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There are two types of student loans – federal and private.  Federal loans have some protections for the lenders that private student loans do not.  Every month lawsuits are filed by the thousands, many that are invalid, but if the borrower does not respond the court has no option but to award a judgment for the lender.

Below are five defenses may be successful in halting student loan collection cases.

The creditor cannot prove that it owns the debt.

Many private student loans are transferred by their original lender to investors through a process called securitization, in which thousands of loans are pooled together and sold as a package.  Lender needs to prove that it owns the loan – Lovett v. National Collegiate Student Loan Trust 2004-1

The creditor’s business records are not admissible.

There are rules governing how business records may be used in court. In a California case, National Collegiate Student Loan Trusts v. Nohemi Macias, an appeals court ruled that an employee of a debt collection firm was not qualified to verify the creditor’s loan records and, in her testimony, “effectively conceded that she was unable to do so”, therefore the creditor had nothing to support their case.

The debt is beyond the statute of limitations for collection.

Unlike federal student loans, collection of private student loans are controlled by the state and eventually the lender may lose their right to collect the debt.  In an Arizona case, National Collegiate Student Loan Trust 2004-2 v. Gallagher, an appeals court found that the creditor waited too long to sue because it was outside Arizona’s six year statute of limitations for breaching a written contract.  (Note – each state has a different statute of limitations for contract obligations).

The creditor is not licensed to do business in the jurisdiction.

Some states require “foreign corporations” — those based in other states — to register to operate in their area. Failing to do so can prevent creditors from using the local court system. SLM Education Finance Corporation v. Gray and National Collegiate Student Loan Trust 2006-2 v. Cowles.

A sample form letter if find that a creditor that does not comply with the state’s Corporation Business Activities Reporting Act.

The creditor failed to comply with court requests for additional information.

When courts ask creditors to provide additional documents, or produce witnesses to testify about their claims, the creditors often simply withdraw their lawsuits, according to borrowers’ lawyers.

For full article: 5 Flaws That Kill Student Loan Collection Lawsuits, By Stacy Cowley, Nov. 14, 2017

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Diane L. Drain

Diane L. Drain, bankruptcy attorney, retired law professor, mentor and community spokesperson.

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