A recent trend shows that private student loan lenders are taking more
people to court for falling behind on their student loans. While no formal
record is kept of such lawsuits, the Associated Press found after reviewing
court websites that several thousand student loan suits had been filed
The increase in lawsuits is likely a result of several different developments
in the financial world. For one, many loan holders are now able to sue
because bankruptcy cases filed by borrowers around the recession have
now been resolved. During a bankruptcy proceeding, student loan debt cannot
be collected. Additionally, the private student loan business is a multi-billion-dollar
industry and lenders are motivated to sue because of the sheer amount
of money that is at stake. Private lenders account for $91 billion of
the $1.2 trillion student loan market. Also, student loan companies are
improving their ability to produce necessary documentation demanded by
most judges in these lawsuits. As a result, cases are not being dismissed
because the companies now have the paperwork that proves they owned the
loans or have the authority to sue.
Presently, lawsuits seem to have replaced the collection efforts that lenders
used to engage in, including phone calls and warning letters. In many
cases in the past, if these collection efforts failed the lenders would
not often pursue litigation. Lenders typically pursue litigation in an
effort to garnish the wages of the borrower or to force the borrower to
make a specified payment to the company every month. Unlike federal loans,
that allow the lender to demand payment without going to court, private
lenders must get a judge to sign off on the above-mentioned remedies.
National Collegiate Student Loan Trust and Navient Corp., are just two
examples of private student loan lenders that are engaged in law suits
against student loan borrowers. These companies bundle thousands of student
loans into trusts worth billions of dollars and then sell them to investors.
It has been suggested that this practice may be yet another cause of the
increase in student loan lawsuits across the nation. National Collegiate
has filed more than 3,000 lawsuits against lenders in New York. Most of
these lawsuits have been filed by the company since 2013.