Private Lenders Struggle to Prove Ownership of Student Loans in Court
- Author: Darren Santiago Jul 20, 2017,
Jul 20, 2017, 0:49
Lawyers say that since the loans generally passed through many hands before reaching National Collegiate, the paperwork involved is so shoddy that it could affect most of the $5 billion of its debt that is in default.
This is an important story, particularly if you are one of the students who has one of these loans.
And that mistake could erase approximately $5 billion across roughly 160,000 loans each worth around $30,000 (which is the national average).
The paperwork documenting the chain of loan ownership disappeared as the bank loans were bundled together and sold to investors through the securitization process.
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But National Collegiate's problems are especially acute, she said. These private loans were not guaranteed by the federal government, which is the nation's largest student loan lender.
When borrowers don't go to court, National Collegiate nearly always automatically wins the case, but when they do show up, most of the time judges throw the suits out because National Collegiate was not able to produce the paperwork proving it owned the debt in question. The trust organization is facing trouble proving in court that it has the legal paperwork to prove ownership of its loans. If you've gotten collections notices from Transworld or bills from AES, there's a chance National Collegiate holds your student loan.
From the sounds of it, there are thousands of dutiful Americans in debt who are paying their monthly loan payments to this company that may not have to do so because of this massive issue.
Smith also encourages borrowers to file complaints with their state attorney general and the Consumer Financial Protection Bureau, and to push state legislators to prohibit private student loan holders from obtaining judgments when they lack proof that they own the loans that are the subject of the lawsuit. If you don't show up in court, National Collegiate (or any other private loan company) will win a default judgment-giving it a court order to collect your debt.