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 8 lenders of 2020!
|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 3.20% APR (with Auto Pay) to 6.99% APR (with Auto Pay). Variable rate loan rates range from 1.99% APR (with Auto Pay) to 6.89% 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 December 13, 2019, 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 12/13/2019. 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 email@example.com, or call 888-601-2801 for more information on our student 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 SoFi.
3 Important Disclosures for Figure.
Figure’s Student Refinance Loan is a private loan. If you refinance federal loans, you forfeit certain flexible repayment options associated with those loans. If you expect to incur financial hardship that would impact your ability to repay, you should consider federal consolidation alternatives.
4 Important Disclosures for College Ave.
College Ave Disclosures
College Ave Student Loans products are made available through either Firstrust Bank, member FDIC or M.Y. Safra Bank, FSB, member FDIC. All loans are subject to individual approval and adherence to underwriting guidelines. Program restrictions, other terms, and conditions apply.
1College Ave Refi Education loans are not currently available to residents of Maine.
2All rates shown include autopay discount. The 0.25% auto-pay interest rate reduction applies as long as a valid bank account is designated for required monthly payments. Variable rates may increase after consummation.
3$5,000 is the minimum requirement to refinance. The maximum loan amount is $300,000 for those with medical, dental, pharmacy or veterinary doctorate degrees, and $150,000 for all other undergraduate or graduate degrees.
4This informational repayment example uses typical loan terms for a refi borrower with a Full Principal & Interest Repayment and a 10-year repayment term, has a $40,000 loan and a 5.5% Annual Percentage Rate (“APR”): 120 monthly payments of $434.11 while in the repayment period, for a total amount of payments of $52,092.61. Loans will never have a full principal and interest monthly payment of less than $50. Your actual rates and repayment terms may vary.
Information advertised valid as of 1/1/2020. Variable interest rates may increase after consummation.
5 Important Disclosures for Laurel Road.
Laurel Road Disclosures
Laurel Road is a brand of KeyBank National Association offering online lending products in all 50 U.S. states, Washington, D.C., and Puerto Rico. Mortgage lending is not offered in Puerto Rico. All loans are provided by KeyBank National Association.
ANNUAL PERCENTAGE RATE (“APR”)
There are no origination fees or prepayment penalties associated with the loan. Lender may assess a late fee if any part of a payment is not received within 15 days of the payment due date. Any late fee assessed shall not exceed 5% of the late payment or $28, whichever is less. A borrower may be charged $20 for any payment (including a check or an electronic payment) that is returned unpaid due to non-sufficient funds (NSF) or a closed account.
For bachelor’s degrees and higher, up to 100% of outstanding private and federal student loans (minimum $5,000) are eligible for refinancing. If you are refinancing greater than $300,000 in student loan debt, Lender may refinance the loans into 2 or more new loans.
ELIGIBILITY & ELIGIBLE LOANS
Borrower, and Co-signer if applicable, must be a U.S. Citizen or Permanent Resident with a valid I-551 card (which must show a minimum of 10 years between “Resident Since” date and “Card Expires” date or has no expiration date); state that they are of at least borrowing age in the state of residence at the time of application; and meet Lender underwriting criteria (including, for example, employment, debt-to-income, disposable income, and credit history requirements).
Graduates may refinance any unsubsidized or subsidized Federal or private student loan that was used exclusively for qualified higher education expenses (as defined in 26 USC Section 221) at an accredited U.S. undergraduate or graduate school. Any federal loans refinanced with Lender are private loans and do not have the same repayment options that federal loan program offers such as Income Based Repayment or Income Contingent Repayment.
All loans must be in grace or repayment status and cannot be in default. Borrower must have graduated or be enrolled in good standing in the final term preceding graduation from an accredited Title IV U.S. school and must be employed, or have an eligible offer of employment. Parents looking to refinance loans taken out on behalf of a child should refer to https://www.laurelroad.com/refinance-student-loans/refinance-parent-plus-loans/ for applicable terms and conditions.
For Associates Degrees: Only associates degrees earned in one of the following are eligible for refinancing: Cardiovascular Technologist (CVT); Dental Hygiene; Diagnostic Medical Sonography; EMT/Paramedics; Nuclear Technician; Nursing; Occupational Therapy Assistant; Pharmacy Technician; Physical Therapy Assistant; Radiation Therapy; Radiologic/MRI Technologist; Respiratory Therapy; or Surgical Technologist. To refinance an Associates degree, a borrower must also either be currently enrolled and in the final term of an associate degree program at a Title IV eligible school with an offer of employment in the same field in which they will receive an eligible associate degree OR have graduated from a school that is Title IV eligible with an eligible associate and have been employed, for a minimum of 12 months, in the same field of study of the associate degree earned.
