Increase In Private Student Loan Lawsuits

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 since 2013.

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.

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