Student Loans and Debt Collection Harassment
By: William James Campbell
There is no doubt that student loans are consumer debts. This is well established by case law and by the Federal Trade Commission. (Brannan v. United Student Aid Funds, Inc., (1996) 94 F.3d 1260; Rowe v. Educ. Credit Mgmt. Corp., (2009) 559 F.3d 1028). Additionally, a third party debt collector attempting to collect a student loan is subject to the FDCPA and The Rosenthal Act. Unfortunately, the analysis of student loans, FDCPA and the Rosenthal Act only gets more complicated form here on out.
The first thing that must be done in determining whether the FDCPA or The Rosenthal Act applies is finding out when the student loan was taken. Let’s start with all of those individuals who have a student loan that was taken out prior to July 1, 2010. During this time period Stafford, PLUS and Consolidation Loans were made by private lenders under the Federal Family Education Loan (FFEL) Program.
Here is how the FFEL works. Under the FFEL you have The Federal Government, The Student Loan Guarantee Agency, The Private Federal Student Loan Lender and the Student Borrower. The Student Loan Guarantee Agency works as a middle man between the Federal Government and the other involved parties. These Student Loan Guarantee Agencies got their authority through the Higher Education Act (HEA) and act as a fiduciary to the Department of Education. If a Student Borrower defaults on a student loan then the private lender can file a claim with The Student Loan Guarantee Agency, who then has to purchase the balance of the loan. The Federal Government reimburses The Student Loan Guarantee Agency but only up to 95% of the purchase amount.
Typically, if there is a default on the student loan, The Student Loan Guarantee Agency must then service and collect the student loan. The question is whether The Student Loan Guarantee Agency is liable under the FDCPA. The answer is it depends. Under the FDCPA a debt collectors are not liable for collection activities “incidental to a bona fide fiduciary obligation.” (15 U.S.C. §1692a(6)(F)(i)). “First, the entity must have a ‘fiduciary obligation.’ Second, the entity’s collection activity must be ‘incidental to’ its ‘fiduciary obligation.’” (Rowe v. Educ. Credit Mgmt. Corp., supra, 559 F.3d at 1032). “The ‘incidental to’ requirement means that the collection activity must not be ‘central to’ the fiduciary relationship.” (Id. at 1034).
Eventually in Rowe, after the case was remanded to the lower courts it was determined that ECMC, The Student Loan Guarantee Agency in that case, “assumed all the duties and responsibilities that any guarantee agency has with respect to borrowers, lenders, and schools related to that agency’s designated area. The Department of Education agreed to have ECMC perform all functions as a guarantee agency and fiduciary for the Department by virtue of its authority as a guarantee agency under the Higher Education Act…” (Rowe v. Educ. Credit Mgmt. Corp., (2010) 730 F.Supp.2d 1285, 1289). As such the FDCPA did not apply.
The outcome in Rowe is not universal. In Brannan v. United Student Aid Funds, Inc. a student loan borrower brought an FDCPA claim against a Student Loan Guarantee Agency. (Brannan v. United Student Aid Funds, Inc., (1996) 94 F.3d 1260). The court in that case said, “We hold that USA Funds is subject to the FDCPA. The FDCPA proscribes abusive collection practices by ‘any person . . . who regularly collects or attempts to collect, directly or indirectly, debts owed or due or asserted to be owed or due another.’ The FDCPA does not provide an exemption for guaranty agencies that acquire a student loan after default in order to pursue its collection.” (Id. at 1262).
The real issue is whether The Student Loan Guarantee Agency’s collection activity is incidental to its fiduciary duty. If it is then the FDCPA will not apply. Keep in mind, if the party collecting on the student loan is a third party debt collector then the FDCPA will apply and this analysis will not be required. To put it simply, if The Student Loan Guarantee Agency is nothing more than a debt collector then they will be liable as a debt collector.
As for The Rosenthal Act, can a Private Federal Student Loan Lender be liable. The Rosenthal Act essentially makes original creditors collecting a consumer debt liable for violations of the FDCPA. (See Cal. Civ. Code § 1788.17). For pre July 1, 2010 student loans under the FFEL and HEA the answer is no. It is well established that The Rosenthal Act is preempted by the HEA and as such it does not apply to original creditors of a Federal Family Education Loan (FFEL). (Pirouzian v. SLM Corp., (2005) 396 F.Supp.2d 1124, 1130).
Now for Student Loans after July 1, 2010; as a result of the SAFRA Act, which was part of the Health Care and Education Reconsolidation Act (HCERA), there are no more Federal Family Education Loans. Starting July 1, 2010 all new Stafford, PLUS and Consolidation loans come directly from the U.S. Department of Education under the Direct Loan Program. Either the loan is a private loan subject to The Rosenthal Act or the FDCPA or it’s a loan from the Government in which case you have no recourse.
Keep in mind, if your student loan is not a Federal Family Education Loan or a Federal Direct Loan then debt collectors and original creditors in California must comply with The Rosenthal Act and the FDCPA. Additionally, just because the agency collecting your student loan is a Student Loan Guarantee Agency does not necessarily mean they are immune from the FDCPA. The best approach, if harassed by a debt collector trying to collect a student loan, is to find an attorney who is well versed in debt collection law.