The Sapporo District Court on May 13 ruled that an education ministry-affiliated loan provider unjustly forced guarantors of student loans to pay more than their legal obligation. 

The verdict, the first ruling of its kind in Japan, was a victory for plaintiffs who had sued the Japan Student Services Organization (JASSO).

The cases shed light on problems in the scholarship system that requires loan applicants to designate guarantors and can seek collection from them if students fall behind in their payments. 

“The court handed down the ruling by properly taking into account the legal provision,” said a former high school teacher in Hokkaido, one of the plaintiffs, at a news conference after the ruling.

The former teacher and a wife of another guarantor living in Hokkaido sued the JASSO, claiming that its demand for full repayment of unpaid scholarship loans from guarantors violated the law since they are obligated to pay only half the amount.

The plaintiffs sought compensation and refund of the overpayment.

A similar lawsuit against the JASSO over its demand for full payment of outstanding loans from guarantors, which was first reported by The Asahi Shimbun in 2018, was filed at the Tokyo District Court as well.

A lawyer representing the plaintiffs in the Tokyo lawsuit also attended the news conference on May 13.

“It’s significant that the court ruled that the overpayment was unjust enrichment,” the lawyer said. “The ruling raised a fundamental question over the scholarship system.”

A Civil Law provision grants guarantors certain rights, where their obligation to repay a loan is divided equally among them, if the borrower has multiple guarantors, including joint guarantors.

According to the May 13 ruling, the 75-year-old former high school teacher, who lives in Otaru, Hokkaido, paid about 650,000 yen ($5,940) to JASSO after the organization demanded he pay some 940,000 yen as a guarantor for his student’s loan.

The late husband of the other plaintiff, 68, who lives in Sapporo, the capital of Hokkaido, paid the full amount demanded by JASSO, about 2.42 million yen, as a guarantor for his nephew’s scholarship loan.

In both cases, the borrowers’ fathers were joint guarantors, but did not have the ability to repay the loans, according to the ruling.

The plaintiffs argued that the guarantors need to pay only half the unpaid loans since the Civil Law stipulation would be applied to the cases.

The court pointed out that guarantors’ rights are stipulated even if they fail to claim them and that the guarantors repaid the loans without knowing that they had the right to contest the charges.

The court concluded that part of the amount paid by the guarantors to JASSO that exceeded their legal obligation was unjust and ordered the organization to refund a total of 1.39 million yen.

But the court rejected the plaintiffs’ damages claim. It said JASSO’s demand for full repayment does not constitute a direct violation of the law, given that there were various views over the application of the guarantors’ rights at the time when they repaid the loans.

According to a team of lawyers representing the plaintiffs, JASSO demanded full repayment of unpaid student loans from guarantors in 825 cases between fiscal 2010 and 2017, totaling about 1.3 billion yen. Guarantors claimed the right to only partially repay the debt in 31 of the cases.

The former Hokkaido teacher accepted the request by his student at an industrial high school to serve as a guarantor for the loan to help fulfill the student's desire to study. The man himself used student loans provided by JASSO’s predecessor to pay tuition for his high school and university and realized his dream of becoming a teacher.

His student graduated from the university and landed a job, but began failing to keep up payments of the scholarship loan and disappeared. JASSO frequently called and faxed the former teacher to demand that he repay the unpaid loan.

The man revealed that JASSO staff said unkind things to him and that he couldn’t believe those were the words of people working at the organization designed to support financially struggling students.

“I’m glad that I’ve kept fighting without giving up,” said the man. “Scholarships are aimed at helping children who will bear the future of our society. I want JASSO to return to its basics.”

Possible revisions to the scholarship system are being discussed to require all loan applicants to pay a guarantee fee to the Japan Educational Exchanges and Services, instead of designating guarantors.