Consumer complaint received 2022-08-23
Product: Debt collection — Private student loan debt
Issue: Attempts to collect debt not owed — Debt was already discharged in bankruptcy and is no longer owed
Company: AES/PHEAA (CA)

I attended a XXXX XXXX institution from XX/XX/XXXX to XX/XX/XXXX. In XX/XX/XXXX, I took out a direct-to-consumer XXXX XXXX XXXX made by AES/XXXX  for {$22000.00} XXXX Funds were sent directly to me in the mail via paper check, completely bypassing the schools financial aid office. Like any commercial loan, it was based on creditworthiness and came with a variable interest rate. This loan did not originate from the financial aid office and the amount was above and beyond the schools published cost of attendance. AES never bothered to verify the published cost of attendance nor did they consider any federal student loans or other private loans I had already received. 

I filed for bankruptcy on XX/XX/XXXX ; it was discharged XX/XX/XXXX, XXXX AES received the Notice of XXXX XXXX Bankruptcy Case, Meeting of Creditors, & Deadlines ; the debt at issue was listed on Schedule F of my petition. The deadline to object to the discharge was XX/XX/XXXX. Under 523 ( a ) ( 8 ), as written in law practice guides, the lender ( AESXXXX XXXX has the initial burden to establish the existence of the debt and that the debt is an educational loan within the statutes parameters ( Roth v. Educational Credit Mgm't Corp. ( In re Roth ), 490 B.R. 908, 916 ( 9th Cir. BAP XXXX ) ). To meet this burden, the creditor must prove that the debtmore likely than notfalls entirely within the meaning of one of Section 523 ( a ) ( 8 ) s exceptions ( Love v. Navient Solutions, XXXX ; McDaniel v. Navient, XXXX ). If the creditor does not prove that the debt is an educational loan that more than likely falls entirely within the meaning of one of Section 523 ( a ) ( 8 ) s exceptions, it is automatically and as a matter of law discharged upon entry of the Discharge Order. This includes XXXX XXXXr and other direct-to-consumer loans that exceed the schools cost of attendance ( pp. XXXX, XXXX, XXXX, Morally Bankrupt, XX/XX/XXXX ). AES did not challenge dischargeability ; they did not establish the existence of the debt ; they did not prove the debt is presumptively non-dischargeable ; nor did they prove that the debt is an educational loan within the statutes parameters. Therefore, this loan was discharged upon entry of the Discharge Order in my XXXX XXXX bankruptcy case.

Following receipt of the Discharge Order, AES temporarily ceased collection efforts but soon thereafter encouraged forbearance ; they began collecting monthly installments of {$170.00} in XXXX XXXX AES misled me as to the status of this loan. It is because of the many recent court cases and reports filed by the CFPB and XXXX, namely Morally Bankrupt ( XX/XX/XXXX ), that I learned that this loan servicer is in violation of Bankruptcy Code Section 524 and violating my rights as a consumer. 

On XX/XX/XXXX, I sent a notice via certified mail to AES requesting that they immediately stop debiting my bank account and refund me all the money I have paid toward this loan since XX/XX/XXXX, the date of my Discharge Order. On XX/XX/XXXX, AES acknowledged receipt of my written correspondence via email. On XX/XX/XXXX, they uploaded a notice to my online portal stating my loan debt is presumptively not dischargeable and that I would have to file an adversary proceeding ( an untrue and deceptive statement that violates California law AB-376 1788.101 ( b ) ( 2 ) ). AES claims the outstanding balance is {$24000.00} with a current variable interest rate of 7.13 % and continues to collect on this debt at the rate of $ 208 monthly. 

In previous filings, XXXX has not claimed their private loans are excepted from discharge under 523 ( a ) ( 8 ) ( A ) ( i ) or 523 ( a ) ( 8 ) ( B ). Nor has XXXX claimed that any of their private loans should be excepted from discharge under 523 ( a ) ( 8 ) ( A ) ( ii ) as an obligation to repay a scholarship or stipend. Rather, they argued that the purpose of the loan, not its use, controls whether the loan confers an educational benefit. The purpose test can not be used to elevate a non-qualified educational loan into a qualified educational loan ( Murphy v. Pa. Higher Educ. Assistance Agency ( In re Murphy ), 282 F.3d 868, 870 ( 5th Cir. XXXX ) ). The Second, the Fifth, and the Tenth Circuit Courts of Appeals have all rejected arguments made by creditors that courts need only confirm that the promissory note expresses an educational purpose for the loan to be non-dischargeable. Boilerplate language in loan agreements can not bring loans that are outside of the definition of qualified education loans within that definition. 

