Consumer Law Report Blasts For-Profit Colleges for Private-Label Student Loans

A new report issued in January by the National Consumer Law Center accuses for-profit colleges of saddling their students with unregulated private-label student loans that force these students into high interest rates, excessive debt, and predatory lending terms that make it difficult for these students to succeed.

The report, entitled “Piling It On: The Growth of Proprietary School Loans and the Consequences for Students,” discusses the boom over the past three years in private student loan programs offered directly by schools rather than by third-party lenders. These institutional loans are offered by so-called “proprietary schools” – for-profit colleges, career schools, and vocational training programs.

Federal vs. Private Education Loans

Most loans for students will be one of two types: government-funded federal student loans, guaranteed and overseen by the U.S. Department of Education; or non-federal private student loans, issued by banks, credit unions, and other private-sector lenders. (Some students may also be able to take advantage of state-funded college loans available in some states for resident students.)

Private student loans, unlike federal undergraduate loans, are credit-based loans, requiring the student borrower to have adequate credit history and income, or else a creditworthy co-signer.

The Beginnings of Proprietary School Loans

Following the financial crisis in 2008 that was spurred, in part, by the lax lending practices that drove the subprime mortgage boom, lenders across all industries instituted more stringent credit requirements for private consumer loans and lines of credit.

Many private student loan companies stopped offering their loans to students who attend for-profit colleges, as these students have historically had weaker credit profiles and higher default rates than students at nonprofit colleges and universities.

These moves made it difficult for proprietary schools to comply with federal financial aid regulations that require colleges and universities to receive at least 10 percent of their revenue from sources other than federal student aid.

To compensate for the withdrawal of private student loan companies from their campuses, some for-profit colleges began to offer proprietary school loans to their students. Proprietary school loans are essentially private-label student loans, issued and funded by the school itself rather than by a third-party lender.

Proprietary Loans as Default Traps

The NCLC report charges that these proprietary school loans contain predatory lending terms, charge high interest rates and large loan origination fees, and have low underwriting standards, which allow students with poor credit histories and insufficient income to borrow significant sums of money that they’re in little position to be able to repay.

In addition, these proprietary loans often require students to make payments while they’re still in school, and the loans can carry very sensitive default provisions. A single late payment can result in a loan default, along with the student’s expulsion from the academic program. Several for-profit schools will withhold transcripts from borrowers whose proprietary loans are in default, making it nearly impossible for these students to resume their studies elsewhere without starting over.

The NCLC report notes that more than half of proprietary college loans go into default and are never repaid.

Recommendations for Reform

Currently, consumers are afforded few protections from proprietary lenders. Proprietary school loans aren’t subject to the federal oversight that regulates credit products originated by most banks and credit unions.

Moreover, some proprietary schools claim that their private student loans aren’t “loans” at all, but rather a form of “consumer financing” – a distinction, NCLC charges, that’s “presumably an effort to evade disclosure requirements such as the federal Truth in Lending Act” as well as a semantic maneuver meant to skirt state banking regulations.

The authors of the NCLC report make a series of recommendations for reforming proprietary school loans. The recommendations advocate for tough federal oversight of both proprietary and private student loans.

Among the NCLC’s favored reforms are requirements that private student loan companies and proprietary lenders adhere to federal truth-in-lending laws; regulations that prohibit proprietary loans from counting toward a school’s required percentage of non-federal revenue; implementing tracking of private and proprietary loan debt and default rates in the National Student Loan Data System, which currently tracks only federal education loans; and centralized oversight to ensure that for-profit schools can’t disguise their true default rates on their private-label student loans.

Other proposed reforms the NCLC supports include modification of federal bankruptcy laws and expansion of federal college loan debt relief programs.

The NCLC argues for a modification of current bankruptcy laws that would allow student borrowers to discharge onerous student loan debts in a bankruptcy petition without having to meet the current, nearly-impossible-to-satisfy “undue hardship” tests. Amidst more relaxed bankruptcy rules and strengthened non-bankruptcy alternatives, the NCLC maintains, fewer borrowers would find themselves hopelessly mired in student loan debt.

What Are Effective Case Law Citations in Essay Writing?

In view of the problems that many students all too often experience in this area, in this brief article I look to now take you through the intricacies of referencing case law in all subjects with a legal element to their study in the UK in particular. Therefore, this will prove especially useful for those studying English law or any subject areas with an English law element when writing your work.

With this in mind, when looking to cite case law in your work it is necessary to consider the traditional form of referencing case law for essay writing in legal subjects that looks to provide –

(a) Name of Case

This should be printed in italics or underlined (do not highlight or use different coloured ink)

(b) Year

This should be in square brackets [1992] or round brackets (1957). The majority of modem law reports use square brackets indicating the year is an integral part of the reference, but some series also adopt a system of volume numbering that runs consecutively through the series in which case the year is in round brackets and simply indicates the date the judgement was given.

(c) Volume Number

Many reports have several volumes each year numerically. As a result, the year will be in [square brackets] and will be an integral part of the reference, whilst those case law series that are numbered consecutively from the beginning will have the year in (round brackets).

(d) Abbreviation for the Series

This indicates the series in which the law report is published – the All England Reports (All ER) is very popular. For your further information a full list of abbreviations can be found in Raistrick. D. S (2007) ‘Index to Legal Citations and Abbreviations’ 2nd Edition, London, Bowker-Saur or in the monthly parts and yearbook of ‘Current Law’.

(e) Page Number or Case Number

The page number is the number within the volume of the report where you will find the case.

