Student Loan Servicers’ Post-Bankruptcy Collections Blocked (2)

A New York federal judge issued a nationwide order enjoining a group of private student loan lenders and servicers from attempting to collect on consumer debts that borrowers allege were discharged in bankruptcy.

Two student loan trusts and servicers American Education Services and Firstmark Services, must cease collection efforts on thousands of borrowers, Judge Elizabeth S. Stong of the US Bankruptcy Court for the Eastern District of New York ruled Wednesday. Her decision is a major victory to a proposed class of individuals contending their loans were discharged in bankruptcy.

Lead plaintiff Tashanna B. Golden has been litigating in bankruptcy court for more than seven years, asserting that certain debts she incurred as a law school student were terminated through her Chapter 7 case in 2016 because they didn’t meet the definition of a “qualified education loan” that would be exempted from discharge.

Read More: Student Loan Collections Are Poised to Test Bankruptcy Options

Golden has sought relief for a proposed nationwide class of private student loan borrowers who completed bankruptcy but afterwards continued to face debt collection efforts by National Collegiate Trust, Goal Structured Solutions Inc., and their loan servicers.

Stong, who in 2023 certified a similar class of former debtors with private student loans serviced by Navient Corp., said Golden has shown a “substantive claim” that the loans in question “are within the scope of her bankruptcy discharge.”

A preliminary injunction is appropriate in this case, she said.

“There simply cannot be a legal interest in continuing to collect on a discharged debt, and the defendants have no legal interest that would be harmed by preliminary injunctive relief preventing them from collecting such debts,” Stong wrote.

Golden first filed suit in 2017 arguing that certain loans she took out to attend the University of Pennsylvania Law School and later prepare for the bar exam were discharged in bankruptcy, but the defendants continued to seek payments.

Federal higher education loans are notoriously difficult to eliminate in bankruptcy, and often require showing that paying them back in full represents an “undue hardship.” But the same rules don’t always apply to private student loans, courts have ruled in recent years.

Because Golden’s private loans exceeded the cost of attendance at a Title IV school or weren’t intended to address those costs, they were discharged as part of her bankruptcy proceedings, she argued on behalf of a proposed nationwide class.

As part of her findings Wednesday, Stong said Golden is likely to succeed on the merits of the case and has raised serious questions about whether student loan guarantor, the Education Resources Institute, is a bona fide nonprofit institution for purposes of the rules for exempting debts to discharge in bankruptcy.

“I think the decision is really significant because for years private student lenders have been seeking refuge behind TERI as a front to argue that their private loans are non-dischargeable,” said proposed class attorney George Carpinello of Boies Schiller & Flexner LLP. “There’s probably hundreds of millions of dollars in student loans that these various trusts for several years have been saying are nondischargeable because they were guaranteed by TERI.”

Pennsylvania Higher Education Assistance Agency—doing business as American Education Services—said in a statement that it will appeal Stong’s decision because it contains “many critical factual and legal errors.”

“PHEAA believes that the federal appellate courts will confirm that the bankruptcy court exceeded its authority and wholly ignored controlling federal appellate authority, and that PHEAA’s bankruptcy processes have been consistent with the Bankruptcy Code,” it said.

Lawyers for Firstmark and the student loan trusts didn’t immediately respond to a request for comment.

PHEAA is represented by Akerman LLP. Firstmark is represented by Perry Guthery Haase & Gessford PC. The trusts are represented by Locke Lord LLP.

Golden is additionally represented by Jones Swanson Huddell & Daschbach LLC, Fishman Haygood LLP, and Law Offices of Joshua B. Kons LLC.

The case is Golden v. Firstmark Services LLC, Bankr. E.D.N.Y., No. 17-01005, 5/7/25.