For most types of private student loans, the only way that the lenders can forcibly collect from borrowers is to file a lawsuit in court. That’s because most private student loan lenders do not have the same collections powers as the federal government – they generally cannot garnish wages, put a lien on a home, or seize any assets without first obtaining a court judgment. That judgment then gives the lender additional powers to pursue the borrower if he or she doesn’t start paying.
So you would think that all private lenders sue defaulted student loan borrowers, right? Well, that’s not necessarily true. In New York and Massachusetts (where I practice), let’s just say that some student loan lenders are more litigious than others. The following is based on my own personal anecdotal experiences representing student loan borrowers – it is not scientific, and it is by no means representative of national trends. And if your student loan lender isn’t on this list, it doesn’t mean you can’t or won’t be sued. But, perhaps my observations below can be insightful.
National Collegiate Student Loan Trust
National Collegiate Student Loan Trusts (or “NCT”) are a collection of trusts that purchased securitized private student loans several years ago. No one borrowed a student loan directly from NCT. People took out student loans from various banks and other commercial lenders, and after the loans were issued, NCT swooped in and bought the loans in bulk. When borrowers later default on these loans, NCT will often file a lawsuit, and it is one of the most litigious student loan lenders in the country.
Because NCT is not the original lender for any of the private student loans that they try to collect on, borrowers can raise defenses based on the transfer of the loan from the original lender. NCT sometimes has trouble proving the validity of a student loan account they are pursuing, and it is not unheard of for there to be errors, gaps, and mistakes in their documentation.
Sallie Mae and Navient
Sallie Mae was one of the largest providers of private student loans for many years. When Navient split from Sallie Mae in 2014, Navient quickly became a major private student loan provider as well. Because Sallie Mae / Navient loan terms are typically inflexible, it is not uncommon for borrowers who have an unexpected financial hardship or fall on hard times to default on these student loans. And both Sallie Mae and Navient can be quite aggressive in court.
That said, borrowers may have defenses that they can raise to a Sallie Mae or Navient lawsuit. For instance, it’s fairly common for a different loan holder to be filing the lawsuit – often some sort of trust (similar to NCT) or a “guarantor,” which may cloud the validity of the debt. I have also seen several cases where Sallie Mae and Navient have waited too long to file a lawsuit, triggering a potential Statute of Limitations defense. So even though this lender can be aggressive, it might be worth a fight.
State Student Loan Authorities
Many states have public or nonprofit authorities that issue private student loans to their residents. These state lending authorities often market themselves as the “good guys” in the world of student loans since they tend to be nonprofit entities, and their loan products may have lower interest rates than more traditional commercial lenders. However, because these state lending authorities are funded by bonds or public funds, they tend to be extremely aggressive in collections and may be very quick to file a lawsuit. To make matters even more troubling, settling with a state lending authority can be quite difficult and expensive, since they are less likely to compromise than other lenders given their funding mechanism.
Some of the most common state authorities in the geographic areas where I practice include the Massachusetts Educational Financing Authority (MEFA), the New Jersey Higher Education Assistance Authority (NJHEAA), and the Rhode Island Student Loan Authority (RISLA).
Your College or University
This always surprises people, but yes – it is very common for colleges and universities to sue their own former students. There are typically three types of debs that schools aggressively pursue in collections – unpaid tuition bills, private student loans issued by the school, and federal Perkins loans, which are federal student loans originated by the college. Not only can colleges and universities be litigious, but the underlying contracts for the debts often allow for exorbitant penalties, collections costs, and attorneys fees, which can drastically increase the overall balance. Furthermore, many colleges and universities will withhold the student’s academic transcripts until the debt has been dealt with.
As bad as that sounds, I have also seen some colleges and universities show a willingness to work with their former students to create a voluntary, mutually-agreeable arrangement to repay or settle the debts. The specific arrangements schools may agree to can vary wildly based on the school and the type of debt. But, it may be worth a shot to try, especially if it means litigation can be avoided altogether.