Missing paperwork could wipe out billions in private student loan debt

UCLA students protest tuition hikes in 2009

National Collegiate owns around 800,000 private student loans totalling around $12 billion, according to The Times. The group of trusts is one of the largest owners of private student loans in the USA and has brought tens of thousands of lawsuits against borrowers who've fallen behind on their payments.

Although $5 billion may be a lot of money, its only a fraction of both the private student loan market and the student loan market as a whole.

Some lucky Americans are finding that their huge piles of student debt may not actually exist. At least $5 billion in loans is now being disputed in court, as private creditors, who have pursued lawsuits against against student loan borrowers that have failed to meet their payments, have struggled to produce paperwork that prove who owns the loans. The loans were made to students by dozens of banks, and then bundled together by a financing company and sold to investors. Defendants often settle with National Collegiate or ignore the summons altogether.

Those private loans were not guaranteed by the federal government. Private student loans account for around $108 billion of student loans, according to The Times. And it is this trust which has reported the loss of this paperwork, which documents the chain of ownership for these loans.

Even if National Collegiate owns your loan, however, that doesn't mean you're off the hook.

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If you're now in good standing on your loans, your debt won't be magically erased.

Judges in New Hampshire, Ohio, Texas and other states have tossed out lawsuits by National Collegiate because it could not prove it owned the debt it was trying to collect, and the Times reports that the legal wrangling is now playing out in Pennsylvania and DE with no end in sight.

Borrowers who can't afford an attorney can contact their local Legal Services office, Smith says.

"It's fraud to try to collect on loans that you don't own", Uderitz told the Times. That's because the people who had their debts erased were first sued by National Collegiate for being several months behind on their loan payments.

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