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http://www.horwitzlaw.com/images/FTC-Commentary.pdf

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http://www.studentloanborrowerassistance.org/uploads/File/supp_Comm_testimony03.pdf

The Debt Collection Improvement Act

Supplemental Testimony

Government Reform Committee Subcommittee on Government Efficiency and

Finanacial Management

I. Introduction

Mr. Chairman and Members of the Subcommittee, thank you again for inviting me to testify

on June 17 regarding the Debt Collection Improvement Act. At that time, I agreed to get

back to the Committee about a few issues that I was unable to address at the hearing.

II. Illegal Debt Collection Activity

Chairman Platts asked specifically about a case, Padilla v. Payco General American Credits,

161 F. Supp. 2d 264 (S.D.N.Y. 2001) that I cited in my written testimony. This case was

brought by a student loan borrower against a private debt collection agency collecting debts

on behalf of the Department of Education.

In response to Chairman Platt’s question, the federal District Court in this case found that

the collection agency charged excessive collection fees. The court granted the borrower’s

motion for summary judgment on this issue, finding that the agency attempted to collect

over $2,000 in collection fees above the statutory limit. The court ruled this was a violation

of the federal Fair Debt Collection Practices Act.

As further evidence of illegal behavior by debt collectors acting on behalf of the

Department, I point you to another case, Peter v. GC Services L.P., 310 F. 3d 344 (5th Cir.

2002).

The Fifth Circuit in this case found that the envelope in which the debt collection

letter arrived, which contained the name and address of the United States Department of

Education, as well as a “penalty for private use” message, violated the Fair Debt Collection

Practices Act.

In response to the collection agency’s arguments that the violation was

benign, the court stated that the “Defendants’ impersonation of the Department of

Education is certainly not benign.” The court noted that in enacting the FDCPA, Congress

was especially concerned about agencies “impersonating public officials.”

III. Limited Remedies for Borrowers

It is important to note that the borrowers in the cases cited above used the federal FDCPA

as a vehicle for private relief because courts have found that there is no private right of

action for borrowers to bring cases based on violations of the Higher Education Act (HEA).

These cases can be both complicated and time-consuming. As a result, there are few

reported cases in the area of student loan collections. However, this does not mean that

there are only a few problems. As I previously testified, our office continues to receive

frequent complaints from advocates about abusive and illegal student loan collection

behavior.

Borrowers that do not have the resources to bring a lawsuit may seek relief instead by

complaining to the Department. The Department has not provided sufficient information

regarding how it responds to these complaints. For example, Ms. Shaw, Chief Operating

Officer of the Department of Education’s Federal Student Aid Division, testified that

agencies that violate the FDCPA could lose their contracts with the Department.

However, she did not specify whether the Department has ever exercised this power. To name just one example, at least one of the agencies cited above that violated the federal FDCPA continues to receive contracts from the Department.1

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IV. Excessive Collection Fees

In response to questioning at the hearing, I also mentioned a case in which a class of

borrowers sued the Department of Education for assessing up to 43% collection fees

against certain student loan borrowers whose loans specified 25% collection fees. Gibbons

v. Riley, Clearinghouse No. 50, 432 (E.D.N.Y. 1995).

In the settlement agreement, the

Department acknowledged errors in assessing collection fees and also admitted that it had

no method for easily distinguishing those with the 25% collection fees provision from other

borrowers. We understand that since about 2001, the Department has been working to

resolve this problem and has been sending out notices to borrowers who may have been

overcharged. I do not know if the Department has completed this process.

V. Data on Student Loan Complaints

Both Chairman Platts and Vice-Chair, Representative Blackburn asked me whether I could

provide additional information about problems with Department of Education collection

activity. In response to Representative Blackburn’s question about whether there are more

problems with the FFEL or Direct Loan programs, I answered that I had not specifically

tracked problems by type of loan.

I do not have this data available at this time. However, it is my intention to organize and

collect this data and submit it to both the Committee and to Ms. Shaw and others at the

Department as soon as possible.

In addition, NCLC submitted a Freedom of Information Act

request on June 9, 2003 requesting information about the Department’s evaluation of

discharge applications as well as information about collection hearings. We plan to follow up

this FOIA request with additional requests.

I would also like to point out that Ms. Shaw testified that the Department of Education

Ombudsman office regularly tracks this information. Overall, the Department has much

greater access to this information than we do and should be much better equipped to

organize the data and make it available to the Committee and to the public.

Ms. Shaw indicated to me at the end of the hearing that she would like to hear from me

about these problems. Since the hearings, I have spoken with Department staff about a

couple of problems and have been impressed with their willingness to work with me and

with other advocates to resolve problems. I appreciate their prompt response.

I hope that

the Department's increased responsiveness will extend to increased openness about the

complaints and problems they receive about student loan collection.

Although the Department has greater access to information about collection complaints,

I again commit that our program will work to collect and organize the information we receive

and provide it to both the Committee and the Department

Thank you for the opportunity to provide this supplemental testimony.

July 1, 2003

Testimony submitted by:

Deanne Loonin

Staff Attorney

dloonin@nclc.org

_____________________

1 GC Services is still listed on the Department of Education web site as a contractor

collection agency.

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Testimony Regarding the Financial Regulatory Relief and Economic Efficiency Act

There have been Amendments since that Article.

