Could at least $5 billion of student loans be erased?
As reported by the New York Times, about $5 billion of student loan debt owned by the National Collegiate Student Loan Trusts – one of the nation’s largest owners of student loans – could be erased by judges due to alleged improper documentation and missing ownership records.
The National Collegiate Student Loan Trusts holds 800,000 private student loans through 15 different trusts, which collectively own approximately $12 billion of student loan debt, according to the New York Times.
Of that amount, about 160,000 private student loans are in default. These student loans were originally issued by banks, and then subsequently sold through securitization to investors, including the National Collegiate Student Loan Trusts. Ownership records may have been lost in the process.
The New York Times reports that given the incomplete ownership records, it is not exactly clear who owns the individual student loans. If true, this could pose a major problem for National Collegiate, which is seeking to collect unpaid student loan debt from borrowers who have defaulted.
The paperwork dilemma pits student loan borrowers who have struggled to make student loan payments against creditors seeking to collect on unpaid student loan debt.
National Collegiate filed tens of thousands of lawsuits against borrowers – including about 800 this year – mostly in state and local courts in order to collect on the unpaid student loan debt.
While National Collegiate has prevailed in many cases, student loan borrowers have won other cases when National Collegiate could not produce documents supporting proper chain of title and ownership.
Part Of A Larger Issue
While these lawsuits involve borrowers who have defaulted on their student loans, the student loan crisis continues to grow.
More than 44 million student loan borrowers collectively owe more than $1.4 trillion in student loans, according to the most recent student loan debt report from personal finance site Make Lemonade.
Student loan debt is now the second highest consumer debt category – second only to mortgages.
According to Make Lemonade, about 11% of students default on their student loans each year