RSSStudent loan companies are illegally collecting debts already discharged through bankruptcy, according to a March 17 Consumer Financial Protection Bureau bulletin.
According to the agency, borrowers faced with ongoing collection attempts continued making payments — sometimes thousands of dollars — on debt they no longer owed.
The agency ordered servicers to return “illegally collected payments to affected consumers and immediately cease these unlawful collection tactics.”
The findings built on a 2014 CFPB report that found student loan servicers deceptively told borrowers their loans could not be discharged in bankruptcy even though it is allowed under bankruptcy code.
The CFPB noted that a bankruptcy discharge eliminates consumer student loan debt in several circumstances, including:
- If the loans were to students attending schools not permitted to process Federal student aid, such as unaccredited or foreign institutions.
- If the loans were to students attending school on a less-than-half-time basis.
- If the loans were in excess of the cost of attendance.
- If the loans were to cover fees and living expenses while the student studied for the bar exam, other professional exams or medical or dental residency.
- If the loans were for non-qualified higher education costs.
“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.”
