- A federal consumer watchdog has warned that student loan companies may be “unlawfully collecting” debts.
- This is a borrower who may be charged even if he has discharged his debt through bankruptcy.
- The companies have been accused of profiting from the confusion surrounding the bankruptcy process.
President Joe Biden’s top consumer watchdog wants to bust the ‘myth’ that student loans can’t be forgiven by bankruptcy – while warning borrowers about bad loan forgiveness practices by student loan companies .
On Tuesday, the Consumer Financial Protection Bureau (CFPB) released a blog post outlining the process of getting rid of student debt in bankruptcy court, and the challenges that come with it. Specifically, the bureau wrote that while it is possible for borrowers with private student loans to succeed in bankruptcy court, not only is the process difficult to understand, but student loan companies have been accused of breaching release orders and ‘unlawfully collecting’ the debt, raising ‘serious concerns’.
“Unfortunately, complaints filed with the CFPB suggest that some of these companies may be misrepresenting to borrowers about bankruptcy protections or, worse, even recovering debts that have already been canceled by a bankruptcy judge,” indicates the blog.
“The collection of debts that have been discharged by bankruptcy could not only violate the Consumer Financial Protection Act’s prohibition on unfair, deceptive, and abusive practices, but also violate the order of a U.S. bankruptcy judge “, he added.
—Rohit Chopra (@chopracfpb) April 12, 2022
For a borrower to get rid of his debt in bankruptcy court, he must meet the undue hardship standard, which requires him to prove that he cannot maintain a minimum standard of living, that his situation does not probably will not improve and that he has made a good effort of faith to repay their debt. In 2005, this standard was extended to private borrowers of student loans, broadening the scope of application to those who would face more stringent requirements in court.
Since then, as the CFPB notes, consumers have complained about the process. For example, a consumer wrote to the office that although his loans were canceled by a court, his student loan company continued to collect monthly payments on the grounds that his loans were not eligible for cancellation.
If you believe you have been wrongly charged for loans, the office has recommended documenting the amount you have paid since discharge from bankruptcy, keeping all loan and bankruptcy documents, and filing complaints with the CFPB regarding your situation.
CFPB to ‘closely scrutinize’ misbehavior of student loan companies
The Student Borrower Protection Center (SBPC) found in January that 2.6million student borrowers could have gotten rid of their debt by filing for bankruptcy, but the ‘predatory tactics’ of private loan companies prevented them from doing so .
The discovery prompted Senate Majority Whip Dick Durbin to get some of his colleagues to send a letter to the CFPB asking how the agency planned to hold these companies accountable, and Bureau Director Rohit Chopra s pledged to strengthen surveillance in letter to Durbin. obtained by Insider.
“I am deeply concerned that borrowers are burdened with decades-old private student loan debt and potentially illegal collection efforts,” Chopra said. “I have asked CFPB staff to look closely at these issues, including whether companies are making misrepresentations.”
Chopra added that the SBPC’s findings “raise concerns” about abuses of the bankruptcy system, and the bureau will use its authority to “protect borrowers deprived of the assistance they received through the discharge of bankruptcy or misled about the protections to which they are entitled under the law.”
More recently, Durbin called on Education Secretary Miguel Cardona to reform the “unnecessary high bar” student loan borrowers have to raise in court, and he’s waiting to see where the Department of Education stands. Education on upcoming reforms.