Procedurally, there aren’t any differences between a private student loan lawsuit and any other debt collection lawsuit. The lawsuit begins with the service of a summons and complaint. Even if the summons doesn’t have a court file number, you must still answer it within 20 days. Your answer must respond to all of the allegations in the complaint and should identify your defenses.
The defenses in a collection lawsuit, however, are somewhat different than those typically asserted in, say, a credit card collection lawsuit. Here is a list of some of the more common defenses in a private student loan lawsuit.
statute of limitations
The statute of limitations in a private student loan lawsuit in Minnesota is generally six years from the date you defaulted on the student loan. Be careful, though, because this analysis can be complex. You need to look at the default triggers in your loan agreement and think carefully about when you first went into default. Depending on your agreement, it may not have been when you first missed a payment. Next, you need to figure out whether Minnesota’s six year statute of limitations period is applicable, or whether another state’s shorter statute of limitations period applies. Then you need to calculate the time between your default and the end of the applicable time limit to determine whether the lawsuit was started in time.
If you can show that your lawsuit was beyond the statute of limitations, a Court should throw it out.
illegal interest rate
Watch out, this one is tricky too. Most states limit how high an interest rate can be charged for certain loans. But there is also a federal law, the National Bank Act, that may allow some lenders to avoid state law interest rate caps. To figure out whether the interest rate on your loan is too high involves a complicated analysis of who your lender is, where they are located, and what interest rate law applies. This is even more difficult because many student loans have variable interest rates that change over time.
If you can show that the interest rate charged was illegal, you should be able to reduce the amount owed. In some cases, you may be able to eliminate the student loan debt entirely.
discharge in bankruptcy
If you filed bankruptcy after taking out the student loans, you may be able to show that the loans were wiped out in your bankruptcy. This, too, is a complicated analysis that involves looking at who made your loan, where you went to school, what you went to school for, whether you used the student loan proceeds for anything other than education, and a bunch of other factors.
But if you can show that your loan was not the type that is automatically discharged in your bankruptcy, you might be able to get a court to throw out the lawsuit.
Many private student loans are being acquired by debt buyers. Because they didn’t originate the loan, debt buyers may not have sufficient evidence to prove that they own the debt or the amount owed.
Contract formation issues
If you never agreed to the loan and signed the paperwork, the loan contract shouldn’t be binding. We’ve seen several cases where the primary borrower forged a co-signor’s signature, so if you don’t recognize a loan, you should ask some questions before you concede owing it.