The bailiff tells everyone to rise as the judge enters the courtroom. As you’re summoned to take the stand, you raise your right hand and swear to tell the truth about why you’ve gone into default with your student loans, as the plaintiff — your lender — watches on.
While this type of legal fiasco might be common in a high-profile criminal trial, a student loan lawsuit isn’t quite as dramatic. You won’t find yourself behind bars if you’re ordered to pay up. (Unless you try to flee the country, of course.)
But being sued by debt collector or lender is still a very real possibility if you’ve defaulted on your payments. It can have severe consequences, making an already difficult financial situation harder to break free from.
What happens in a student loan lawsuit?
Any lender, federal or private, has the right to sue you over defaulted payments that have gone delinquent, and if attempts at collecting them from you have failed.
Surprisingly, the government may not resort to legal action right away. The Department of Education and Internal Revenue Service have the advantage of wage garnishment or tax-refund offsetting as ways to get defaulted borrowers to pay up first.
Private student loan lenders may have the freedom to set their own terms and interest rates, but they have little leeway in getting borrowers to pay up since they don’t have the backing of the government. Thus, a lawsuit may be their most common response to a severely delinquent loan.
If you find yourself embroiled in the beginnings of a debt collection lawsuit, follow some of these tips:
- Don’t panic!
The police won’t come to your residence to arrest you. You’ll usually receive a certified letter in the mail notifying you that you’ve been subpoenaed to court.
- Hire a student loan attorney.
Hiring a good lawyer can help you sort out your options before a lawsuit gets to court. They can help prepare your best defense and represent you in responding to summons, paperwork, and communicating with your lender’s attorneys.
- Stick to deadlines.
Always respond to a summons or other legal correspondence on time. Ignoring the court may mean a ruling in favor of your lender without you getting to tell your side of the story.
- Look for extensions.
If you were actively serving in the military when you were notified of your lawsuit, you can be granted a delay in the start of proceedings — called a “stay” — usually for about 90 days.
Remember that being sued doesn’t mean you’ve automatically lost. Like any legal battle, it means that you have a chance to find representation, go to court, and hash out the facts. Don’t ignore the lawsuit and hope that it, or your loans, will just go away. They won’t.
Common student loan lawsuit defenses
According to Student Loan Borrower Assistance, simply raising a good defense in a debt collection lawsuit may lead to a lender dropping your case, so the reasons you give the court are very important. Some examples include:
- Your identity was stolen and you never agreed to pay the debt; it’s not yours.
- You paid the total amount of the loan, but the lender isn’t current on their records.
- The debt was released in bankruptcy.
- You still have an outstanding balance on your loan, but you’re being sued for more than you owe.
- The loan has been canceled, or the school you were attending closed.
- Your lender waited too long to sue.
Even if none of these defenses apply to you, you and your attorney will need to check the facts.
To do your own homework, check your credit report for any errors. Is the loan indeed paid up, and you’re being sued in error? Is the amount they’re claiming on you correct? And — the judge will determine this — is the collection legally enforceable?
What happens if you win
Simply put, if you win the lawsuit, you don’t owe any money. Of course, a victory will depend on the strength of your legal defense and the validity of your individual circumstances.
If your defense holds water, the court will absolve you of your responsibility to repay what your lender claims you owe. In some lucky instances, the plaintiff may even be required to pay your court fees and legal expenses.
What happens if you lose
Should you ignore the lawsuit or if you put up a solid defense but still lose your case, the court will issue a judgment against you ordering to pay the amount you owe on your student loans. A creditor can then go to various lengths to obtain the money you owe them, including wage garnishment.
At this stage, you may attempt to appeal your case. However, this usually involves an appellate judge reviewing the details and facts of the case and making their own ruling. It’s not a retrial allowing you to reappear in court and try your case again.
You may also be able to assert various exemption rights depending on your financial status. In some cases, defendants may be able to successfully claim that they’re “judgment proof” or “collection proof.”
If you can prove that you have very little money and own few assets, a creditor can’t seize your home, household goods, your car, or raid too much of your earnings or retirement accounts. Homestead exemptions may also protect the equity in your house, depending on the state you live in.
