Student Loan Trust Says It’s Owed $5 Billion, Probably Can’t Prove it

College students from the University of Tampa attend their commencement ceremony at Florida State Fairgrounds in Tampa, Fla Saturday, May 6, 2017.
College students from the University of Tampa attend their commencement ceremony at Florida State Fairgrounds in Tampa, Fla Saturday, May 6, 2017. Tina Russell/The Penny Hoarder

Nearly $5 billion in private student loan debt could be wiped away because of mishandled paperwork, The New York Times reports.

The National Collegiate Student Loans Trust, a collection of 15 trusts that hold about 800,000 private student loans worth about $12 billion, manages the debt in question, owed by tens of thousands of borrowers.

According to the Times, the only borrowers who may have their slates wiped clean are those who, in most cases, took out private loans to cover costs at for-profit institutions but have since defaulted on their payments.

Students who take out private loans tend to have high interest rates and few consumer protections, and the cases against them are often shoddy. The New York Times reports that dozens of lawsuits filed by the trusts were dismissed because of “incomplete ownership records and mass-produced documentation.”

Similar problems arose 10 years ago during the housing crisis, when the courts wiped out billions in subprime mortgage debt because lenders couldn’t provide paperwork to prove they were entitled to collect on debt.

National Collegiate Aggressive Collections Backfire

While National Collegiate often uses the court system to aggressively collect on delinquent accounts, it seems to only win when borrowers don’t show up the defend themselves.

Unfortunately, borrowers often don’t show up to the cases, leading to victory by default for the trusts. The resulting judgements can allow National Collegiate to garnish borrowers’ wages, Social Security checks and other income for decades.

When borrowers do fight back, though, their attorneys tend to find pages of sloppy records that often fail to prove National Collegiate can collect on the debt.

The New York Times highlighted one case in which courts erased $31,000 of one woman’s debt. The paperwork National Collegiate submitted as proof she owed the debt listed a school she never attended.

What About Federal Student Loan Borrowers in Default?

The paperwork problems the Times highlights specifically affect borrowers who took out loans from private lenders, not the federal government.

You might be disappointed that your federal student loan debt won’t be disappearing anytime soon, but there are several repayment options available to you that private borrowers cannot take advantage of. This lack of repayment options can make them more likely to default.

The most important of these options is the income-driven repayment plan, which adjusts your monthly payment based on your income. If you make 20 years of on-time payments in this program, your remaining debt could be forgiven.

If you defaulted on a private loan, consult an attorney to make sure the trust collecting on your debt is really entitled to your money.

Desiree Stennett (@desi_stennett) is a staff writer at The Penny Hoarder.

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