Student loans have been a problem for longer than you know. (Debt Collection)

As the student loan debt crisis gets more and more looming -- is that possible, that something could become more looming? -- it makes sense to begin discussing how, and why, we treat student loan debt as different from most, if not all, other debt.  Student loans generally cannot be discharged in bankruptcy, or at least not easily, but the debts aren't just harder to get rid of: they're easier to collect, too, and have been that way for a long time, something that may lead debtors to be confused, if not abused.

One of the earliest student loan cases is Spears v. Bowman, a 1989 unpublished decision from the Sixth Circuit that dealt with administrative, nonjudicial garnishments obtained ex parte. Student loan debtors who had gotten private loans guaranteed by the public defaulted (or allegedly defaulted) and received a letter from G.C. Services:

G.C. Services debt collection operations are supervised by the State by contract, but its personnel are not state employees. The private debt collection agency receives a contingent incentive fee of 2.5% of all amounts collected. 

Several letters to the debtors were mailed. Among these notices is a May 1986 letter from the "Michigan Automated Collection System," the name under which G.C. Services operates under its contract with the State. 

The letter mentioned the possibility of a wage levy or levy on other "financial assets" without mentioning whether judicial garnishment or attachment processes would be used or whether a hearing would be permitted. 

The letter did not specifically mention the possibility of an offset of state income tax refunds against the debt. The letter encouraged the recipient to telephone if there were error but delineated no administrative hearing procedures. 

The debtors were also mailed letters from the U.S. Department of the Treasury informing them of their overdue loans and of the possibility of levy on federal tax refunds. Although plaintiffs are not appealing any levy on federal tax refunds, the State claims that the notice from the federal government forms a part of the notice and hearing opportunities provided by the State to the debtors. It is the content of these various communications which is at issue here.

Of course, the debtors' wages were garnished and their tax refunds seized, all without prior notice. The debtors just got their checks one day and had less money than they expected.

Now, consider: whether or not you think student loans should be treated differently regarding discharge, is there any reason to not require the collectors to go after the student loans in court?

This isn't, remember, the state acting.  This is a private debt collection company that gets a commission for what it collects.  While the state or the federal government benefits from collecting, state employees aren't paid commissions for adding to the general revenues, so there is less of an incentive to be too aggressive.

But that wasn't the case in Michigan, in 1989: then, at least, the state didn't think there was any need to have even a court commissioner oversee the wage garnishments, which could be issued without notice and a hearing.

After the plaintiffs got their money taken, they sued, and Michigan (at least temporarily) suspended the challenged practices.  The Court didn't rule-- it reversed and remanded for factual findings about the procedures that were available and didn't reach any of the questions presented about whether the debt collectors were actually debt collectors under the FDCPA (G.C. Services, for example, used a fake name to collect debts, a forbidden practice under federal law, but claimed an exemption.)

According to court records, following the remand, one debtor was dismissed because the 6-year statute of limitations had run on her debt, so she couldn't be garnished anymore.  G.C. Services was dismissed by stipulation in 1990; details weren't available online.  I couldn't find any other results from this case.