Federal Court Extends Ban on Assigning of Defaulted Borrowers to Debt Collectors

June 2, 2017

A federal claims judge this week extended an injunction on the assignment of newly defaulted student loan borrowers to debt collectors.

Judge Susan Braden issued the ban in April as a protracted legal dispute unfolded over the exclusion of several companies in a new collection contract last year. Braden indicated in the Wednesday order that she was unhappy to learn of recent developments, including the resignation of former Federal Student Aid chief Jim Runcie last week. She also cited a recent op-ed from the National Consumer Law Center questioning the value added by private debt collectors and a report from the New York Times saying the Trump administration was considering moving oversight of student loans to the Treasury Department.

Runcie, in a court filing last month, warned that about 234,000 defaulted student loan borrowers with debt valued at $4.6 billion could be stuck in limbo and unable to rehabilitate their loans if the order is not lifted.

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