Since 2001 some series have started using unique numbers of each case within each year. Therefore, for example, ‘[2005] 2 Cr. App. R. 4’ refers to the fourth case of volume 2 of Criminal Appeal Reports 2005.

At the same time, however, recent reports also number each paragraph, so that the precise point in the case may be cited. As a result, this is especially useful if you are quoting directly from a particular judgement. At the same time, however, it is to be appreciated that, in the past, particular passages could be identified by reference to the letter to be found in the margin.

(f) [Optional] Court

On this basis, it is always important to know which court made the decision and it is good practice to develop the habit of including an indication of the court at the end of the reference – for example, House of Lords (HL) and Court of Appeal (CA).

Examples – There are generally too forms of case law decisions to be cited –

(i) For civil case law decisions in a case like ‘Johnson v Phillips [1975] 3 All ER 682’, by way of illustration, it is usually the claimant (plaintiff) v defendant. As a result, the ‘v’ stands for ‘versus’ or ‘against’, whilst the case is normally referred to in direct speech in a court scenario, for example, as ‘Johnson & Phillips’.

(ii) For criminal case law decisions in a case like ‘R v Lynch (1966) 50 Cr. App. R. 59’, by way of illustration, it is usually the Crown v the defendant. Moreover, as well as the ‘v’ standing for ‘versus’ or ‘against’, ‘R’ stands for ‘Rex’ (‘the King’) or ‘Regina’ (‘the Queen’). This case would then usually be referred to in direct speech in a court scenario, for example, as the ‘Crown against Lynch’ or just ‘Lynch’.

Neutral Citations

Moreover, it is also to be appreciated that, from January 2001, there has been an alternative method available for effectively referencing cases that was introduced to cope with the growth in the number of online reports that also proves very useful for the essay writing process. As a result, all of the case law decisions from the High Court and Court of Appeal have been assigned unique numbers so as to then be able to more easily identify the case since this new method of case citation for academic work also uses paragraph numbers within the case citation itself as part of the essay writing process in this area.

Example:

Grobbelaar v. News Group Newspapers Ltd [2001] EWCA Civ 1213.

Therefore, all case law is to be cited by the name(s) of the parties followed by the medium neutral citation in the essay writing process. Moreover, as well as the year when the case was cited, the reference in essay writing not only shows the legal jurisdiction, but also the court, the division of that court, the reference number assigned to the case by the official court shorthand writers, and (also often) a paragraph reference.

How the Law Treats Lawsuits by Debt Collectors and Original Creditors Differently

As I have pointed out elsewhere, people can be sued for debt by one of two different kinds of plaintiffs: “original creditors” or “debt collectors.” Broadly speaking, original creditors are the persons who originally claimed that you owed them money for some credit-based transaction. Debt collectors are other entities who either came into possession of the debt after it was delinquent or are acting (as independent contractors) for the original creditor.

Loan “servicers,” who come into possession of the debt immediately after it is incurred and administer the debt in the usual course of business, are considered “original creditors” even though the debt obviously did not originate with them.

Legal Impact of the Entity Suing You

Because original creditors have a direct, non-collection relationship with the general public, they have commercial pressures preventing them from acting too horribly during the collection process. Their collection activities risk alienating or annoying the public and thus, in the eyes of the law at least, they are held in check by the market. Therefore, the law does not provide any remedy against original creditors per se. However, this does not mean that original creditors are permitted to do anything without limits during the debt collection, just that there are no laws directed against them specifically. If they commit “outrageous” and abusive acts, or if they “defame” you by publishing false information, or obviously if they assault you or commit some other crime, you would still have your normal rights under the law.

Some states probably have specific laws directed against the collection process, too, either as part of their “merchandizing” codes or otherwise, so you should not automatically write-off the behavior of original creditors.

Against debt collectors, however, you have much more specific rights. And this goes back to the commercial realities underlying the transactions. There is no customer-based relationship between the debt collectors and the people from whom they are collecting. There only customers are either the original creditors, or none at all-they are acting independently on their own behalf and, as far as the market is concerned, are free to take any actions whatever to collect the money. This has given rise to some extreme and shocking abuses, and it led to the passage of the Fair Debt Collection Practices Act (FDCPA), among other legislation.

Because of the lack of market countermeasures to debt collectors and the legislative response, the relationship between individuals and debt collectors has become significantly regulated. The FDCPA makes “unfair” or “deceptive” collection techniques illegal in general, and it specifies a large number of particular practices as violations. But even if the action is not specifically named as illegal by the FDCPA it will still be illegal if it is unfair or deceptive. This allows lawyers and individuals fighting on behalf of people abused by debt collectors to be as creative in stopping obnoxious practices as the debt collectors are in creating and implementing them. The FDCPA provides attorneys fees to people suing debt collectors (if they win), but otherwise the remedies are fairly small, with the exception of “personal injuries,” which can include emotional distress. So that opens the door to real money a little bit.

Again I would remind the reader that remedies are not limited either to federal law (FDCPA), as some states may have better laws, or to debt-collection related laws. Reporting false information is defamation, and behaving beyond certain limits is “outrageous” enough for states to provide a remedy. And these remedies likely include punitive damages, various forms of “compensatory” damages, and other forms of relief that can be much more substantial than those provided by the FDCPA.

In conclusion, it is far more advantageous legally to be sued by a debt collector, as the law provides many more remedies against them. You are not without any remedy, however, against the actions of original creditors if they are sufficiently extreme.