Abuse by relevant parts is stated:

Student loan debtors in default are many types of people with many reasons for their default. Perhaps the most common category is low income consumers who went to for-profit trade schools that swindled them and then closed down, leaving the students without any of the promised job skills and thus with no financial ability to repay the loans. Other borrowers in default are those who have become disabled, lost their job, or who are otherwise financially unable to keep up with loan payments. Those financially able should repay their student loans, but no American should be subjected to illegal debt collection harassment.

Private student loan collectors generally engage in some of the worst collection abuses. Consumers from all over the country report some of the worst collection abuses by private collectors hired on a commission basis to collect on student loans. These private bill collectors can have portfolios exceeding 100,000 loans; their only interest is to recover as much money at as little cost to them as possible.

Collectors are already flaunting congressional directives. The last reauthorization of the Higher Education Act and subsequent Congressional legislation created mechanisms to reduce defaults and also provided students in default with various rights, protections, and repayment plans.

 Private collectors typically are the only entities providing initial information to students about these rights and repayment plans.

Unfortunately, we have seen evidence that private collectors are systematically misrepresenting and concealing these basic rights -- reasonable and affordable payment plans, closed school and false certification discharges, consolidation loans, the ability to avoid garnishment and tax intercepts through repayment plans, and the like.

This is not surprising because collectors make little money if a student makes small affordable payments over a period of years or if the student receives a loan discharge because the school defrauded the student. These collectors instead try to squeeze out unaffordable amounts right away.

The effect of the amendment in S. 1405 would not be to protect the Student Loan Program, only abusive private debt collectors. Already the FDCPA does not apply to federal or state agencies, and there is thus no question of the FDCPA applying to the Department of Education or a state-run guaranty agency.

The only parties who would profit by this amendment would be private entities who are in the business of collecting debts in default and who violate the standards set out in the federal statute. 31 United States Code § 3718(a)(2) requires that all private collectors hired by executive or legislative agencies of the United States must be subject to all federal laws relating to debt collection.

There is no reason to provide special treatment to collectors hired by the Department of Education, when private collectors hired by other federal agencies must comply with the FDCPA.

 In addition, all private collectors in their contracts with the Department of Education agree to be bound by the FDCPA, and the Department has had no difficulty in finding collectors to sign such contracts.

Why deprive Americans of this important protection from debt collection harassment when collectors readily agree to this liability?

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There are a number of rationales offered for exempting communications made to collect loans made under the Higher Education Act, none survive close scrutiny:
 
a. It is argued that guaranty agencies are never abusive in their collection activities, and therefore do not need to be covered by the FDCPA.

First of all, it is not just the collection activities of guaranty agencies which will avoid coverage, but the debt collection agencies collecting for these agencies will escape scrutiny as well. Secondly, governmental, non-profit guaranty agency are already exempt from the FDCPA 20

Lastly, and most importantly, guaranty agencies have committed abusive collection practices in numerous instances such that it is clear that the consumers need the protections of the FDCPA when guaranty agencies or their collection agencies are collecting these debts21.
 
(See Appendix II for two recent case histories of the problems with student loans.)


b. It is argued that the FDCPA adds no meaningful protections for debtors beyond those already provided by the Department of Education regulations on collecting student loans.

This is frankly absurd.

The rules that lenders, guaranty agencies and collection agencies must follow when collecting student loans require certain numbers and types of telephone and written contacts, require threats to affect the debtors credit, require threats of and then implementation of prejudgment wage garnishment and tax refund intercept.

Unlike most other debts, consumers cannot escape liability for student loans by waiting, as there is no statute of limitations.

 Student loan debtors also are generally prohibited from discharging student loans by filing bankruptcy.

There are some defenses for debtors to payment of student loans, based for example on a school’s fraudulent activity or other misdeed.

There are also required notices and hearings prior to executing garnishment and tax intercept orders.

 However, there are no protections against abusive, or deceptive collection efforts in these regulations.

The regulations provide instructions on how best to force debtors to pay their student loans.

 Given the broad powers that collectors of student loans have, consumers are even more in need of basic protections from their abusive collection activities than the general class of consumers.
 
c. It is argued that as the FDCPA validation notice does not provide information regarding the student loan collector’s rights and obligations regarding the collection of the debt, that requiring the FDCPA notice is confusing to student loan debtors.

This is disingenuous. While the FDCPA notice may not require that the collector of student loans provide this information, there is nothing to prohibit the collector from adding it to the required information22.

 In fact, it especially important for student loan debtors to have the right to verification of the loan, because too often debtors are not informed what loan the collector is seeking, what school or time period the loan covered, or even whether the debtor was the student who incurred the loan.

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d. It is argued that a collector cannot comply with the communications provisions of the FDCPA and the due diligence regulations governing student loan collections. This may indeed be true, and with the addition of only one other, very minute detail (which will be addressed below in paragraph f) is the only example of situations where the two conflict.
 
The appropriate response to this conflict is to address it specifically and narrowly, not to provide blanket exemptions for all student loan collections. The regulations governing collections of student loans mandate "due diligence" on the part of the collector by requiring several written notices that must contain specific information regarding the loan and consequences of non-payment23, as well as several telephone contacts24. The FDCPA on the other hand, requires a collector to cease communications with a consumer if the consumer requests it25.
 
The FDCPA requires communications to cease at the consumer’s request to provide a sanctuary for consumers from the constant dunning efforts of collectors. It allows the consumers a way to say "Enough, I’ve got the message." If a consumer requests that communications cease, that should end collections’ communications. Nothing prevents the student loan debt collector from proceeding with the next step in the collection process: prejudgment garnishment, tax intercept or civil suit, according to the prescribed time schedule. The only difference is that the constant letters and telephone calls must cease in the interim.
 
