Private education loan debt is lenders’ new target

While the federal government continues to pause the collection of defaulted student loans during the pandemic, private companies that initially followed suit are back in court.

Private education lenders and creditors have resumed filing new lawsuits and continuing existing cases to recover past-due debts, court records show.

Many companies had vowed to halt collections litigation as Americans faced layoffs and wage reductions in the beginning of the health crisis.

But despite tens of thousands of people still losing their jobs, student loan companies again are seeking payment. Attorneys for some of the largest private education debt creditors have filed dozens of lawsuits in several states since at least the summer.

Private companies don’t have the power of the federal government to seize tax refunds, wages and Social Security benefits to repay defaulted debt. Instead, they must file a lawsuit and get a court judgment. Lenders and creditors, if successful in court, then can garnish a person’s wages or seize their assets.

In mid-March, Navient stopped taking legal action against private student loan borrowers in light of the pandemic. But by August, default judgment and wage garnishment orders emerged in a handful of cases that remained on the docket.

Navient spokesman Paul Hartwick said those orders were filed before the pandemic and recently approved by judges. The company, he said, has not filed any actions to seek enforcement and is not planning to in the near-term.

“A small number of preexisting cases may have remained on dockets after March 25, but we have not filed any new suits or actions since then and are not currently doing so,” Hartwick said.

One of the nation’s largest holders of private education debt, National Collegiate Student Loan Trusts, has been active in the courts since the summer.

Transworld Systems, which oversees debt collection for the trusts, told the Washington Post in April that it would be pulling lawsuits in the pipeline and would stop entering default judgments against borrowers for at least two months.

Lawyers for the trusts recently have filed dozens of cases against borrowers in New Jersey, California, Maryland and New York.

In Maryland alone, the trusts have brought at least 67 new cases since July, according to court records and a recent report from the Student Borrower Protection Center.

The advocacy group found most of those cases were brought against people in majority-minority communities in Prince George’s and Baltimore counties.

Transworld didn’t immediately respond to requests for comment.

National Collegiate has run afoul of state and federal authorities for flooding the courts with lawsuits that relied on false or misleading legal documents. Consumer attorneys say the trusts and other creditors still are engaging in the same behavior during the pandemic.

“What we are seeing is a slew of lawsuits that are ridden with untruths,” Kathleen Hyland, a consumer attorney, told a Maryland General Assembly committee Wednesday. “They are taking very little evidence, creating false affidavits … ignoring all of the collections attempts that have happened for the past six to eight years.”

Hyland testified Wednesday in support of legislation sponsored by Lesley J. Lopez, a Democratic state delegate, requiring private student loan firms to produce credible documents in court proving the debt is valid.

Similar bills have been introduced in New York, New Jersey, Colorado and Maine.

“Borrowers only take out private student loans as a last resort when their federal options are gone,” Lopez said at the hearing. “They are among the most economically vulnerable students.”