Their student-loan lender said their debt was gone. The lawsuit said otherwise.

This is the first story in Business Insider's new series, "Student debt spiral," examining the companies, policies, and financial pressures reshaping how Americans navigate college loans.

In February 2024, Ashley Carlson got an unexpected email: "Congrats! Your SoFi Student Loan is 100% paid off."

The 35-year-old mom of two couldn't believe it. She had about $55,000 in unpaid student debt, which she'd borrowed to finance her bachelor's degree in construction management. She logged into her account. Balance: $0.

"Maybe I got lucky for once," Carlson thought. When business at her architecture firm slowed in 2023, she'd stopped making her $800 monthly payments in full. For months, she'd been calling SoFi, the private company that managed her loans, asking for lower payments or a financial hardship forbearance, without success.

Carlson took the email at face value, thinking her lender had granted her request for relief, and didn't question it further. She wishes she had.

Ten months after the "Congrats!" email, a manila envelope appeared on her front porch. SoFi was suing to collect her full balance.

It turns out Carlson's loan had effectively disappeared in February — not because it was forgiven, but because it was transferred to a third party. To this day, she doesn't know where her balance went.

This is an extreme example of the kind of confusion private student-loan borrowers face when their loans move toward default, which typically occurs after about 120 days without a full payment.

Interviews with dozens of borrowers, lawyers, and industry representatives — along with a review of court filings and other public records — reveal widespread confusion over loan balances and missing or conflicting notices as borrowers default and sometimes face litigation. In a review of complaints about private lenders submitted to the Consumer Financial Protection Bureau over the past decade, Business Insider found hundreds related to loan transfers, missing or erroneous documentation, or confusion about obtaining payment status updates.

"It's not always very transparent," and some transfers can involve "obfuscation," said Richard Gaudreau, a New Hampshire bankruptcy lawyer who represents borrowers in student-loan default lawsuits.

Confusing communication doesn't necessarily mean wrongdoing, said Simon Goldenberg, a New York debt-relief lawyer. While private lenders "could do a much better job at communicating," he said, "the right way and the legal way are not always in sync."

Cases like Carlson's could soon become more widespread. Private lenders are expecting an influx of borrowers after President Donald Trump's sweeping repayment overhaul takes effect in July, bringing less generous repayment plans for federal borrowers and new caps on borrowing for advanced degrees.

Ellen Keast, the Department of Education's press secretary for higher education, said in a statement that the White House expects colleges to lower their tuition in response. College sticker prices have doubled over the last 30 years, per the College Board, at both public and private colleges.

The goal, Keast said, is to rein in the "out-of-control student-loan borrowing bonanza that encouraged institutions to inflate tuition and allowed students to take on absurd levels of debt, sometimes borrowing beyond their means to repay."

The cost of confusion

When communicating with borrowers, lenders must comply with a 1977 law that governs when and how often they can contact borrowers, and requires lenders to obtain consent before communicating outside usual hours. Failure to comply can bring fines, litigation, or federal enforcement.

A SoFi spokesperson told Business Insider that the company "communicates extensively with members," including by offering deferrals and payment extensions. "These measures can help the vast majority of struggling borrowers avoid further loan delinquency or default," the spokesperson said.

After all, making sure loans are paid back is good for business, said Scott Buchanan, executive director of the Student Loan Servicing Alliance, a private lenders' trade association. It's common practice to send delinquency notices by phone, email, and physical mail, and those notices typically escalate as a borrower nears default.

After Carlson stopped making full payments on her loan, she defaulted. At this stage, lenders may pursue collections or litigation, either in-house or through third parties. As records change hands, they can become difficult to track — including for regulatory purposes — and borrowers might lose access to their original accounts, leaving them confused as to whether they still owe payments and to whom.

Carlson said she wasn't notified that SoFi had transferred her loan.

A SoFi spokesperson told Business Insider that the "Congrats!" email was mistakenly generated by the company's marketing platform and did not absolve Carlson of any payment obligations. The company said it had previously called and emailed Carlson with options for curing her delinquency, and that a third party handled further outreach after she defaulted. SoFi maintained ownership of the loan throughout the process, the spokesperson said.

Carlson said she never received any communications before or after the "Congrats!" email.

SoFi did not provide Business Insider with documentation of any such outreach and declined to identify Carlson's third-party servicer, saying it cannot share details on account-level communications.

Once a loan enters default, communication might drop off and could come from either the lender or a third party that takes over the account, Goldenberg said, and the borrower might not recognize the sender. After that point, a lender could choose to keep the borrower's account viewable or block their access altogether.

In some cases, the matter may proceed to litigation. A report from the advocacy group Protect Borrowers said that private lenders sued more than 100,000 defaulted borrowers nationwide between 2012 and 2016, the most recent period for which data are available.

Private student loans make up about 10% of the $1.85 trillion student-loan market in 2025, according to CFPB data. In general, those borrowers are in stronger financial shape than federal borrowers. The federal student-loan portfolio has a nearly 10% default rate, according to data from the Federal Reserve Bank of New York as of late 2025.

