As Much As $5 Billion in Private Student Loan Debt Might Be Erased Due to Missing Paperwork

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According to a recent article published by The New York Times, billions of dollars in private student loan debt could be ruled null and void due to missing paperwork. At the moment, there is at minimum $5 billion in loans being disputed in courts by private creditors pursuing lawsuits against loan borrowers that have gone delinquent on meeting the terms of their repayment agreements. It has now been learned that because creditors have been unable to produce legitimate paperwork that proves who owns the loans they are seeking repayment for, the lawsuits are being dismissed left and right.

At the epicenter of the legal battle is the National Collegiate Student Loan Trusts, a company that consists of 15 trusts that encompass around $12 billion in student loans. In the last five years, National Collegiate Student Loan Trusts have acquired thousands upon thousands of lawsuits. In this year alone, more than 800 lawsuits have been issued by the company so far.

Of those 800 or so lawsuits, judges have recently started throwing out lawsuits acquired by the trusts. Such cases occurred in Ohio, Texas, and New Hampshire. According to reports, the cases were clear instances where the National Collegiate Student Loan Trusts kept “incomplete ownership records and mass-produced documentation.”

Before being bundled up and consolidated together to be sold to investors, the loans that were in default were first issued by a lot of banks. As debts were consolidated and reacquired, crucial paperwork proving ownership got lost in the business exchanges. Loans of these kind are not guaranteed or granted by the federal government (America’s leading primary lender), and unfortunately, lack a lot of the consumer protections that those government loans typically entail, i.e. income-based repayment options.

Such actions make it harder for borrowers to keep up with loan repayment plans that best suit their lifestyle, which makes defaulting on a loan more likely. It is a tricky cycle that judges are looking to do away with, if their recent rulings are any indication.

If you want more information regarding these lawsuits and what it could potentially mean for borrowers everywhere, read the full article here.

Photo Credit: iStock

Sheriden Chanel is a twenty-something writer, Beyoncé enthusiast, and lover of all things visual art. Keep up with her and her musings on social via @indiebyline.