In XX/XX/XXXX, United States Bankruptcy XXXX XXXX XXXX said the question of dischargeability of a private student loan under Bankruptcy Code Section 523 ( a ) ( 8 ) ( B ) turns on objective, not subjective, matters including the facts and circumstances of the loan and the applicable cost of attendance. If the facts show that a private student loan exceeds the applicable cost of attendance, then that borrowers statementboilerplate or otherwisethat a loan does not exceed the cost of attendance does not change those facts. Judge Strong wrote private [ student ] loans that exceed the cost of attendance do not meet the nondischargeability requirements of Bankruptcy Code Section 523 ( a ) ( 8 ) ( B ), and are therefore within the scope of [ the student borrowers ] bankruptcy discharges. AES bears the burden of showing that the debt is nondischargeable. Creditors who act to collect XXXXischarged debts in contravention of 524 are subject to claims for declaratory judgment that the debt was discharged, equitable claims to cease the collection and return the money collected, as well as claims for compensatory damages and contempt sanctions for knowing and willful violations of the Bankruptcy Code ( Homaidan and Youssef v. Navient ( In re Homaidan ) ( In re Youssef ) Adv. Pro. No. 17-1085 ( E.D.N.Y. XX/XX/XXXX ) ). 

Academic Answer loans are not qualified education loans under Bankruptcy Code Section 523 ( a ) ( 8 ) ( B ) because they are simple consumer loans subject to the same discharge rules as any other consumer debt ; they lack the traditional characteristics of educational loans ; and they were made through a direct-to-consumer lending program not through the financial aid office of an eligible school. These types of loans were not limited in amount, were for sums that were above and beyond the published cost of attendance, and were assigned adjustable/variable interest rates at the time of origination, the same as any commercial loan. AES originated these loans using consumer loan methods taking into account credit scores and other underwriting considerations. They should not be able to behave like commercial lenders while simultaneously receiving the same protection in bankruptcy as governmental student lending programs. 

Academic Answer loans are not qualified education loans as defined in section 221 ( d ) ( 1 ) of the Internal Revenue Code of XXXX ( any indebtedness incurred solely to pay qualified higher education expenses, which are defined as the [ published ] cost of attendance at an eligible educational institution reduced by the sum of certain amounts excluded from gross income and the amount of any scholarship, allowance, or payment ) under Bankruptcy Code Section 523 ( a ) ( 8 ), nor do they constitute an obligation to repay funds received as an educational benefit within the meaning of 11 U.S.C. 523 ( a ) ( 8 ) ( A ) ( ii ). In fact, this Academic Answer loan does not fall into a category of debt that is excluded from discharge under ANY subsection of Bankruptcy Code Section 523 ( a ) ( 8 ) and was therefore discharged pursuant to the Courts Discharge Order in my XXXX XXXX bankruptcy case. 

Direct-to-consumer loans that exceed the schools published cost of attendance do not meet the specific legal definition of a qualified student loan. The cost of attendance is a concrete value determined by the eligible institution based on the average costs for individual students. Institutions must report the cost of attendance as a concrete value to the Department of Education to participate in federal student aid programs. The reported cost of attendance is published on the XXXX XXXX XXXX XXXX XXXX ( XXXX ) website. If an educational loan exceeds the published cost of attendance or, alternatively, is within the cost of attendance but exceeds the qualified higher education expensesfor example, because the amount is greater than the cost of attendance reduced by a scholarship receivedthe loan is not solely for qualified higher education expenses and hence it is not a qualified education loan. Such a loan ( exceeding either the cost of attendance or the qualified higher education expenses ) is not exempted from discharge under Section 523 ( a ) ( 8 ) ( B ). The loan at issue exceeded the schools published cost of attendance, less other scholarship grants and loans. Funds I received from AES while attending school totaled {$22000.00}. During my enrollment, I also received {$100000.00} through XXXX XXXX XXXX and Unsubsidized qualified federal student loans ( XXXX ), {$110000.00} in other private student loans, at least {$500.00} in scholarship funds, and {$110000.00} in gross income. While the published cost of attendance ( PCOA ) for the academic years I was enrolled in school ( XXXX, XXXX, and XXXX ) can not be found in the XXXX website archives ( XXXXXXXX XXXX XXXX  ), the PCOA for the current XXXX academic school year on XXXX is {$31000.00}. Using the current PCOA to calculate the total PCOA for the duration of my enrollment arrives at a sum of {$95000.00}, which is no doubt greater than the PCOA from 14 years ago. The amount I received in qualified federal student loans and scholarships totaled {$100000.00}, demonstrating that this loan absolutely exceeded the published cost of attendance less other scholarship grants and loans. Therefore, this loan is not a qualified education loan and, as such, was automatically and as a matter of law discharged upon entry of the Discharge Order.

