A St. Petersburg attorney has filed suit against U.S. Department of Education Secretary Elisabeth DeVos and Reliant Capital Solutions, a private Ohio company, in a dispute over student loan debt collections.
The attorney, Kathryn Sole, said she’s been wrongly declared in default on her loans. While she wants to resolve her own case, she also hopes the lawsuit will have a broader impact on collections, payments and third party involvement relating to student loans, Sole told the St. Pete Catalyst.
“Defendants [the education department and Reliant] have created a system, implemented practices, and designed policies to apply student loan debtors’ payments in a way most beneficial to themselves rather than the reduction of a student loan’s outstanding principal balance,” according to the complaint, filed Dec. 19 in U.S. District Court for the Middle District of Florida in Tampa.
The complaint said chronic staffing and budget shortfalls in the education department’s student loan support center and third-party service companies such as Reliant make it difficult for borrowers to reach anyone to stop wage garnishments or tax refund seizures. It alleged violations of Florida’s Deceptive and Unfair Trade Practices Act, the Florida Consumer Collection Practices Act and the Federal Fair Debt Collection Practices Act.
A request for comment from Reliant was pending return. The education department doesn’t comment on pending litigation, a spokesman said.
DeVos last month proposed that a new independent federal agency take over handling students loans, Politico reported.
In her lawsuit, Sole said the defendants failed to provide notice that her debt had been assigned to them, in violation of state law. She also said her payments were used for interest and fees instead of reducing the outstanding loan principal, and the defendants used “deception, fraud, false pretenses, false promises, threats and misrepresentation in attempting to collect [Sole’s debt].”
The local lawsuit was filed about a month after Student Debt Crisis, an advocacy organization, filed a similar complaint in California against DeVos, the federal education department and the Consumer Financial Protection Bureau.
The Student Debt Crisis suit said the federal agencies failed to supervise large student loan servicers who collect student loan payments and advise borrowers how to better manage their student loans, Forbes reported. More than 41 million student loan borrowers who collectively owe more than $1 trillion are “at greater risk of being cheated by these companies,” the lawsuit said.
Many student borrowers don’t have the resources to call unfair practices into question, Sole told the Catalyst.
“There is a large population of student borrowers out there trying to earn a living and chip away against their growing debt. There is an even larger population that have defaulted because they see no way out of the widening black hole. The systems are not meant to pull borrowers back into payment, but to keep them down and attempt to collect against their refunds or take away their driving privileges. I do not believe many of the promissory notes permit these types of collection activities against borrowers,” she said. “As far as outcome is concerned, I hope to resolve mine. As far as other borrowers are concerned, I hope they will take a position and make these issues paramount and clear to the courts.”