Lost Paperwork Might Erase Billions in Private Student Loans
The National Collegiate Student Loan Trusts holds student loans for several thousand people of people. As countless court cases appealing defaults on student loans throughout the nation have shown, the private loan company has failed to produce the proper paperwork. “Judges have already dismissed dozens of lawsuits against former students,” the New York Times DealBook blog reported, saying that judges were “essentially wiping out their debt, because documents proving who owns the loans are missing.”
Many of these cases come from the sub-prime mortgage crisis of the last decade. During the crisis, billions of dollars of loans were erased by courts due to improper paperwork. Given the lax standards of the time, many banks gave equally unstable private student loans. This includes the National Collegiate Student Loan Trusts.
Now that many are recognizing these paperwork problems, the National Collegiate may have an insurrection on their hands. When people realize that the company filed improper paperwork, they may default on their loans, rather than continue payments.
As one of their lawyers pointed out: “As news of the servicing issues and the trusts’ inability to produce the documents needed to foreclose on loans spreads,” said the lawyer, “the likelihood of more defaults rises.” The loans total at least five billion dollars, and have come to media attention after a number of creditors pursued legal action against student borrowers after they defaulted on their loans. To their surprise, they were unable to produce proof of loan ownership in court, causing judges to dismiss the claims. The New York Times reviewed a number of cases, stating: “many other collection cases are deeply flawed.” It reported these flaws include: “incomplete ownership records and mass-produced documentation.”
The National Collegiate serves as an umbrella for twelve different trusts who control over 800,000 student loans. According to court findings, student borrowers have defaulted on a total of five billion dollars worth of that debt so far.