However, if your income was to increase over a certain amount, this exemption may disappear since it may indicate that you can afford to pay back your loans.
Have no fear, negotiation is here
You can aim to negotiate with your creditor and settle the lawsuit out of court. If a reasonable monetary settlement can be reached before you ever step foot into a courtroom, all the better, since it preserves and saves legal costs and attorney fees on both sides.
In a typical federal loan settlement, you may be able to cut down the amount you owe by about 10 percent, through a reduction of the loan’s total balance and waiving of collection fees. Depending on the lender, private loans, according to some legal sources, may often settle anywhere between 30 percent to 80 percent of the amount you may owe.
How to avoid being sued by debt collector
Avoiding a debt collection lawsuit means staying out of default. Making sure you don’t become delinquent on your monthly loan repayments will keep you from being sued by debt collector or lender.
Examine all your options before ever coming close to a legal fracas with your loan provider. If you’re in financial trouble, contact them to work out a payment plan.
Will a graduated or extended option work better for your finances than a standard plan? How about applying for an income-based plan? Deferment or forbearance are other alternatives, too.
Work out the best budget you can according to your current income and expenses, and see what changes you can make in your spending to conserve some money towards your loan payments. The more you’re able to pay down, the further away you’ll stay from going to court over a financial matter that could have been prevented.
Interested in refinancing student loans?Here are the top 6 lenders of 2018!
|Lender||Variable APR||Eligible Degrees|
|Check out the testimonials and our in-depth reviews!
1 Important Disclosures for Earnest.
To qualify, you must be a U.S. citizen or possess a 10-year (non-conditional) Permanent Resident Card, reside in a state Earnest lends in, and satisfy our minimum eligibility criteria. You may find more information on loan eligibility here: https://www.earnest.com/eligibility. Not all applicants will be approved for a loan, and not all applicants will qualify for the lowest rate. Approval and interest rate depend on the review of a complete application.
Earnest fixed rate loan rates range from 3.89% APR (with Auto Pay) to 7.89% APR (with Auto Pay). Variable rate loan rates range from 2.47% APR (with Auto Pay) to 6.97% APR (with Auto Pay). For variable rate loans, although the interest rate will vary after you are approved, the interest rate will never exceed 8.95% for loan terms 10 years or less. For loan terms of 10 years to 15 years, the interest rate will never exceed 9.95%. For loan terms over 15 years, the interest rate will never exceed 11.95% (the maximum rates for these loans). Earnest variable interest rate loans are based on a publicly available index, the one month London Interbank Offered Rate (LIBOR). Your rate will be calculated each month by adding a margin between 1.82% and 5.50% to the one month LIBOR. The rate will not increase more than once per month. Earnest rate ranges are current as of Month/Day/Year, and are subject to change based on market conditions and borrower eligibility.
Auto Pay discount: If you make monthly principal and interest payments by an automatic, monthly deduction from a savings or checking account, your rate will be reduced by one quarter of one percent (0.25%) for so long as you continue to make automatic, electronic monthly payments. This benefit is suspended during periods of deferment and forbearance.
The information provided on this page is updated as of 08/21/18. Earnest reserves the right to change, pause, or terminate product offerings at any time without notice. Earnest loans are originated by Earnest Operations LLC. California Finance Lender License 6054788. NMLS # 1204917. Earnest Operations LLC is located at 302 2nd Street, Suite 401N, San Francisco, CA 94107. Terms and Conditions apply. Visit https://www.earnest.com/terms-of-service, email us at firstname.lastname@example.org, or call 888-601-2801 for more information on ourstudent loan refinance product.
© 2018 Earnest LLC. All rights reserved. Earnest LLC and its subsidiaries, including Earnest Operations LLC, are not sponsored by or agencies of the United States of America.
2 Important Disclosures for Laurel Road.
Laurel Road Disclosures
APR stands for “Annual Percentage Rate.” Rates listed include a 0.25% EFT discount, for automatic payments made from a checking or savings account. Interest rates as of 11/8/2018. Rates subject to change.
