Students Fighting, Beating Loans in Court
Judges across the country are throwing out collection suits against students, wiping out their debt because private lenders lost critical paperwork.
Other students are suing the government for reneging on the promise to forgive student loans, while some are suing their law schools for leading them into debt without delivering on education.
The litigation reflects a trend as an unprecedented number of graduates are taking action to deal with a problem almost every law student must face: how to get away from crushing student debt?
Some students have had some success fighting debt collectors, like National Collegiate, for example. The private lender sued more than 800 borrowers this year for failing to repay more than $5 billion in private student loans.
But judges from New Hampshire to Ohio to Texas have tossed out the lawsuits because the lender could not prove it owned the debts. The loans were made "more than a decade ago by dozens of different banks, then bundled together by a financing company and sold to investors through a process known as securitization," according to the New York Times.
Unlike students who obtain federal loans, students who borrow from private lenders do not have the option of applying for loan forgiveness. Federal student-loan borrowers can apply for loan forgiveness or a loan discharge.
Public interest attorneys and the American Bar Association have sued the Department of Education and the Secretary of Education for reneging on the promise of the Public Interest Loan Forgiveness Program. The government has approved about 400,000 borrowers for the program, but changed its decision for some, including the ABA and its lawyers.
"The Department's actions violate law and are contrary to basic principles of fairness and deeply damaging to the critical public service missions of these plaintiffs and the ABA," according to the complaint filed in the U.S. District Court in Washington, D.C.
The plaintiffs said the loan forgiveness program, enacted in 2007, was a major factor in their career choices. Without the program, they could not afford to work in public interest law because it is relatively low-paying.
Bad Law School
Law students are even suing their law school for wooing them to take on large student debt while lying to them about their opportunities to pay it off. In a class action against Charlotte School of Law, students say the school covered up its failing program so it could collect tuition and fees.
"If CSL had complied with its obligations, then it would have resulted in students not paying CSL tuition on or after Aug. 1, and defendants would have incurred substantial financial losses," according to the complaint filed last year. It alleges deceptive and unfair trade practices, unjust enrichment, breach of fiduciary duty and fraud.
Days before the students sued, the U.S. Department of Education revoked federal student loans for Charlotte and accused president Chidi Ogene of misrepresenting the school's performance. CSL students received almost $50 million in federal loans during the 2015-16 school year.
- Legal How-To: Getting Student Loans Forgiven (FindLaw's Law & Daily Life)
- Tidal Wave of Students Seek Debt Forgiveness (FindLaw's Greedy Associates)
- Are There Advantages to Going to a Big City Law School? (FindLaw's Greedy Associates)