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An application was completed for a FFEL guaranteed student loan consolidation including a signature on the bottom, promissory note section. The guarantee company insisted a second, computer generated full promissory note be signed. I assumed they would void the first. The list of banks representing the loans to be consolidated on the second note are in conflict with the list on the first note. I am not sure which list is accurate.

Is either note valid and/or enforceable? The information is in conflict. Also, my signature is crossed out on the second, initialed and signed differently. I don't remember doing that and it's not on the copy I have. And lastly, both notes were printed years before the 1992 amendments so not all options for repayment are listed and the disclosure "this is a loan which must be repaid" is not present anywhere. I had read in the Colorado Student Loan Training Manual that duplicate notes are not enforceable.

  • Loans could be discharged after 5 years in the 70s. The nondischarge provision used to expire after 5 years. It was in the 90s I think when they extended nondischarge to life of the loan. The irony being that this meant a few loans were discharged after less than five years since the law no longer made the first five years special. – Patrick Gerard May 24 at 5:21
  • Also worth noting that most loans made since 2012 were direct loans from the government with the government as the lender, not just guarantor. This would also tend to apply to consolidation loans if you can get the government to sign. – Patrick Gerard May 24 at 5:23
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Without reading the exact language of the documents it is hard to tell. Two possible interpretations of these documents are most plausible.

One interpretation is that the first note is the true promissory note and the second note is a written reaffirmation of the original promissory note which would extend the statute of limitations for enforcing it if there had not been regular payments, but does not create a new obligation or supersede the original note. But, it probably could be enforced if push came to shove, on some legal theory if the original first note was unavailable.

A second interpretation is that the second note is a novation of the original note that replaces and supersedes the original note. Given the differences in the parties to the second note, I would be inclined to give this interpretation a greatly likelihood of being correct, but again, it would come down to the exact language of the documents.

Promissory notes are tricky because they are "negotiable instruments" which means that the right to receive payment and enforce the note can be transferred to a new "Note Holder" by transferring the physical original note and endorsing the back.

The concern in the case of a promissory note is that someone with a photocopy could claim to be the Note Holder when in fact, the physical original has been negotiated to another person who is the true Note Holder to whom the obligation is now currently owed. If judgment were entered against the former Note Holder that might not prevent the true Note Holder from also getting a judgment against you, leaving you to try to vacate the judgment in favor of the former Note Holder and to seek restitution of any funds paid to the former Note Holder.

This could be prevented by insisting on an original note or by requiring the party bringing suit without an original note to post a bond to protect you in the event that the note was actually physically negotiated to someone else. The risk could be mitigated, but not entirely eliminated, if you were sued in a collection action, by joining all of the note holders listed on either note and their successors in interest, as third-party defendants.

While I'm not aware of any significant litigation concerning who the Note Holder is in the case of student loans, there was quite a bit of litigation concerning the true Note Holder in the subprime mortgage loan context around the time of the Financial Crisis of 2008.

The modification of the signature, apparently without your authorization, is deeply problematic and might amount to fraud, but could be found by a court to be harmless because you admit to signing the original. Fraud in a matter that is immaterial is usually not actionable, although it could still constitute grounds to disbar an attorney if this action was authorized by an attorney.

The fact that neither of the notes complies with subsequently enacted legislation is irrelevant as you can't have an ex post facto law that impairs obligations of contracts under the U.S. Constitution.

In the meantime, don't throw out anything related to this loan or delete any files related to it. You could need them to defend yourself in future litigation.

  • Interesting premise. But... these loans are not negotiable under UCC 3. They also have been affected by retroactive rulemaking that is allowed under sovereign acts doctrine... I think the fact that the notes don't comply with the legislation in effect at the time they were signed may amount more to terms or rights not disclosed but not sure. As for the notes, I was wondering if when the second one was signed, you could argue that full consideration was not given since they did not fulfill their legal duty in voiding or canceling the first...? – Susan Jun 29 '18 at 5:00
  • "these loans are not negotiable under UCC 3." Sure they are, and in practice they are negotiated. "They also have been affected by retroactive rulemaking that is allowed under sovereign acts doctrine... I think the fact that the notes don't comply with the legislation in effect at the time they were signed may amount more to terms or rights not disclosed but not sure." Doubtful. These loans are government guaranteed not true government loans and the regulation is of the servicing and marketing not the debt itself. "you could argue that full consideration was not given" probably. – ohwilleke Jun 29 '18 at 17:23
  • All FFEL loans and similar student loans can lose their guarantee if loans are not made, disbursed or serviced in accordance with the regulations of the HEA. I swear that as far as the servicers, guarantors and lenders are concerned, the regulations are a suggestion not a statute. Thanks ohwilleke. :) – Susan Jun 29 '18 at 20:56
  • "These loans are government guaranteed not true government loans and the regulation is of the servicing and marketing not the debt itself." The retroactive rulemaking came in the form of changing bankruptcy protections to eliminate them for educational loans... And they have changed plenty of the regulations in the last 20 years... – Susan Jul 3 '18 at 19:25
  • @Susan Student loans have been non-dischargeable since the 1970s. The standard for making exceptions to that rule changed a little, but honestly not that much, in 2005. – ohwilleke Jul 3 '18 at 19:41

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