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 from MSN 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 happens if 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 borrower with 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.
Stacey Bumpus started writing as a youngster, creating little fun newsletters to distribute to her elementary school friends. But it wasn’t until she completed her bachelors and masters degrees in communication that she realized her fun pastime could become a career.
After spending years in corporate communications, she discovered that freelancing was her cup of tea and fell in love with finding the latest financial news. Now, providing news and tips about taxes, mortgages, banking and even logging her efforts to save toward retirement, she’s not only fulfilling her childhood passion, but also helping others manage their finances responsibly.
Parent loans in states that force divorced parents to finance their kids college should be illegal. What is being done about Parent Loans?
Why don’t you report on how the Dept. of Ed. routinely screws loan holders with ridiculous fees and interest and is legally allowed to HOUND them for years? Talk about how totally unreasonable Ed and his criminal counterpart Sallie Mae make people miserable.
Talk about how unreasonable the loan payments are and how Ed jacks up payments frequently for no reason at all. Talk about how all Ed wants to do is to argue with people rather than adjust their payments to something which they actually can AFFORD? Meanwhile Sallie Mae hands out employee bonuses like candy to their more successful ripoff artists, (I mean employees).
Better yet inform people to put assets in a place where they are untouchable to the Dept of Ed. There ARE ways to get around ED if you’re creative enough. I refuse to be bullied by this scum.
Don’t just take my word for this. See http://www.StudentLoanJustice.org. Congress won’t listen because Congress is the whore of the DOE and other big pockets interests. Send the DOE a message. Tell all the millions of students with loans through DOE and Sallie Mae to just refuse to pay on their loans at all until things become more reasonable. If anything gets the attention of Sallie Mae and the DOE, it’s money
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As someone with student loans and as someone who has been in the working world for the past 10 years since school, I recommend that everyone avoid taking out any student loans. It is absurd to be taking out student loans to get a Bachelors degree. If you cannot afford the school, then you should go to a cheaper school. I am talking community colleges. Some community colleges are actually better than their prestigious university counterparts. I know; I have been to both. Also, never take out student loans for a degree that offers no chance of making a good living! If you want a degree in a field that does not statistically pay a lot of money, then do not take out any loans for that degree. However, if in a professional program, then student loans make more sense. However, professionals also have money problems when faced with paying back their monstrous student loans. Yes, the loans allowed them to be that lawyer, doctor, pharmacist, engineer, etc. However, many get depressed after facing the reality that they are the working poor because most of their money goes to towards professional dues, licensures, and certifications, in addition to their obligatory student loan payment. I simply recommend that if you feel that you need to take out a student loan to get a bachelors degree that you should seriously consider a more vocational or alternative career. It is not what we do that defines us; it is our relationships with everyone around us that defines who we are. I think many will find that a college education, although rewarding, is not always the best option.
Some of you complaint on the tactics used to collect what YOU owe us (tax payers). Your parents and you should have been saving for this a long time ago. If you didn’t have the money you should have tried another way, part-time, the military active/reserve/guard. I got my education part-time while in the military. I have a masters degree from The Ohio State University. All three of my adult children are currently serving. One has a MBA degree from Wayland Baptist University, the other two so far have accumalated several hours from coleges at different assignments. When they leave the service they will have earned at least a masters and then use their GI bill to earn Phds. Why don’t you join the military or pay off what you owe!
Like mortgages, the more people stop paying for their loans and living in fear the quicker the DOE will be forced to work with borrowers. People need to stop being so stupid and learn how to abuse the system. SallieMae and all those b-stards have been doing it for years.
I went to several colleges for different degrees… earned a Masters and paid for these without student loans. Was never able to obtain any long term positions with my degrees so decided to go to a vocational school. SOP at the school was to obtain a small student loan to “build your credit history”. Did not realize the school was in bankruptcy and was fraudulently applying “signature on file” loans in the students names to keep the doors open. A 6200 dollar course has ended up to be over 250k dollars… paid it all down but 52k then became disabled. But under the guidelines of Disability Forgiveness on these loans you need to be A.) on life support B.) Buried (but I think they would dig you up to try to get you to pay.) or C.) be a member of congress. I say let them sue me not like it will hurt my credit anymore than the economy and longterm illness already has.
Wage garnishment is limited to 15%, not 25%. Perhaps you’re thinking of the collection charges, which can be 20% of the payment (or equivalently, 25% of the amount applied to principal and interest).
Mark Kantrowitz
Publisher of Fastweb.com and FinAid.org
I say screw them like they have been screwing us for years! A year after paying $100 a month on my student loan, I’ve barely made a dent into what I ow. ( $5000 ) because of all the ridiculous interest! It’s not fair!
I have owed as much as $8,000 in student loans and interest since 2003. Thankfully they never filed suit, but long story short, life from 2003 – 2010 was bad. Thankfully, I was able to work out a voluntary repayment plan that took my loans out of default status after only 9 months, and even reset my deferrals and forbearances. They will work with you if you just give them a call. Also, @ skyla, You’re 100% full of it. I get a statement every month, and currently pay $110/month. My balance drops by about $85/month after interest is applied.
