Americans facing court over student debt

Hannah Bates, 30 years old, lives in Michigan, USA. In 2019, she decided to borrow $55,000 from private financial group Sallie Mae to study nursing. 6 years later, she had to appear in court due to a lawsuit by Sallie Mae.

Bates said that after graduating in 2022, her salary of $45,000 a year as a nurse in Michigan was not enough for her to pay off her loan of $1,500 per month. Bates applied for a reduced payment but was denied by Sallie Mae, so she started paying what she could, about $560 per month.

In 2024, she suddenly received an email notifying her that “final payment had been received” for the loan. Bates called Sallie Mae and was told it could be a system error.

But more than two months later, she received a warning that her account was about to default. Bates attempted same-day payment over the phone to block this process, but the account status did not change. Sallie Mae then moved to demand the entire balance, asking if she could pay it off in one lump sum or borrow money from a relative. Five months later, the company sued.

A similar situation happened to Ashley Carlson, 35, who took out $55,000 in student loans to cover tuition. In 2023, when Carlson’s architectural firm was doing poorly, she could no longer afford to pay off her student loan debt of $800 per month.

For months, she had contacted SoFi, the private company that managed her loans, to request a reduction in her student loan payments or a payment deferral due to financial hardship, but to no avail.

In early 2024, Carlson was delighted to receive an email informing him: “Congratulations! Your SoFi student loan has been paid 100%.” She checked and saw a balance of 0 USD.

“Maybe I’m really lucky,” Carlson recounted her feelings at that time, saying she believed the email content was exactly what it said, that the lender had accepted the support request, so she didn’t ask further.

Now, she wishes she had asked. Ten months after the congratulatory email, Carlson received a pale yellow envelope on her porch, informing her that SoFi had sued her in court for the full amount.

Carlson later learned that the loan balance was $0 not because her debt was forgiven, but because her loan was classified as “in default” and had been transferred to a third party. To this day, she still does not know which unit is managing this debt.

Carlson said she was not informed the loan had been transferred to a third party. Meanwhile, SoFi explained that the congratulatory email in early 2024 was a system error that did not help borrowers clear their debt repayment obligations, and the company has contacted them about a plan to fix overdue debt.

However, Carlson confirmed that she did not receive these notices. SoFi also could not provide supporting documents.

Cases like Bates and Carlson illustrate the lack of transparency that many private student loan borrowers face as their loans approach default, often after about 120 days of not paying in full.

Through interviews with dozens of borrowers, attorneys and industry representatives, as well as review of court records and other public documents, Business Insider Recorded many cases where borrowers did not clearly understand the balance, received conflicting notices or were sued after default.

Complaint data submitted to the US Consumer Financial Protection Bureau (CFPB) over the past 10 years also shows that hundreds of cases related to student loan transfers, missing or incorrect records, and inability to clearly understand payment status.

“It’s not always transparent,” and some debt transfers can involve “information obscurity,” said Richard Gaudreau, a New Hampshire bankruptcy attorney who represents borrowers in student loan default cases.

According to Simon Goldenberg, a lawyer specializing in debt settlement in New York, lack of clear information does not mean a violation. While private lenders “could do a much better job” in communicating with borrowers, what is reasonable in practice and what is legal are not always the same.

Cases like Carlson’s may increase after President Donald Trump’s overhaul of student loan repayment mechanisms takes effect in July.

The new policy narrows loan repayment incentives in the federal system and imposes loan caps on graduate programs, which could force many people to turn to private lenders. Meanwhile, the White House expects universities to reduce tuition to adapt, after listed tuition has doubled in the past 30 years at both public and private schools.

When contacting borrowers, lenders must comply with the 1977 act regarding the timing and frequency of communications, and require consent for communications outside of normal hours or risk fines, lawsuits or federal action.

A SoFi representative said the company regularly communicates with borrowers, including offering payment deferrals or loan extensions, helping “the majority of borrowers in difficulty avoid falling deeper into delinquency or default.”

CFPB data shows that private student loans account for about 10% of the $1,850 billion 2025 student loan market in the US, but are the source of about a quarter of student loan complaints filed with the agency. Although borrowers from private finance companies generally have better financial backgrounds than those borrowing from federal agencies, communication problems are a major bottleneck.

The January CFPB report said 58% of 2025 complaints involved difficulties working with lenders, including a lack of transparency, slow responses or disruptive communications.

According to Julie Margetta Morgan, a former senior official at the Department of Education with the CFPB under President Joe Biden, the CFPB’s de-prioritization of student loan oversight under the Trump administration, while borrower protections vary from state to state, leave borrowers increasingly on their own to understand their rights and detect when those rights are being violated.

Carlson and Bates said they couldn’t afford a lawyer, so they had to turn to AI for advice. “They tried everything, but I had to find a solution myself. It’s very difficult without a lawyer, having to do everything myself,” Bates said. “No one deserves to go through this. It’s really consuming my life.”