By Kate Sablosky Elengold | January 10, 2019
Readers of this blog will not be surprised at the sheer number of Americans who are burdened by student debt—more than 44 million—or the jaw-dropping aggregate debt load that easily tops $1.4 trillion dollars. Nor will readers be surprised that borrowers are struggling under the weight of that debt. Almost 11 percent of borrowers were more than 90 days past due on their student loan debt in 2018, exceeding the delinquencies in credit card, auto, mortgage, and home equity revolving debt. And reports suggest that borrowers are putting off major life decisions—including saving for retirement, buying a house, and starting a family—because of the weight of their student debt.
Readers will likely be unsurprised to learn that borrowers are struggling with their debt, concerned about interactions with institutions throughout the borrowing process. Borrowers have reported tens of thousands of complaints related to their student loans to the Consumer Financial Protection Bureau. The Student Borrower Protection Center highlights the most recent complaints. State attorneys general accept complaints related to student loans, as does the Federal Trade Commission. Such complaints have formed the backbone and the impetus for lawsuits against student loan servicers, debt collectors, and the Department of Education itself.
What might be surprising, however, is that borrowers do not see their student loan problems as legal problems. In a 65-person qualitative study undertaken by the UNC Center for Community Capital, researchers spoke to participants in various stages of student loan repayment.[1] Many were struggling. Many spoke of concerns related to their higher education institutions, lenders, servicers, and debt collectors. Many failed to understand their repayment options or were unnecessarily struggling with default. Even so, out of 65 participants, only four mentioned seeking legal assistance. One spoke to a lawyer in the military, one reached out to a lawyer uncle, one sought advice on negative credit issues, and one considered filing for bankruptcy. When researchers explicitly asked borrowers whether they ever considered seeking legal assistance with their student debt, every other respondent said no. When pressed about why, the borrowers explained that they didn’t think they had a case, they felt that they should have been able to figure it out on their own, they didn’t see any legal angle, or they didn’t even know it was possible.
Although this is a small sample, it is consistent with what I’ve seen directing the Consumer Financial Transactions Clinic at UNC School of Law. In the clinic, we take on student debt cases for North Carolinians who could not otherwise afford representation. Nearly 21 percent of North Carolina residents have student loan debt. Fifty-seven percent of North Carolina’s class of 2017 college graduates left school with federal student loan debt, 14 percent of North Carolina borrowers are in collections, and almost one-fifth of North Carolina borrowers over 60 years of age are delinquent on their student loans. Despite the certain need for legal services and counseling that these borrowers would have, the clinic is not seeing the volume of clients consistent with the data above. Is it because borrowers do not see their student loan issues as legal issues?
That is my current theory. It is consistent with research that says that low-income people do not seek out legal assistance in consumer-related transactions as much as might be warranted. And it is consistent with research that says that people avoid filing for bankruptcy, unwilling to see financial problems as issues that might be resolved in a legal setting. While the same barriers to seeking legal assistance also exist in the student loan context, there are additional barriers unique to student loans that likely further chill borrowers from seeking legal advice. Borrowers may not even be aware that there is a problem until their financial lives are in peril. Unlike mortgage foreclosure or bankruptcy, a federal student loan borrower does not see the inside of a courtroom before her wages are garnished or her tax returns offset. If she is in default on her federal loans, the government need not ask a judge, or even a court clerk, for permission to take her wages or offset her tax refund or federal benefits. And when borrowers do recognize that their student debt is overwhelming their financial stability, they may recognize their failures as more personal. Students borrow against their future; education debt is an investment in their own human capital. It is no wonder that borrowers in trouble are hesitant to seek out legal advocacy or assistance.
That borrowers do not see their student loan problems as legal problems is, however, inconsistent with the reality of the system. Underlying the entire higher education financing system is a legal scheme. The student debt system has been developed by law, is regulated by law, and is covered by consumer protection law. Struggling borrowers should understand their legal rights and remedies.
So what is to be done? First, we need more research on how borrowers understand their debt and the role of the law and lawyers in their struggles. Second, we must fight against a narrative that places the entire risk and blame of higher education exclusively on students. Data, complaints, and lawsuits suggest that there are bad actors involved in the system who are taking advantage of students at every stage in their higher education attainment—in recruitment, during school, and in loan repayment. It is neither shameful nor inappropriate to seek legal assistance in navigating and fighting back against a troubled system that has harmed borrowers. Nor is it shameful or inappropriate to seek counseling or legal advice to understand and assert a borrower’s rights in this legal system. Third, we must build a network of lawyers, counselors, and advocates who are trained and available to help students navigate their student debt problems, or at least know who to turn to in a financial crisis. We must raise our hands and tell borrowers in trouble that they have a right to seek out legal assistance in their struggles with student debt. And, where private enforcement is insufficient to expose and remedy malfunctions or malfeasance, we must support public enforcement by state and federal regulators and law enforcement officers. Finally, we must fight for clearer rules, simpler processes, more transparency, and viable legal avenues to remedy injustice.
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Kate Sablosky Elengold is a Clinical Associate Professor of Law at the University of North Carolina School of Law. She is the Director of the Consumer Financial Transactions Clinic and a faculty fellow at the UNC Center for Community Capital. She writes about the intersection of consumer law and civil rights law.
[1] There is more to come from this study! Keep an eye out for issues briefs to be published by the UNC Center for Community Capital and additional related scholarship from this author.