The FDCPA provides that after a cease communications’ notice from the consumer the collector can still communicate to advise, among other things, that the collector "may invoke specified remedies."26 The simplest and best way to resolve these conflicts is to provide that a collector of student loans is not required to continue the letters and phone calls after a receipt of a cease communication notice from the debtor. All other collection efforts can then proceed according to the prescribed time schedule.
 
e. It is argued that the requirement in the student loan regulations to make diligent attempts to locate a consumer whose location is unknown conflicts with the prohibition in the FDCPA to contact third parties. This is simply not true. There is a whole section in the FDCPA which allows collectors to pursue location information; it simply ensures that this activity is pursued in a manner which protects the consumer’s privacy.27
 
f. It is argued that collectors of student debts need to communicate with consumers’ employers to effectuate wage garnishment, and that compliance with the FDCPA would disallow this. This is a very minor, but possible inconsistency between the two statutes.
 
In FDCPA § 1692c(b) communications are only permitted with third parties for specific reasons, including those necessary to effectuate a postjudgment garnishment remedy. As collection regulations for loans made under the Higher Education Act allow prejudgment garnishment, conceivably communications made regarding prejudgment garnishment would violate the FDCPA (although there are no court cases or challenges of student loan collectors based on this very technical distinction). We would have no objection to amending § 1692c(b) to address this discrepancy as follows:
 
(b) Communication with third parties--Except as provided in section 1692b of this title, without the prior consent of the consumer given directly to the debt collector, or the express permission of a court of competent jurisdiction, or as reasonably necessary to effectuate a postjudgment judicial remedy, or a prejudgment administrative wage garnishment permitted under 20 U.S.C. § 1095a, a debt collector may not communicate, in connection with the collection of any debt, with any person other than the consumer, his attorney, a consumer reporting agency if otherwise permitted by law, the creditor, the attorney of the creditor, or the attorney of the debt collector.
 
It would be unseemly for the United States to sanction worse collector behavior when these collectors represent the United States or a state guaranty agency then when these collectors represent credit card issuers, finance companies, and banks. The United States certainly wants to recover on defaulted student loans, but it need not do so by encouraging private entities to lie and harass America's youth and others seeking to improve themselves through education.
 
The FDCPA is the only federal control over private collectors collecting on student loans. The exclusion proposed in S. 1405 would provide carte blanche to these collectors. Even if the Department of Education could effectively regulate the collectors the Department hires when they collect on millions of accounts, the amendment also gives free reign to the even larger group of collectors hired by guaranty agencies, schools, and lenders.

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http://www.consumer-law.org/issues/student_loans/content/PR_PrivateLoans.pdf

For Immediate Release: March 3, 2008
Contact: Deanne Loonin
617-542-8010
dloonin@nclc.org

NCLC’s "Paying the Price: The High Cost of Private Student Loans and the Dangers for Student Borrowers" Released Today: Link to Report Below

Loans made outside of federal programs have higher prices, lack borrower protections
BOSTON-- College students, increasingly reliant on high-priced and lightly regulated private loans to pay tuition and other expenses, are risking their futures by taking out expensive loans, a new study warns.

These private loans now account for nearly one in every four dollars of student borrowing.
"Paying the Price: The High Cost of Private Student Loans and the Dangers for Student Borrowers", a report issued March 3 by the National Consumer Law Center, finds that private student loans are almost always more expensive than federal loans, especially for borrowers with lower credit scores or limited credit histories.

Private loans also do not have the same range of protections for borrowers that government loans have.

The market is fueled by profits derived from repackaging and securitizing loans and selling them to investors.

The practice of creating products for investors began in the mortgage market and has been exported to credit cards and student loans and other industries.

According to Deanne Loonin, NCLC staff attorney and principal author of the study, "The problem is that loan products have been developed for the repackaging rather than to provide the most affordable and sustainable products for borrowers."

The report includes an in-depth discussion of private student loan terms, including a review of 28 representative loans made from 2001 through 2006. Key findings include:

• High Prices and Fees: Private loans, which aren’t subject to the rate caps that fix the interest rate on most federally backed loans at 6.8%, typically cost more. The average initial rate for the loans in the survey was 11.5%, and the highest was nearly 19%. About 85% of the loans had origination charges, averaging about 4.5% of the loan amount.

• Lack of Relief: Unlike federal loans, makers of private loans generally do not offer flexible relief, including such options as income-based repayment, economic hardship deferments and cancellations for severely disabled borrowers.

And even when borrowers die, most private lenders continue to seek payments from the borrowers’ estates!

• Restricting Borrower Access to Justice: Sixty-one percent of the loans studied included mandatory arbitration clauses. These are controversial hallmarks of predatory loans that limit a consumer’s ability to challenge problems with the loans or with the schools they attend.

Further, all of the notes surveyed stated that any court actions initiated by the lender or consumer would have to be filed in the lender’s home state, requiring most borrowers to travel far from home just to get their day in court.

The report also describes the lack of clear information provided to borrowers about the dangers of private student loans. In the current market, with complex products n by securitization and products made for Wall Street rather than Main Street, borrowers can not rely on disclosures to ensure they get the loan they want and can afford.

