Law might affect loan procedure

By Michael Berg

A new law could make getting a student loan more difficult, and if implemented as written, violate a student’s rights to due process.

The Emergency Unemployment Compensation Act of 1991, Public Law 102-164, contains provisions dealing with student loans.

“The majority of the law has to do with unemployment benefits,” said Student Legal Assistance Attorney Lynn Richards. “As part of the political bargaining process a rider was added on.”

The rider requires students to pay the lesser of $25 or the cost of a credit check before getting a loan, Richards said. “No one is allowed to get loans who does not have good credit, although no credit does not disallow you.”

If the lender decides the student does not have good credit, he needs a cosigner, according to the law.

Good credit is defined by the Illinois Student Assistance Commission (ISAC) as “having a good record in paying bills,” said Bob Clement, ISAC representative. “Most students won’t have a lot of credit to check unless they’ve had a credit card for a while.”

In the law is a clause requiring all new Guaranteed Student Loans to contain a confession of judgment. Signing this means that a student agrees ahead of time to bypass a hearing as to student defenses, and the student authorizes an entry of a court judgment against themselves if their loan goes into default, according to a letter from Richards.

“It basically allows lenders to go directly to court and bypass the hearing process,” Richards said. “There are a lot of due process problems with that. It hasn’t been implemented yet, so it can’t be challenged.”

This part of the law hasn’t been implemented by ISAC, Clement said. “Some things may be repealed in reauthorization,” he said. “We’re not doing anything until the regulations come out, which would be June at the earliest.”

“Proposals are put forth after the response from the public,” Clement said. “After the dust settles the government puts out a series of regulations.”

The law also says lenders can garnish 10 percent of a student’s income with no prior court procedure. “Now, if you get a judgment against you, you go to court and through the procedures,” Richards said. With the provision in the law, lenders don’t have to go to court to garnish wages, she said.

“Illinois does recognize that an individual in a contract can agree ahead of time to a garnishment of wages if he/she doesn’t pay on time,” Richards said. According to Illinois and federal requirements, “garnishment can be revoked in writing at any time by the person who signed the garnishment contract. The new law does not provide for that.”

“State employees in default are garnished now if their student loans go into default,” Clement said.

The law does provide that lenders cannot garnish someone who has been unemployed for twelve months,” Richards said. “That’s the only protection. If you’re not employed, your wages can’t be garnished. That’s pretty obvious,” she said.

The default rate in Illinois since the beginning of the student loan program in the late 1960s is 10 percent.