By comparison, 3.5% of private-loan borrowers were in early-stage delinquency in late 2025 (typically up to three months past due), 1.7% were near default, and 2.7% had been charged off — an accounting move that happens after a default, according to a report by Enterval Analytics, which provides insights on student-loan lenders. The report is based on data provided by major private lenders, including Sallie Mae, SoFi, and Navient.

A lack of clear, consistent communication is a sticking point with private student-loan borrowers. About one in four student-loan complaints ever filed with the CFPB is about private loans. In 2025, 58% of those complaints were focused on challenges dealing with lenders, including communication difficulties, according to a January CFPB report. The report said borrowers are often dealing with "confusion, a lack of transparency, or a lack of responsiveness."

When confusion becomes a crisis

Hannah Bates, 30, took out $55,000 in private student loans for nursing school in 2019. She never anticipated that six years later, she would be representing herself in court after being sued by her lender, Sallie Mae.

The trouble began after she graduated in 2022 and took a nursing job in Michigan. Bates said that her $45,000 annual salary wouldn't cover her $1,500 loan payments, and that Sallie Mae denied her request for a more manageable monthly amount.

"I was doing my best for as long as I could," Bates said. "By no means am I not trying to pay you guys what I know I owe you, but I can't make these payments at this number."

Bates began paying what she could — around $560 a month — and slid into delinquency. She said communications from Sallie Mae were confusing, like a 2024 email that read "Congratulations! We received the final payment on your loan."

"I knew that was wrong, so I called Sallie Mae, and they told me there was a glitch in the system and I probably got emailed by accident," Bates said. "How do you make an accident on something that big?"

More than two months later, she received a warning that her account was near default. Bates said she immediately called her account manager and asked if she could make a payment to avoid that outcome. She was advised to make a lump-sum payment to stop the default process, Bates said.

She made the payment over the phone that same day. It was processed, Bates said, but her account status didn't change.

"I get someone new on the phone, and they're like, 'Sorry, you're done. We've defaulted you,'" she said. "They gave me no information on where that payment went, what was going to happen next."

Bates said that conflicting information from Sallie Mae made it difficult to reverse her default status.

A Sallie Mae spokesperson told Business Insider that "customer success is core to our mission," and that fewer than 3% of Sallie Mae loans in repayment default annually. The spokesperson added that the company "proactively and consistently" communicates with its customers, informing them when they default, when their defaulted loan is sold, and who the new owner is.

Within weeks, Bates said, Sallie Mae moved to collect the full balance and asked whether she could pay it in full or borrow money from family or friends. She didn't have the money.

Five months later, Sallie Mae sued.

Where confusion meets consequences

Carlson and Bates said they could not afford legal representation, so they consulted artificial intelligence for advice.

"They're trying to do whatever they need to do, and it's on me to figure out my stuff," Bates said. "But when you don't have an attorney, and you're doing this all pro se, it's so hard."

With the CFPB deprioritizing student-loan oversight under the Trump administration and inconsistent student-loan protections across states, "it puts a lot more responsibility on the borrower to actually know what their rights are and where there are violations of those rights," said Julie Margetta Morgan, president of the think tank Century Foundation and a top official at the Department of Education and the CFPB under former President Joe Biden.

Liz Gilbert, 45, fell behind on her private student-loan payments and said she felt "frustrated" and "stupid" while trying to get answers from her lender about the status of her payments.

Jenna Zaccagnino, 38, is getting letters warning that she's in serious delinquency on her private student loans and is at risk of litigation. She said that when she called her lender for help with making payments, she received conflicting information, and that "nobody knows what to do" because the holder of her loan keeps changing.

Melinda Laszczynski, 39, called Navient to see if she could lower her $1,900 payments, to no avail. Navient eventually sold Laszczynski's loans to a debt collector, and while she received a notice that her account was charged off or transferred to a third party, she only discovered who that third party was when an agency she didn't recognize contacted her to collect her balance in full. One email from Assent Recovery Solutions had the subject line: "Your Account Qualifies for a Settlement!!!"

"We know things happen in life; we want to help you," the email read. It included a link to an online payment portal to pay off her $160,000 balance.

A Navient spokesperson said the company follows the CFPB's loan transfer requirements, which include sending multiple notices before a transfer, and that the new servicer would send the borrower a welcome letter.

Carlson's and Bates' litigation is ongoing. Carlson is awaiting a trial, and Bates is waiting to hear from Sallie Mae on the next steps. For Bates, those steps would likely be an agreement on a repayment plan that she can afford to return to good standing. Carlson has declined SoFi's settlement offers. If her push to discharge her loans fails in court and she doesn't make her payments, her wages could be garnished.

At Bates' March hearing, Judge Annette Berry encouraged her to reach a resolution with the lender's attorney. Berry said during the hearing that cases like Bates' are a growing issue in her courtroom.

"I'm seeing this happen more and more," Berry said. "They're going after people for unpaid student-loan debt. And so if you think you're the only one, you're not."

Bates hopes her story can serve as a lesson to others.

"I wouldn't wish this on my worst enemy," Bates said. "It is absolutely consuming my life."