Increasing numbers of borrowers are having trouble repaying these high cost loans and investors are getting nervous, just as in the mortgage market. "A tighter market, if it occurs, might make credit less available" says Loonin, "but this should help pull aside the curtain and show the reality that in the long-run expensive credit does not promote equal access to education. High-cost private loans are not a solution to the problem of rising college costs."

The report contains a detailed policy framework and recommendations
to help preserve access to affordable higher education by addressing problems with private student loans.

The key principles are eliminating unsustainable loans, ensuring effective rights and remedies for families caught in unaffordable loans, and improving assistance to distressed borrowers.

The report is available at:

http://www.studentloanborrowerassistance.org/uploa ds/File/Report_PrivateLoans.pdf


###
National Consumer Law Center
is a non-profit organization with 37 years of working experience in consumer issues, especially those affecting low-income consumers.

NCLC works with and offers training to thousands of legal-service, government and private attorneys, as well as community groups and organizations representing low-income and elderly people.

Our legal manuals and consumer guides are standards of the field.

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http://www.newyorkbankruptcylitigation.com/2007/09/29/colleges-refusal-to-provide-transcript-violates-automatic-stay-even-though-debt-is-non-dischargeable/

College’s Refusal To Provide Transcript Violates Automatic Stay, Even Though Debt Is Non-Dischargeable

By Jay Fleischman, New York Bankruptcy Attorney -
Posted in Chapter 13 Bankruptcy, Decisions Of Interest,
 Featured, Student Loans In Bankruptcy
September 29, 2007

The recent case of In re Mu’Min, 2007 WL 2791364 (Bkrtcy.E.D.Pa. 2007) the court held that the refusal of University of Pennsylvania to provide a transcript to a debtor, due to the existence of an unpaid, student loan debt that is nondischargeable under 11 U.S.C. § 523(a)(8), violates the automatic stay provision of the Bankruptcy Code, 11 U.S.C. § 362(a)(6). The court further held that regardless whether the facts giving rise to Penn’s asserted “good faith” would have constituted a defense to monetary liability under the standard set forth in by the Third Circuit in In re University Medical Center, 973 F.2d 1065 (3d Cir.1992), after the 2005 amendments to the Bankruptcy Code, Penn’s defense was no longer legally viable and awarded actual damages to the Debtor.

The Debtor in the case was a student at Penn, financing her education through student loans granted or guaranteed by Penn.

The principal amount of the loans was in excess of $33,000. The Debtor became delinquent in the repayment of her Penn student loans and has transcript was placed “on official hold.” Several months after the filing of her Chapter 13 case, the Debtor requested that Penn provide her with a certified copy of her transcript so that she could apply to a masters degree program in clinical psychology commencing in the fall of 2007. The debtor’s request was referred to Penn’s lawyers, and a lengthy letter-writing campaign ensued.

The court sided with the majority of courts that hold a university’s refusal to release a debtor’s transcript due to the existence of a default on a nondischargeable student loan owed to the university violates the automatic stay.

For other cites holding this view, you may look to In re Merchant, 958 F.2d 738, 741 (6th Cir.1992) (holding that refusal to provide chapter 7 debtor transcript because of default on student loan was a violation of the automatic stay based on the plain language of 11 U.S.C. § 362); In re Hernandez, 2005 WL 1000059, at *1 (Bankr.S.D.Tex. Apr. 27, 2005) (concluding that denial of transcript to chapter 13 debtor because of outstanding student loans was a violation of the automatic stay); Loyola Univ. v. McClarty, 234 B.R. 387, 386 (E.D.La.1999) (university’s act of withholding chapter 13 debtor’s transcript violated automatic stay); In re Scroggins, 209 B.R. 727, 730 (Bankr.D.Ariz.1997) (act of parochial school withholding transcript of chapter 13 debtor’s minor child violated the automatic stay); In re Carson, 150 B.R. 228, 231 (Bankr.E.D.Mo.1993) (holding that college violated stay by not delivering transcript to chapter 7 debtor when debt had not yet been determined dischargeable); In re Gustafson, 111 B.R. 282, 288 (9th Cir.BAP1990), rev’d on other grounds, 934 F.2d 216 (9th Cir.1991) (holding that university violated the automatic stay by withholding chapter 7 debtor’s transcripts because the debts were not yet determined nondischargeable); In re Parham, 56 B.R. 531, 534 (Bankr.E.D.Va.1986) (holding that university violated automatic stay by withholding chapter 13 debtor’s student transcript, but that such action at bar did not rise to the level of contempt). See generally In re Parker, 334 B.R. 529, 536, 538 (Bankr.D.Mass.2005) (concluding that university’s act of refusing to allow chapter 7 debtor from registering for class and from graduation was both violation of the automatic stay and the discharge injunction); In re Walker, 336 B.R. 534, 536 (Bankr.M.D.Fla.2005) (considering whether private university violated 11 U.S.C. §§ 362 and 525 by withholding chapter 13 debtor’s transcript); In re Reese, 38 B.R. 681, 683 (Bankr.N.D.Ga.1984) (holding that state university violated 11 U.S.C. §§ 362 and 525 by withholding debtor’s transcript where debt was dischargeable); In re Ware, 9 B.R. 24, 25 (Bankr.W.D.Mo.1981) (on objection to confirmation found that 11 U.S.C. § 525 was inapplicable but that college violated automatic stay by denying transcript to chapter 13 debtor); In re Howren, 10 B.R. 303, 305 (Bankr.D.Kan.1980) (on motion requesting order for immediate release of transcript, held that state university was in violation of 11 U.S.C. §§ 362 and 525 for withholding chapter 7 debtor’s official transcript for purpose of debt collection); In re Heath, 3 B.R. 351, 354-55 (Bankr.N.D.Ill.1980) (state university act of refusing to issue academic record to chapter 13 debtor frustrated fresh start policies of the Bankruptcy Code and violated both 11 U.S.C. §§ 362 and 525).

