SPECIAL REPORT:
Why More Student Loan Borrowers Are Finding Themselves in Court
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Posted in Debt, Student Loan Repayment, Student Loans
May 25, 2011
Going to court for failing to pay back student loans is not something that most college students consider as they apply for financial aid, but new reports show the Department of Education (DOE) is filing more civil lawsuits against those in student loan default than ever before.
The number of delinquent borrowers has already increased by more than five times since 2006 and is expected to continue rising due to the tough economy. So how can borrowers avoid going to court over their student loans?
DOE Filing More Lawsuits than Ever Before
In a recent article written by The Montgomery Advertiser of Montgomery, Ala., it was revealed that the number of civil lawsuits filed by the Department of Education has increased significantly.
Jane Glickman, a spokeswoman for the DOE, told the Advertiser that filing suits through the Department of Justice is a “last resort step.” However, this last resort has become common as more students fail to repay their student loan debt.
According to figures from the DOE, the follow number of loans was brought to suit:
- 918 in 2006
- 1,877 in 2007
- 3,777 in 2008
- 2,956 in 2009
- 5,393 in 2010
With the exception of the drop in 2009, the number of civil lawsuits has increased substantially.
One major reason for the increase in lawsuits is the increase in defaults. In Aug. 2010, a report fromMSN Money and The Wall Street Journal revealed that the student loan debt rate surpassed that of credit card debt for the first time. While student loan debt was estimated at $829.785 billion at the time by FinAid.org, FastWeb.com estimated that card debt was $826.5 billion.
The report found that more people were choosing to pay down their credit cards, largely due to the faltering economy. In many cases, it’s easier to tackle the minimum payment of a credit card than a student loan payment. Also, student loans can be deferred a lot easier.
Of course, if student loan payments are deferred or sent into forbearance, the DOE won’t file. If the payments are skipped altogether, however, a lawsuit could eventually result.
What Happens If the Department of Education Files a Lawsuit?
Since filing suits against borrowers is still relatively rare, especially when you consider how many students borrow money for school each year, most people don’t know what the happens of the DOE pursues a debt.
Typically, the department will try to have a borrower pay the money on their own before going after them through the court system. But if it must, the DOE will file a lawsuit.
Once the lawsuit is filed, the DOE can go after money held in bank accounts, retirement funds, and even place a lien on a home. Wages can be garnished up to 25 percent on defaulted loans and parents who co-sign for loans can be sued.
The good news is beginning in Jan. 2010, the DOE stopped pursing defaulted loans through the Justice Department that were less than $45,000, Glickman told the Advertiser. Prior to this, they pursued debts as low as $2,500.
This could help those who are struggling to pay smaller loans, how does the student loan borrowerwith a larger debt amount avoid being sued?
How to Avoid Being Sued
Are you in danger of defaulting on your student loans that total $45,000 or more and are worried that you could be sued? The truth is you could very well become a statistic if you don’t manage the situation starting now. Here are a few ways to do so:
- Work out a new payment plan: Contact your lender and let them know you are not comfortable with paying the current amount you owe and that you want to avoid becoming delinquent, or worse, defaulting on your loan. Very often, they will work to reduce your monthly payment if you ask.
- Ask for a deferment or forbearance: Before skipping out on a payment because you can’t afford it, ask the lender for a hardship deferment or forbearance. Lenders understand times are hard and are more willing to be lenient than you might think.
- Go back to school: If you have not defaulted or fallen behind on your payments but know that you could be in danger of doing so soon, consider going back to school. Under most circumstances, you’re not responsible for repayment student loans while enrolled in school. So if you’ve been thinking about going back to pursue your education further, now’s the time to make it happen.
You could also consider other ways to avoid default like joining the Peace Corps or consolidating your loans.
As noted by Glickman, the DOE would rather you repay your loan than have to sue you, so it’s good to explore all student loan repayment options before allowing yourself to default.
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