Don't ask Iowa Student Loan borrowers, some of them desperate, to sign away their rights

Young adults are bound to make a few ill-considered decisions and “learn the hard way” that nobody is required to look out for a grown-up’s interests. But there is a difference between allowing people to experience the consequences of their actions and setting them up for failure.

A student-loan practice that’s the subject of lawsuits in Iowa is on the wrong side of that divide, and one way or another it should stop.

The lawsuits, now consolidated in federal court, allege that Iowa Student Loan, a 45-year-old nonprofit whose directors are appointed by the governor, took advantage of borrowers through something called a “confession of judgment.” Register reporter William Morris explored their stories in a recent investigative piece.

More: Iowa Student Loan settlement provision blocks borrowers' rights in court. Is that fair?

A confession of judgment allows a creditor to take immediate action if a borrower gets behind on payments without waiting for court proceedings or having to prove the delinquency. To satisfy the debt, the borrower’s bank accounts can be frozen and wages garnished — without even a requirement to tell the person that it’s happening.

The people suing Iowa Student Loan all signed the “confessions” as they sought to resolve difficulties in paying back their loans. Two plaintiffs had attended institutions that have faced scrutiny for shady practices, and their lawyers say they could have won challenges to the collection attempts in court.

"Our clients, who had no access to a lawyer, signed a document that waived every single right they had under the law," Alex Kornya of Iowa Legal Aid told Morris. "They received nothing in return."

Due process rights are worth more than a discount coupon

Iowa Student Loan says that procuring the documents allows the nonprofit to offer better settlement terms to delinquent borrowers because of the savings from avoided litigation.

Even assuming for argument’s sake that money that would have gone to lawyers and court costs really does go directly into more favorable deals, it’s hard to imagine settlement terms appealing enough to warrant voluntarily giving up due process and other rights. And that’s the issue: Is agreeing to a confession of judgment “voluntary” in any practical sense of the word if it’s part of a stack of dense paperwork filled with legalese that a student lender puts in front of a 20-something experiencing financial difficulty, perhaps even financial desperation?

Many states have banned or more heavily regulated confessions of judgment. Commentators say they make sense as an agreement between a pair of sophisticated business entities that are on relatively equal footing and can derive mutual benefit from excluding the judicial system from their debt repayment terms. None of that, of course, describes the student-lending context.

Iowa Student Loan would do better to abandon the practice, even if it can prove that it saves borrowers money, and even if it ultimately prevails in court. The Iowa Legislature passed numerous new rules for Iowa Student Loan in 2008 after official investigations and reporting by the Register and others illuminated how it was misleading students and families about their options for cheaper borrowing. Then-Attorney General Tom Miller wrote in a report that year that Iowa Student Loan "should be held to the highest standards of conduct" because of its mandate to serve public interest. Its very name conveys legitimacy and trustworthiness to Iowans.

Using confessions of judgment puts the lender in a bad light, regardless of any upsides. And they are not rare: The Register’s Morris reported that Iowa Student Loan is filing about 10 of them a month even in the time since the lawsuits challenging them were filed.

Yes, read the fine print. But we don't need this tool.

The issue is also worth the Iowa Legislature’s attention. The state should uphold due process principles, in particular at least notifying borrowers before wage garnishment or other adverse actions kick in. Perhaps the statute can be recrafted more narrowly to allow confession of judgment to remain a tool for sophisticated and similarly situated entities. But if not, the Legislature should err on the side of protecting consumers and barring their use outright.

All of this said, it’s undeniably true that we all should read and understand anything given to us before we sign it — even in an era when ubiquitous online terms of use agreements make signing away rights without reading them seem like normal behavior.

That’s a reminder for young and old alike. But we can uphold that principle while still discouraging onerous provisions buried in fine print. And if anybody should aspire for better, it’s the state-affiliated education lending entity.

Lucas Grundmeier, on behalf of the Register’s editorial board

This editorial is the opinion of the Des Moines Register's editorial board: Carol Hunter, executive editor; Lucas Grundmeier, opinion editor; and Richard Doak and Rox Laird, editorial board members.

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This article originally appeared on Des Moines Register: Student borrowers shouldn't be asked to sign away their rights