Between a Rock and a
Hard Place
Courthouse Doors Shut for Aggrieved Private Student Loan Borrowers
July 23, 2012 —
When potentially aggrieved private student loan borrowers
seek to redress alleged harms committed by the lending industry, many borrowers
discover that they are shut out of the legal process. First, many are blocked
by pre-dispute binding (or forced) arbitration clauses buried in the fine print
of their promissory notes or their for-profit college enrollment contracts. Second,
borrowers in deep financial despair are largely unable to seek assistance in
bankruptcy court because their student loan debt cannot be extinguished unless
they meet an arbitrary and undefined standard. The result is that borrowers of
private student loans lack a meaningful opportunity to seek relief in
either civil or bankruptcy court.
By restricting forced arbitration clauses in private student
loan contracts and allowing private student loans to be dischargeable in
bankruptcy, the Consumer Financial Protection Bureau and Congress can restore
consumers’ access to justice in the private student loan market.