more. Additionally, when schools act as lenders—i.e., making their own institutional loans to their students—various lending-related claims may be available.379

Student Loan Law: 18.2.8 Mandatory Arbitration of Debt Collection Claims

Mandatory arbitration is a matter of contract law—without an agreement by the student loan borrower to submit disputes to arbitration, there is no binding arbitration requirement. Federal Direct Loans, FFEL Program loans, and other federal student loans do not include arbitration clauses, and servicers or collectors on those loans do not seek to add an arbitration requirement after the loans are originated. As a result, there can be no mandatory arbitration concerning collection claims involving federal student loans.

Student Loan Law: 18.3.7 Arbitration Requirements

Mandatory arbitration is a matter of contract law—without an agreement by the student loan borrower to submit disputes to arbitration, there is no binding arbitration requirement. Federal Direct Loans, FFEL Program loans, and other federal student loans do not include arbitration clauses, and servicers on those loans do not seek to add an arbitration requirement after the loans are originated. As a result, there can be no mandatory arbitration of servicing claims involving federal student loans.

Student Loan Law: 18.3.6.1 Enforcing the Higher Education Act

Courts consistently find no direct private right of action under the HEA.364 Borrowers may be able to raise HEA violations in state UDAP actions or through common law breach of contract claims.365 The HEA standards are relevant to claims against servicers of federal loans, but not private student loans.