So you took out student loans to pay for college? You aren’t alone. Over 40 million Americans have at least one student loan. Currently student debt totals over $1.2 trillion nationwide. With the average college student graduating with nearly $30,000 in loans and many with significantly more, student debt is rapidly becoming a national crisis. Most student loans are federally guaranteed, but an increasing number of students are taking private student loans to cover the cost of their education. These private loans vary considerably from the government backed alternative.
Private v. Federal Student Loans
Federal student loans are those made, or guaranteed by the U.S. Department of Education and include:
- Direct Subsidized Loans – sometimes referred to as Stafford Loans
- Direct Unsubsidized Loans
- Direct Plus Loans
- Federal Perkins Loans
Private student loans are typically owned by banks, trusts or other financial institutions. Some common examples include:
- National Collegiate Student Loan Trust 2004-1
- National Collegiate Student Loan Trust 2004-2
- National Collegiate Student Loan Trust 2005-1
- National Collegiate Student Loan Trust 2005-2
- National Collegiate Student Loan Trust 2005-3
- National Collegiate Student Loan Trust 2006-1
- National Collegiate Student Loan Trust 2006-2
- National Collegiate Student Loan Trust 2006-3
- National Collegiate Student Loan Trust 2007-1
- National Collegiate Student Loan Trust 2007-2
- National Collegiate Student Loan Trust 2007-3
- National Collegiate Funding, LLC
- First Marblehead Data Services
- NCO Financial
- The Education Resource Institute, Inc. (TERI)
- Bank One, N.A.
- J.P. Morgan Chase, N.A.
Though intended to serve the same purpose, federal and private loans are quite different. The following chart illustrates a few major difference in the context of repayment.
| Federal Student Loans | Private Student Loans |
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National Collegiate Student Loan Trust
Recently there has been a huge increase in the number of lawsuits filed in Utah to collect on private student loans, National Collegiate Student Loan Trust (NCSLT) being by far the most common. NCSLT are subtrusts of National Collegiate Trusts, which acquired hundreds of thousands of private student loans when they were bundled up and sold to Wall Street investors. You may recall this is much like what happened to home mortgages, which most experts blame for the 2008 financial crisis. So while NCSLT is not the original lender, it now claims to be the owner and servicer and has launched a national campaign to collect on them by filing lawsuits in state courts. In Utah, most, if not all of NCSLT’s cases are being handled by Johnson Mark, one of the state’s largest debt collectors.
Defending Against a Lawsuit
If you have been served a summons and complaint regarding a private student loan it is critical that you act quickly. You do not want to let the collector get a default judgment against you without proving their case.
Depending on the facts of your case, you may have defenses available. First, since NCSLT is not the original lender, it has the burden of proving it currently owns the loan. Second, even if it can prove it is the owner, it still has to prove the amount it is claiming is accurate. Considering each loan has been bundled and sold at least twice, this is more difficult than you might think. Finally, if it has been more than six years since you made a payment, the lawsuit may be barred by the statute of limitations.
Another option is negotiating a settlement with the collector. Remember that NCSLT obtained these loans for less than face value, so they are typically willing to settle for less than the amount asked for in the complaint. However, even if you are working on a settlement with the collector you still need to respond to the complaint. Collection lawyers won’t hesitate to file for a default, even while negotiations are ongoing.
Regardless of what you decide to do, you should contact an attorney who has experience with student loans. At the very least they will be able to help analyze the strengths and weaknesses of your case and discuss your options.
The bottom line – Private student loan lawsuits are worth fighting. Do not ignore the summons and complaint, the consequences can be very serious. Like any other debt collection lawsuit, if the collector gets a default judgment against you they may be able to garnish your wages or lien your property.