October 11, 2012
Federal lawsuits for student loan recovery far less common in West Michigan than elsewhere in state
GRAND RAPIDS, MI -- If you’ve defaulted on your student loans, you’re far less likely to wind up in front of a judge if you live in West Michigan as opposed to the east side of the state.
Data collected by Syracuse University’s Transactional Records Access Clearinghouse, or TRAC, show a sharp difference in the number of lawsuits filed for student loan recovery in Michigan’s two U.S. District Courts – the western and eastern districts.
Between 2007 and 2012, 85 lawsuits were filed in the western district, according to TRAC.
By comparison, there were a whopping 2,784 lawsuits filed to collect student debt during the same period in the eastern district, TRAC data shows.
The reason, in part, boils down to this: the eastern district is one of 19 U.S. district courts nationwide where private attorneys are contracted to collect defaulted student loans.
“This is where you had private lawyers initiating these lawsuits instead of the regular department of justice offices,” said Heather Jarvis, a Wilmington, N.C.-based lawyer specializing in student loans.
Western.jpgView full sizeTransactional Records Access ClearinghouseLawsuits filed for recovery of defaulted student loans in U.S. District Court in the Western District of Michigan
The U.S. Department of Justice says other factors may also be at play.
“These may include the geographic size of the district, population and demographics of the district,” the department said in a statement. “For example, Eastern Michigan includes
Detroit, an extra-large judicial district which has a large city with a high unemployment rate, while Western Michigan is a much smaller district with a smaller population.”
Rising Default Rates
Nationally, the number of students defaulting on loans has continued to grow, rising from 4.6 percent in 2005 to 8.8 percent in 2009, according to the U.S. Department of Education.
Eastern.jpgView full sizeTransactional Records Access ClearinghouseThe number of lawsuits filed for recovery of defaulted student loans in U.S. District Court in the Eastern District of Michigan
Michigan’s 2009 default rate – loans repayments that came due between Oct. 1, 2008 and Sept. 30, 2009 – was 8.2 percent.
Grand Valley State University’s default rate was 2.1 percent in 2009, the third-lowest rate among Michigan’s 15 public universities, federal data shows.
University of Michigan in Ann Arbor had the lowest default rate at 0.9 percent, while Wayne State University had the highest, with 6.7 percent.
Ten of Michigan’s public universities saw their default rate rise between 2008 and 2009, while the rest dropped or remained level.
Defaults rates, for the most part, are higher at Michigan’s community colleges.
Grand Rapids Community College had a 2009 default rate of 14.3 percent, which is among the largest default rates at Michigan’s 28 community colleges, federal data show.
Different collections process
Part of the reason why private attorneys in the eastern district filed so many lawsuits for student loan recovery is because federal rules give them more leeway to go after debtors.
A person who has defaulted on his or her loans must have at least $40,000 in debt before a federal attorney can file a lawsuit to recover the funds, experts say.
Related With U.S. student loan debt topping $1 trillion, see how West Michigan stacks up
But under the U.S. Department of Justice’s Private Counsel Program, a private attorney – like those in the eastern district – can file a lawsuit when there’s a principal balance on the loan of $600, federal documents show.
While private attorneys would rarely file a lawsuit to collect $600 in debt, they’re more likely to take someone to court over $20,000 in unpaid student loans, said Mark Kantrowitz, publisher of the website FinAid.org.
“I don’t think even the private attorney would file a lawsuit against someone for $600 unless they were quite certain that individual had substantial means to repay the debt, Kantrowitz said. “Just the court filing cost and the time of the attorney to go to court and get a default judgment against the individual – it’s probably worth more than $600.”
Lawsuits are avoided
Kaye Hooker, spokeswoman for the U.S. Attorney’s office in Grand Rapids, said it’s up to the U.S. Department of Education to decide when lawsuits are filed for recovery of defaulted student loans.
Related Rising student loan interest rates would push students deeper into debt
“Most of them are handled by the department of education,” she said. “It’s done administratively rather than judicially.”
A statement issued by the U.S. Department of Education said borrowers who are in default are given numerous chances to begin making payments and that lawsuits are rarely filed.
“We take exhaustive measures to help borrowers stay out of default and to get them back on track quickly,” the statement said. “Sometimes, despite our best efforts, people refuse to work with us and walk away from their loan obligations. Unfortunately the only way to resolve some of these cases is in court.”
Related Learn how student financial aid payments left GRCC with $1.8 million in debt
Jarvis, the North Carolina attorney who specializes in student loans, questions why federal rules are in place that make it easier to file lawsuits for student loan recovery in certain districts.
“Why does it make more sense to sue people more in the eastern district of Michigan than somewhere else,” she said.
Part of the reason comes down to caseload, the U.S. Department of Justice said.
“Most private counsel districts are extra large districts,” the department said in a statement. “Private counsel is used in some districts when the total number of cases grows to a point which requires resources greater than those available in the United States Attorneys’ offices.”
Using lawsuits to collect student debt should be a last resort of the federal government, Jarvis said.
“Lawsuits are rarely needed by the government,” she said. “They can get your money without a court order … the government can seize your tax refund, they can garnish your wages without a court order and they can even scathe portions of Social Security payments, and that’s why lawsuits really are often unnecessary and are not typically used to collect these debts.”
The lawsuits would be needed when efforts such as wage garnishment fail but the government can show the debtor has resources to repay their debt, said Kantrowitz, the publisher of FinAid.org.
“I think the main opportunity for success is when there’s a defaulted borrower for whom wage garnishment and then other treasury offsets don’t work but nevertheless has assets to pay back the debt, he said. “So this is when someone has the capability to repay the loans but doesn’t want to repay the loans.”
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