If a person has defaulted on their studentloan, can that person demand payment from their promissory note to department of education, in order to pay off the debt?

Thank you for your time and informative site!!

Sarah

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Hi Sarah,

The Uniform Commercial Code is state law that governs negotiable instruments and the federal government through both the Supremacy Clause of the Constitution of the U.S. and more specifically to student loans, the Higher Education Act of 1965, is preempted from state law.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

Recently a friend of mine jokingly told me that I could check the Florida clerk of the courts online to see if anyone was suing me so I said why the heck not.

Oh No! I had a judgement against me with the school as the plaintiff. Worse, after a call to the courts I found it was presented by the same lawyers. The judgement was awarded without my knowledge some months before I was negotiating with the school and lawyers for a repayment of the Perkins loan.

Another friend of mine who works at the school now found out that I had a $3000 tuition deferral that went unpaid and was referred to the courts. Now with interest it’s over $10,000.

The judgement is not on my credit report but I am afraid it could show up at any time and mess up my credit. Shouldn’t the lawyer have notified me about that judgement when I contacted them to negotiate repayment on my student loan, considering I did say “Is that all I owe to the school?” (I took notes of the convo). If they mentioned it to me then I would have been paying off $5000 instead of looking at this monstrous $10,000.

How should I go about this? Is there a way to get this reduced to what it should have been? Is there a law requiring the lawyers to have notified me when I contacted them?

Thanks for any help you can give me and keep up the good work.

Regards,

Rich

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Hello Rich,

If I understood you correctly, then it sounds like they obtained a default judgment for the tuition and perhaps without proper service.  A default judgment can be voided and reheard and if the judgment is for tuition then look into the applicable statute of limitations (which may have run); however, if the judgment is for the student loan then there is no statute of limitations, so rehearing a student loan issue may not be much help.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice. 

Jansen

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Hello Jansen,

The FCRA is per violation.  The FDCPA is normally $1,000 total statutory award per lawsuit (although FDCPA multiple statutory damages have been awarded).  You normally want to catch them in more than one violation so that the bona fide error defense would be a stretch.

Read: Student Loans & the FDCPA

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

John

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Hello John,

I would definitely say ask your bankruptcy attorney and make sure that he or she is aware of the case law in Espinosa v. United Student Aid Funds.

Thanks for the questions and hope this helps.

Paul

United Student Aid Funds (USAF) was sent notice by the Chapter 13 Trustee that its proof of claim of $17,832.15 would not be included and instead the payment plan to USAF was limited to $13,250.  USAF was given 30 days to object and they didn’t respond.  Espinosa finished the Chapter 13 plan and was given a discharge.  Then, three years later, USAF intercepts tax refunds due Espinosa and that’s what led to this case.  The following text are excerpts from the Ninth Circuit in Espinosa v. USAF:

“Congress made it quite clear that a creditor need only get ordinary notice of a Chapter 13 plan to be bound by its terms….We reject the idea that a creditor who is in the business of administering student loans has a constitutional right to ignore a properly served notice that clearly specifies that its debt will be dischargeable on successful completion of the plan.”

And now for my favorite part:

“The case is remanded to the bankruptcy court for reinstatement of the order enforcing the discharge injunction and for a determination whether the creditor acted willfully in violating the injunction under the standard we announced in Zilog, Inc. v. Corning (In Re: Zilog, Inc.), 450 F. 3d 996 (9th Cir. 2006).”

Espinosa v. United Student Aid Funds (In re Espinosa), — F. 3d —, 2008 WL 4426634 (9th Cir. October 2008)

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

Now they are saying if I don’t pay them 100 per month they will send it to collection charge me more fees and interest and take my tax return. Is this legal? And are there any repercusions for them transferi9ng my debt while in bankruptcy?

This det is old I know there is not statue of limitations for student loans but they have to follow the same rules as other creditors right?

John

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Hello John,

The bad news is that federal income tax refunds can be intercepted for old student loan claims.  Additionally, the Department of Education (or through the guaranty agency) can administer wage garnishments and is entitled to reasonable collection costs – the student loan skeleton, bankruptcy and student loans.

The question is: are student loans subject to the FDCPA?

FTC Official Staff Commentary on § 803(5) definitions of “debt” for purposes of the FDCPA includes “a student loan, because the consumer is purchasing ‘services’ (education) for personal use.”  Creditors are exempt from the FDCPA, collection agencies are not. 

