Student loan agreements are contracts by which college or university students borrow money from a financial institution to finance their college or university education. The student is then required to repay the money upon completion of his or her studies, especially after acquiring employment. While student loans help students in financing their education, it also acts as a source of revenue to the lending financial institutions. This paper aims to discuss the contractual details in student loan agreements. It further details five fundamentals of an enforceable contract and establishes how each aspect relates to a student loan agreement. It explains the conditions of a violation of an agreement in student loan agreements and feasible remedies.
Contractual Details of Student Loans
As noted by CFTCUNCSL (2018), there is a greater need for the understanding of contractual details involved in student loan agreements. Essentially, student loan agreements have contractual information relating to obligations of parties such as the lender, the borrower, and a servicer. In this case, a borrower is required to be a student pursuing an approved course offered by a recognized educational institution. A lender is a financial organization that is willing to provide a loan to the borrower. In the contract, the servicer is the financial institution tasked with collecting payments, responding to the service inquiries of the borrower, and executing other managerial duties associated with the maintenance of a student loan on behalf of the lender (CFTCUNCSL, 2018). Notably, the servicer acts as the primary contact point of the borrower from the moment the lender provides the loan to a borrower all through to the time when full repayment of the loan is made. In most cases, servicers are private companies which sign contracts either with the lender or federal government to facilitate servicing of the loan (U.S. Department of Education, 2018).
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Student loan agreements also include other subject matters such as the details of the borrower, name of the lender and servicing company. Details of the borrower include the name of the student, address, student ID or registration number assigned at the learning institution, home phone, name of the institution, age, nationality, loan amount, purpose of the loan, financial information of the family members, and bank account details. A list of guarantors is often required to provide the lender and servicer with an easy way of ensuring the loan is paid back by the borrower upon completion of his or her studies. Guarantors are voluntary securities for the borrowers and are, therefore, liable in case of the borrower’s failure to repay the student loan after completing studies.
Essential Elements of an Enforceable Contract
According to Bayern (2015), an enforceable contract is a legal arrangement between two parties, which should be legally binding. The two parties involved in an enforceable agreement do not have any restrictions on the laws. Enforceable contracts have essential elements which include offer, acceptance, genuine agreement, consideration and legality (Burnham, 2011).
An offer is a promise provided by one party showing the willingness to agreeing with another party. An offer in an enforceable agreement such as a student loan agreement is required to be specific, complete, and capable of acceptance and made by a purpose of being guaranteed by recognition (Bayern, 2015). In student loan agreements, the borrower is required to show his or her willingness of getting into a contract with the lender by filling a student loan form.
Acceptance in an enforceable agreement such as a student loan is an ultimate and absolute assent to an offer. Acceptance is required to be communicated by the borrower to the lender to facilitate effectiveness. It is an agreement made by the offeree to be guaranteed by the terms that govern the offer (Bayern, 2015). In student loan agreements, the borrower is required to communicate his or her request for a loan to the lender. The lender is then required to deliver an absolute and ultimate consent to provide the borrower with the requested loan.
A genuine agreement is acquired through a combination of an offer and acceptance. It is a meeting of the minds and therefore, it can be ruined by fraud, mistake, misrepresentation, undue influence or duress. Both the borrower and the lender in a student loan agreement are required to acquire establish a genuine agreement to borrow and to lend respectively.
Consideration refers to the valuable thing that is promised to the other party in an enforceable agreement in exchange something worthwhile that has been guaranteed by the other party. It is a mutual exchange that binds the two parties involved in a contract. In student loan agreements, the lender provides the borrower with financial aid for his or her education while on the other hand, the student agrees to pay back the loan with interest.
Legality in an enforceable agreement means that the borrower and the lender are not allowed to impose an agreement that involves doing illegal things. In various instances, illegal contracts involve the agreement to either commit a criminal act or to tort other parties. Both the lender and the borrower in a student loan agreement must ensure that the money provided by the lender is used only for educational purposes by the borrower.
Circumstances of Breach of Contract
Breach of contract in student loan agreement can occur under various circumstances such as lack of adequate funds, inappropriate borrower information about the borrower, for example, bank account details and the failure by the borrower to pay back the loan in time. In the case of inadequate funds, the lender can source funds from other financial institutions and lend it to the borrower as required by the contract.
Providing inaccurate information such as wrong bank account details may cause a breach of contract. In such an instance, the borrower is required to provide relevant banks details to the lender to facilitate the disbursement of the loan. Upon the failure by the borrower to pay back the loan in time, the lender is allowed to pursue the guarantors through their employers or other legal avenues. Alternatively, the lender can also use other companies tasked with debt collection to facilitate the repayment of the loan.
Notably, student loan agreements are binding. They are important to enable students to acquire educational funds and pay it back upon the completion of their studies. Contractual details are often required to facilitate the agreement and enhance the contractual obligation between the two parties. Enforceable contracts such as student loan agreements contain essential elements such as offer, acceptance, genuine agreement, consideration and legality. Notable, student loan agreements may be affected by various circumstances that lead to a breach of contract, which requires the execution of multiple strategies to provide a remedy to the contractual breaches.
References
Bayern, S. (2015). Offer and Acceptance in Modern Contract Law: A Needles Concept. California Law Review , 103, 67.
Burnham, J. (2011). Contract Law for Dummies . John Wiley & Sons.
Consumer Financial Transactions Clinic University of North Carolina School of Law (CFTCUNCSL). (2018). Student Loan Guidebook for Service members and their Advocates . Retrieved from https://www.mcieast.marines.mil/Portals/33/Documents/LSSS-East/Legal%20Assistance/Consumer%20Law/Student%20Loan%20Guidebook%20for%20Servicemembers_May2018.pdf?ver=2018-06-12-131516-207
U.S. Department of Education (office of Federal Student Aid). (2018). Federal student loans for college or career school are an investment in your future . Retrieved from https://studentaid.ed.gov/sa/types/loans
