Student Loans & the FDCPA
I was just released from my chapter 13 bankruptcy on 6 october. Yesterday I recieved a student loan bill for my wife and they want $4500 which they have been charging and mounting interest up since jan/08. they have sold my debt once to another branch of the Iowa college student aid commission.
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.
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October 31st, 2008 at 8:37 am
I still am a little hazy on the student loan issue from above. What about while in chapter 13 can they still sell my debt and charg transfer, late fees, and accumulate interest rates.
October 31st, 2008 at 9:59 am
Student loans are generally not dischargeable through bankruptcy unless it can be proven that repayment would cause undue hardship. In other words, you have to pay all of the student loan money back with interest and collection fees. The article ‘bankruptcy and student loans’ linked above describes the ‘Brunner Test’ which is the standard for determining ‘undue hardship’.
The student loans can be paid through a Chapter 13 plan but they won’t (normally) be discharged/eliminated. I would say they survive a nuclear war; however, there is an intersting case this month 10/08 in the 9th Circuit where the student loan was included in a 13 and discharged and barred by the discharge injunction because the student loan creditor failed to object to the plan. I’ll create another post on Espinosa v. United Student Aid Funds. It may or may not apply to your situation.