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Student Loan Law: 9.4.2.4.6 The role of the debtor’s employer

The borrower, not the employer that receives a garnishment order, must assert any defenses to garnishment.187 Guaranty agencies and the Department have the authority to sue employers refusing to comply with garnishment orders to recover amounts the employer has refused to withhold plus attorney fees, costs, and punitive damages in the court’s discretion.188 An employer is prohibited from discharging, disciplining, or refusing to hire an individual because the person’s wages have been subject

Student Loan Law: 9.4.2.5.1 Repayment agreements

Borrowers may enter into written repayment agreements to repay under terms the Department considers acceptable.191 As with tax offsets, the regulations do not explicitly require “reasonable and affordable repayment plans.” However, assuming they are otherwise eligible, borrowers have a right to such plans through the rehabilitation process.192 Once the borrower has made five qualifying payments under a rehabilitation plan, the garnishment must cease.19

Student Loan Law: 9.5.3.3 No Time Limit on Administrative Offsets

As with the other extra-judicial collection tools, there is no statute of limitations for offsets of federal benefits. This was unclear for some time because the Debt Collection Improvement Act previously prohibited offset for claims that were “outstanding” for more than ten years. In 2005, the U.S.

Student Loan Law: 9.5.3.2 Hardship Reductions

Under the Debt Collection Improvement Act, creditor agencies—including the Department of Education—may reduce the amount of offset in cases of financial hardship by certifying to the Department of Treasury that the standard offset amount would result in financial hardship and that a lesser amount is reasonable based on the debtor’s financial circumstances.354 Pursuant to this authorization, the Department of Education’s policy since 2002 has been to allow borrowers to request full or partial reductions of offset based on financial hardship.

Student Loan Law: 9.4.3.2 Financial Hardship

The Department issued regulations in November 2013 that specify the standards and processes by which borrowers may raise objections to garnishment by guaranty agencies based on financial hardship.271 Guaranty agencies have often relied on the same financial disclosure form that is used for objection to garnishment for Department-held loans.

Student Loan Law: 9.6 Federal Salary Offsets

The Department has authority to offset salaries of federal government employees to collect federal debts.391 This authority applies to federal employees and members of the Armed Forces or Reserves.392 Deductions may be made from basic pay, special pay, incentive pay, retired pay, retainer pay, or, in the case of an individual not entitled to basic pay, other authorized pay.393 For former federal employees, deductions can be made from post-sep

Student Loan Law: 9.7 Professional License Suspensions and Revocations

Historically, many state laws399 allowed professional and vocational boards to refuse to certify, certify with restrictions, suspend or revoke a member’s professional or vocational license, or, in some cases, impose a fine when a member defaulted on state and/or federally guaranteed student loans.

Student Loan Law: 9.8 Seizure of Student Loan Funds Generally Prohibited

Student assistance funds, including loans, grants, and work assistance, may be garnished to collect debts owed to the Department of Education.401 However, neither these funds nor property traceable to them can be garnished by other collectors.402 For example, a private collection agency pursuing a student for credit card debt cannot garnish or attach that student’s federal student loan funds to collect the debt.

Student Loan Law: 9.4.2.1 Allowable Garnishment Amounts

Unless the borrower agrees in writing to a higher amount, the DCIA allows garnishment of up to 15% of disposable pay.120 Federal law also limits total garnishments to 25% of disposable earnings, so a student loan garnishment and other simultaneous garnishments should not exceed 25% of earnings.121

Student Loan Law: 18.2.2.2 Department of Education Employees

The FDCPA specifically excludes any officer or employee of the United States or any state to the extent that their activities are in the performance of their official duties.13 In addition, the Department of Education (the Department) is not a debt collector as defined by the FDCPA because collection of debts is not the Department’s principal purpose and it is not collecting debts owed to another.14

Student Loan Law: 18.2.2.6 Originating Lenders and Their Assignees

The FDCPA does not apply to creditors collecting their own debts.49 For example, the FDCPA does not apply to a lender originating a private student loan. Whether an assignee of the original creditor is covered depends on the nature of the assignee. The U.S. Supreme Court has found that an assignee is not collecting on the debts owed to another since the assignee now owns the debt.50

Student Loan Law: 18.2.4.2 Preemption of State Debt Collection Claims with Respect to Federal Student Loans

Higher Education Act (HEA) preemption of state debt collection claims is not an issue for private student loans, but it may be for some federal loans, particularly FFEL Program loans, since guaranty agencies often contract with private collection agencies.127 State law that directly conflicts with federal law is preempted.128 Collectors go even further, arguing that the federal scheme preempts any state regulation of student loan collectors.

Student Loan Law: 18.2.5 Telephone Consumer Protection Act

A large percentage of student loan borrowers only have cellular phones, not landlines. The Telephone Consumer Protection Act (TCPA) prohibits the use of an automated telephone dialing system or an artificial or prerecorded voice to make any call or send a text to a cellular phone, absent prior express consent from the consumer.152 This prohibition also covers the use of an auto-dialer to initiate even a call that is live.

Student Loan Law: 18.3.2 Suing the Department of Education for Injunctive and Other Relief

The Higher Education Act (HEA) contains an explicit grant of federal jurisdiction for suits against the Secretary of the Department of Education (the Secretary).230 When servicers—hired by the Department of Education (the Department) and under its direction—engage in servicing abuses, one option borrowers have is to sue the Department. Because servicing practices are often standardized, broad-based injunctive relief is an attractive option.

Student Loan Law: 18.3.3.3 Other State Claims

While fraud claims are available against servicers—and could potentially result in an award of punitive damages—the standards for fraud may make this a more difficult case to prove than a UDAP claim.269 Negligent misrepresentation, negligence, and promissory estoppel claims also may be easier to prove than fraud.270

Student Loan Law: 18.3.4.1 Generally

HEA preemption is commonly raised in litigation against servicers hired by the Department. Servicers often argue that the HEA expressly preempts state law claims involving servicing abuses, or that there is a conflict between the state requirement and the HEA. While courts are divided about express or conflict preemption, it is clear that field preemption does not apply.

Student Loan Law: 18.3.4.2 Express Preemption

Six HEA provisions expressly preempt state law—state usury laws,274 state statutes of limitations,275 state infancy defenses,276 state laws that might restrict administrative wage garnishments,277 state laws that might prevent collection of “reasonable collection costs” on a defaulted federal student loan,278 and state “disclosure requirements”

Student Loan Law: 18.3.6.2 Fair Credit Reporting Act Claims

Typically, information about federal and private student loan payments will be furnished to consumer reporting agencies. Any entity doing so—for either federal or private student loans—must comply with the federal Fair Credit Reporting Act’s (FCRA) requirements as to furnishers.366 Servicers violate the FCRA if they fail to conduct a reasonable investigation into the accuracy of the information they furnish to a consumer reporting agency once a borrower disputes that information with the consumer reporting agency.

Student Loan Law: 18.3.6.3 Other Federal Claims

The Telephone Consumer Protection Act (TCPA) limits calls to a borrower’s cellular phone, and provides strong consumer remedies. TCPA claims are discussed in more detail at § 18.2.5, supra. The Electronic Funds Transfer Act (EFTA) provides consumer protections and private remedies where amounts are regularly transferred electronically from the borrower’s bank account to repay a student loan.