I owe more for law school than most people paid for their house. My monthly payments are $1500. I’m tempted to default on purpose… let them try to collect from me. I don’t own anything, haven’t lived extravagantly, have no assets or retirement. I will never repay these loans anyway… just pay for 20 years until they forgive the rest.
We must be the exception. We took out $30K in loans for my daughter’s BA in economics. Graduated in 2008. She is now on a full ride for a PhD in civil engineering and the loans are almost 50% paid off.
However, to take out big loan for a degree that does not lead to a job is madness.
It is interesting that the people doing the complaining about paying back what they owe, seem to be the type of people to “game a system” or “walk away” from any responsibility.
You had no issues taking the TAXPAYER funding for your education. You owe it to the society you live in to pay it back!
Integrity.
If you took loans, gave your word that you would pay them back, then you need to do so. Why? Because its the right thing to do. If you couldn’t afford it, you shouldn’t have bought it. Be adults, sacrifice, pay your bills no matter how long it takes. You can then hold your head up high and know that you did ALL that by yourself. One day you are going to have to look your children in the eyes and tell them about integrity. Are you going to lie when that happens?
Social institutions have become heisted by corporateering crooks to prey upon citizens. Administrators are not just cronies but enact the policies that are creating indentured servants and widening social disparity to keep you controlled. Employers should pay for their labor to be trained. But just like everything else they transfer the burden of debt upon others while they enjoy no risk or get bailed out for their crimes & recklessness as you suffer. Rule of law has been abused to perpetrate injustice to indulge pseudo-patriots & outright criminals. Nothing other than Revolution 3.0 will restore the power of citizens to control of our government & our destinies while ending the injustice creating socio-economic disparity.
Its all about greed, the college loans should be under the bankruptcy laws like normal debt. I dont encourage others to default, but if theres one thing the government ought to forgive, that should be medical and educational expenses. Nothing like a salesperson disguised as a college counselor, talking you into a loan and promising they will get you a job. Happened to my girlfriend, the offering a job part happened to both of us. We believed their liberal lies. This is all about the liberals enslaving us. They are still pro slavery.
For those broadly painting people who do not pay their loans as deadbeats who “game” the system, I I might suggest you find out the individual circumstances involved. Are there deadbeats? Sure, like everywhere else.
There are also people who got cancer, who were in accidents and cannot work, It’s easy to cast aspersions on everyone in similar circumstances. Understanding is harder. Compassion even more so.
For all you who are judging these people for not paying back your absolutely ignorant to the truth. These counselors are sales people making big promises to young kids and then they start taking loans because they were promised huge pay checks. Then when you start paying your loans back they tack on the interest and you owe MUCH more than what you thought…Myself owed about 80k, then when I started paying back it jumped to 110k because the interest wasn’t showing, I’m getting screwed but can’t get anything back. No 20 year old should be given that amount of money nor should any school be allowed to charge it!
No one is forced to take out a student loan. The terms of the loans are clearly defined before you sign. If you did not intend on paying back what you owe, you should not have accepted it. Shame on you, if you were trying to defraud the government. We are paying on student loans for our kids (above those that they have). Its a huge amount of money, as much as our mortgage, but it was important to us, and we are repaying it, despite being a struggle. All this BS about the Government screwing you is stupid! As I said you were not forced to accept. Furthermore, we as individuals need to qualify for a job and not depend on an employer to train you. Be responsible for yourself, and stop trying to blame others for you own failings or laziness..Geez..Grow up.
“Randy”
Agree 100%. The government shouldn’t have to lose that money to young punks aspiring to achieve greatness. Instead they should give it to Egypt, Jordan, Israel, JP Morgan, Citi, BAC, Morgan Stanley, etc. They clearly deserve it more for making the world and America such a better place.
No one FORCED YOU to take $80,000 in loans. What the hell were you thinking? Last time I checked that was a ton of money. Now you are complaining you have to pay it back? You shouldn’t have taken that much out in loans in the first place. You should have either went to a cheaper school or worked for a few years to save up some money so you could afford it and work PT when going to school.
Sometimes student loans are necessary to get an education, done and over! I owed $60,000. The interest calculation is what is ridiculous. The interest is calculated monthly – not flat interest – like a car loan. Most months, my payment of barely covers the interest for that month. That excess ends up in my loan principal and I pay interest on that and end up owing more at the end of the month than at the beginning. I don’t understand their calculation methods. I figured my loan as a standard car loan – assuming I make all payments on time, using current interest rates and payment schedules. I would be paid off by now! Instead, I still owe over $50,000. I don’t mind paying student loan and am happy with what I gained – but — com’on guys. Be reasonable with us!!