In a blog article, the CFPB published that several types of loans associated with education expenses are dischargeable in bankruptcy, like most other types of unsecured consumer debt for example loans where the loan amount was higher than the cost of attendance which can occur when a loan is paid directly to the consumer without the filing of an adversary proceeding ( XXXX, XXXX : Busting myths about bankruptcy and private student loans ( consumerfinance.gov ) ). It further explains that using loan funds to pay for fees or expenses related to studying for a professional exam may also fall into the dischargeable category. I received a degree in medicine and had to pay thousands of dollars for board exam reviews, study materials specific for the exam, the board exam itself, and travel costs, as the several-day exam was held out of town. 

Congress enacted 523 ( a ) ( 8 ) because there was evidence of an increasing abuse of the bankruptcy process that threatened the viability of educational loan programs and harm to future students as well as taxpayers ( Cazenovia College v. Renshaw ( In re Renshaw ), 222 F.3d 82, 87 ( 2d Cir. XXXX ) ). By enacting section 523 ( a ) ( 8 ), Congress sought principally to protect government entities and nonprofit institutions of higher educationplaces which lend money or guarantee loans to individuals for educational purposesfrom bankruptcy discharge ( Santa Fe Med. Servs., Inc. v. Segal ( In re Segal ), 57 F.3d 342, 348 ( 3d Cir. XXXX ) ). Such loans are not based upon a borrowers proven creditworthiness. Therefore, any private loan based on creditworthiness is not exempt from discharge under Section 523 ( a ) ( 8 ). 

On XX/XX/XXXX, loan servicer XXXX XXXX filed a document with the Securities and Exchange Commission disclosing that student loans made to consumers may be dischargeable if they were dispersed directly to the borrower ( e.g., Academic Answer loans ). XXXX further stated, pursuant to Section 523 ( a ) ( 8 ), only private loans made for qualified expenses were excepted from discharge, warning investors that these types of direct-to-consumer loans do not involve school enrollment verification, may be used for things other than qualified education expenses, and can be discharged in a bankruptcy proceeding. The Academic Answer loan is the very same type of direct-to-consumer loan as Navients Tuition Answer Loan XXXX As such, it does not fall into a category of debt that is excluded from discharge under ANY subsection of Bankruptcy Code Section 523 ( a ) ( 8 ) and was therefore discharged pursuant to the Courts Discharge Order in my XXXX XXXX  bankruptcy case. 

The United States Court of Appeals for the Second Circuit rules [ direct-to-consumer private student ] loans are not protected in bankruptcy and can be discharged, confirming that the legal burden to prove otherwise fell on AES ( the creditor ) in my bankruptcy case, which it failed to do. 

Bankruptcy Code Section 523 ( a ) ( 8 ) ( B ) requires that a student loan be within the cost of attendance at an eligible educational institution in order to be outside the scope of the debtors discharge ( Golden v. JPMorgan Chase Bank ( In re Golden ), 596 B.R. 239, 267-69 ( Bankr. E.D.N.Y. XXXX ) ). AES has made no effort to determine whether the loan was within the cost of attendance ; I am providing proof it was not. 

The loan at issue was discharged in my Chapter 7 bankruptcy case because it does not meet the requirements to be nondischargeable under Bankruptcy Code Section 523 ( a ) ( 8 ) ( B ) that is, my loan is not a qualified education loan pursuant to Internal Revenue Code Section 221 ( d ) ( 1 ). Namely, this loan does not meet Internal Revenue Code Section 221 ( d ) s requirement that a loan must not exceed the cost of attendance, less other scholarship grants and loans, at a XXXX XXXX institution to be a qualified education loan. 

AES shirked the qualified written request I sent them dated XX/XX/XXXX ; they provided a boilerplate response with no resolve. XXXXSunTrust failed to meet its legal burden to prove its Academic Answer loan is protected by Section 523 ( a ) ( 8 ) of the Bankruptcy Code in my bankruptcy case. Their continuing collection efforts on my outstanding private loan that was discharged violates the statutory bankruptcy discharge contained in Bankruptcy Code Section 524 ( a ) ( 2 ). 

I now must rely upon the CFPB to enforce the law and act on my behalf for complete and permanent relief and restitution on the grounds that this private loan is within the scope of my XXXX XXXX bankruptcy discharges, and AES has disregarded that fact as they have continued their collection efforts for nearly a decade. The servicers efforts to collect on this debt is unlawful and violates the Fair Debt Collection Practices Act. Additionally, " collecting on debts discharged through bankruptcy might not only violate the Consumer Financial Protection Act 's prohibition on unfair, deceptive, and abusive practicesit could also violate the order of a United States bankruptcy XXXX '' ( XXXX, XXXX ( CFPB ) ).