Due to the critical paperwork missing, billions of dollars in private student loan debt could be erased.
At least $5 billion dollars in loans are currently being disputed in court between the borrowers and the creditors. The creditors are going after the borrowers who are falling behind on their payments. However, because the documents that prove who owns the loans are missing, judges threw out a handful of lawsuits which essentially wiped away some people’s student debts citing that there were “incomplete ownership records and mass-produced documentation.”
In the center of this legal battle is one of the largest owners of private student loans in the nation, the National Collegiate Student Loan Trusts. It is an umbrella company that consists of 15 trusts that hold around $12 billion in student loans. In the past five years, they have filed tens of thousands of lawsuits. Just this year they filed, more than 800 so far.
Recently judges have thrown out cases in New Hampshire, Ohio, and Texas because it could not prove that they owned the debt they were trying to collect.
The loans are originally made by banks, then bundled together and then sold to investors. Unlike federal student loans which are directly funded by the governments, private loans do not have consumer protections like income based repayment plans and can have ridiculously high-interest rates. So a lot of times, borrowers are left with debt that they never earn enough to pay back or they have to pay thousands each month to try and pay off their loans.
Also with these private loans, some people have debt for degrees that they never completed because the for-profit college attended closed because of fraud allegations.
According to Richard D. Gaudreau, a New Hampshire lawyer who has taken on several lawsuits against the National Collegiate Student Loan Trusts explained, “It’s a numbers game. 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.”
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