$12 billion in private student loans may be missing the paperwork creditors need to collect
It’s a payday of sorts that tens of thousands of people never saw coming.
Critical paperwork could be missing for an estimated $12 billion in private student loan debt, and without the documents, the trusts that own that debt are unable to collect on it. Instead, courts are wiping private student loan debt away, offering instant relief to former students struggling to pay back their troubled loans.
According to the New York Times, legal disputes between students and the creditors who have aggressively pursued them in court are ongoing, but dozens of cases have been dismissed, resulting in the immediate cancellation of the students’ debts. Many of the cases involve one of the nation’s largest owners of private student loans, the National Collegiate Student Loan Trusts, which has struggled to provide courts with paperwork showing ownership of the debts after taking students to court to pursue payment. And more students could be freed from their debts, as National Collegiate’s lawyers warned in a recent court 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 owns around $12 billion in private student loan debt — close to 10 percent of the entire industry. That’s a lot of students who could take advantage of the trust’s shoddy paperwork.
One of those is Samantha Watson, a 33-year-old mother of three who graduated with a degree in psychology and more than $30,000 in private students loans in 2013. She was the first person in her family ever to go to college.
“I didn’t really understand about things like interest rates,” she told the New York Times. “Everybody tells you to go to college, get an education, and everything will be O.K. So that’s what I did.”
Watson fell behind on her loan payments when her daughter got sick and she lost her job as an executive assistant. She took a new job with more flexible hours that allowed her to care for her kids, but with a smaller paycheck, there was no money for making loan payments. National Collegiate sued her to attempt to collect on her loans, and then Watson’s lawyer took advantage of the fact that paperwork was disorganized or even completely missing, and argued that National Collegiate couldn’t prove it owned Watson’s debt. A judge agreed, the case was dismissed and Watson no longer has to pay back her private loans.
“It was such a relief,” Watson said. “You just feel this whole weight lifted. My mom started to cry.”
Similar cases have been dismissed in at least four states, meaning dozens of students have been released from their private student loan debt due to missing or fake paperwork.
But while these cases may seem like a beacon of hope for the tens of thousands of students who are in default on their student loans, it’s the borrowers who are trapped while these cases play out. According to the New York Times, students unable to make payments have requested forbearance and other help from their lenders by the thousands, but received no answers because of the uncertainty about who can actually make those decisions about the loans. Students seeking critical information about their debt have been unable to find answers.
While instant loan forgiveness is a pipe dream for any student struggling to pay back loans, this story really only serves as more evidence for the need to massively overhaul higher education, making it more affordable and accessible without forcing students to resort to high-interest private loans.