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http://answers.google.com/answers/threadview?id=761268



Q: Credit Card Default ( Answered,   0 Comments )
 
 
Question     
 
Subject: Credit Card Default
Category: Business and Money > Finance
Asked by: robert78-ga
List Price: $50.00  Posted: 31 Aug 2006 19:14 PDT
Expires: 30 Sep 2006 19:14 PDT
Question ID: 761268
 

I have been living abroad for five years and will do so for the
conceivable future, though I may want to return to the States in the
future.

I have an approximately Seven Thousand Dollar student loan
owed to the Federal Goverment and owe around Seven Thousand Dollars to
various credit card companies.  My questions are as follows:

What are the consequences of defaulting on a student loan held by the
goverment, if living abroad?  

Since they can not garnish wages and I
own nothing of value in the United States what will be the
repercussions?  Can they touch my inheritance when my grandparents
pass away as they have set aside 30,000 dollars for each of their
grandchildren in their will, or when other family members pass away.

My second question is what will occur if I transfer my balances on all
of my credit cards to my three cards with the highest credit lines and
default on those cards, will the remaining five cards that I possess
by cancelled as well due to defaulting on the other cards, some cards
are issued by the same company while others are not, so would also
like to know both whether the cards issued by the same bank will all
be cancelled despite not having balances and my account being current,
in addtion to unrelated cards being cancelled once I go into default
even though my account is current with the unrelated cards.

My final question is since I am outside of the country and would not
appear for a court date is sued, can a arrest warrant be issued for
me, for any reason such as not appearing at court because when i do
renter the country to visit family, etc.


 I would be concerned about
getting picked up at immigration because of the warrant or failing to
appear for a supeona.

For all questions please keep in mind would not owe more than $5,000
to any credit card company, so would like to know if they would chase
me to severe lengths for that amount.

One last question that just occured to me, while I most likely won't
do this since it is very unmoral but would like to know if any
addtional problems will occur if I run up the balances of the credit
card in a short time period before defaulting on them

All the information above is purely to aid in my descion making
process on how to proceede with this issue so an honest objective
answer would be most appreciated.

Thank you
 
 
 

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Answer      
 
Subject: Re: Credit Card Default
Answered By: keystroke-ga on 28 Sep 2006 12:38 PDT
   
Hi robert78,

"What are the consequences of defaulting on a student loan held by the
goverment, if living abroad?  Since they can not garnish wages and I
own nothing of value in the United States what will be the
repercussions?"

If you ever wanted to move back to America, you should know that there
is no statute of limitations for collection of student loans.

 
http://www.ed.gov/offices/OSFAP/DCS/faqs.html

"By virtue of section 484A(a) of the Higher Education Act, statute of
limitations of no kind now limits Department’s or the guaranty
agency's ability to file suit, enforce judgments, initiate offsets, or
other actions, to collect a defaulted student loan. Regardless of the
age of the debt, statutes of limitation are no longer valid defenses
against repayment of a student loan."

The loaner sells the loan to a guaranty agency, which then owns the
loan and will use all manner of methods to find you. They can use wage
garnishment, seize your federal tax refund, and the like. Now, they
might not be able to garnish your wages from a foreign company, but if
you work for an American-based company or ever do, they can. American
citizens are also liable for paying income tax on any earnings
anywhere in the world; this is usually offset by deductions given for
taxes paid in a foreign country. But if any refund is due to you, that
would be taken for the student loan debt. You would also, of course,
have to pay taxes on that $30,000 from your grandmother and so any
refund you have that year could certainly be taken for the debt, and
if the guaranty agency files suit against you and a judgement is
rendered against you, that $30,000 would be taken at that time. Since
you will have to pay taxes legally on this inheritance, it would have
to be declared and it certainly could be taken away from you.

Defaulting on the loan would result in a negative reporting to your
credit report, which would stay for seven years after the loan is paid
off.


If it is never paid, it would remain on your credit report
indefinitely. That, and especially in addition to defaulting on your
credit cards in addition would give you a terrible credit score and
you probably would not qualify for a loan or any other line of credit
in the foreseeable future. Many landlords and regular bank accounts
conduct credit checks, so you might have more problems than you would
think of due to this.

You will probably also be turned over to a collection agency, who
might drive you insane contacting you over and over again until you
pay the debt.

In addition, your college could refuse to release your academic
transcript to you until the default is satisfied.

There is no federal
law that requires them to do this, and not all schools do, but the
transcript is their private property and if they deem that you have
not paid for your education as you agreed they may refuse to give you
copies. If you ever apply to any type of graduate school or
professional school abroad, they will probably want official
transcripts of your college work.

This probably goes without saying, but if you default on a student
loan and don't pay it back, you won't be eligible for any student
loans from the government for any future schooling.

