Signed at 18, Understood at 50: The Student Loan Trap

By Sebastian Joinville '26

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Student loans are unlike any other contract most people will ever sign. At 18, barely an adult by legal standards, you’re asked to agree to a financial obligation that can last a lifetime, all while having no job, no assets, and little understanding of what you’re getting into. Under contract law, both sides have to actually understand and agree to the terms; there has to be a real meeting of the minds. (1) But how can there be true consent when studies show only 38% of college students even know how much they borrowed? (2) 

Courts have long recognized that a contract can be voided if one party lacks the capacity or knowledge to make an informed decision. The case of Williams v. Walker-Thomas Furniture Co. called out contracts that were so lopsided that they were appalling. (3) Student loans, offered to financially inexperienced teenagers with no chance to negotiate, aren’t far from this category. And while the law considers 18-year-olds to be adults, courts have often ruled that contracts signed without a clear understanding of the terms or without any ability to negotiate can be thrown out for being unfair or one-sided. (4)

This issue becomes even more complicated once one examines how student loans are treated under the law. Unlike credit cards or car loans, student debt is almost impossible to erase because Congress, through the Higher Education Act of 1965 and later amendments (20 U.S.C. § 1087e), specifically made it non-dischargeable. (5) 

Bankruptcy only works if you pass the Brunner test, which means you need to prove three things: that you can’t keep up a minimal standard of living if forced to repay, that the situation isn’t likely to change, and that you’ve tried to pay the loans. (6) That high bar protects lenders and leaves borrowers with almost no chance at fairness, something that would not hold up with most private contracts. (7) In an adhesion contract—where one party writes all the terms and the other has no say—courts often step in to ensure fairness. (8) But student loans are shielded by statute from these challenges, raising the question: Did Congress create a system that is unfair by design?

The federal student loan system is built to be inflexible. The government offers income-driven repayment (IDR) plans, with some borrowers qualifying for payments as low as $0 per month. (9) However, under federal regulations (34 C.F.R. § 685.209), failing to recertify your income on time means your servicer will assume you’re earning more than you are and automatically raise your payment. (10) Even when debt is forgiven through these plans, borrowers can still face a tax bill for the canceled amount. (11) These rules act like legal traps, penalizing borrowers for small mistakes. The loan servicers themselves, however, rarely face meaningful consequences. For example, Navient and other major servicers have been sued for wrongful practices by the Consumer Financial Protection Bureau. (12) The CFPB’s cases show a pattern of misinformation and abuse, but these lawsuits rarely change the underlying legal structure that allows such practices to continue. (13)

Student loans ignore almost every rule that normally protects regular consumers. Under 20 U.S.C. § 1095a, the Department of Education can garnish wages and seize tax refunds without ever going to court. (14) Even Social Security benefits, money people earned over decades of work, can be used to pay off these loans. (15) 

Since there’s no statute of limitations on federal student loans, the government’s claim on you never expires. (16) Collections were paused during COVID-19 as part of emergency relief efforts, but they’ve since restarted. (17) This kind of endless collection breaks a basic contract rule: most agreements are supposed to end at some point. (18) Courts have often questioned contracts with no endpoint and usually limit them to a “reasonable” time unless the contract clearly says otherwise. (19) Legal briefs to the Supreme Court have pointed out that perpetual contracts are unfair because they trap one side without a real way out. (20) That is exactly what student loans do. In most private contracts, courts are reluctant to enforce agreements with no endpoint, but federal law gives student loans special treatment. (21) It forces us to ask whether a contract signed by an uninformed teenager with no realistic way out should be treated as untouchable.

Student loans highlight a clear gap between what contract law says and how it works in practice. In theory, contracts are supposed to be voluntary agreements between informed, consenting adults. In reality, student loans are built on an uneven playing field. 

The federal government and loan servicers control every term of the complex, non-negotiable agreements, enforced through harsh measures like wage garnishment, tax refund seizures, and even lifetime collections. (22) Courts usually step in when a contract is clearly unfair, misleading, or signed without proper understanding. However, federal law blocks this kind of review for student loans, treating them like untouchable contracts. This protection isn’t about fairness; it’s about preserving the federal lending system. Why should contracts signed by financially inexperienced teenagers be treated as untouchable when far less oppressive agreements are challenged in court every day?

