Student-Loan Companies May Be ‘Unlawfully Collecting’ Your Debt: CFPB

  • A federal consumer watchdog warned that student-loan companies might be “unlawfully collecting” debt. 
  • It’s referring to a borrower perhaps getting billed even if they’ve discharged their debt through bankruptcy.
  • Companies have been accused of taking advantage of confusion surrounding the bankruptcy process.

President Joe Biden’s top consumer watchdog wants to bust the “myth” that student loans cannot be discharged through bankruptcy — while warning borrowers about bad practices by student-loan companies when it comes to loan forgiveness.

On Tuesday, the Consumer Financial Protection Bureau (CFPB) published a blog post outlining the process for getting rid of student debt in bankruptcy court, and the challenges that accompany doing so. Specifically, the bureau wrote that while it is possible for borrowers with private student loans to succeed in bankruptcy court, not only is the process difficult to understand, but student-loan companies have been accused of violating discharge orders and “unlawfully collecting” debt, raising “serious concerns.”

“Regrettably, complaints submitted to the CFPB suggest that some of these companies might be making false statements to borrowers about the protections bankruptcy offers—or worse, even collecting on debts that have already been discharged by a bankruptcy judge,” the blog said.

“Collecting on debts that have been discharged through bankruptcy might not only violate the Consumer Financial Protection Act’s prohibition on unfair, deceptive, and abusive practices—it could also violate the order of a United States bankruptcy judge,” it added.


For a borrower to get rid of their debt in bankruptcy court, they must meet the undue hardship standard, which requires them to prove that they cannot maintain a minimal standard of living, their circumstances will likely not improve, and they have made a good-faith effort in repaying their debt. In 2005, that standard was extended to private student-loan borrowers, expanding the scope of those who would have to face stricter requirements in court.

Since then, as the CFPB noted, consumers have complained about the process. For example, one consumer wrote to the bureau that although their loans were discharged in court, their student-loan company has continued to collect monthly payments under the argument their loans were not eligible for discharge.

If you think you have been wrongfully billed for loans, the bureau recommended documenting how much you have paid since bankruptcy discharge, saving any documents pertaining to the loan and the bankruptcy, and filing complaints to the CFPB regarding your situation.

The CFPB will “closely scrutinize” bad behavior by student-loan companies

The Student Borrower Protection Center (SBPC) found in January that 2.6 million student-loan borrowers could have gotten rid of their debt through bankruptcy, but “predatory tactics” by private loan companies were blocking them from doing so. 

That finding prompted Senate Majority Whip Dick Durbin to lead some of his colleagues in sending a letter to the CFPB to learn how the agency was planning to hold those companies accountable, and the bureau’s director Rohit Chopra vowed to strengthen oversight in a letter back to Durbin obtained by Insider.

“I am deeply concerned that borrowers are burdened by decades-old private student loan debt and potentially unlawful collection efforts,” Chopra said. “I have directed CFPB staff to closely scrutinize these issues, including whether companies are making false representations.”

Chopra added that the SBPC’s findings “raise concerns” about abuses to the bankruptcy system, and the bureau will use its authority to “protect borrowers being deprived of relief they have received through bankruptcy discharge or misled about the protections they are entitled to under the law.”

More recently, Durbin called on Education Secretary Miguel Cardona to reform the “unnecessary high bar” student-loan borrowers have to clear in court, and he’s waiting to see where the Education Department stands on any upcoming reforms.

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