According to recent statistics, Americans owe more than $1.4 trillion in student loan debt. (Photo by Paul Bradbury/Getty Images).
Thousands of students who took out private loans to help pay for college but struggled to keep up with the payments could have their debts wiped away, thanks to missing paperwork and incomplete ownership records.
The troublesome loans, which total nearly $5 billion, lay at the center of a lengthy legal battle between student borrowers and a group of creditors called the National Collegiate Student Loan Trusts, The New York Times reported. The group of trusts is one of the largest owners of private student loans in the U.S. and has brought tens of thousands of lawsuits against borrowers who’ve fallen behind on their payments.
However, judges have dismissed dozens of complaints against former students because National Collegiate lacked the proper paperwork showing ownership of its loans — thus wiping out borrowers’ debt. The New York Times reported that loans held by the group were originally owned by banks and then sold to investors.
Comprised of 15 trusts, National Collegiate holds nearly 800,000 private student loans totaling $12 billion, $5 billion of which are in default, court documents show.
“The Trusts need to have borrowers continue to pay off their loans, and they also need to explore selling loans where collections are less than the servicing fees the Trusts pay,” lawyers for National Collegiate argued in a recent filing. “But 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.”
While National Collegiate struggles with servicing issues, thousands of students also are struggling to dig their way out of debt imposed by the hefty loans. Statistics from website Student Loan Hero showed that Americans, overall, owe more than $1.4 trillion in student loan debt spread between nearly 44 million borrowers. To make matters worse, the rate of student loan delinquency is at 11.2 percent.
The New York Times noted that hundreds of cases have been thrown out when borrowers challenge them because the trusts continually fail to bring the critical paperwork needed to proceed.
“It’s a numbers game,” lawyer Richard Gaudreau, who has helped defend borrowers in several National Collegiate lawsuits, told the newspaper.
“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.”
