Student Loans

August 6, 2017

Defending Borrowers of Student Loans

Today’s economy which has limited opportunities, can cause a responsible college graduate to be unable to both pay her living expenses and afford her monthly student-loan payment. As a result of delinquent student loans, private lenders, insurers, and loan guarantors such as National Collegiate Trust, Navient, Sallie Mae, Discover Student Loans, and Wells Fargo have filed lawsuits against former students.

Attorney Stephen A. Katz defends borrowers against student-loan collections lawsuits.


Legal Defenses:

These are some of the legal defenses to a collection suit:

• Statute of Limitations. A creditor has a limited time period in which to collect a debt, with New York’s statute of limitations for breach of contract being six years, though there are exceptions. Most federal student loans have no limitation period.

• Lack of Personal Jurisdiction. An error in serving the Summons and Complaint (together called “process”) on the borrower can render a lawsuit void. A process server should try at least twice to personally serve process on a defendant, after which the process server can serve process by affixing it to the defendant’s door, leaving the papers with an adult at the defendant’s residence, and sending the process by mail. But in collection suits especially, process is often not served on the defendant correctly (colorfully known as “sewer service”); and a borrower can use improper service of process to get a collection suit dismissed.

• The Creditor Lacks Standing. Another ground for getting a collection suit dismissed is that the plaintiff does not have the right to bring the suit. Lack of standing usually involves the creditor’s being unable to show that it owns the debt that it is suing on. That occurs because debt is often sold, and in the process a buyer my not acquire proper documentation of its purchase. (See Lack of a Valid Assignment below.)

• Improper Calculation of Balance Owed. A creditor frequently claims to be owed more than it is entitled to. That mistake will probably slip by the court, because interest requires special software to calculate; but a borrower’s attorney should be able to spot that creditor’s malfeasance.

• Equitable Estoppel. If a creditor withholds or misrepresents key facts, that may be grounds for the borrower’s having the collection suit dismissed. The borrower’s attorney needs to marshal not only the facts, but also caselaw that supports such a dismissal.

• Lack of a Valid Assignment Sometimes a creditor that is a debt buyer, cannot show an unbroken chain of assignments from itself back to the original lender. In that case, the borrower should be able to get the suit dismissed, because the “creditor” does not really own the loan that it is suing on.

If you are being bothered by collection efforts on your student loans, attorney Stephen A. Katz is available to defend you. He may be able to negotiate a settlement for less than the full amount owed. And the creditor always has the burden of proof in a student-loan case.

Attorney Stephen A. Katz is available to discuss your student loans, confidentially, and at no cost for the consultation.


Responding to a Lawsuit:

A mistake that many student-loan borrowers make is not to respond to a student-loan collection suit. New York State law gives a borrower 20 days or 30 days (twenty if she was personally served with the summons and complaint, thirty otherwise) to file a written Answer to a Complaint that has been served on her. Failing to respond by the deadline can cause a default judgment for a sum of money to be entered against the borrower. That can lead to a frozen bank account or to wage garnishment. Nevertheless, many people simply ignore a student-loan collection suit.

A second common mistake is for a borrower to act as her own attorney. In New York City, a debtor who represents herself may find her case being scheduled for trial within a few weeks of her answering the Complaint. A borrower’s attorney, in contrast, will demand that the creditor produce all documents which demonstrate that the creditor owns the borrower’s loan, and which show how much the borrower owes on the loan. In response, a number of supposed creditors turn out to be unable to produce documents proving that they own the student loan that they are suing on, and the case gets dismissed. At the very least, such a document demand buys time for borrower to mount opposition to the lawsuit.

Even more important, a borrower who represents herself (called a pro se litigant) may overlook an important legal defense.

Attorney Katz can be reached at (800) 251-3529