That is typical anonymous cyberbullying, all the pay what you owe screeds…. Its not that simple. Unemployment, inflation are mitigating factors. Say you live in a small apartment with roommates, use public transportation, live off coupons, say you are doing everything you can think of to live frugally… and say the whole reason you went to college in the first place is to be valuable in the marketplace and find a good job… well, despite the best of intentions, and well-thought out plans, its still not working out… then what? more berating from people screaming “pay what you owe.”… its so easy to sit from behind your computer and scream simplistic solutions, but rarely does life go that way. Be compassionate and understanding. Try addressing some of the structural problems that caused this disaster in the first place instead of making people feel worse.
Any body out there thinking it’s o.k. to default on a student loan need to know that the Department of Education has a “goon squad” / collection agency, actually they have contracts with numerous collection agencies but this one is called”Financial Assets Management” and these boys DO NOT PLAY they are rude and offensive and seemingly take great pride in that fact in 2006 I suffered a ruptured cerebral aneurysm /debilitating stroke for most intents and purposes I am completely and permanently disabled I should have died, why I did not is a mystery I was put through the ringer trying to get approved for SSI/disability that process took nearly 2 years and within a few weeks a collection agent calling themselves “Financial Assets Management” sent me a letter stating they would be garnishing my disability checks in the amount of 37 dollars per month toward my defaulted student loans I was less than happy about it but this amount was tolerable and they were taking they’re payments out and all of the sudden in September of 2009 the same company started garnishing my SSI/disabilty for 134 dollars per month they “claimed” they tried to contact me but numerous attempts had been unsuccessful and that I should consider myself “lucky” I got by so cheap for so many months and that they were required by FEDERAL LAW to with hold 17% of my income until the loan is paid and he went on to just be downright rude about “he was acting in accordance with Federal Law” and questioned how I believed I was exempt from federal law I later found out that these henchmen at “Financial Assets Management” have a “blanket court order”that allows them to attach an order of garnish to intercept any government monies as they see fit My accounts have since been reassigned to yet another collection agency and yet as of June 3rd 2011 “Financial Assets Management” continues to take monies they are clearly not entitled to the new collection agency has been cooperative in assisting me toward getting the remaining 4 thousand dollars of those loans excused and still Financial Assets Management continues to steal my disability checks and NOBODY has any control over these crooks, my point was any body giving any thought to default on student loans needs to think twice these guys will take what they want when you can very least afford it
Working out a repayment plan? Really????? That is absurd. Sallie Mae worked with my income only once! They never offered to work with me after that. My requests were refused, I was called all kinds of names by the customer service reps., and never again did I receive any form to flll out showing where my mere $2000.00 a month goes. They wanted $1400.00 per month or nothing at all! This article is a joke and now I am being sued by Sallie Mae after making $150.00 monthly payments for the last few years. So much for TRYING to be responsible. Amazing that those who need the money most and have the highest balances are the ones being sued. The rich get to take easy street and the poor get the shaft. Can you say oppression?
I was forced on a leave from graduate school into my third year at a very expensive Ivy league University so I never got the degree I paid mostly for. Shortly after my forced medical leave I began living on a disability income however the disability deferral allowance time is only 3 years and from what I understand I am not death bed disabled so I would not qualify for the permanent forgiveness. Therefore though my doctor says I should not work, the student lenders have the power to over-ride the authority of medicine. Without the degree with which to procure the appropriate employment and having used up all allowed deferrals I decided I had to go back to school at a local community college. After about six months into the program I began to be systematically bullied and abused in the class room by classmates and teaching and assistant staff causing me to take an incomplete in one course which I am still trying to finish and having always been a straight A student this should not have happened to me. I am going into a fourth semester now of bullying and harassment in at least one of my classes each semester. It is if someone is trying to force me to drop out so that I will default on my loans. I am convinced that there is a conspiracy here that has exploited my ambition to ruin my life. I have been totally raped, slandered and screwed in every area of my life. I have not felt any human touch in more than two decades and I am now too old to have children. I valued the education I received, but the price I have had to pay has been a crime on the fact of my being a human being. At the present time I am being blackmailed into tolerating bullying in the school to keep myself from defaulting on the loans while scraping by on a disability income which limits my eligibility to earn any more income to pay the tuition. This is not a rock and a hard place, this is HELL, and in this hell the thought of killing myself occurs to me every single day. By virtue of my birth in this country I am told I have the freedom and right to the pursuit of life, liberty and happiness. I was told that if I worked hard my rewards would come. I worked and worked and worked and sacrificed and considering the small economic position I was given to start with it was a miracle that I made it to the big league and could be competitive academically in it. A land of opportunity does not tell you that if you have to wherewithal to make it into the top program in your field in an Ivy league college you should abandon the opportunity because your parent’s were not rich or because you could not save enough money from your non-existant allowance from aged two to pay for it yourself. The conservative comments here clearly serve interests of preserving the oppression of the status quo on the lesser priveledged. Blaming the victims of the inequities of our economic system is just another form of the fascist bullying this nation has become accustomed to tolerating for the last three decades. Perhaps the only reason to stay alive is to survive and prevail above the social cancer that has parasitically gnawed at every cherished institution this nation has ever stood for … in the very NAME of the founding fathers no less.