In Student Loan Case, Court Rules Borrowers Have Rights Too

When Joshua Fensterstock, a 2003 law school graduate living and working in New York, consolidated his student loans by borrowing from Education Finance Partners, which is serviced by Affiliated Computer Services, Inc., he agreed to the terms of the contract they sent him. In fact, he had no choice.

Loan applicants don't generally read the terms set out in standard mortgages, loans and credit card agreements. They are usually in very small font, in legal language and, in any case, non-negotiable. That is, an applicant for a loan or a credit card, cannot negotiate the interest rates, fees, or any other terms. It's a take-it-or-leave-it document.

Those procedures, though, could change. A three-judge bench of the federal appeals court for the New York region has determined that two significant clauses of Edison's agreement with its borrowers are unconscionable and unenforceable under the applicable law. The contract, which requires disputes be resolved by arbitration rather than court action, was stricken in July as being an unbalanced, unfair take-it-or-leave-it document in which consumers had no bargaining power. The court also struck a clause that required borrowers to give up their right to participate in class actions.

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