Lenders are taking more extreme measures when it comes to collecting student loan payments- they are taking borrowers to court for the money. It used to be that if you fell behind on your student loan payments you would receive collection calls and threatening letters, now borrowers are being sued.
The number of lawsuits filed over delinquent student loans has significantly increased in the past two years. The lawsuits come as the student loan industry finds itself under heightened government scrutiny over complaints involving paperwork errors and deceptive collection practices.
Why the increase in these lawsuits? One explanation is that many lenders are now able to sue because bankruptcy cases filed by borrowers around the recession have been resolved. Another reason is the sheer amount of money at stake- billions of dollars in delinquent loans. Another possible reason for the rise in lawsuits: Loan companies are more efficient at producing the thorough documentation some judges are now demanding.
Litigation has become a more accepted (and effective) collection practice. Lenders typically go to court to try and garnish the borrower’s wages or force the person to make a certain payment every month. Student loans backed by the federal government come with rules that allow the lender to take such action without going to court, while holders of private loans must get a judge to sign off on such steps.
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