During the past few months, I have seen a fairly rapid increase in new collections lawsuits being filed against student loan borrowers in Massachusetts for defaulted student loans that were previously held by Sallie Mae and/or Navient. This is noteworthy because in my experience, these loans had been predominantly placed with non-attorney third-party debt collection agencies, or out-of-state collection law firms that rarely filed suit. This is a major shift.
In many of these cases, the entity suing student loan borrowers is not Sallie Mae or Navient, but various “debt buyers” and trusts that purchased securitized bundles of private student accounts on the open market – much like what we have seen with National Collegiate Student Loan Trusts (NCSLT), where a single student loan account may have undergone multiple assignments or transfers to half a dozen or more different legal entities. And just like we have seen with the NCSLT cases, I am seeing major problems with these lawsuits including missing paperwork, faulty documentation, record-keeping mistakes, and procedural issues like suits filed against people in the wrong court, or service made at an incorrect address, depriving borrowers of the right to defend themselves.
What’s behind this latest surge in private student loan litigation? It’s hard to say. My guess is that it is a combination of factors, potentially including the continuing economic recovery (which may lead investors to believe that borrowers have more wages and assets to pursue), a rollback of regulatory oversight and law enforcement actions against these type of debt buyers (particularly by the Consumer Financial Protection Bureau), and the fact that many defaulted private student loans may be approaching the statute of limitations on collection after years of inactivity.
Whatever the reasons, if you have defaulted private student loans that were at some point held or serviced by Sallie Mae or Navient, it’s time to be vigilant. Check out my tips on what to do if you’ve been sued, and watch out for these pitfalls.
