Student Loan Lawsuits: An Endangered Species

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The media’s been paying lots of attention lately to student loans – and student loan debt. That’s not surprising given that 44 million Americans now are on the hook to lenders for more than $1.3 trillion. The amount is staggering and exceeds what is owed in both credit card and auto loan debt. And the problem’s not going away anytime soon. The average graduate in the class of 2016 left college with their diploma and more than $37,000 in debt.

The fact that more than eight million borrowers are now in default would appear to be good news for attorneys who practice bankruptcy and consumer law. Unfortunately, while the pool of potential clients is huge, the options available to people saddled with government-guaranteed loans are minimal. Basically, they can repay them or they can die. As many of my colleagues know, working with the IRS is a cakewalk compared to dealing with federal student loans. So, although our offices field numerous phone calls every week from borrowers seeking relief, we can’t offer the vast majority of them more than sympathy and contact info for the Department of Education.

There is, however, a subset of student loan debtors we can help – those lucky enough to have been sued by private lenders or debt buyers. Yes, I said lucky. Here’s why – unlike the federal government, private lenders and debt buyers must sue borrowers and win before they can garnish wages or seize property. Because student loan lenders and debt buyers, like other creditors, often have trouble proving they’re owed the money they’re seeking, the suits provide an opportunity for debtors and their skilled attorneys to fight back. In many cases, lenders lose, which wipes out the debt completely. At the very least they agree to settle for far less than the original amount of the loan.

This legal strategy can be extremely effective, if the debtor has made mistakes during the collection process. With that in mind, Emily White, director of our student loan relief department, has prepared a list of critical dos and don’ts private student loan debtors must follow if they hope to win.

We’re happy to share it with our loyal Attorney at Law Magazine readers.

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If your client private student loan debtor who has fallen behind in payments or is in default…

DO respond if you receive a notice that your lender or a debt buyer like National Collegiate Trust has filed suit against you.

DON’T confuse a letter from a court saying you’re being sued with a letter from a collection agency threatening to sue. The letter from court means the lender’s pulled the trigger and the clock is running.

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DO yourself a favor – open all the letters you receive from court and do what they say to do when they say to do it. When you receive the first letter notifying you that a suit has been filed, you’ll have only 28 days to respond. Don’t wait until the last day. Take our word for it, we all learned this in law school, the deadline to respond is not a suggestion, it’s a deadline, as in miss it and your ability to fight the suit is dead.

HERE’S A LITTLE SECRET: companies like NCT count on the fact that most borrowers are going to ignore letters from court. This makes them very happy. Try really hard to not make them happy.

DON’T live down to your lender’s expectations – a judge will issue a default judgment against you. You really don’t want this to happen. If it does, it’s game over. Your lender will have the legal right to dig into your pockets for years and believe us, that’s not where you want them to be. One other thing, the judgment won’t just be for the money you owe on your loan, it may well include interest, court costs and other charges.

Debtors who preserve their right to fight collection suits by following these steps should then contact qualified counsel. First, because the lender has a team of lawyers that will fight hard to win, and, second, because in the course of investigating the case your lawyer may discover that the lender or debt buyer has violated consumer protection laws while trying to collect. If they did, your creditors can be sued and you may end up getting some cash from them. Now that’s sweet.

ONE FINAL NOTE

Although it’s easier to deal with private debt at this point in time, Attorney White along with Attorney Brian Flick, leader of our bankruptcy practice group, recently won a significant victory in federal court that may clear the way for government guaranteed loans to be discharged in bankruptcy. It may take us years to achieve that desirable result, but we’re committed to the fight and will write about it as the case develops.  Marc Dann

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