In addition, after defaulting you would be liable for any and all
collection fees that are associated with your debt-- since you live
abroad and it might not be as easy to find you or communicate with
you, these could be steep. These can amount to 25 percent of the
amount of the student loan. If a lawsuit is brought against you, you
will most likely pay for those proceedings as well when the judgement
is rendered against you. If your grandparents' inheritance is
garnished due to this, the lawsuit costs would also be added on at
that time.

Finally, your account could be turned over to the federal Department
of Education for collection, and they could file a federal lawsuit
against you.   This would most likely also result in much of your
inheritance being taken away.

Department of Education on collection costs
http://www.ed.gov/offices/OSFAP/DCS/collection.costs.html

As you surmise, credit card companies could indeed cancel your cards
and not give you credit after you default on the other cards. In fact,
they could cancel your cards or raise your interest just on the fact
that you defaulted on your student loans, through a clause called the
"Universal default" clause. Read the fine print in your agreement to
see if your cards have this clause in effect.

Utility Consumers' Action Network

http://www.ucan.org/members/ucanmembersonly/watchdog/2005/Spring2005page1a.html

"'Universal default' is one of the nastier "gotchas" devised by credit
card companies. It is a clause buried in the credit card’s terms and
conditions. It states that if you are late for ANY payment with ANY
creditor, that the credit card company can treat you as if you are in
default. That’s right – if you are late in paying your rent or your
phone bill, they can cancel your credit card – or, in some cases,
raise the interest rate on your   outstanding balance to 29% or more."

Washington Post Blog
"Faulting Universal Default"

http://blog.washingtonpost.com/thecheckout/2006/07/faulting_universal_default.html

"Under universal default, a credit-card company monitors the credit
histories of its customers, even those who are current in their
monthly payments. If a customer is late paying another creditor (such
as another credit card company or utility)-- or has taken on so much
debt that his or her credit score drops -- the credit card company
automatically raises that customer's interest rate on existing and
future balances. Default interest rates can be as high as 35 percent;
most are around 30 percent."


As far as being arrested upon re-entry, I find this possibility
unlikely. Bench warrants are usually only executed when a defendant
has failed to appear in court on a criminal case, not civil. However,
if you don't appear for the civil trials against you, you will
probably automatically be found at fault and liable for the judgments.
If, however, the plaintiff did subpoena you to the case, and you
didn't appear, theat could be grounds for a warrant being issued for
your arrest, in which case you would have problems at immigration. You
would also have to check individual laws for your state.

Now, would the credit card companies go to the trouble of suing you?
If you ran up your debts to the limits and then disappeared, I believe
they would not hesitate to sue you, and you would not see any of your
inheritance. If you only had $5,000 of debt, they still might sue you
in small claims court.

Credit Card Debt on about.com

http://credit.about.com/od/fastfactsfaqs/f/suedoverdebt.htm

"The biggest consideration that goes into the determination of whthet
you will be sued to collect your credit card debt boils down to how
much you owe vs. how much it will cost to sue you in court to collect.
If your debt is small enough that it would cost more to sue you to
collect, you're just not likely to be sued. This doesn't mean you
shouldn't pay your debts and take the gamble that you won't be sued;
it does mean that the creditor is more likley to work with you to get
the debt paid off rather than just going straight to court."

Basically, if it costs less than $5,000 to sue you, they will probably
try to sue you-- and then Grandma and Grandpa's inheritance will be
taken as a judgment.



My advice:

Stop buying things you don't need, especially on credit. When you
really think about it, there probably isn't much you need but more
things you simply want.

Save what you don't spend. Slowly pay off your
bills. All these organizations want to prevent you from going into
default, and they are willing to work with you on payment plans and
schedules or if you're disabled for any reason. You do NOT want to do
this. It will cause many, many problems for you in addition to being
unethical. You don't want to get yourself into a situaton where you
can't use any kind of credit for anything, especially upon your return
to the United States, where that is especially important.


Sources:

http://www.tgslc.org/students/omb1.cfm#unable%20to%20pay

North Carolina State Education Assistance Authority

http://www.ncseaa.edu/pdf/aversion.pdf#search=%22student%20loan%20default%20lawsuit%22

Virginia Information on Civil and Criminal Courts

http://www.courts.state.va.us/gdc/gdc.htm

Search terms:
student loan default
student loan default lawsuit
credit card default cancel company
universal default student loan
credit card sue debts


If you need any additional help or clarification, let me know and I'll
be glad to help.

Cheers,

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No Exit
Feds break out the hired guns to nab student-loan jumpers
by Deirdre Hussey
April 13th, 1999 12:00 AM
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When it comes to federally subsidized student loans, the saying that we pay for the sins of those who have gone before us certainly hits the mark. For years, many grads readily blew off installments that they couldn't— or wouldn't— make while the government often looked the other way. But all that's changed for the latest generation of debt-ridden alums.
Over the past two decades, tuition at colleges across the country has skyrocketed and students, forced to mortgage their futures, are borrowing record numbers of federal dollars to bridge the gap. By the early 1990s, default rates hit an all-time high, with more than 20 percent of borrowers failing to repay their government-guaranteed loans. To help stem the loss, the Department of Education, in conjunction with the Department of Justice, is now aggressively using the law to rein in latepayers, who find themselves prey to strong-arm tactics designed to squeeze them for the overdue cash.

