Private student loan companies are much less flexible than the federal government. The specific procedures for when borrowers miss a payment vary according to company policy, borrower contract and state law.
Joshua Cohen, a lawyer specializing in student-loan debt tells Business Insider, "The only remedy that a private lender has is to sue you, and they are suing you under state law and every state differs."
Private student loan companies are known for aggressively suing students for defaulting on their loans. For example, National Collegiate, the largest holder of private student loan debt in the nation, has lost a series of court cases across the country because they sued borrowers without having the proper paperwork. In these instances, millions in debt balances have been cleared.
In an email statement, New York attorney general Eric T. Schneiderman told CNBC Make It, "These reports are deeply concerning, but are unfortunately consistent with the increasingly cynical and freewheeling culture we've seen take hold of the student loan industry."
There are steps you can take to protect yourself. Avoid predatory private loan companies and for-profit colleges, and research what repayment plan works best for you.
If you've already borrowed money and are being sued by a private student debt holder, be sure to confirm that your accuser possesses all of the required paperwork. And if you think you have fallen victim to a scam, you can work with an advocate like the Predatory Lending and Consumer Protection Clinic at Harvard Law School.
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