While many new college undergraduates borrow money to pay for college, not all of their debt comes from federal student loans.
In fact, borrowers owed a combined total of $118.17 billion in private student loans in the first quarter of this year, according to a report released by MeasureOne. The semi-annual report includes information from six student loan lenders, such as Citizens Bank, Discover Bank, Navient Inc., PNC Bank, Sallie Mae Bank and Wells Fargo & Co.
The main difference between the two loan categories is federal student loans are backed by the U.S. Department of Education while private loans are funded by private organizations, such as credit unions, banks, online lenders and state-affiliated organizations. This sometimes raises questions about the differences in borrowers’ rights for federal and private student loans.
In addition to the proposed 2015 Student Loan Borrower Bill of Rights that failed to gain traction in a Republican-controlled Congress, there have been recent amendments to revive the effort to expand protections for private student loan borrowers.
Currently, there are several consumer protections in place for federal and private student loan borrowers. The Student Loan Ranger will explore these rights and how these protections relate to different stages of the borrowing and repayment process.
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Borrowers are protected under several federal laws. The Truth in Lending Act, the Equal Credit Opportunity Act, the Fair Credit Reporting Act, the Federal Trade Commission Act and the Consumer Financial Protection Act all provide a level of protection for private student loan borrowers. The same applies to federal student loans; however, the borrowing process does not require an assessment of a person’s financial capacity or a review of credit history for most federal loans, with the exception of Parent and Graduate PLUS loans.
All borrowers have a right to a full disclosure of terms before signing a loan agreement.
Consumers have debt collection rights. While you may have the benefit of different options for affordable repayment of your private student loans, access to special programs is not a protected right. For that reason, it may be necessary to consider restructuring your loans when it becomes difficult to maintain on-time payments.
Restructuring a private loan may include refinancing a single loan or consolidating multiple loans into one. For short-term affordable repayment solutions, borrowers may choose deferment or forbearance. Debt forgiveness is not a right or guarantee, but there are cases of extreme hardship that may qualify for a loan discharge. The same considerations are true for federal student loans with the additional options associated with income-driven repayment programs, like the Pay As You Earn Plan, known as PAYE, or the Income-Based Repayment Plan, often called IBR.
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Collection of federal and nonfederal student loan debt is regulated by the Fair Debt Collection Practices Act. The FDCPA protects borrowers from being misled, harassed or subject to abusive practices by debt collectors. Similar to collecting an outstanding credit card balance, a debt collector may not threaten legal action unless they are going to follow through, they cannot misrepresent the amount owed or lie about how and when the debt can be collected.
Federal loans offer guaranteed repayment options, so if a debt collector makes any false or misleading statements about those choices, it could be a violation of the law. The same is true if a collector discusses a federal student loan debt with a third party without consent of the borrower.
Complaints can be filed at the federal level and in some states. Borrowers have the right to file a dispute if they are eligible for a discharge, the loan amount is incorrect or they’re experiencing a financial hardship. In the case of fraud, borrowers have the right to dispute a student loan balance if they can prove the loan was a direct result of identity theft. Record-keeping errors on the part of the lender are also within your right to dispute.
Borrowers defrauded by a higher education institution may also be eligible for a loan discharge. Earlier this month, a federal judge ordered the implementation of the Obama-era Borrower Defense rules, which protects borrowers who have been defrauded by a college or university. Borrowers who think they may qualify can file a borrower defense claim at studentaid.ed.gov.
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Apart from federal protections, there are several states that have introduced new legislation to protect student loan borrowers. This is a steadily evolving situation as new bills are introduced each year. California, Connecticut, the District of Columbia, Illinois and Washington, to name a few, have already passed consumer protection laws for student loan borrowers.
If you feel that your rights have been violated at any stage of the process, it is important to file a report immediately. A complaint can be submitted online through the Consumer Financial Protection Bureau. If the complaint involves any threats of violence, a report should be filed with local law enforcement.
The Student Loan Ranger advises borrowers to consider the role of officials in their states. It can be helpful to report suspected violations to your state’s attorney general.