Enter law firms like the Long Island­based Sharinn & Lipshie or Mullen & Iannarane P.C., whose attorneys act as bottom-dollar bounty hunters for the government's toughest student-loan cases. Outfitted in suits and armed with just a name, social security number, and sometimes an old address, they track the most evasive borrowers and, more important, their assets. If they locate the debtors, these hired guns— contracted by the feds after state loan agencies fail to uncover those in arrears— try to persuade them to enter into a payment agreement within 30 days before forcing their loans into default. Such a move not only allows the government to tack a 20 percent collection surcharge onto the interest-accruing debt, but also results in a damaged credit rating for seven years. In worst-case scenarios, the lawyers sue to garnish both wages and income-tax returns.

"Once we find assets, where a person banks, works, or if they own property, we can recover a case," says Francis Mullen, of Mullen & Iannarane P.C. In 1987, the firm was hired by the DOJ to participate in the fledgling Private Counsel Program, a Congressional-sponsored initiative intended to alleviate the overwhelmed U.S. Attorney's office by recovering various forms of government debt; soon after, student-loan debt was added to the program.

But such assistance doesn't come cheap. For firms that secure overdue funds by settlement or suit, their compensation runs, on average, at 30 percent of the total owed. Although only 5 percent of the 10 percent of those who default are actually sued, these actions are testimony to how seriously the government— which has allowed students to rack up more than $100 billion in loans— is taking repayment. "By the time a case gets to the Private Counsel Program, we have exhausted all attempts to get a borrower onto voluntary payments," says Kathleen Haggerty, a director for the DOJ's brand of rough justice. Currently, the agency has 34 law firms hunting down thousands of debtors.

Zeroing in on violators, according to Harvey Sharinn, of Sharinn & Lipshie, depends on how active a person is. Databases— such as credit reports, real estate, and employment listings— are the weapons used to nail delinquent borrowers. No doubt today's technology and the booming business of selling information on purchase habits, magazine subscriptions, and credit-card transactions has made pinpointing individuals' whereabouts easier.

Ironically, most agree that the majority of borrowers fall into repayment problems because of legitimate financial hardships. "A small percentage think they can get away with it, but I haven't found that to be a real attitude," says Mullen. Collectors say in the early years of the program they went after delinquent loans dating as far back as the early 1970s and those who owed big bucks. But current cases involve graduates who have been out of school for about five years. "My experience has been the only things students really have is a job," says Mullen. "We concentrate on giving someone the opportunity to pay the darn thing, without immediately garnishing their salary."

That the government has become more aggressive in chasing student debtors is no surprise, considering the billions in loans it has floated, says Richard Fossey, co-editor of the 1998 book, Condemning Students to Debt. "Debt has been collected from easy targets: people who are established and/or who failed to repay their loans years ago," says Fossey. "What we are going to see is the government get to the level of people who have borrowed so much, they can't pay."

New York State has followed the federal government's lead. In 1997, the Higher Education Services Corporation— which is responsible for managing student loans— began employing outside agencies to work alongside its own collections department to recover late payments. Reducing student default rates is within the best interest of the state because federal aid programs drop from their rolls schools whose students consistently fail to repay. Moreover, states are punished by the federal government, which will only compensate 98 cents per each defaulted dollar. But many borrowers charge that HESC and their hired private collectors harassed them, regularly threatening lawsuits and home repossession, and accusing them of laziness.

Marcie Warhol* claims HESC treated her like "scum" when she had difficulties repaying a $12,000 loan she incurred while earning a master's of education from the State University of New York at Cortland. Having successfully repaid similar loans as an undergraduate, Warhol returned to school in her thirties, and describes her latest experience as "student-loan hell."

"They're heartless," says Warhol, who graduated in 1991 at the height of the economic crisis in upstate New York. "When I tried to explain that for every one teaching job there were 100 applicants, I was told I should try harder or I should have chosen a different major."

Without a lucrative job— Warhol says she was only able to secure a part-time, $10-an-hour counseling position— making regular payments was impossible. "They would not negotiate. I was denied a review of my situation on several occasions," she says.

Her problems only escalated. "They offered just one solution: capitalizing the interest on my loan," says Warhol. With little choice, she agreed and, within three years, her principal jumped to $16,000. Finally, by 1997, Warhol had improved her financial situation and came to an agreement with HESC to make monthly payments of $216. But, within weeks, she was slapped with a default notice and a "collection cost" of almost $3000. "For years they threatened a default judgment, and it never happened. After two payments, they blindsided me. My credit is ruined, my original $12,000 loan is now more than $19,000. I have been routinely treated like a criminal."

"People do not get to walk away from their financial obligations," counters Marc Carey, the spokesman for HESC. "We do not treat people in a hostile manner, but you do not get to ignore a major financial responsibility for five years," he says of accusations of misconduct. "We do everything under the sun to avoid sending a loan to default, including early intervention."

HESC begins calling a borrower 90 days after a missed installment and, by law, can send a loan to default after 180 days. Options offered to troubled borrowers, such as sliding-scale payments— increasing payments as income grows— have been successful. HESC also allows deferment and consolidation with other debt. In addition, the organization launched an advocacy unit last month to inform borrowers of their payment alternatives and provide advice on how to avoid credit-threatening situations.

Despite HESC efforts, some are convinced that use of aggressive tactics has become commonplace. Using caller ID, Eddie Cappy* goes out of his way to avoid Nationwide Credit Corp, which has been hired by HESC to collect his loan. Cappy, who believed his father had been repaying his loan regularly until his death in 1996, was unaware that he had stopped making payments. Soon after receiving a call from HESC claiming his loan was $1200 overdue and a $110 payment was needed, the former New York University student says he sent them the required amount. Six weeks later, he was notified that his payment hadn't been received. Within a week, he was contacted by Nationwide, which threatened to sue if he did not pay the $10,000 loan in full.

