Student loan debt for school on a nationwide basis has skyrocketed to a level that has surpassed even credit card balances. Of course, students saddled with school loan debt find it difficult to make ends meet.
Compounding the situation is the challenging job market after graduation. For many students, whether having to return to their parent’s home to save money or living on their own, more student loan debt means less money for buying a home, a car or discretionary consumer goods, among other things.
Parents suffer too: their retirement plans are often delayed or reduced while assisting their children with paying off student loans. This ripple effect on the national economy is already significant and the future consequences are ominous.
The State of Outstanding Student Loan Balances
According to the November 2015 “Quarterly Report on Household Debt and Credit” released by the Federal Reserve Bank of New York, outstanding student loan balances have swelled to $1.20 trillion as of September 30, 2015, surpassing auto loan balances ($1.05 trillion) or credit card balances ($714 billion).
In addition, 11.6 percent of aggregate student loan debt was 90+ days delinquent or in default during the third quarter of 2015. In May 2015, the Department of Education and the National Center for Educational Statistics issued their report, “The Condition of Education 2015 At a Glance,” which found that 85 percent of students received loans and grants at a four-year postsecondary institution, and 77.3 percent at two-year postsecondary institutions.
In October 2015, the Institute for College Access and Success (TICAS) issued “Student Debt and the Class of 2014,” which reports that seven out of 10 seniors at the national level (69 percent) who graduated from public and nonprofit colleges in 2014 had student loan debt. These borrowers owed an average of $28,950.
From 2004 to 2014, TICAS found that the share of graduates with debt rose modestly from 65 percent to 69 percent. However, for that same 10-year period, the average debt at graduation rose 56 percent, from $18,550 to $28,950, more than double the rate of inflation (25 percent). According to TICAS, about “one-sixth (17 percent) of the Class of 2014’s debt was comprised of private loans, which provide fewer consumer protections and repayment options and are typically more costly than federal loans.”
Consumer Financial Protection Bureau Uncovered Deceptive Collection Practices
To make matters worse, a federal bureau has recently uncovered deceptive student loan debt collection practices. In May 2015, the Consumer Financial Protection Bureau (CFPB) released its latest supervision report highlighting violations uncovered by the Bureau’s examiners (Winter 2015 report).
Under the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act), the CFPB has authority to supervise banks and credit unions with more than $10 billion in assets and certain “nonbanks.” Those “nonbanks” include private student loan lenders as well as financial institutions the Bureau defines through rulemaking as “larger participants.” The Bureau has also uncovered widespread deceptive student loan debt collection practices.
In the Bureau’s Winter 2015 report, which generally covers supervisory activities between July 2014 and December 2014, the examiners found that some student loan debt collectors made deceptive statements to consumers with defaulted federal student loans.
Collection agencies overstated the benefits of federal student loan rehabilitation. Specifically, these agents overstated the rehabilitation program’s impact on a consumer’s report and credit score. The agencies also overstated the extent to which collection fees would be waived upon completion of the program.
In addition, examiners identified instances in which collection agents misrepresented to consumers that they could not participate in a federal student loan rehabilitation program unless consumers made payments by credit card, debit card or Automatic Clearing House. In fact, no such program requirement existed.
Violation of FDCPA: Fear Tactics Used Against Student Debtors to Trigger Payment
Examiners also found that collectors threatened to take action against certain consumers, creating the impression that if they do not make a payment they will be sued. Yet none of the collection agents knew whether legal action actually would be taken and they did not intend to do so.
As the CFPB pointed out, these practices violated the Fair Debt Collection Practices Act (FDCPA), which prohibits the “use of any false representation or deceptive means to collect or attempt to collect any debt or to obtain information concerning a consumer” and the “threat to take any action that cannot legally be taken or that is not intended to be taken.” 15 U.S.C. § 1692e(5) & (10).
The FDCPA provides for private rights of action against debt collectors, and permits debtors to recover actual damages, statutory damages and attorneys’ fees and costs for violations of its terms. 15 U.S.C. § 1692k.
Student Loan Servicing: CFPB Investigates Wells Fargo, Citigroup and Discover Bank
The Wall Street Journal reported in October 2015 that Wells Fargo had become the latest big-name bank to be scrutinized as part of the CFPB’s ongoing investigation into student loan servicing practices. CFPB has been investigating the second largest private student-loan originator in the country since at least late last year. The investigation is purportedly focused on payment processing and policies related to borrowers who have a difficult time making payments.
In addition, in August 2015, Citigroup announced through a filing with the Securities and Exchange Commission that federal regulators had opened a probe into its student loan servicing practices. According to Citigroup’s filing, the company is cooperating with the unnamed regulators, noting that similar serving practices have been the subject of an enforcement action against at least one other institution. The filing states that “[i]n light of that action and the current regulatory focus on student loans, regulators may order that Citibank, N.A. remediate customers and/or impose penalties or other relief.”
In July, the CFPB took its first student loan servicing action ever against Discover Bank. According to the enforcement action, Discover engaged in illegal student loan servicing and debt collection practices since at least 2010, when it acquired the more than 800,000 private student loans accounts from Citibank. Among other violations, the bank was found to have overstated amounts due on student loans and failed to notify borrowers of their rights.
Student Loan Borrowers Should Contact W&L for Help
Weitz & Luxenberg is investigating possible claims involving student loan servicing unfairness. You may be entitled to recover damages if:
- One or more of your student loan servicers has failed to inform you of all of your repayment options and rights.
- You are in default or struggling to repay your student loan and you feel you have been falsely threatened by collectors with legal action.
- You have been the victim of false representations or other deceptive practices.
Please contact us today for a free consultation. Use on online form or live chat, or call us at 800-476-6070.