First the obligatory disclaimer: these comments are not meant to be legal advice. They are my opinions sprinkled in with some statutory, regulatory or case law. This blog simply represents my view, and you should do your own research.
The purpose of this blog is to help you better understand education debt. I put the question mark (?) after the title because all claims coming from schools do not necessarily emanate from tuition, fees, or other education-related sources. The FDCPA requires meaningful involvement. Common sense demands that you must thoroughly review the paperwork. The title of this blog also illustrates that calling all accounts from schools a “student loan” sets you up for failure. At first glance, you could be saying to yourself “this is obvious.” However, it is sometimes very difficult for even a trained eye to discern the nature of the obligation. Just because the claim has a college or university attached to it does not necessarily mean the claim is education-related. For example, if the university has a dental school, it may be a traditional medical debt and HIPAA could apply.
Determination of the type of indebtedness will indicate how to put this information into a computer tracking system, such as Q-Law or Collection-Master. Here are the various categories of student debt:
I. Department of Education Direct Action: firms hired by the Department of Education and vetted by the government
II. School Loans Backed by the Government: federal government (Perkins, National Direct Student Loans) or state higher education
III. Promissory notes issued by the school
IV. Bank Loans Specifically for Education, in which there is contractual language such as: I understand that the loan is an educational loan and is not dischargeable in bankruptcy court except as pursuant to 11 USC 523(a)(8):
V. Educational Benefit Overpayment or Loan made, insured, or guaranteed by a governmental unit, or made under any program funded in whole or in part by a governmental unit or nonprofit institution
VI. Accounts Receivable for Tuition, Books, Room and Board, Fees, etc.
I will not discuss I. Department of Education Direct Action, because my firm does not handle this type of case for the US Department of Education. I will leave this topic to someone more qualified than I am. I will go through the other the categories in this and other blogs. Each category noted above has its own quirks. However, it is important to note that FDCPA will apply and TCPA may apply, depending on the language used in the promissory note.
II. School Loans Backed by the Government
In today’s blog, we will focus on the second category. A loan made under the Higher Education Act of 1965 (Perkins) will have an interest rate (usually 5%) indicated on the promissory note. However, the promissory note may not state when or to whom the disbursements were made. The disbursements may be made directly to a student OR to the school, so there may not be a check. Your client is your best asset and can provide the details. A Perkins loan is governed by federal law (see 20 USC § 1091a 34 CFR Sec A 30.60, 34 CFR 674.45). However, firms can choose to sue in federal or state court.
Regardless of which court you start the suit in, no statutes of limitations apply. (20 USC § 1091a (a)(1)), infancy will not be a defense, and a person who files for bankruptcy MUST file a non dischargability complaint AND have the court declare the loan dischargeable! The school MUST statutorily collect ALL of its collection costs AND collection fees (see 20 USC § 1091a (b)).
The newer versions of the Perkins loans will have permissive language that allows the client (school), forwarder (collection agency) or law firm (attorney) to call a cell phone and use an automated dialer. The cases will require you to educate your client, opposing counsel and the Judge.
Once the law suit starts, you will face some defenses not seen in other types of cases:
- I did not go to class
- I was told that if I withdrew I would not owe the money
- I paid this loan or note
- I filed bankruptcy and this debt was discharged
- The Statute of Limitations precludes collection
- Truth in Lending violation
- Confusion over when a school year begins and ends: e.g., Pell Grants are disbursed by school year; transfer student with different calendar (start fall vs. start summer
- Why did you let me go to school if you did not know my financial circumstances
- I don’t owe the collection costs
When there is a dispute, get the school involved quickly! If there is a request for validation or answer to complaint, the more specific the school’s paperwork is (i.e., collection costs), the easier it will be to resolve the matter. There very well may be student confusion, because oftentimes students have multiple loans from multiple sources. Make sure to obtain ALL of the paperwork from the student for the school to sort through. Generally, the more specific the dispute, the deeper the client should look for information. There is sometimes a push and pull between admissions and the collections department. Insist that the school provides the information you need.
After the law suit is filed, it will usually track as any other law suit. Be prepared to educate opposing counsel and the judge about the lack of statute of limitations or laches, the requirement that the school recapture the collection fees and costs, and how bankruptcy impacts the litigation.
My favorite thing about Perkins loans is when I get to use the term “consolidation.” This is a “win-win-win” for all. The students win, as all federal student loans are rolled into one payment. The clients win, because they get paid in-full. And last but never least, the collection agency/law firm wins because they get paid in full! Consolidation can occur at any point in time for a federal student loan. It usually occurs when the student:
- is served with a summons
- received notice of the judgment
- is garnisheed or has assets seized
Obtain guidance from the forwarder as to how or whether to proceed with ongoing collections (pre-suit, pre-judgment, post-judgment).
By Lori J Frank PC
Ms. Frank received her law degree from Michigan State U. College of Law. She began her career as a collection lawyer. She has been a licensed attorney throughout the State of Michigan since 1990. She has been a National List Member for 15 years. She can be reached at:Lori J Frank PC 16155 W 12 Mile Rd. Ste. 6 Southfield, MI 48076 (888) 670-6801 (Toll-free) (248) 424-9777 (Local) (248) 424-8396 (Fax) firstname.lastname@example.org