The Plaintiff’s Perspective Student Loan Litigation Presented by Joshua R.I. Cohen
Topics • Federal Loan Claims • Rehabilitation • 9/10 • Reasonable and Affordable • Other Claims • Private Loan Claims • Violation of State Laws • Potential Claims
Rehabilitation 9/10 • 20 U.S.C. § 1078-6(a)(1)(A): 9 payments made within 20 days of the due date during 10 consecutive months • DL - 34 C.F.R. § 685.211(f): nine voluntary, reasonable, and affordable monthly payments within 20 days of the due date during ten consecutive months • FFEL - 34 C.F.R. § 682.405(b)(1)(ii): nine payments are received within a ten-month period
Rehabilitation 9/10 • Borrowers must make (9) nine full, timely, voluntary monthly payments of an approved amount in a (10) ten month period in order to qualify for Direct rehabilitation. Borrowers may miss one payment in a ten-month period and still qualify for Direct rehabilitation. 2009 PCA Manual page 87. • Borrowers may miss one payment in a ten month period and still qualify for FFEL rehabilitation. 2009 PCA Manual page 103.
Rehabilitation 9/10 • Compare to Perkins Loan Rehabilitation: • Borrowers must make a full, timely, voluntary payment of an approved amount each month for 9 consecutive months in order to qualify for NDSL-Perkins rehabilitation. 2009 PCA Manual page 95. • Litigated as Class Actions • Violation still occurring
Rehabilitation – R&A • 20 U.S.C. § 1078-6(a)(1)(B): Neither the guaranty agency nor the Secretary shall demand from a borrower as monthly payment amounts described in subparagraph (A) more than is reasonable and affordable based on the borrower’s total financial circumstances. • DL - 34 C.F.R. § 685.211(f): The amount of such a payment is determined on the basis of the borrower’s total financial circumstances.
Rehabilitation – R&A • FFEL - 34 C.F.R. § 682.405(b)(1)(iii)(A): Include a consideration of the borrower’s and spouse’s disposable income and reasonable and necessary expenses including, but not limited to, housing, utilities, food, medical costs, work-related expenses, dependent care costs and other Title IV repayment. • (B) Not be a required minimum payment amount, e.g. $50, if the agency determines that a smaller amount is reasonable and affordable based on the borrower’s total financial circumstances.
Rehabilitation – R&A • Litigated on both Class and Individual basis.
Other Federal Loan Claims • FDCPA violations • Applicable against debt collectors only • State law violations • Applicable against lenders, guarantee agencies, servicers, and debt collectors • HEA preemption not an issue • Especially when claim is non-conformity with HEA
Private Loan Suits • Confusion between Fed and Private loan status leads to misrepresentations: • Charging collection fees above State maximum • Stating Fed purchased private loan • Misrepresenting that wages can be garnished without lawsuit • Statement that there is a lien against SS • Statement that law license can be revoked
Private Loan Suits • Other claims: • Collection of a discharged private student loan • BAPCPA effective October 17, 2005 • Discharge based on filing date • Continued credit reporting of discharged loan • FCRA violation
Potential Claims • Federal FFEL Rehabilitation • Failure to provide written rehabilitation agreement before making first payment. • 34 C.F.R. § 682.405(b)(1)(vii) A guaranty agency must provide the borrower with an opportunity to object to terms of the rehabilitation of the borrower’s defaulted loan. • DL and FFEL Rehabilitation • Forwarding accounts for AWG while borrower attempts to negotiate R&A Rehab.
Potential Claims • Federal Consolidation • 6 payments prior to consolidation - • No payment required if consolidating into ICR or IBR • Only 3 payments required if consolidating into other payment plan
Potential Claims • Federal Loan Servicers • Failure to alert delinquent borrowers of IBR • Offering deferment/forbearance instead of IBR • Offering forbearance instead of deferment • Misrepresenting IBR qualifications • Must earn a minimum AGI/must be employed
Bankruptcy Discharge • Private: Failure to offer flexible repayment plans is a consideration by many judges for discharge • Fed: IBR not always an acceptable response to hardship claim