If you have some student loan debt over your head, you might be in for some good news. Apparently one of the largest owners of private student loan debt has lost some paperwork.
And that mistake could erase approximately $5 billion across roughly 160,000 loans each worth around $30,000 (which is the national average).
National Collegiate Student Loan Trusts is a trust of 15 companies who purchase private student loan debt. And it is this trust which has reported the loss of this paperwork, which documents the chain of ownership for these loans. So, basically, this haphazard record-keeping means that if the trust attempts to go after a student or graduate who has defaulted on their loan, they might not be able to serve the call and, instead, have to write off the entire amount of the debt.
As a matter of fact, judges have already dismissed several dozen lawsuits against borrowers in default on their student loans from these private creditors.
A story in the New York Times describes that some of these issues harken back to similar issues with the subprime mortgage crisis from about ten years ago. At this time, the court ruled that billions of dollars in subprime mortgages were uncollectible due to missing or faked documentation.
As such, the Time story continues, private student loans—which actually have higher interest rates and fewer consumer protection measures than federal loans—are specifically targeted towards those borrowers who are most vulnerable. These students often tend to enroll in for-profit schools.
Of course, if you have been tracking any news on higher education over the past couple years, it seems that “for-profit” schools are having quite a few problems these days.
This is an important story, particularly if you are one of the students who has one of these loans. You see, trusts like the NCSLT typically win default lawsuits automatically—almost be default, pardon the pun—because borrowers typically don’t even show up to court (probably assuming that they cannot win the case). Unfortunately, these court victories can result in wage garnishment and federal benefits (like Social Security), which can haunt borrowers for the rest of their lives.
So the fact that these loans may be dismissed on the grounds of lost paperwork is, indeed, excellent news for borrowers.