IN SPATE OF PRIVATE STUDENT
LOAN LAWSUITS
ONE DEFENSE STANDS OUT
By Richard D. Gaudreau,
Bankruptcy Attorney in New Hampshire
I
n my opinion, private student loans
are the worst debt in America, bar
none. I didn’t come to this conclusion
lightly, but only after comparing the
legal options available to clients
facing foreclosures, tax liens, etc. and
speaking to borrowers who tell me they
have their federal loans under control,
but have no solution to their private
student loans. Although IRS taxes can
be discharged in bankruptcy in certain
instances, private student loans will
never be automatically discharged. The
unwillingness of private student loan
businesses to offer a borrower a plan
to rehabilitate a private student loan to
escape default on a credit report has
led some observers to conclude this is
creating a real drag on the economy.
With $1.2 trillion in student loans
totaling more than this nation’s entire
credit card debt, the private student loan
problem is one begging for a solution.
With the law presenting so few options,
creative lawyering may help borrowers
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CONSUMER BANKRUPTCY JOURNAL
facing this type of lawsuit to help level
the playing field.
In a December 3, 2014 article in the
Wall Street Journal, the Ombudsman
of the Consumer Financial Protection
Bureau accused the private student
loan industry of failing to do enough
to help borrowers in financial distress.
While lawsuits are rare in the collection
of federal student loans, they are much
more common for private student
loans. I’ve represented several clients
facing lawsuits filed by National
Collegiate Student Loan Trusts
(“NCT”), the assignee of thousands
of securitized private student loans.
The number of lawsuits filed by NCT
has become a national phenomenon
with one Businessweek reporter in
an article on June 3, 2015describing
NCT as a “lawsuit machine,” filing
more than one lawsuit per day in some
states. A review of New Hampshire
civil dockets indicates there have been
Summer 2016
at least 113 lawsuits filed by NCT in
New Hampshire courts from 2014 to
present. Most are filed in Superior
Court with a few in District Court.
Most borrowers are unrepresented
despite the dire consequences of a
default. Judgments are collectible for
20 years in New Hampshire. The usual
scenario before litigation involves a
demand for a payment far beyond the
borrower’s means and a refusal to
negotiate something more affordable.
Unlike federal loans, private student
loans are not mandated by law to
offer borrowers affordable repayment
plans. This impasse inexorably leads
to a default and litigation although few
private student loan businesses are as
litigious as NCT. With relatives often
acting as co-signers, lawsuits often
involve a parent as co-defendant and
the possibility of an attachment against
a home with significant equity.
Lawyers defending borrowers from NCT
National Association of Consumer Bankruptcy Attorneys