Missing paperwork could wipe out billions in private student loan debt

Violet Tucker
July 19, 2017

The loans in question total at least $5 billion. The amount of private loans is increasing, topping $6 billion in 2015.

Billions of dollars in private student loan debt may reportedly be erased because of missing legal documents that have left creditors unable to prove who owns the loans.

A recent legal filing by National Collegiate's lawyers stated the following, "As news of the servicing issues on the trusts' inability to produce the documents needed to foreclose on loans spread, the likelihood of more defaults rises".

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As poorer students struggle with debt they might never actually make enough to pay back, it's a situation that skirts dangerously close to that of the 2007 subprime mortgage crisis. The organisation has brought more than 800 lawsuits against borrowers this year alone in pursuit of repayment - and National Collegiate usually wins because borrowers either choose to settle or don't show up in court.

The 15 trusts have led a serious offensive to track down the borrowers who fall behind on their student loan payments. The private student-loan market within that is even more problematic: National Collegiate's loans were all originally made to students from dozens of different banks that sold them in bundles to investors through securitization; none of the loans are guaranteed by the federal government. The debt collector who typically sues, Transworld Systems, usually swears to the accuracy of loan records in its court papers. Disorganized or missing paperwork has made it hard for National Collegiate to prove it does indeed own the defaulted loan it's demanding repayment on.

Other reports by Guamnewswatch

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