Comment – Student Loan Guarantor Petitions Supreme Court
by: Constance d’Angelis, Esq.
Query: Should a Student Loan guarantor be allowed to charge collection costs of approximately 25% where a first-time defaulted borrower agrees to a rehabilitation contract and makes required payments? United Student Aid Funds, Inc. (“USA Funds or Funds”) did just that and believes it not only has the right, but also is required to assess such collection fees pursuant to Higher Education Act, as amended and Department of Education rules and regs.
Petition U.S. Supreme Court: USA Funds petitioned the U.S. Supreme Court to review an adverse ruling from the U.S. Court of Appeals for the Seventh Circuit. Funds claims that the Department of Education and the Plaintiff, Bryana Bible “conflated the terms of a rehabilitation agreement with those of a repayment agreement”.
Facts: In 2006, Bryana Bible (“Bible”) obtained a student loan[i] and signed a Federal Stafford Loan Master Promissory Note (MPN), which identifies Citibank as the “Lender” and USA Funds as the “Guarantor, Program or Lender”. In 2012 Citibank determined that Bible was in default and transferred the debt to USA Funds, which paid Citibank’s default claim. USA Funds though its agent General Revenue Corp. (GRC) mailed Bible a form default[ii] letter dated April 12, 2012 stating that the loan was in default and identifying several resolution options, which included a “loan rehabilitation” option. Bible and GRC agreed on a rehabilitation plan[iii] and Bible signed the agreement and faxed it to USA Funds’ agent on April 30, 2012.
Background Review: Funds is a non-profit corporation headquartered in Indiana. It claims to promote successful student loan repayment through a proactive approach with its “USA Funds Borrower Connect Advantage™” wherein it provides schools with benefits of borrower communication to achieve default prevention goals.It espouses its commitment to student borrowers, offers borrower resources to help manage and repayloans and avoid default; and resources for education lenders.(See usafunds.org)
Additionally, Funds sets forth a special checklist for education lenders promoting communication with borrowers to ensure that borrowers can turn to lenders for repayment guidance, outreach and counseling regarding student loan repayment options.[iv]
It appears the Funds is a leader in borrower communication working with lenders and borrowers, and advocating repayment guidance, outreach and counseling.
Back to USA Funds argument to Supreme Court and Query: Assuming arguendo that there are two (2) types of agreements, rehabilitation and repayment[v], couldn’t the collector/guarantor advise the borrower? Given the commitment of USA Funds to its lenders and student borrowers, wouldn’t one expect that in direct communication with a borrower that this leader in the student loan industry provide the repayment guidance that it claims so vehemently to advocate? Or, is this a BORROWER BEWARE type of situation? Could this kind of collection tactic be one of the problems that Student Loan borrowers, their parents and grandparents are complaining about?
We don’t know how this situation will turn out as to whether the Supreme Court will review the Seventh Circuit Court of Appeals ruling in favor of Bible, or not.
Administrative Deference Issue: There is another issue that is considered important. That is whether the Secretary of Education on behalf of the Department may weigh in on the interpretation of the statutes and regulations and be given deference as an Administrative Agency.
Opinion: The author believes there is more at stake. There are many abuses with respect to collection of student loan debt and it is high time this country takes charge of how its student borrowers are being treated. The Consumer Finance Protection Bureau has been intervening, but the problems remain at an all time high, similar to the debt itself, which tops $1.2 Trillion. Additionally, the cost of education has skyrocketed, pricing many students out of the education market. If Congress won’t take action, which is the case, then it is time for other branches of government and the American people to step up.
[i] The Plaintiff-Appellant to the US. Court of Appeals for the Seventh Circuit, Bryana Bible obtained an FFELP student loan. This form of federal student loan is discussed and identified along with other student loans in Student Loan Debt and the Remedies CLE on-demand course. (CLEanytime.com)
[ii] The principal amount of Bible’s debt according to a table prepared by USA Funds/GRC and sent to Bible in the default letter is $17, 972.15, interest at 6.8% = $90.45 (current interest). Total amount due: $18.062.60. Date of letter: April 12, 2012.
[iii] The principal amount of Bible’s debt according to a table prepared by USA Funds/GRC and sent to Bible in the form rehabilitation agreement was $17,972.15, interest at 6.8% = $140.70 (current interest). Total amount due: $18,112.85. Fax of rehabilitation letter: April 27, 2012.
[iv] See usafunds.org website for “Default Prevention Checklist: January 2016” by George Covino, USA Funds, January 4, 2016. “defaultpreventionfurum.org”
[v] The issue of a Rehabilitation Agreement and a Repayment Agreement, referred to as a “double whammy” by Author and Presenter, Nancy L. Cavey, Esq. is recognized in the Student Loan Debt – Disability Discharge CLE on-demand course. (CLEanytime.com)