Loan litigation


My college threatened to sue me for defaulting on my student loan. How can they sue me… I graduated?

You ask a relevant question on behalf of concerned graduates having trouble paying down their student debt. The rate of student borrowers in default or more than 90 days past due is nearly 40 percent, and total student loan debt is approximately $1.4 trillion. This unprecedented financial crisis is forcing some universities to take legal action to protect their financial interests. Lawsuits can happen, and they are happening in greater frequency. Here is what you need to know.

It has been reported in recent years that lawsuits have been filed by universities targeting those with campus-based loans. These types of loan are repayable by the institutions themselves unlike federal loans where the government takes responsibility.

In recent cases the University of Pennsylvania, George Washington University and Yale have taken student loan defaulters to court to try and force them to pay up. The colleges were targeting those with Perkins loans which are subsidized and usually granted to lower-income students. These are different than Department of Education backed federal Stafford loans which are state funded. Around half-a-million Perkins loans are awarded annually with an average amount of around $2,000.

According to a Bloomberg report, at least 12 lawsuits were filed by Penn State, Yale sued a former student for repayment of $6,500, and George Washington University took a student to court for $7,000 in Perkins loans. Student loan defaults have been on the rise for several years and this trend shows no signs of slowing down.

In Ohio the law permits the Attorney General’s Office to collect debts from students up to 40 years after they have graduated. Kent State University sends over $3 million in ‘unpaid receivables’ to the attorney general each year, where the decision is made on what action to take against the students. If the debtors are paying at least minimal contributions each month, no action is taken. It is only when students make no effort to repay their loans, they can be sued by the college.

Traditionally, higher education has been reluctant to enter the litigation area, favoring the use of collection agencies to keep everything in house. This wave of lawsuits may be the turning point for colleges that are increasingly looking to recoup their expenses.

Even if you do not have a Perkins loan, it is highly likely you will be in some form of debt to your college and could still be subject to litigation. Maybe just an old parking ticket or library fine is enough to warrant the use of a collection agency, after all they will all start to add up if nobody ever pays them.

If the collection agency fails to collect, it may end up in court where you will be pursued for outstanding debts owed to your alma mater. Litigation is likely to be the last resort for many institutions, since they have other weapons in their collection arsenals. It could be possible to seize your state tax refunds or garnish your wages, and millions of dollars are collected by universities each year this way.

Some debts are fun when you are acquiring them, but none are fun when you set about retiring them… Ogden Nash.

Written by Martin J. Young, former correspondent of Asia Times.

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