A Colorado District Court recently denied a debt collector’s motion to dismiss the complaint in Fair Debt Collection Practices Act (“FDCPA”) case concerning the collection of student loans. Breckinridge v. Vargo & Johnson, P.C., 16-CV-1176-WJM-MEH, (D. Colo. Dec. 7, 2016).
Even though the Higher Education Act does not create a private cause of action for consumer-borrowers, the court ruled:
Third-party debt collectors acting on behalf of guaranty agencies to collect federal student loans must comply with the FDCPA.
Id. at *4
The plaintiff in Breckinridge alleged that the debt collector added collection fees to the amount of past-due student loans that were not allowed under the terms of the applicable Perkins loan program. The Breckinridge Court ruled that complaint stated a valid claim for relief under the FDCPA.
The Breckinridge Court turned to the Student Financial Aid Handbook published by the Department of Education (“DOE”) to address the question of whether the defendant debt collector had collected or attempted to collect collection costs that it was not entitled to.
The Breckinridge case is important. Increasingly, the DOE is turning more student loans over to private collection firms. Indeed, the DOE recently referred hundreds of millions of dollars of delinquent student loans to private collection firms. With the increase in debt and debt referred to debt collectors, there is bound to be a rise in abuse and overreach.