On June 1, 2018 the Student opportunity, assistance, and relief act (herein “the Act”) became effective. This major update to the collection law in Washington applies primarily to private student loan debt.
The Act is designed to minimize the burden consumer debtors face from financing their education with a private student loan at the expense of creditors on those loans. It applies to original lender as well as subsequent purchasers of the debt.
The major changes to (mostly) private student loan debt collection:
The Act defines “private student loan” to be “any loan not guaranteed by the federal or state government that is used solely for personal use to finance postsecondary education and costs of attendance at an educational institution. A private student loan includes a loan made solely to refinance a private student loan. A private student loan does not include an extension of credit made under an open-end consumer credit plan . . . or any other loan that is secured by real property or a dwelling.” The definition largely tracks the common understanding of the term. Simply put, a non-government backed student loan is a private student loan.
The Act amends the judgment statute (RCW 4.56.110) to indicate that private student loan judgments shall, unless “founded on written contracts,” bear interest at 2% above prime rate (i.e. about 7% in June 2018). Although the Act seems to indicate that the contract rate will apply there is a strong possibility Courts may impose the substantially lower interest rate given many courts reluctance to impose any rate higher than 12%.
The Act generally removes ability of licenses to be revoked or suspended based non-payment of educational loans regardless of whether the loan is private or not.
The Act’s biggest practical impact is likely in the limits to garnishment. A garnishment for private student loan debt must be specifically stated in the writ of garnishment and is now limited to a “basic exempt amount” being the greater of 85% of disposable earnings or 50 times the minimum hourly wage “of the highest minimum wage law in the state at the time the earnings are payable.” Thus only 15% of disposable earnings or the amount in excess of 50x the state minimum wage calculated on a weekly basis. Take note that a non-private student loan garnishment exempts the greater of 35x the federal minimum hourly wage or 75% of disposable earnings.
The Act also exempts $2,500 from collection. This means that a debtor must be left with at least a total of $2,500 in his or her bank account(s) following a garnishment or other execution process. The non-private student loan exemption is only $500.
The Act exempts from collection “a cell phone, personal computer, and printer.” Of note, that exemption applies to one cell phone, PC, and a printer. Also this exemption does not seem to be limited to individuals and apparently will be extended to businesses. The exemption is not limited to private student loan debts.
The takeaway messages:
Private student loan debt will likely be deemed less valuable in the marketplace as the options to compel payment become more limited.
Assume that private student loan debt will bear judgment interest at 7% when calculating margins.
Attorneys must update their collection forms. Specifically, the writ of garnishment, exemption forms, notice of garnishment and of your rights.
Garnishment of private student loan will yield a substantially smaller return. Although a garnishment for child support can attach up to 50% of disposable earnings and a regular judgment can attach 25% of disposable earnings, a garnishment based on a private student loan debt can attach only 15% of disposable earnings. The exempt amount calculated at "50 times the state minimum wage" is also more than double the "35 times the federal minimum wage" exemption for other debts ($575 vs $253.75).
About the author:
Jonathan Baner is a practicing creditor-debtor and collections attorney in Tacoma. He practices with his lovely wife, Miranda Baner, at Baner and Baner Law Firm. His practice is focused on legal enforcement of debts and advising his clients on their rights and remedies under contracts or other avenues. He also has an active civil litigation and appellate practice. When not working he enjoys motorcycle rides near the beach and demonstrating at the gym that gravity is just a conspiracy created by Sir Issac Newton.
Contact him at: Jonathan@BanerBaner.com or call the office 253.212.0353