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.