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Student Loan Law: 8.7 Vacating Collection Judgments

Borrowers may already have judgments entered against them. In these cases, advocates should consider attempting to vacate the judgments. This is especially critical because borrowers have fewer rights if judgments have already been entered against them. For example, they may not consolidate or rehabilitate loans in these circumstances.376 Advocates may negotiate with creditors to vacate judgments or file motions in court.377

Student Loan Law: 16.1.3.3 Tuition and Other Institutional or Direct-To-School-Owed Debt

When the tuition is not covered by loans or grants—or federal financial aid was returned to the Department of Education because a student withdrew or the amount of financial aid was miscalculated—students may end up owing unpaid tuition balances to their schools. Schools of all kinds—i.e., for-profit, private nonprofit, and public—often seek to collect unpaid tuition balances and, in some cases, interest and fees for nonpayment.

Student Loan Law: 16.3.2 State Agency Oversight

An increasing number of states have enacted legislation involving oversight or other regulation of private student loans. Colorado, Louisiana, and Maine have enacted laws specifically applicable to private educational lenders.130 These laws set out registration and reporting requirements and the states provide some of the reported information on a publicly accessible website.

Student Loan Law: 16.4.1.4.2 Approval disclosures

The approval disclosures must include information about interest rates, including whether the rate is fixed or variable and if it may increase after consummation.191 The disclosure does not have to comply with TILA’s general requirement that the APR be more prominent than other disclosures.192 The sample disclosures include a box at the top similar to that on other TILA disclosures, but the box usually reserved for the APR is instead a box for the interest rate.

Student Loan Law: 16.4.1.4.3 Final disclosures

The contents of the final disclosures are similar to those of the approval disclosures, with the addition of information about cancellation rights.197 The sample form has a box at the top titled “Right to Cancel” and includes the following statement: “You have a right to cancel this transaction, without penalty, by midnight on DATE. No funds will be disbursed to you or to your school until after this time. You may cancel by calling us at [fill in number].”

Student Loan Law: 16.4.1.5 Self-Certification

The creditor must obtain a self-certification form from the consumer or the school with information about cost of attendance, the expected family contribution, and estimated financial assistance.198 The Department of Education explained that the form is intended to make borrowers aware of the amount they must borrow to cover any gaps in assistance before they get a private loan.199 This form must be signed by the consumer, in written or electronic form, before consummation.

Student Loan Law: 16.4.1.6 Cancellation and Thirty-Day Waiting Period

The borrower has the right to accept the terms of a loan at any time within thirty calendar days following the date on which the consumer receives the approval disclosures.203 With only a few exceptions described below, the creditor may not change the disclosed terms prior to the earlier of the date of disbursement or the expiration of the thirty-day period if the consumer has not accepted the loan within that time frame.

Student Loan Law: 16.4.1.9 Remedies

In general, TILA’s remedial scheme applies to private education loans in much the same manner as other forms of credit. A notable exception is that violations involving private education loans need not be brought within one year of consummation of the credit agreement, but may be brought one year from the date on which the first regular payment of principal is due under the loan.224 This is significant for loans where no principal is due while the borrower is attending school.

Student Loan Law: 16.4.2 Disclosures Required for Closed-End Loans Until February 14, 2010

If a student entered into a private student loan before February 14, 2010, and it remains outstanding, a much less comprehensive set of rules apply. TILA violations that appear in these older private loans may only be raised as a defense by way of recoupment or set-off because more than one year will have passed since the date on which the first regular payment of principal was due under the loan, so that the limitations period for affirmative actions will have expired.

Student Loan Law: 16.4.4 HEA Requirements for School Disclosures Related to Private Loans

The Higher Education Act (HEA) requires that an educational institution or an organization affiliated with that institution provide the borrower with disclosures if the institution receives any federal funding or assistance and provides information regarding a private education loan, including an income share agreement (ISA),241 from a lender to the borrower. This is the case whether or not there is a preferred lender arrangement.242

Student Loan Law: 16.5 Regulation of Private Student Loan Interest Rates

There is no state regulation of interest rates that applies uniquely to private student loans. Instead, private student loans must comply with applicable state usury limits for loans of that amount and term. This issue is complicated by the fact that the applicable state usury regulation may not be that of the borrower’s state of residence, but the lender’s state of charter—and that other state’s law may have a high usury limit or no limit at all.

Student Loan Law: 16.6.1 Introduction

Several federal statutes examined in other NCLC treatises have relevance to the servicing of private student loans. The Truth in Lending Act requires servicers to provide consumers with the name, address, and telephone number of the owner of a debt.264 The Fair Credit Billing Act (FCBA) provides dispute rights, but only for open-end credit transactions, not closed-end private student loans. FCBA rights are set out in NCLC’s Truth in Lending.265

Student Loan Law: 16.6.2 Payment Application Issues for Private Student Loans

When a borrower misses a payment or makes a partial payment, the lender may assess a late charge and the loan may accrue additional interest. How the lender allocates the borrower’s next payment (after a partial or missed payment) can have a significant effect on the size of the borrower’s obligation. If the lender applies the next payment to the prior month’s late charge and additional interest accrued, then the next payment will be considered only partial, triggering another late charge and interest.

Student Loan Law: 16.7.1 Private Student Loan Default Rates

According to one source, at the end of the third quarter of 2021, 2.22% of private student loans in repayment were thirty to eighty-nine days past due (for undergraduate loans, 2.30%, and for graduate loans, 1.65%) and another 0.94% were ninety days or more past due (for undergraduate loans, 0.98%, and for graduate loans, 0.63%).281 Lenders charged off 1.35% of loans in repayment.

Student Loan Law: 16.7.3.1 Statutes Regulating Debt Collection of Private Student Loans

Debt collection of private student loans is subject to the same laws as collection of other consumer debt. The federal Fair Debt Collection Practices Act (FDCPA) applies to those that regularly collect debts owed to another, to servicers obtaining an account after default, to debt buyers whose principal business is the collection of consumer debts, and to creditors using a false name in collecting debts.299 As such, the FDCPA applies to collection agencies, collection attorneys, certain servicers, and to most debt buyers.

Student Loan Law: 16.7.3.2 Common Collection Abuses

Collection abuses are common in the private student lending space.306 A number of individual and class cases have been brought concerning abusive collection practices.307 Increasing numbers of fair debt collection cases have been filed against TSI, National Collegiate Student Loan Trusts, and their attorneys.

Student Loan Law: 16.7.3.3 Collection Costs and Attorney Fees

For the holder of a private student loan to be entitled to collection costs or attorney fees, the contract must provide for those recoveries and the costs and fees sought must be consistent with state law. Otherwise, to recover costs and fees, state law must explicitly provide for such relief. The fact that federal regulations provide for such fees and costs for federal student loans has no application to private student loans.

Student Loan Law: 16.7.3.4 Withholding Transcripts and Other Documents for Nonpayment of Institutional Debt; Credit Reporting

Unlike federal student loans, without a court judgment, an entity seeking to collect private student loans has limited options outside of collection contacts with the borrower. Two exceptions are submitting information about the debt’s status to a consumer reporting agency (CRA) and an institution withholding a school transcript, diploma, or degree that is necessary to make a student eligible for licensure.