Did A Collector Come After You For A Discharged Student Loan?

There are few things worse than a debt collector dinging you for a loan you’ve paid off or discharged. This has been a pronounced problem in the college debt arena.

According to a study by the Consumer Financial Protection Bureau (CFPB), “When a court orders the discharge of a loan, lenders and servicers should not treat this as a suggestion,” said CFPB Director Rohit Chopra.

“The CFPB has found that some servicers are ignoring bankruptcy court orders. The student loan servicing industry should ensure that their collection practices are compliant with the law.”

If you’ve ever dealt with a loan servicing company, you know it’s been rough going at times. Here’s what you need to know:

• These findings build on previous work from 2014, when the CFPB found that student loan servicers deceptively told borrowers that their loans were not dischargeable in bankruptcy even though the Bankruptcy Code does allow for discharge.
• The CFPB found that, when faced with continued collection activities in violation of bankruptcy court orders, many borrowers continued to make payments, sometimes paying thousands of dollars on debts that they no longer owed.

Some examples of student loans eligible for standard bankruptcy discharge include:

• Loans made to attend schools that are not eligible to receive U.S. Federal student aid, such as unaccredited schools and foreign schools (“non-Title IV schools”).
• Loans to students attending school less than half-time.
• Loans made in amounts in excess of the cost of attendance, which are often disbursed directly to the borrower, instead of the school.
• Loans made to cover fees and living expenses incurred while studying for the bar exam or other professional exams.
• Loans made to cover fees, living expenses, and moving costs associated with medical or dental residency.
• Other loans made for non-qualified higher education expenses.

Consumers having an issue with loans — or any consumer financial product or service — can submit a complaint with the CFPB online or by calling (855) 411-CFPB (2372).