CFPB weighs in after years of borrowers arguing in court that their loans are eligible to be discharged in bankruptcy
For years, borrowers have been going to court claiming that student-loan companies were illegally collecting on debt they had discharged in bankruptcy. Now, the nation’s top consumer watchdog says it agrees — and is ordering the firms to give consumers their money back.
The announcement comes after years of court battles over debts often marketed as private student loans, but that attorneys and advocates have argued are a different type of IOUs and can be discharged in bankruptcy. Student loans are notoriously hard to wipe away in bankruptcy, but regular consumer debt is dischargeable and some student loans can in certain circumstances be viewed by courts as dischargeable consumer debt.
Navient didn’t immediately respond to a request for comment, but over the course of the litigation the company has pushed back at the idea that these loans are similar to other consumer debts for the purposes of bankruptcy proceedings.“The CFPB has said very clearly now these loans are not collectable,” said Mike Pierce the executive director of the Student Borrower Protection Center, an advocacy group that’s looked closely at this issue.
“If the findings that we reached so far are any indicator I’m not sure that we are looking at a fully compliant industry at this moment in time,” the CFPB official said. “We’re hoping that folks sit up and take notice.”
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