NY, NJ Reach Settlements on Predatory Student Loan Practices

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Attorneys general from New York state and New Jersey have each reached settlements with companies involved in predatory student loan practices that will benefit their victims.

New Jersey Attorney General Gurbir Grewal negotiated $1.85 million in student loan forgiveness for more than 200 New Jersey borrowers who borrowed from private education lender PEAKS Trust 2009-1 to finance attendance at ITT Tech. The for-profit school filed for bankruptcy in 2016.

PEAKS will end all collection efforts for the loans at issue, accept no further payments and dissolve as a business. It is also required to update borrowers’ profiles with credit reporting agencies. 

The forgiveness is part of a large roughly $330 million nationwide settlement reached for 356,000 borrowers who had been enrolled at ITT Tech, and it’s the second settlement AG Grewal reached with a lender financing attendance at the school. The earlier settlement was with Student CU Connect CUSO LLC, a consortium of credit unions that offered loans to finance tuition at ITT Tech. 

To date, Grewel has secured over $20 million in student loan relief for over 6,000 state residents who attended for-profit colleges that engaged in unfair and deceptive loan practices.

His New York counterpart, Letitia James, who has also sought and won relief for student loan borrowers subjected to predatory lending practices, announced a settlement with Transworld Systems, the debt collector for National Collegiate Student Loan Trusts.  

Transworld will voluntarily dismiss lawsuits filed after the statute of limitations has expired, end pending garnishments, levies, liens, restraining notices or other enforcement mechanisms associated with those suits and take steps to vacate any judgments obtained in the lawsuits. In addition, Transworld will pay $600,000 in penalties to the state or as restitution to certain New York borrowers.

Earlier this month, James renewed for the sixth time an order to halt the collection of student and medical debt owed to the state of New York for an additional 30 days due to the continuing financial hardship suffered by New Yorkers during the pandemic. The moratorium applies to student debt owed to the State University of New York campuses.

In related news, Gov. Gavin Newsom of California signed a bill that protects the state-sponsored ScholarShare 529 college savings accounts from collection proceedings by creditors.

“Saving for your child’s college education is difficult enough under normal conditions, but with the economic collapse induced by the pandemic, it is especially tough for families today,” said state Sen. Bob Wieckowski, who authored the bill that was also sponsored by State Treasurer Fiona Ma, chair of the board that oversees the state 529 plan.

The law adds ScholarShare 529 accounts to the list of assets that are exempt from money judgments in bankruptcy filings. The exemption amount for these accounts is set at a maximum $15,000 for the first and second years prior to a bankruptcy filing.

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