Common Defenses to Student Loan Lawsuits

After you default on a federal student loan, the lender might file a lawsuit against you seeking payment. While suits for unpaid federal student loans aren't very common because the government has many other ways to collect outside of court, they sometimes happen.

If the lender files a lawsuit seeking payment, you might have a defense to the action, such as the debt has been discharged in bankruptcy or forgiven through a federal program. You'll have to raise any applicable defense in a formal response to the lawsuit; otherwise, you'll most likely lose the chance to get out of paying the debt.

Common Defenses to Student Loan Lawsuits

If you're sued for nonpayment of a federal student loan, you might be able to raise one or more of the following defenses, among others.

You Never Agreed to Pay the Debt

If you're a victim of identity theft and didn't take out the loan you're being sued over, you can raise this as a defense in your answer to the suit.

In addition to filing a response to the suit, go to IdentityTheft.gov to create an Identity Theft Report. Next, file a report with your local police. Keep a copy of the report for your records. And contact the U.S. Department of Education Office of Inspector General Hotline at 800-MIS-USED (800-647-8733).

Also, be sure to review your credit reports to look for further signs of identity theft.

You Made Payments, But They Weren't Credited to the Account

Sometimes, loan servicers mess up when processing payments, like by inadvertently applying them to another borrower's account.

The Lender Miscalculated the Amount Due

In the suit, the lender might ask for attorneys' fees or collection costs that are too high or that the law doesn't allow. Or the lender might be asking the court for more than you agreed to pay.

The Debt Has Been Discharged In Bankruptcy

Most student loan borrowers can't discharge (wipe out) their student loan debt in Chapter 7 or Chapter 13 bankruptcy. But if you can prove that repaying your student loans would cause an undue hardship to you, you can get rid of your student loans this way.

Although it's difficult to discharge student loan debt in bankruptcy, once you succeed in getting a discharge, then the student loan lender can't collect on it.

Your Loan was Discharged, Forgiven, or Canceled Through a Federal Program

Under specific circumstances, like if your school closed or you're disabled, you might be able to discharge your loan. Generally, only federal student loans—not private ones—may be discharged.

If the lender or loan servicer has already approved your discharge request at the time of the lawsuit, provide supporting documentation in your response to the suit. If your discharge request is still pending at the time of the suit, state that fact in your response to the lawsuit and provide supporting documentation. Some defenses you can raise in court, like "defense to repayment," are similar to the reasons for justifying a discharge through a federal program (outside of court). (With a defense to repayment argument, for example, you argue that your federal student loans should be discharged due to school misconduct, like fraud.) If you haven't applied for a discharge yet, you can ask the court to delay your case while you apply and the discharge is pending.

Talk to a Lawyer

Generally, you shouldn't ignore a debt collection lawsuit. But in some circumstances, you might not want to respond to a suit. If you agree that you owe the amount claimed in the suit, including interest and fees, and you're judgment proof—and your financial situation won't change—it might make sense to let the creditor get a default judgment (an automatic win) instead of paying attorneys' fees and court filing fees to answer the suit. However, talk to an attorney before you determine this is the best route to take.

Being judgment proof is, in some cases, only a temporary condition. So, if a creditor sues you and you believe you're judgment proof, it's often a good idea to respond to the lawsuit anyway. You might have a valid defense to the suit. Also, judgments are valid for a very long time and can be renewed. If your financial circumstances might improve in the future, the creditor could be able to collect at that time.

If you're facing a student loan lawsuit and need information about possible defenses or help responding to the suit, talk to a debt relief attorney who deals with student loans.