"Basically, they would take any money they could from me, but would always stress the $10,000. As soon as I sent in a payment for the agreed amount, I would get another phone call asking for more money," says Cappy.

While Nationwide refused to comment on this specific case because Cappy wishes to remain anonymous, Senior Vice President Kevin Henry says, the company "has a policy of not engaging in or tolerating harassment of consumers." They also say each complaint is thoroughly investigated. According to HESC, Nationwide is in good standing and has never had a complaint lodged against it.

But for Cappy, avoiding the agency is easier than putting up with its treatment. "I don't want to be in this trouble, but I am. And I don't have to be told every day I'm a loser."

Recent studies show that students— who now leave school with an average debt of $13,000— aren't prepared for the burden. In recent years, student-loan debt has increased four times faster than personal income. "We are in a quiet crisis," says Fossey. "Government has shifted aid from grants to loans, forcing students to borrow more, all the while passing punitive measures against those who have difficulty repaying."

In the 20-year period from 1977 to 1997, tuition increased by 304 percent, student-loan borrowing by 704 percent, while the level of grants and financial aid remained stagnant. In 1992, the federal government extended its loan programs and began offering unsubsidized loans— which now account for one-third of total student debt.

Meanwhile, the government has passed stringent regulations preventing borrowers from filing for bankruptcy for seven years after their first installment is paid. It has also done away with the statute of limitations under which debtors can be sued. And the Clinton administration is proposing that the Education Department sell off student loans to private banks— effectively destroying locked-in interest rates.

But, as Fossey notes, the higher-education community is not complaining. "Colleges and universities have certainly benefited from the student-loan program," he writes. "Student loans are a major reason that institutions have been able to raise tuition in recent years at twice the rate of inflation."
 

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http://www.ed.gov/about/offices/list/oig/invtreports/az032004.html

Investigative Reports

FOR IMMEDIATE RELEASE:
Friday, March 19, 2004
 U.S. Department of Justice

Office of the United States Attorney
District of Arizona

for Information Contact Public Affairs
HARRIET BERNICK
Telephone: (602) 514-7736
Pager: (602) 356-0004

Five Debt Collectors Indicted for Bank Fraud

PHOENIX, ARIZONA - The United States Attorney’s Office for the District of Arizona announced that on March 17, 2004, a federal grand jury at Phoenix, Arizona, returned a 37 count indictment alleging bank fraud, student loan fraud and conspiracy against Robert C. Hazlett, age 43, Suzanne Lisa Prather, age 43, James Joseph Stevens, age 50, David Roy Honderd, age 33, and Gregory Allen Evans, age 41, all residents of the metropolitan Phoenix area.

The indictment alleges that from April 1999 to June 2000, Robert C. Hazlett was the president and owner of Valley Acceptance Corporation, a debt collection agency located at 1100 W. Clarendon Ave, Phoenix, which specialized in the collection of defaulted student loans. Prather, Stevens, Honderd and Evans were employees of Valley Acceptance Corp. and are alleged to have conspired with Hazlett to submit to SunTrust Bank of Richmond, Virginia, fraudulent applications for consolidated student loans which generated in excess of $1 million in commissions for themselves. The scheme as alleged in the indictment was to misrepresent that the applicants were in a repayment status on their prior loans rather than listing their default status. The defendants are also alleged to have falsely indicated that the applicants had made six payments as to their prior loans so that they would qualify for new bank loans that were federally insured by the United States Department of Education. The indictment lists that 537 fraudulent applications were submitted and approved by the bank for loans with a total in excess of $3.6 million. The indictment states that the borrowers subsequently defaulted on 213 of the fraudulently obtained loans causing a loss to the bank in excess of $1.4 million which was ultimately paid through insurance from the Department of Education.

SL: Here is the key phrase: top guarded secret - banks collect insurance on non-performing portfolios.

Then, they get a tax break from the IRS and sell evidence of debt for profit to brokers.

Who is charging banks executives with real fraud going on every day
above and beyond mount Everest?

The defendants have been summoned for an initial appearance and arraignment on March 31, 2004, before a United States Magistrate Judge.

Education Inspector General John P. Higgins, Jr., commended this joint effort to protect the integrity of federal higher education programs. The federal indictment charges the defendants with violating Title 18 of the United States Code, Section 1344, Bank Fraud, and Section 371, Conspiracy, as well as violating Title 20 of the United States Code, Section 1097(a), Student Loan Fraud.

A conviction for Bank Fraud carries a maximum penalty of 30 years imprisonment, a $1,000,000.00 fine or both. A conviction for Conspiracy or Student Loan Fraud carries a maximum penalty of 5 years imprisonment, a $250,000.00 fine or both.

An indictment is simply the method by which a person is charged with criminal activity and raises no inference of guilt. An individual is presumed innocent until competent evidence is presented to a jury that establishes guilt beyond a reasonable doubt.

The investigation preceding the indictment was conducted by Special Agents from the Federal Bureau of Investigation and the Office of the Inspector General, United States Department of Education.

The prosecution is being handled by Richard I. Mesh, Assistant United States Attorney, District of Arizona, Phoenix, Arizona.

CASE NUMBER: CR-04-0276-PHX
RELEASE NUMBER: 2004-058