Defaulted Student Loans
Student loans are becoming a serious problem for those who choose to attend secondary education and further advance their career. Unfortunately, consumers are often lured in or forced to sign private student loans with incredibly high interest rates or get stuck dealing with debt collectors when their student loans are sold off.
Furthermore, the interest on these loans can make repayment impossible and keep the consumer, or co-signer, in a financial hardship for years! Fortunately, if you are struggling with these issues, Fields Law Firm can help.
There is no out-of-pocket cost to you when hiring a Consumer Law attorney at Fields Law Firm. We offer free initial consultations and our work is done on a contingency fee basis, which means that we advance all your case costs and you do not owe any money for attorney fees or costs unless we win your case.
Most importantly, the Fair Debt Collection Practices Act (FDCPA) requires violators to pay successful plaintiffs’ attorney fees. Therefore, we only get paid if we win and when we win, we get paid by the party who violated the law.
What Is The Difference Between Federal and Private Student Loans?
First, Federal student loans are unforgiving, and it is generally a good practice to resolve any issues directly with the servicer. Second, federal student loans do not have a statute of limitations. Third, and most importantly, if your federal student loans are in default, the Department of Education can refer your account to the Department of Treasury for collection by an offset of your federal tax returns. The Department of the Treasury also has the authority to withhold the entire amount of your tax refund to satisfy any amounts owed on the debt.
If you are being sued regarding a federal student loan you may be able to present the following defenses:
- The creditor is suing you for the incorrect amount
- The debt is actually current and not owed
- That you never agreed to pay the loan (someone has stolen your identity)
- The debt has been discharged through bankruptcy
- The amount sought includes fees that are not allowed (ludicrous attorney fees or collection charges)
On the other hand, private student loans are a much easier debt to deal with. Private student loans are issued by private institutions, such as Wells Fargo, Sally Mae, and Discover Bank, and as such, follow the same rules as other consumer debts, such as:
- They follow a 6-year statute of limitations to collect
- The creditor, or debt collector, must sue you to collect the debt, they cannot garnish your taxes
- Debt Collectors need to follow the law under the Fair Debt Collection Practice Act
- This debt can be negotiated and settled by a skilled attorney
- This debt can be discharged through a bankruptcy
Student Loan Options: The difference between federal and private student loans
Federal Student Loans
- Require completion of the Free Application for Federal Student Aid (“FAFSA”) to apply
- No co-signers are required
- Provide more flexibility in repayment options in case of financial hardship
- Can be put into deferment or forbearance, which allows borrowers to temporarily stop making payments
- Have fixed interest rates
- Interest rates set based on loan type
- Interest on some federal loans is subsidized while you’re in school, which means the government pays the interest while you’re in school and you aren’t responsible for the interest until after you graduate
- There are limits on the amount one can borrow
- Government can take portion of your wages and tax refunds if you fail to meet repayment requirements
- Possibility for debt forgiveness for teaching, military service, and other public service work
- Federal loan options: Perkins Loans, Direct Loans, Parent or Grad PLUS Loans
Private Student Loans
- Do not require completion of the FAFSA to apply
- Variable interest rates, meaning interest and cost of borrowing can increase
- Interest rates based on your credit score and other factors, so if you shop around and can show ability to repay, may find low interest rates
- May require a parent to co-sign since college-aged students have yet to build credit
- Good option for obtaining additional funding once you have reached your federal loan limit
- Not restricted based on financial need as some federal loans
- Offer little flexibility if having trouble making your payments; fewer options regarding when and how much you repay
- Private loan options: State Agency Loans, Traditional Bank Loans, or School Loans (from your college/university)
When is my student loan considered in default?
Federal Student Loan: After 270 days of non-payment
Private Student Loan: After 120 days of non-payment
What are the consequences of default?
Federal Student Loan
- The federal government can garnish your wages without getting a court order
- Can only garnish up to 15% of your disposable income
- The creditor (typically the Department of Education) may send your account to a collection agency. The debt collector can charge collection fees in addition to what you already owe on the student loan. Collection fees for federal loans can be between 18%-40% of the loan balance.
Private Student Loan
- Private lenders will seek repayment from co-signers on the loan as soon as payment is late, they are not required to wait until the primary borrower is in default
- The creditor may send your account to a collection agency. The amount the debt collector can charge in collection fees in addition to what you already owe on the student loan is set by your promissory note, the contract governing your student loan.
Do I Have Any Recourse If I Think A Debt Collector Has Violated The Law?
Yes. You have the right to sue a collector in a state or federal court within one year from the date of the legal violation. If you win, the judge can require the collector to pay you for any damages you can prove you suffered because of the illegal collection practices, like lost wages and medical bills. The judge can require the debt collector to pay you up to $1,000.00 in statutory damages, even if you can’t prove that you suffered actual damages.
You also can be reimbursed for your attorney’s fees and court costs. A group of people also may sue a debt collector as part of a class action lawsuit and recover money for damages up to $500,000.00, or one percent of the collector’s net worth, whichever amount is lower. Even if a debt collector violates the FDCPA in trying to collect a debt, the debt does not go away if you owe it.
What Should I Do If A Debt Collector Sues Me?
First, contact Fields Law Firm and speak with a Consumer Law attorney about your legal rights. Second, respond to the lawsuit, either personally or through your lawyer, by the date specified in the court papers to preserve your rights.
What Should I Do If I Am Being Harassed By Debt Collectors or Being Pursued For A Debt That I Do Not Owe?
The first thing you should do if you are being harassed by debt collectors or being pursued for a debt that you do not owe is contact Fields Law Firm and speak with a Consumer Law attorney about your legal rights. Our attorneys will review your situation, answer your questions, and help you understand your legal options.
If you are dealing with a defaulted student loan and a debt collector is contacting you, Fields Law Firm can help you stand up for your rights and assist you. Contact one of Fields Law’s Consumer Law attorneys for a free consultation and see how we can help you!