Student Loan Lawsuits and Challenges

The Consumer Financial Protection Bureau (CFPB) has released a special report on illegal activities in the student loan market. The report highlights violations related to student loan refinancing, private lending, servicing, debt collection, and federal loan servicing.

Student loans, which amount to over $1.7 trillion in debt, are a significant financial issue in the U.S. Recently, many borrowers faced challenges as they returned to repayment after the COVID-19 payment pause ended. The CFPB found several illegal practices:

1. Misleading Borrowers About Refinancing: Some lenders misled borrowers about losing federal protections when refinancing federal loans and failed to follow instructions for consolidating loans.
2. Deceptive Private Lenders: Some lenders denied benefits to eligible borrowers and falsely advertised loan benefits, such as autopay discounts and job-related payment suspensions.
3. School Misconduct Claims: Some servicers failed to properly address borrowers’ claims of school misconduct, such as misleading them about their right to challenge loans.
4. Illegal Collection Tactics: Certain contracts allowed schools to withhold academic transcripts or threaten legal actions against students in default.
5. Problems with Federal Loan Servicers: Federal loan servicers failed to provide accurate billing statements and made errors in processing applications for income-driven repayment plans.

The CFPB has directed companies to correct these violations and, when necessary, opened investigations for enforcement. This report is part of ongoing oversight of the student loan market and reflects the CFPB’s effort to protect borrowers from unfair practices.

If you’re one of the hundreds of thousands who attended the for-profit University of Phoenix, there may be a gift waiting for you: a big fat student loan forgiveness.

A new crop of University of Phoenix students (UOP) have just been approved for full forgiveness of their federal student loans by the U.S. Department of Education (ED).

If you attended the school anytime between September 21, 2012 and December 31, 2014, and were misled by the school’s claims and submitted a valid application for relief through ED’s Borrower Defense program, there’s a high probability that you’re eligible for the agency’s loan relief. 

ED’s decision is based in part on the FTC’s 2019 court action against the University of Phoenix for using trickery in advertising practices to get students to enroll. At the time, the FTC alleged that UOP tried to attract students by claiming that it had relationships with employers such as Microsoft and could assist students in getting jobs once they got their UOP sheepskin.

The agency said these ads were specifically targeted at people in the military, veterans, and military spouses.

Already submitted a claim? Already got one?

If you’ve already submitted a borrower defense claim, you may be in luck. Just check the status of your application on the borrower defense page under “Manage My Applications” at StudentAid.gov. 

If you haven't submitted one yet, then time’s a-wastin’ so file your claim… now. The agency says that if you’ve already received a refund from the FTC’s settlement, don’t sweat it because you’re still eligible for loan forgiveness through ED’s borrower defense program.

Sweet, huh? The agency just asks that you mention that fact when you apply. Find out more at ftc.gov/UOP.

You’ve probably heard that the Biden administration’s sweeping plan to forgive a portion of government student loans was blocked by the Supreme Court. But it turns out some of the loans will be forgiven.

This week the U.S. Department of Education began the process of discharging 804,000 student loans that meet certain criteria. To qualify, the borrower must have been enrolled in the Department of Education’s income-driven repayment (IDR) plan and have been making payments for at least 20 years.

The White House announced the forgiveness plan in July after the high court ruled the administration’s unilateral move to forgive debt without consulting Congress was unconstitutional.

Under the plan announced last month, the government will write off approximately $39 billion in student loan debt.

“I have long said that college should be a ticket to the middle class – not a burden that weighs down on families for decades,” Biden said as he announced the plan.

Who qualifies?

Borrowers will qualify for forgiveness if they have made payments for 20 or 25 years depending on when a borrower first took out the loans, the type of loan they have, and the income-driven repayment plan they are on.

Eligible borrowers should have received notification of their loan forgiveness by mail. Government officials will not call borrowers, so if someone calls and claims to be able to help you with your loan, it’s a scam.

The Department of Education said qualifiers include people with Direct Loans or Federal Family Education Loans held by the department, including Parent PLUS loans of either type, who have reached the necessary forgiveness threshold as a result of receiving credit toward IDR forgiveness.

Everyone else with a student loan must resume payments by October.

Enough Republicans and Democrats in Congress found enough common ground to pass a debt ceiling bill and avert a U.S. government default.

But as a result, people with student loan debt – whose payments were suspended at the start of the COVID-19 pandemic three years ago – will resume making monthly payments. The resumption of loan payments was one of the many other features contained in the bill.

The bill, which President Biden is expected to sign, calls for the resumption of student loan payments “60 days after June 30, 2023,” which would be Aug. 29. Estimates of total student loan balances vary but investment banking firm Jefferies has reported that about 45 million Americans owe more than $1 trillion, with average monthly payments of $393.

Economists are concerned about what this will mean to the U.S. economy. Payments were suspended in 2020 because it was believed the pandemic would lead to widespread unemployment and severe economic hardship for student loan borrowers.

While unemployment spiked in the first couple of months, the U.S. quickly had a labor shortage and most people who wanted jobs could find one. At the same time, the U.S. government paid out more than $1 trillion in stimulus payments.

Belt-tightening

Student loan borrowers who have grown accustomed to not making those payments will now have to factor them back into their monthly budgets. And the political climate makes Biden’s student loan debt forgiveness proposal appear less likely to prevail.

In fact, the Senate, controlled by Democrats, this week passed a House measure to repeal the administration’s debt forgiveness program. Biden has said he will veto it.

Opponents of debt forgiveness say it is unfair to ask taxpayers who didn't go to college and those who have paid off their student loans to pay for those who still owe.

Even with the veto, the debt forgiveness program is at the mercy of the U.S. Supreme Court, which is set to rule on the measure’s constitutionality. Biden’s executive order would grant 40 million borrowers up to $20,000 in student loan forgiveness.