Ms. Louise G. Trubek
Dear Ms. Trubek:
This is in response to your recent letter addressed to Jean Noonan. Ms. Noonan has asked me to respond to your inquiry. I apologize for the delay. The answer to your questions involved a considerable amount of research.
Your letter concerns the collection practices of the Wisconsin Higher Education Association, now known as Great Lakes Higher Education Corporation (GLHEC). You allege that GLHEC has been negligent in informing borrowers of deferments and forbearances to which they are entitled. In addition, you allege that GLHEC's collection practices have violated the Fair Debt Collection Practices Act (FDCPA).
First, I must address the question of whether Great Lakes Higher Education Corporation is covered by the Act (copy enclosed). It is my understanding that GLHEC has two separate operating units. One unit services student loans for commercial lending institutions. The other unit guarantees the loans by taking assignments for value after default. In order to violate the Act GLHEC must be covered by its provisions. Coverage is predicated on the definition of "debt collector" in Section 803(6). Regarding the servicing of loans, Section 803(6)(F)(iii) excludes from the definition any person collecting a debt owed to another party to the extent that the collection activity concerns a debt which was not in default at the time it was obtained. Additionally, in the legislative history of the FDCPA, Congress specified that the term debt collector is "not intended to include... mortgage service companies and others who service outstanding debts for others, so long as the debts were not in default when taken for servicing."(1) In its capacity as a servicing organization, GLHEC handles a student loan well in advance of any default on the loan; therefore, in this capacity, as a servicing organization, GLHEC is not covered by the FDCPA.
Next, let me address the question of Great Lakes Higher Education Corporation's activities in collecting debts in its capacity as a guarantor of student loans. In this capacity GLHEC purchases student loans which are in default status from commercial lending institutions. In purchasing these defaulted obligations, GLHEC legally becomes the owner of the debts. When GLHEC tries to collect these obligations, GLHEC acts as a creditor collecting its own debt in its own name and is therefore exempt from the definition of debt collector under Section 803(6)(A) of the Act. Therefore, it appears that GLHEC is not a "debt collector" for purposes of the Act and an investigation for violations of the Act is not warranted.
Many of the consumer complaints you enclosed involve the question of when deferments and forbearances are available to holders of guaranteed student loans. This question is answered in the Higher Education Act which is administered by the Department of Education. Therefore, I have taken the liberty of forwarding your letter to that agency for its determination of whether deferments and forbearances are being properly handled by GLHEC.
Thank you for your interest in writing to us.
Cynthia S. Lamb
1. S. Rep. No. 95-382, 95th Cong. 1st Sess. 3-4, reprinted in 1977 U.S. Code Cong. and Ad News 1698.