Private Student Loans
Private Student Loan Borrower Rights in California
If you are a Californian with a private student loan, you have new rights under a law that took effect in July 2022. The Private Student Loan Collections Reform Act creates new requirements that creditors, servicers, and debt collectors must follow. It also gives borrowers the power to get more information and to enforce their rights. (Civil Code section 1788.200 et seq.)
What type of loans are covered?
The law covers only private education loans. It defines private education loans as:
an extension of credit made in whole or in part to cover educational expenses;
that is not made or guaranteed by the federal government;
that is not open-ended or secured by real property (i.e. not a credit card or a mortgage); and
that is not a short term loan from the school.
This means that federal direct student loans are not covered, nor are FFEL (guaranteed) loans. But lots of private student loans are covered. For example, non-FFEL loans currently being collected by Navient, NCSLT, Transworld, AES, Student Loan Solutions, or Williams & Fudge are probably covered.
What are my rights under the law?
The Private Student Loan Collections Reform Act was passed to prevent companies from collecting on debt they have no right to collect. There are some companies whose business model is to collect on old, defaulted student loans they claim to have bought from lenders like Sallie Mae or Bank of America. But these companies sometimes don't have any proof that they bought the debt, or any information about what is actually owed. They try to scare people into paying them with phone calls and letters and lawsuits even though they have no legal basis to collect.
As a result of these practices, the new law requires that companies trying to collect private education loans have a long list of information on hand before they contact borrowers and before they sue borrowers. That information includes 18 items, but some of the most important ones are:
The name of the owner of the loan;
An itemization of interest;
An itemization of fees, along with who imposed them;
The date and amount of the last payment;
The name of everyone who owned the loan after default, and the date of each sale or transfer;
Documents establishing that the company owns the loan. This has to include documents for each transfer of ownership that were made at the time of the transfer and show the borrower's specific personal information. (This is really important. Some of these companies have no documents showing that they own any specific person's loan. They have tried to skate by on the claim that they bought a big bunch of debt and yours was in there somewhere. That's no longer enough. They have to show that they bought the specific exact loan they're trying to collect.);
A copy of all pages of the contract, application, or other documents showing that the borrower is liable and stating the terms and conditions of the loan. (Check this closely against the interest and fees charged—were they allowed under the conract?); and
A list of all collection attempts made in the last 12 months, including date and time of all calls and written communications. (If there is a problem with the charges, ownership, or timing of these collection attempts, each one may violate debt collection laws and give the borrower legal claims.)
That's all information the creditor, servicer, or debt collector is required to have on hand if they try to collect. However, they're not always required to give it to borrowers. As the law is written, they are only required to give it to borrowers after they have defaulted on their loan. Specifically, they have to send this information with their first letter to borrowers after either (a) the borrower is in default and the loan has been accelerated (i.e. they called the full balance due) or (b) the borrower has been in default for 12 consecutive months.
Borrowers can request the information for themselves under the law, but it only requires that the creditor, servicer, or collector provide this information in the same circumstances—after default and acceleration, or 12 consecutive months of default. (That's not to say borrowers can't ask for it anyway.) But for people in default, this is a powerful tool to hold companies accountable for trying to collect on debts without the right to do so.
Lawsuits and Settlements
Along with the written information above, the new law has some protections for people who are sued or enter into settlements on their private student loans. Specifically, the new law requires:
All settlements are in writing or documented in open court;
Lenders, servicers, and collectors give written confirmation when you've satisfied the account;
If they sue you, they have to include many of the documents listed above with the lawsuit; and
They have to make a greater showing with more documents in order to get a judgment against you.
How do borrowers use the law?
First, anyone can make a request for information as explained above. The law requires that they give it to borrowers who have been accelerated, or have been in default for at least 12 months. Even if a borrower hasn't been in default, there are other laws that allow them to request information from their loan servicer. Jubilee Legal has prepared a template letter that anyone can download, fill in, and send here. (If you send the letter via certified mail, you will have a tracking number and proof of when it was received.)
Second, this new law provides that if a lender, servicer, or collector violates it, they may have to pay attorney fees. This is called "fee shifting," and it allows legal practices like Jubilee Legal to help clients exercise their rights without having to pay anything themselves.
If you have questions about your private student debt, or about your rights under this law, you can contact Jubilee Legal for a free consultation. Click on the "Contact" button or call 805.946.0386.