According to the Consumer Finance Protection Bureau, private student loan debt makes up nearly $150 billion of the $1 Trillion of total outstanding student loan debt.
Unlike federal (or government) student loans, a private student loan lender is required to sue you and obtain a judgment against you in order to enforce collection. If you have private student loans, it is important for you to understand the difference between federal and private student loans and what your rights are when you are involved in a lawsuit over a student loan.
How to tell the difference between a private student loan and a federal loan
You can obtain a complete list of your federal student loans on the NSLDS website. Any student loan you have that is not listed on the NSLDS website is a private student loan.
If you have a student loan lawsuit, it’s a private student loan. Why is that? Because federal student loans have built in collection powers (such as wage garnishments and tax refund offsets) that are not available at all with private student loans. If a private student loan lender wants to make you pay, they have to sue you.
What difference does it make whether it’s a private student loan or a federal loan?
It makes a lot of difference. Here are just a few areas where federal student loans and private student loans differ.
Default: You “default” on a federal student loan when you fall 6 months behind on payments. You “default” on a private student loan whenever the contract says you default. With many private student loans, you “default” if you are one day late with one payment.
Getting out of default: Government loans have built in rehabilitation provisions that allow you to “get out of default” and get your loan back in good standing. There are no such provisions with private student loans. Once you default on a private student loan, you remain in default until and unless the lender decides to “give you a break” and work out a payment arrangement with you.
Income based repayment plans: Government loans have built in terms that allow you to lower your payment to what you can afford. Private student loans have no such provisions. You can request that your lender modify your loan terms, but the lender gets to decide whether or not they will agree to do it.
Consolidation: Government loans can be consolidated. Private loans cannot, ever.
Private Student Loan Lawsuits
Unlike with federal student loans, private student loan lenders have to sue you and obtain a judgment against you before they can enforce collection.
For lawsuit purposes, a private student loan is no different from any other bank loan. The same defenses that are available to bank loan borrowers in a bank loan lawsuit are available to student loan borrowers in a student loan lawsuit.
These defenses include (1) statute of limitations; (2) shoddy account documentation; (3) poor and incorrect loan servicing prior to the lawsuit and (4) substandard accounting.
We have had great success asserting those defenses. In fact, we have successfully defeated dozens of private student loan lawsuits for just these reasons.
What happens if we defeat your lawsuit?
You don’t have to repay the loan. And if we defeat your lawsuit, they cannot ever sue you again on the same debt.
What happens if we cannot defeat your lawsuit?
If we cannot defeat your lawsuit, we can settle your student loan debt for a reduced amount. We often receive settlement offers in the 30-50% range during the course of the lawsuits we handle. We usually don’t recommend that our clients settle even for this reduced amount, because the lender, more often than not, lacks the proof to win the lawsuit.
How can I get more information about my student loan lawsuit?
You can schedule a free no-obligation consultation with us in any of our offices. A list of our offices is at the bottom of this page. If you don’t live near one of our offices, we will be happy to assist you over the phone.
We also offer a free lawsuit review. You can upload a copy of your lawsuit using upload feature that is part of the contact form on the left-hand of this page. We will review your case and let you know where you stand and what your chances are.
You only have 2-4 weeks to file an answer to your lawsuit from the time you’re served with the lawsuit paperwork. If you miss the deadline, you could get a default judgment against you for the full amount of the debt, plus interest, court costs and legal fees.
So whatever you decide to do, you need to do it quickly.