Variable rate options consist of a range from 3.27% per year to 6.09% per year for a 5-year term, 4.64% per year to 6.14% per year for a 7-year term, 4.69% per year to 6.19% per year for a 10-year term, 4.94% per year to 6.44% per year for a 15-year term, or 5.19% per year to 6.69% per year for a 20-year term, with no origination fees. APR is subject to increase after consummation. The variable interest rate will change on the first day of every month (“Change Date”) if the Current Index changes. The variable interest rates are based on a Current Index, which is the 1-month London Interbank Offered Rate (LIBOR) (currency in US dollars), as published on The Wall Street Journal’s website. The variable interest rates and Annual Percentage Rate (APR) will increase or decrease when the 1-month LIBOR index changes. The variable interest rates are calculated by adding a margin ranging from 0.98% to 3.80% for the 5-year term loan, 2.35% to 3.85% for the 7-year term loan, 2.40% to 3.90% for the 10-year term loan, 2.65% to 4.15% for the 15-year term loan, and 2.90% to 4.40% for the 20-year term loan, respectively, to the 1-month LIBOR index published on the 25th day of each month immediately preceding each “Change Date,” as defined above, rounded to two decimal places, with no origination fees. If the 25th day of the month is not a business day or is a US federal holiday, the reference date will be the most recent date preceding the 25th day of the month that is a business day. The monthly payment for a sample $10,000 loan at a range of 3.27% per year to 6.09% per year for a 5-year term would be from $180.89 to $193.75. The monthly payment for a sample $10,000 loan at a range of 4.64% per year to 6.14% per year for a 7-year term would be from $139.65 to $146.76. The monthly payment for a sample $10,000 loan at a range of 4.69% per year to 6.19% per year for a 10-year term would be from $104.56 to $111.98. The monthly payment for a sample $10,000 loan at a range of 4.94% per year to 6.44% per year for a 15-year term would be from $78.77 to $86.78. The monthly payment for a sample $10,000 loan at a range of 5.19% per year to 6.69% per year for a 20-year term would be from $67.05 to $75.68.
However, if the borrower chooses to make monthly payments automatically by electronic funds transfer (EFT) from a bank account, the variable rate will decrease by 0.25%, and will increase back up to the regular variable interest rate described in the preceding paragraph if the borrower stops making (or we stop accepting) monthly payments automatically by EFT from the designated borrower’s bank account.
3 Important Disclosures for SoFi.
4 Important Disclosures for LendKey.
Refinancing via LendKey.com is only available for applicants with qualified private education loans from an eligible institution. Loans that were used for exam preparation classes, including, but not limited to, loans for LSAT, MCAT, GMAT, and GRE preparation, are not eligible for refinancing with a lender via LendKey.com. If you currently have any of these exam preparation loans, you should not include them in an application to refinance your student loans on this website. Applicants must be either U.S. citizens or Permanent Residents in an eligible state to qualify for a loan. Certain membership requirements (including the opening of a share account and any applicable association fees in connection with membership) may apply in the event that an applicant wishes to accept a loan offer from a credit union lender. Lenders participating on LendKey.com reserve the right to modify or discontinue the products, terms, and benefits offered on this website at any time without notice. LendKey Technologies, Inc. is not affiliated with, nor does it endorse, any educational institution.
5 Important Disclosures for CommonBond.
Offered terms are subject to change. Loans are offered by CommonBond Lending, LLC (NMLS # 1175900). If you are approved for a loan, the interest rate offered will depend on your credit profile, your application, the loan term selected and will be within the ranges of rates shown.
All Annual Percentage Rates (APRs) displayed assume borrowers enroll in auto pay and account for the 0.25% reduction in interest rate. All variable rates are based on a 1-month LIBOR assumption of 2.28% effective October 10, 2018.
6 Important Disclosures for Citizens Bank.
Citizens Bank Disclosures
|2.47% – 6.99%3||Undergrad & Graduate|
|2.46% – 6.97%1||Undergrad & Graduate|
|2.57% – 8.44%4||Undergrad & Graduate|
|3.05% – 6.47%2||Undergrad & Graduate|
|2.50% – 7.24%5||Undergrad & Graduate|
|2.79% – 8.39%6||Undergrad & Graduate|