McComas v. Financial Collection Agencies, 1997 WL 118417 (S.D. W. Va. March 7, 1997) was a case where the student loan debt collectors called the borrower and “(1) identified themselves as agents of the Justice Department; (2) demanded immediate full payment and threatened a 42% collection fee; (3) refused requests for a reasonable payment schedule; and (4) threatened to garnish her wages.”  Their defense was that the Higher Education Act preempted the FDCPA, so they could threaten all they want.  Needless to say, things didn’t turn out so well for Financial Collection Agencies.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

I live overseas, so a part of me is thinking “OK, sure, go ahead” because I can’t see a mechanism for them collecting against it.

Can this collection agency collect this debt if I am resident in Europe?

Thanks!

Sabrina

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Hi Sabrina,

If you have no assets or income in the USA and you live in Europe then you are collection proof.  No worries unless you return to the USA.

You should also know that student loans have no statute of limitations for collection; should you return to the USA, the student loan boogeyman will be waiting for you.  

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.

Thanks for the quick and informed response to my post!

Another question: Since TILA deals with many loans, I wonder if it also applies to student loans. Since private lenders have gotten into the act of lending to students, it seems that it would. Though it shouldn’t matter if the loan was from a government source or private–TILA should still apply.

I take it from your last post (and from the bankruptcy ruling you posted) that these TILA violations would allow through rescission for mortgage debt to be discharged through bankruptcy–even a Chapter 7. Would a bankruptcy attorney know this?

Again, terrific site. Thank you for your contribution to the little guys–I believe that credit is the basis for one’s financial health and you are a balm to the broken!

Leela

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Hi Leela,

Student loans insured or guaranteed by the government are exempted from the TILA.  Non-federal student loans are not exempt.

TILA claims can be raised in federal or state court.  TIL actions may also be brought in federal bankruptcy court and since bankruptcy court may generally be more sympathetic towards consumers, it is my hope that all bankruptcy attorneys would be familiar with the Truth in Lending Act.

Thanks for the questions and only God is a true balm to the broken.

Paul

Psa 51:17 The sacrifices of God [are] a broken spirit: a broken and a contrite heart, O God, thou wilt not despise. 

i have been going thru a bout of unemployment and am about to start working again.  i have no idea what “claim filed with government” means and the consequences therefore associated. 

I am just learning about credit and credit scores. i need help in figuring out what the best thing for me to do to get this mess cleaned up and my score polished a bit. im currently trying to apply for a $4000 loan to pay the collection fees owed to the Michigan Department of Treasury for my Driver’s Responsibility fee which is $3055.
i need to drive to work!  Eeeep!

any advice you can give me on all the above written would be RADTASTIC!  Thankxz!

Tom

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Hello Tom,

Federal education loans are guaranteed and/or insured by the federal government; if you don’t make the payments, a claim is filed with the government.   There is no statute of limitations for collectability of student loans and they are generally not dischargeable in a bankruptcy. In other words, you must pay your student loans back one way or the other. 

The good news is you can rehabilitate a student loan with nine on-time payments.  Additionally, student loan payments must be ‘reasonable and affordable’.  Once you are back to work, contact your student loan lender and request a payment plan that is ‘reasonable and affordable’.

You may find that it is easier to qualify for a loan after you have established three active and open tradelines.  Secured credit cards are an excellent means of accomplishing that. 

In sum, after nine months of payments on the student loans, the default status will be removed and you could have over six months established on three secured credit cards.  At that time, your credit score will not be radtastic, but you will have a much easier time gaining loan approval for unsecured credit, car loan, etc.  Hopefully, you can tough it out until then.

Thanks for the question and hope this helps.

Paul

Here is the question, the two loans he is going to try to include in the BK, his dad cosigned for.  How is this BK going to affect his dad’s credit when my son files BK, or will it?  Is there something my son should do now or his dad do in advance of the BK. 

His Dad will not pay these loans.  He has never given my son a dime.  This is the only thing he has ever done for him financially.  He has not even seen him in 7 years.  What is your advice? 

Thanks so much
Dawn

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Hi Dawn,

The first problem is that student loans are generally not dischargeable per 11 U.S.C. Section 523(a)(8) of the Bankruptcy Code “unless excepting such debt from discharge under this paragraph would impose an undue hardship on the debtor and the debtor’s dependents”.  The courts have adopted what’s known as the Brunner test for determining undue hardship.

The bankruptcy notation should not appear on the non-bankrupt cosigner’s report.  The non-bankrupt cosigner would remain responsible for the debt.

Dawn, most bankruptcy attorneys will provide a free initial consultation and Naca.net has some great consumer lawyers.

Thanks for the questions and hope this helps.

Paul

This author is not an attorney and this information should not be considered legal advice.  Please consult an attorney for legal advice.