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Government sues to recover defaulted student loans; lawsuits filed against 4 Crossroads residents

By Gheni_Platenburg
May 8, 2011 at 12:08 a.m.

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How it worksCollection attempts begin long before a borrower is sued.

Once a loan that is insured by the Department of Education defaults, it is turned over to the Department of Education for collection

If the education department is unable to collect it by means of collection agencies, the loan is turned over to Department of Justice who, in turn, disperses it to the U.S. Attorney's office in the judicial district where borrower resides.

From there, the loan is most often distributed to private settlement attorneys.

Within 30 days of receiving the paperwork for a defaulted loan, a letter is sent informing borrowers of the default and imploring them to contact the attorney's office to discuss repayment options.

If no contact is made within 30 days after sending out the letter, a lawsuit is filed.

If there is still no response, the lawsuit goes before a judge for a judgment.

Jail time could result against a borrower for contempt of court for either not showing up to give a deposition during their lawsuit hearing or for failing to meet with the attorney to discuss repayment after a judgment has been rendered.

Source: M.H. "Butch" Cersonsky of Houston-based law firm Cersonsky, Rosen & Garcia

Four lawsuits filed against Crossroads-area residents indicate the federal government's increased attempt to collect defaulted student loans.

The lawsuits, which were filed in federal court in April, were filed by Houston-based law firm Cersonsky, Rosen & Garcia on behalf of their plaintiff, the United States of America.

Each of the defendants, Joe E. Pesek Jr., of Edna; Brett A. Hoffmann, of Cuero; Frank A. Guerrero, of Cuero; and Ruben Martinez, of Victoria, owe amounts ranging from $5,664.04 to $12,910.63, which were borrowed in the 1990s.

The government's attempt to crack down on student loan debt collection is something both the U.S. Department of Education and the U.S Department of Justice have been working on for some time, said M. H. "Butch" Cersonsky, whose firm has a contract with the Department of Justice to collect the funds.

In 2010, Cersonsky said his firm filed 700 lawsuits in the Southern District of Texas to collect defaulted loans.

He expects to file a similar amount in 2011.

Department of Justice "is trying to collect the debts so they are sending more to us," said Cersonsky.

Among borrowers whose first loan repayments came due between Oct. 1, 2007 and Sept. 30, 2008, and who defaulted before Sept. 30, 2009, almost 3.4 million borrowers entered repayment, and more than 238,000 defaulted on their loans, according to a press release issued by the Department of Education.

Additionally, the national cohort default rate increased from 6.7 percent in fiscal year 2007 to 7 percent in fiscal year 2008, according to the news release.

Meanwhile, in Texas, the overall default rate was 9.1 percent. At private schools, it was 5.6 percent, at public schools it was 7.7 percent, and at for-profit schools it was 16 percent.

"We want as many students as possible to repay their loans," said Sara Gast, public affairs specialist for the U.S. Department of Education. "We offer a variety of repayment options so they can try to avoid defaulting."

In an effort to prevent defaulted loans, the federal government has taken steps to prevent the possibility of defaulted loans in the future.

One such step is the proposed regulation from the Obama Administration, which would require for-profit career colleges to better prepare students for gainful employment or risk losing access to federal student aid.

The proposed rules seek to protect students from taking on unsustainable debt they cannot repay and to protect taxpayers from high loan default rates.

"Many students are struggling to pay back their student loans during very difficult economic times. That's why the administration has expanded programs like income-based repayment and Pell grants to help students in financial need," U.S. Secretary of Education Arne Duncan said in a September news release.

"The data also tells us that students attending for-profit schools are the most likely to default," Duncan continued. "While for-profit schools have profited and prospered, thanks to federal dollars, some of their students have not. Far too many for-profit schools are saddling students with debt they cannot afford in exchange for degrees and certificates they cannot use."

To qualify for federal aid, the law will require that career colleges and training programs prepare students for gainful employment in recognized occupations.

Procedures do remain in place to handle the collection of defaulted federal loans, which under a 1991 amendment to the Higher Education Act of 1965, eliminates any statute of limitations for the collection of student loans.



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