As the cost of a college education continues to skyrocket, graduates are entering the workforce saddled with enormous amounts of debt. This debt can restrict a young person’s ability to buy a house and save for the future.

Many Student Loan Borrowers Have Difficulty Repaying

Because some borrowers earn less than their potential incomes right after graduation, student lenders have various programs to help people avoid a default. That is when loan payments are not made as agreed. These programs include suspending payments for a certain period or making monthly payments equal to a percentage of income.

Historically, student loan lenders were accommodating to borrowers, since they prefer smaller payments to a default. But, the massive load of national student loan debt is taxing loan servicers’ ability and willingness to assist those who cannot pay.

Loan Defaults Are Increasing, and Some Believe Servicers Are Breaking the Rules

Beyond voluntary loan repayment assistance programs, servicers are bound by federal and state consumer protection laws. A lawsuit against a major loan servicer, Navient, brought by Lisa Madigan, Attorney General of Illinois, is shedding light on several debt collection cases of abuse.

According to the lawsuit, Navient has made applying for loan repayment assistance difficult, often providing misleading information about options. While income-driven repayment plans are available under federal student loan guidelines, Navient steered borrowers toward forbearance, which makes repayment much more expensive in the long run.

Legal Debate Is Between State and Federal Laws

The most recent ruling denied a motion to dismiss by Navient, which alleged that federal law overruled state consumer protection laws. The lawsuit has not been won, but can proceed. But the federal Department of Education, led by Betsy DeVos, is backing the loan servicers.

DeVos believes that federal regulations should prevail, which may be less consumer-friendly. As the lawsuit proceeds, student loan borrowers should pay attention, as the ultimate decision may affect their budgets for years to come.