Expert: Regan Shinski - 4/5/2010

Question
I'm in repayment for a student loan from the Kansas Board of Regents, a state agency that manages our universities.  It's not a traditional loan but rather repayment with interest of a scholarship I received in which I did not fulfill the subsequent requirement to teach for two years for each year I received the scholarship.

My agreement with KBOR stated that they were allowed to establish monthly payments which cover "principal, interest, and collection costs." I received a payment schedule from them and have been faithfully following it for 4 years. Recently KBOR brought in a 3rd party payment processor and began adding a new $5.00 fee to my monthly statement. I protested this fee and received a letter stating that fee was due to outsourcing the processing and that is was covered under my agreement as a "collection cost."

That doesn't seem right to me. According to the US Dept of Education student loan guidelines, "collection cost" refers to the cost of collecting on a loan in default. This is not the case with me. What would keep KBOR from charging any fee they wanted and calling it a "collection cost?" Was I gullible when I signed the original agreement? Do I have any recourse?

Answer
Hello Jamie:

Courts and states can have different definitions of some terms.  I'm not aware of the definition you spoke of but really have had no need to research it previously.  Sounds like you have and you should go with that.  Courts have maintained the term "reasonable" in cases like this.  Much like "reasonable" attorney fees, etc.  In most cases, when the law does not specify more clearly, that term is used.  There is no set amount and different courts can arrive at different amounts.  However, that term usually prevents entities from charging "any" amount they want.

I would not deem you "gullible" as most people deem that a typical contract.

Your recourse would first be outlined in your agreement.  Sometimes the agreement calls for mediation or review by a board.  If nothing is spelled out or if those recourses have been exhausted, you recourse is to sue.

Good luck, I wish I had better options for you.

Regan