FDCPA and Student Loan Debt

According to a recent NPR report regarding the student loan debt crisis, the national student loan debt total surpassed the one trillion dollar mark in the Spring of 2012. For millions of Americans, student loan debt is a source of extreme stress with little to no legal protection for the debtor. Bankruptcy protections which were originally in place for such loans have been systematically whittled away over the last forty years, due to intense lobbying from the banking industry. Currently, discharging student loans in bankruptcy is enormously difficult, and the rare cases in which student loan bankruptcy proceedings are successful usually involve awful circumstances, such as permanent disability or dismemberment. Disturbingly, private student loan lenders are legally able to continue pursuing cosigned loan payments even after the recipient of the loans has died, subjecting grieving family members to a lifetime of harassment. 

Theoretically, student loans can be discharged if the debtor can prove in bankruptcy court that their debt is and will continue to be an undue burden which will prevent them from surviving. In this case, a test known as “The Brunner Test” is often applied, and essentially involves assessing the debtor’s past and current financial situation, as well as the debtor’s potential future financial situation. Unfortunately, the hardship conditions put forth in this test are ambiguous enough to make any substantial legal precedent virtually nonexistent, and render such decisions largely up to the whims of the presiding judge. 

In the meantime, student loan debtors who are valiantly fighting to stay on top of their bills will need to know how the FDCPA can work for them in regards to debt collection practices. According to Section 803(5) of the FDCPA, student loan debts are indeed covered under the act. Specifically, this section states that student loans qualify as a debt which falls under the purview of the FDCPA, due to the fact that “the consumer is purchasing ‘services’ (education) for personal use.” 

Here’s the rub, however: the FDCPA does not cover the collection practices of the original creditor. This means that student debtors can’t use the FDCPA to protect themselves from any collection attempts which come from the Federal government, or from the original private student loan lending institution (e.g. Citibank, Sallie Mae, etc.). Rather, student loan debtors can use the FDCPA to file formal complaints against debt collection agencies collecting on behalf of the original creditor. In this sense, the FDCPA is of most use to student loan debtors who are in the unfortunate situation of having defaulted on their loans. This is the current extent to which the FDCPA can help student loan debtors, until such time as a massive and much needed reform of student loan lending practices occurs.