Hannah Bates didn't believe the email.

"Congratulations! We received the final payment on your loan," read the surprise message from Sallie Mae, her student loan lender.

It was October 2024, and Bates owed Sallie Mae $55,000, with years of payments remaining. She called customer service for an explanation. "They told me there was a glitch in the system and I probably got emailed by accident," Bates, 30, said. "How do you make an accident on something that big?"

Bates was behind on her payments at the time. After graduating in 2022, she initially kept up with the full $1,500 monthly bill. But about six months later, after taking a nursing job that paid $45,000 a year, she could only afford to pay roughly a third of it.

During her call with customer service, she says she was advised to make a payment to avoid default. The payment she made over the phone never reflected on her balance, she says, and within a few weeks, she defaulted. About six months later, Sallie Mae sued. Sallie Mae said it consistently communicates with borrowers throughout all phases of repayment, but did not comment on Bates' situation.

Bates hopes to negotiate more affordable payments with Sallie Mae. If she doesn't reach an agreement and fails to make her required payments, she risks wage garnishment and a hit to her credit score.

Situations like Bates' could become a reality for more students with President Donald Trump's federal repayment changes, which take effect in July, expected to drive more borrowers toward private lenders. Business Insider spoke with dozens of private student-loan borrowers, industry representatives, and lawyers, and reviewed court filings and borrower complaints to the federal watchdog responsible for student-lending regulation. The reporting revealed confusion over loan balances and notices as borrowers moved toward default and, in some cases, litigation.

After Bates defaulted, her full balance became due. A customer service representative called to collect, asking if she had friends or family she could ask to help make the lump-sum payment.

"I said to her, 'Ma'am, I'm not trying to be funny nor sarcastic, but if I had $55,000 to give you right now, we wouldn't be in this position,'" Bates said.

This is the fourth story in a new Business Insider series, "Student debt spiral," examining the companies, policies, and financial pressures reshaping how Americans navigate college loans. Read the first three installments below.

• They were told their private student loans were paid off. Then they were sued.
• A 'quiet crisis' is brewing for student-loan borrowers
• Inside a mom's legal battle to turn her $55,000 student-loan balance to $0

Share your private student-loan experience with asheffey@businessinsider.com or securely on Signal at asheffey.97.

A confusing phone call

Although Sallie Mae denied her request for lower payments in calls ahead of her default, Bates tried to make a dent in her balance by paying what she could afford — around $560 a month. Since that was below the required payment amount, she became delinquent at the beginning of 2023, which is when a borrower misses a payment and is reported to credit bureaus.

What came after the "Congratulations!" message, Bates said, was confusion. Just a few weeks later, she got a notice about her "right to cure delinquency," informing her that if she didn't make payments, her account would default, which typically happens after 120 days without full payments.

Bates wanted to reverse her default after receiving the "Congratulations!" email, but she didn't know how.

"I didn't hear anything for months," Bates said. "And I had no access to any of the information on my dashboard anymore. They removed the loans. I had contacted them once or twice throughout this process, waiting to hear back, and no one ever had an answer for me."

A Sallie Mae spokesperson told Business Insider that "customer success is core to our mission," and fewer than 3% of Sallie Mae loans default annually. The spokesperson added that the company "proactively and consistently" communicates with its customers, including sending notices when the customer defaults, when that defaulted loan is sold, and who the new owner is. The spokesperson said the company could not comment specifically on Bates' account.

A customer service call between Bates and a Sallie Mae representative showed her efforts to avoid default.

Listen to a snippet of Bates' customer service call:

"What information was I supposed to follow? Because I'm confused now," Bates said during the call.

She then asked what the next steps were if there was no way to reverse the default proceeding.

"You would have to make arrangements with the company that your loan does go to," a Sallie Mae representative said.

"Okay," Bates answered. "Do you have any information on that?"

"We don't have it right now," the representative said.

A day in court

Once a loan defaults, it's standard practice for the lender to clear the defaulted balance off their books and transfer it to collections, either in-house or through a third party. The borrower still owes the full balance, but communications can vary depending on the account's manager — and the borrower doesn't always know who holds their loan.

Private lenders are subject to laws governing when and how they must communicate with borrowers. In some cases, a default can make it difficult for borrowers or regulators to track the loan.

That was the case for Bates — after defaulting, she lost access to her account and couldn't find her payment information. Bates could not afford a lawyer to help navigate her lawsuit, so she used ChatGPT instead.

That research prepared her for the first hearing in her case on March 6, 2026, held over Zoom in Michigan's Third Circuit Court. Bates asked the judge to set aside her default judgment. The judge denied the request and encouraged her instead to reach a settlement or agree to a payment plan with Sallie Mae's lawyers.

"I'm seeing this happen more and more," the judge, Annette 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 is now waiting for a response from Sallie Mae on the next steps.

"I am representing myself. I understand that there are some obstacles that come with that, and I'm trying to learn the processes as best I can because this is the only option I have to do so," Bates told the judge. "I'm just trying my best to juggle it."