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Student Loan Debt Lawsuits Lucrative for Collection Firms


Student loan debt collections are big business for a number of collections agencies, which often bank on little resistance from defendant debtors. Default judgments can be obtained when debtors decide it’s not worth hiring an attorney and confronting the allegations in court. But as our student loan debt defense attorneys in Miami know, many of these cases can be successfully challenged.

Student loan debts have ballooned over the last 10 years, becoming the No. 1 source of household debt, aside from mortgages. Alongside this has coming a swell of defaults, which has meant collection companies wrestle tens of millions of dollars in settlements, default judgments, wage garnishments and other methods of compelled payments.

The New York Times recently explained how one of the largest student loan debt collection agencies, Transworld Systems, has risen to great prominence, filing more than 38,000 lawsuits against former students in the course of just three years – and that was on behalf of just one client: National Collegiate Student Loan Trusts. However, just as we saw in the foreclosure crisis a few years ago, many of these cases are inherently flawed. Much of the documentation the company uses to prove their case for a right to collection is based on very little verification. That’s according to both legal filings by a federal regulator, as well as an in-depth analysis by the The Times.

The Consumer Financial Protection Bureau just two months ago filed two separate complaints – one each against Transworld and National Collegiate – alleging their filings were sloppy and their collection methods often illegal. Ultimately, both firms agreed to pay a total of $21 million in refunds and penalties.

As noted by the CFPB’s director, these companies relentlessly sued people for student loans they could not prove were owed and filed false and misleading affidavits with courts across the U.S.

The bulk of student debt owed by American’s is backed by the U.S. government ($1.5 trillion), and when those loans go into default, the government has the authority to seize their tax refunds or even garnish their wages. However, there are still approximately $100 billion in private student loans. When those borrowers lapse into default, the matter will go to collections, which will ultimately have to obtain a court order to compel the borrower to pay.

In Florida, our student loan debt attorneys in Miami know there are hundreds of lawsuits that have been quashed because of heavily flawed filings. Some former students are sued for debt they no longer owe. Sometimes, cases are filed by companies who never lent the money in the first place. In some instances, the creditors lack any legitimate proof they had the legal standing to file the claim in the first place. But of course, when defendant debtors don’t fight back, these firms can still get default judgments.

The New York Times’ analysis found that when affidavits (spelling out the primary evidence and basis for the case), Transworld has an automatic system that fills out critical details. Then the document is forwarded to a production team that fills in the blanks and then it’s sent to an affiant (usually someone with no legal training) who then “reviews” it and signs it. That last step is critical because the affiant is one who swears personal knowledge of the records in question. But as noted by the CFPB’s complaint, this low-level employee at Transworld didn’t have personal knowledge of these matters.

This became even more obvious when some 800 cases identified where the affiant sower the borrower’s loans were purchased by investors – months or years before the loans were ever even issued.

These kinds of errors are the reason you should never simply ignore a summons or try to bargain with creditors on your student loan debt. There is a good chance they won’t be able to prove you even owe it. Our experienced student loan debt attorneys can help.

If you’re battling debt collection in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday at 5 p.m. on “Debt Warriors with Bruce Jacobs and Court Keeley,” discussing foreclosure topics that matter to YOU.

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