Billions in Student Loans May Get Their Wiped Out Because of Critical Paperwork Missing.





Via, The NY Times

Tens of thousands of people who took out private loans to pay for college but have not been able to keep up payments may get their debts wiped away because critical paperwork is missing.

Hundreds of cases have been dismissed when borrowers challenge them, according to lawyers, often because the trusts do not produce the paperwork needed to proceed.

Very few cases ever make it to trial, according to court records and borrowers’ lawyers. Once borrowers are sued, most either choose to settle or ignore the summons, which allows the trusts to obtain a default judgment.






At the center of the storm is one of the nation’s largest owners of private student loans, the National Collegiate Student Loan Trusts. It is struggling to prove in court that it has the legal paperwork showing ownership of its loans, which were originally made by banks and then sold to investors. 

National Collegiate’s lawyers warned in a recent legal filing: “As news of the servicing issues and the trusts’ inability to produce the documents needed to foreclose on loans spreads, the likelihood of more defaults rises.”

National Collegiate is an umbrella name for 15 trusts that hold 800,000 private student loans, totaling $12 billion. More than $5 billion of that debt is in default, according to court filings. The trusts aggressively pursue borrowers who fall behind on their bills. Across the country, they have brought at least four new collection cases each day, on average — more than 800 so far this year — and tens of thousands of lawsuits in the past five years.





“It’s a numbers game,” said Richard D. Gaudreau, a lawyer in New Hampshire who has defended against several National Collegiate lawsuits. “My experience is they try to bully you at first, and then if you’re not susceptible to that, they back off, because they don’t really want to litigate these cases.”


National Collegiate’s legal problems have hinged on its inability to prove it owns the student loans, not on any falsification of documents.

Robyn Smith, a lawyer with the National Consumer Law Center, a nonprofit advocacy group, has seen shoddy and inaccurate paperwork in dozens of cases involving private student loans from a variety of lenders and debt buyers, which she detailed in a 2014 report.

But National Collegiate’s problems are especially acute, she said. Over and over, she said, the company drops lawsuits — often on the eve of a trial or deposition — when borrowers contest them. “I question whether they actually possess the documents necessary to show that they own loans,” Ms. Smith said.