Lawsuits continue to run rampant in the student loan world, as millions of students in debt seek relief from faulty lending practices or find themselves sued when they can’t keep up with payments. Here’s what you need to know about student loan lawsuits in 2020 — and what they mean for your loan balance.
This guide contains the latest news about student loan lawsuits, including the recent Navient and Sweet v. DeVos settlements. It also explains:
- How to protect yourself as a borrower
- What lawsuit options you have
- When you can be sued for not paying
Getting an education hopefully ends with a diploma, not a lawsuit. But if you have encountered questionable student loan practices or want to stay informed about your legal options, keep reading to learn more.
Student Loan Lawsuits in the News
Many of the country’s biggest schools, student loan servicers, and even federal officials are currently being sued. Most of these lawsuits revolve around the same claim — that schools used deceptive marketing tactics to trick students into borrowing money for their programs, or that loan servicers misled borrowers with bad information, leading to bigger loans and higher interest payments.
Some lawsuits have been going on for years, with no end in sight. But two recent settlements will have major ramifications for some borrowers.
Navient Student Loan Forgiveness Settlement
Navient, one of the nation’s largest student loan servicers, has 10 million student loan customers and services more than $300 billion in student loans. Navient is currently facing multiple lawsuits that could take years to conclude, but one lawsuit reached an important settlement in May of 2020.
Filed by members of the American Federation of Teachers in 2018, this lawsuit centered on the Public Service Loan Forgiveness (PSLF) program — a federal program intended to help people who work in public service and nonprofit by forgiving their education debt after 10 years of full-time work and loan payments. The plaintiffs claimed that Navient purposely misdirected them into student loan repayment and forbearance programs, causing them to miss out on payments that could have qualified them for the PSLF program.
Navient has denied any wrongdoing. But, according to the terms of the settlement, the company will pay $1.75 million to fund an independent organization to promote the PSLF program and take other customer service measures related to student loan forgiveness.
Sweet v. DeVos Settlement
Approximately 170,000 student loan borrowers who applied for student loan forgiveness through the Borrower Defense to Repayment program — a program finalized in 2016 to help students who were defrauded by predatory schools — have been waiting months or even years for answers as their debt continues to build.
In Sweet v. DeVos, a class of student loan borrowers sued the U.S. Department of Education to force U.S. Secretary of Education Betsy DeVos and her administration to process the stalled applications. A settlement reached in April of 2020 will give the U.S. Department of Education 18 months to process any outstanding Borrower Defense applications that have been submitted.
- Interest accrued while the applications have been pending will be waived, regardless of the outcome of an application.
- If the Department of Education takes longer than 18 months, impacted student loan borrowers will get 30% of their federal student loans discharged for every additional month of delay.
- If the Department of Education continues to engage in “forced collections” on impacted federal student loans (e.g., garnished wages), borrowers will get 80% of their loan balances forgiven.
On the Docket: Falling Credit Scores
In May of 2020, individuals representing a class of millions of student loan borrowers filed a federal lawsuit against Great Lakes Educational Loan Services — one of the nation’s largest servicers of federal and military services student loans — and credit reporting agencies Equifax, TransUnion, and Experian.
The lawsuit claims that Great Lakes ruined the credit of millions of borrowers by inaccurately reporting their loan status while monthly payments are suspended under the CARES Act, lowering the borrowers’ scores and jeopardizing their access to credit during a recession.
Protect Yourself as a Borrower
If these recent lawsuits can teach us anything, it’s that the world of student loans is not perfect — things can and do go wrong. Fortunately, there are many things you can do to protect yourself as a borrower.
Pay Attention to Detail
A simple mistake can cost you hundreds, if not thousands, of dollars.
Thoroughly review your student loan account and statements regularly. If you and your student loan servicer agree to apply a payment in a certain way, check your statement to make sure the payment was applied correctly. Always correspond in writing with your student loan servicer so that you have a documented record if anything goes wrong in the future.
Check Your Credit Report
Reporting mistakes similar to the ones alleged in the Great Lakes lawsuit can severely hurt your credit score. A low credit score can make borrowing money harder, whether it’s a mortgage, car loan, or credit card. You will also likely have to pay higher interest rates to make up for your heightened default risk.
To guard against mistakes like these, check your credit report for errors. You can get one free credit report every year from the three major credit reporting agencies — Equifax, TransUnion, and Experian.
File a Complaint
If you have a legitimate issue with your student loan servicer and your attempts to work with them have failed, there are several ways to file a complaint:
- U.S. Department of Education
- Consumer Financial Protection Bureau (CFPB)
- Federal Trade Commission (FTC)
- Your state attorneys general’s office
- Your state consumer protection office
If you are in dispute about federal student aid, contact the Federal Student Aid Ombudsman Group as a last resort.
You may wonder if you can join a lawsuit against your school or student loan servicer. In most cases, you can’t.
Even if a class-action lawsuit is filed against your school or student loan servicer, a borrower does not “join” the lawsuit. Instead, you automatically become part of the class, and if there is an award or disbursement when the lawsuit ends, you receive that as well.
Unfortunately, the financial awards in these cases are typically small — even a multi-million-dollar settlement can result in only a few hundred dollars in your pocket. Historically, there are very few cases that have awarded complete student loan forgiveness benefits, which is why student loan forgiveness programs and other types of relief are so valuable.
You can also consider filing your own lawsuit against your school or servicing company.
Can a Person Be Sued for Not Paying Student Loans?
In a word, yes — especially if you have a private student loan.
Whether your student loan is federal or private, the best way to avoid being sued is to keep up with your monthly payments. If you know that you are going to miss payments, contact your student loan servicer as soon as possible to arrange a deferment or forbearance. This will pause your payments and give you time to get your finances in order, although interest will continue to accrue.
Due to the CARES Act, all federal student loans are in administrative forbearance, which allows you to stop making payments through Sept. 30, 2020. Interest is temporarily set at 0%.
Delinquent vs. Default
The first day after you miss a payment, your student loan becomes delinquent. If your loan continues to be delinquent, the loan may go into default. The point when a loan is considered to be in default varies based on the lender.
The consequences for a delinquent or defaulted loan can be severe, including:
- Damaged credit
- Garnished wages
- Withheld tax refunds and Social Security benefits
The loan holder can also take you to court, where you might be charged court costs, collection fees, legal fees, and other costs associated with the collection process.
Federal or Private? It Makes a Difference
Because the federal government has several options to force you to repay (such as garnishing wages), it is uncommon for borrowers to be sued for missing federal loan payments. Federal loans enter default after 270 days. At that point, the entire balance of the loan is due — and that is when you may start seeing wages garnished from your paycheck.
Private lenders are far more likely to take you to court. Depending on the lender’s policy, your private loan can be in default as soon as the first payment is missed. Once you default, you are at risk of being sued by the lender or a collections agency. If they decide to pursue legal action, you will receive a summons to appear in court.
Find the Best Way to Pay Off Student Loans
Lawsuits and legal difficulties don’t have to be part of your student loan experience. CollegeFinance.com is here to help.
If you or someone you know is in the college selection process or has already graduated and is trying to pay down debt, CollegeFinance.com has up-to-date information to make an informed decision. We have a variety of in-depth resources helping students and parents with financial planning. Whether you want to learn about financial aid, student loans, or other financing options, the experts at CollegeFinance.com can help you plan for a bright and successful future.