A recent Seventh Circuit court ruling is providing hope to many student loan borrowers who are finding themselves in a difficult financial situation due to the heavy burden of their debt. The Seventh Circuit has ruled that a student loan servicer may be liable for damages caused as a result of their promises to advise student loan borrowers on how to handle their financial situations, directing them into plans that only benefit the lenders and hurt borrowers in the long run.
The case at the center of it all is Nelson v. Great Lakes Higher Education, which was a case brought by student borrower, Nicole Nelson. Nelson paid for her college education through federal student loans, which she began repaying in 2009. However, she soon found herself in a tough situation when her income dropped due to a job change two years later.
She contacted her student loan service provider, Great Lakes Educational Loan Services, for assistance. A representative with Great Lakes advised her to put her loans into forbearance. During this time, unpaid interest is capitalized, which results in larger monthly payments at the end of the forbearance period. Several months later, she ended up losing her job. Great Lakes then advised her to put her loans into deferment, which is a pausing of loan payments without accruing interest.
Nelson said she was never advised that she could enter an income-based repayment plan, which federal law requires all loan servicers to offer borrowers. Income-based plans allow the payments to be set as a percentage of the borrower’s discretionary income. The problem is, these types of plans are not exactly lucrative for lenders and are more time consuming and burdensome for the loan servicer.
Nelson filed suit, but the lower federal court found in favor of Great Lakes, saying that her allegations that the company’s representatives failed to disclose information regarding income-based plans were preempted by the Higher Education Act and that Illinois law could not trump the federal protections offered through this Act.
Upon appeal, the Seventh Circuit reversed the decision, saying the district court’s ruling was overly broad and that the federal law did not preempt state-law disclosure requirements, which meant Nelson could certainly hold Great Lakes accountable for failing to disclose this information under Illinois consumer protection law, especially considering the fact the loan service provider holds itself as being an expert in this area. Understandably, Nelson would believe that the loan service provider would know and advise her on the best options for her situation.
With 44 million Americans carrying some level of student loan debt, this situation is not unusual. Many of the bigger student loan service providers, such as Navient, have been accused of similar deceptive lending practices. A borrower may blindly follow the advice of his or her student loan service provider, not realizing that they do not have the borrower’s best interest in mind. At the end of the day, these companies are businesses, and they are looking out for their bottom line, which is how much money they can bring in to keep business running.
It is now hoped that this ruling will help guide the courts to rule in favor of borrowers who have been wrongfully mislead by student loan service providers.
For borrowers who are struggling with student loan debt, relief options are available. Many student loan borrowers are unaware that they have rights and repayment options available to them, such as postponement of loan payments, reduction of payments or even a complete discharge of the debt. There are ways to file for bankruptcy with student loan debt. It is important you contact an experienced Miami bankruptcy attorney who can advise you of all your options. As an experienced CPA as well as a proven bankruptcy lawyer, Timothy Kingcade knows how to help clients take full advantage of the bankruptcy laws to protect their assets and get successful results. Since 1996 Kingcade Garcia McMaken has been helping people from all walks of life build a better tomorrow. Our attorneys help thousands of people every year take advantage of their rights under bankruptcy protection to restart, rebuild and recover. The day you hire our firm, we will contact your creditors to stop the harassment. You can also find useful consumer information on the Kingcade Garcia McMaken website at www.miamibankruptcy.com.
Source: Courthouse News