The interest rate you are offered will depend on your credit profile, income, and total debt payments as well as your choice of fixed or variable and choice of term. For applicants who are currently medical or dental residents, your rate offer may also vary depending on whether you have secured employment for after residency.
The repayment of any refinanced student loan will commence (1) immediately after disbursement by us, or (2) after any grace or in-school deferment period, existing prior to refinancing and/or consolidation with us, has expired.
POSTPONING OR REDUCING PAYMENTS
After loan disbursement, if a borrower documents a qualifying economic hardship, we may agree in our discretion to allow for full or partial forbearance of payments for one or more 3-month time periods (not to exceed 12 months in the aggregate during the term of your loan), provided that we receive acceptable documentation (including updating documentation) of the nature and expected duration of the borrower’s economic hardship.
We may agree under certain circumstances to allow a borrower to make $100/month payments for a period of time immediately after loan disbursement if the borrower is employed full-time as an intern, resident, or similar postgraduate trainee at the time of loan disbursement. These payments may not be enough to cover all of the interest that accrues on the loan. Unpaid accrued interest will be added to your loan and monthly payments of principal and interest will begin when the post-graduate training program ends.
We may agree under certain circumstances to allow postponement (deferral) of monthly payments of principal and interest for a period of time immediately following loan disbursement (not to exceed 6 months after the borrower’s graduation with an eligible degree), if the borrower is an eligible student in the borrower’s final term at the time of loan disbursement or graduated less than 6 months before loan disbursement, and has accepted an offer of (or has already begun) full-time employment.
If Lender agrees (in its sole discretion) to postpone or reduce any monthly payment(s) for a period of time, interest on the loan will continue to accrue for each day principal is owed. Although the borrower might not be required to make payments during such a period, the borrower may continue to make payments during such a period. Making payments, or paying some of the interest, will reduce the total amount that will be required to be paid over the life of the loan. Interest not paid during any period when Lender has agreed to postpone or reduce any monthly payment will be added to the principal balance through capitalization (compounding) at the end of such a period, one month before the borrower is required to resume making regular monthly payments.
KEYBANK NATIONAL ASSOCIATION RESERVES THE RIGHT TO MODIFY OR DISCONTINUE PRODUCTS AND BENEFITS AT ANY TIME WITHOUT NOTICE.
This information is current as of November 8, 2019 and is subject to change.
6 Important Disclosures for Splash Financial.
Splash Financial Disclosures
Terms and Conditions apply. Splash reserves the right to modify or discontinue products and benefits at any time without notice. Rates and terms are also subject to change at any time without notice. Offers are subject to credit approval. To qualify, a borrower must be a U.S. citizen or permanent resident in an eligible state and meet applicable underwriting requirements. Not all borrowers receive the lowest rate. Lowest rates are reserved for the highest qualified borrowers.
7 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 1.76% effective November 10, 2019.
8 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.
Subject to floor rate and may require the automatic payments be made from a checking or savings account with the lender. The rate reduction will be removed and the rate will be increased by 0.25% upon any cancellation or failed collection attempt of the automatic payment and will be suspended during any period of deferment or forbearance. As a result, during the forbearance or suspension period, and/or if the automatic payment is canceled, any increase will take the form of higher payments. The lowest advertised variable APR is only available for loan terms of 5 years and is reserved for applicants with FICO scores of at least 810.
As of 12/019/2019 student loan refinancing rates range from 1.90% to 8.59% Variable APR with AutoPay and 3.49% to 7.75% Fixed APR with AutoPay.
|1.99% – 6.89%1||Undergrad & Graduate|
|2.31% – 7.36%2||Undergrad & Graduate|
|2.06% – 6.81%3||Undergrad & Graduate|
|2.62% – 6.12%4||Undergrad & Graduate|
|1.99% – 6.65%5||Undergrad & Graduate|
|1.99% – 7.06%6||Undergrad & Graduate|
|1.85% – 6.13%7||Undergrad & Graduate|
|1.90% – 8.59%8||Undergrad & Graduate|