Student loans aren’t just a financial burden; they’re a product of legal design. The Higher Education Act, CFPB regulations, and strict bankruptcy rules create a system that feels less like a safety net and more like a trap. And if policy builds this structure, policy can dismantle it. Viewed through the lens of traditional contract law, issues like adhesion, one-sided terms, and lack of informed consent raise serious questions about whether these agreements meet the basic standards of fairness we normally expect from valid contracts. Right now, student loans look less like contracts and more like state-approved debt traps, which is a problem the law can—and should—address.

Endnotes

1. Howell, Mia. “What is Contract Law, and Why Does it Matter in Business?” Rasmussen University, May 22, 2025. https://www.rasmussen.edu/degrees/justice-studies/blog/what-is-contract-law/. 

2. Akers, Elizabeth J., and Matthew M. Chingos. “Are College Students Borrowing Blindly?”, December 2014. https://www.brookings.edu/wp-content/uploads/2016/06/Are-College-Students-Borrowing-Blindly_Dec-2014.pdf. 

3. U.S. Court of Appeals for the District of Columbia Circuit. Williams v. Walker-Thomas Furniture Co., 350 F.2d 445 (D.C. Cir. 1965). Argued April 9, 1965. Decided August 11, 1965. https://law.justia.com/cases/federal/appellate-courts/F2/350/445/74531/. 

4. Cornell Law School Legal Information Institute. “Unconscionability.” https://www.law.cornell.edu/wex/unconscionability.

5. U.S. Department of Education, Federal Student Aid. “Income-Driven Repayment Plans.” Federal Student Aid. https://studentaid.gov/manage-loans/repayment/plans/income-driven.  

6. In re Brunner, 46 B.R. 752 (S.D.N.Y. 1985).

7. Ibid.

8. Kratz, Martin. “When Is a Contract of Adhesion Unconscionable?” Slaw, August 5, 2020. https://www.slaw.ca/2020/08/05/when-is-a-contract-of-adhesion-unconscionable/. 

9. U.S. Department of Education, Federal Student Aid. “Income-Driven Repayment Plans.” Federal Student Aid.

10. Ibid.

11. Ibid.

12. Consumer Financial Protection Bureau. “Navient Corporation, Navient Solutions, Inc., and Pioneer Credit Recovery, Inc.” Enforcement Action. https://www.consumerfinance.gov/enforcement/actions/navient-corporation-navient-solutions-inc-and-pioneer-credit-recovery-inc/ 

13. Ian E. Calhoun. “Assessing the Efficacy of the CFPB’s Regulation of Student Loan Companies.” Georgia Law Review 52, no. 3 (2018). https://digitalcommons.law.uga.edu/glr/vol52/iss3/6/.  

14. Cerullo, Megan. “Behind on Your Student Loan? Here's What to Know about Wage Garnishment.” CBS News, May 21, 2025. https://www.cbsnews.com/news/student-loan-default-wage-garnishment-cbs-news-explains/.  

15. Ibid.

16. Ibid.

17. U.S. Department of Education. “U.S. Department of Education to Begin Federal Student Loan Collections, Other Actions to Help Borrowers Get Back into Repayment.” U.S. Department of Education, April 21, 2025. https://www.ed.gov/about/news/press-release/us-department-of-education-begin-federal-student-loan-collections-other-actions-help-borrowers-get-back-repayment.  

18. Law Professors. “Brief of Amici Curiae Law Professors in Support of Defendant.” Supreme Court of the United States, August 29, 2022. https://www.supremecourt.gov/DocketPDF/22/22O156/236575/20220829135527722_No.%20156_Original_Brief%20of%20Amici%20Curiae%20Law%20Professors%20in%20Support%20of%20Defendant.pdf. 

19. Ibid.

20. Ibid.

21. Ibid.

22. Cerullo, Megan. “Behind on Your Student Loan? Here's What to Know about Wage Garnishment.” CBS News, May 21, 2025.