This whopper of a clerical error may erase millions in student loan obligations.
- Image: Flickr/airpix.
Student loan debt can choke graduates’ finances for years, accruing interest to the point some wind up paying exponentially more than the original total lent — whether or not that education facilitated employment — but vanished paperwork means tens of thousands could have that debt erased.
According to a report from the New York Times, the total debt in question easily tops $5 billion and has been the locus of a dispute between frustrated students and aggressive collection tactics utilized by several creditors — and it appears the former students could walk away debt-free.
- Image: NBC News.
Indeed, some already have — since documentation proving ownership of the loan debt is nowhere to be found. Reports the Times,
“Some of the problems playing out now in the $108 billion private student loan market are reminiscent of those that arose from the subprime mortgage crisis a decade ago, when billions of dollars in subprime mortgage loans were ruled uncollectible by courts because of missing or fake documentation. And like those troubled mortgages, private student loans — which come with higher interest rates and fewer consumer protections than federal loans — are often targeted at the most vulnerable borrowers, like those attending for-profit schools.
“At the center of the storm is one of the nation’s largest owners of private student loans, the National Collegiate Student Loan Trusts. It is struggling to prove in court that it has the legal paperwork showing ownership of its loans, which were originally made by banks and then sold to investors. National Collegiate’s lawyers warned in a recent legal filing, ‘As news of the servicing issues and the trusts’ inability to produce the documents needed to foreclose on loans spreads, the likelihood of more defaults rises.’”
National Collegiate umbrellas 15 trusts, collectively holding 800,000 private student loans comprising a massive $12 billion total; but, with at least $5 billion of the sum in default, the company keeps snatching up new collections cases at an average of four per day — and more than 800 thus far in 2017.
However, without clear documentation proving ownership of this debt, National Collegiate has been slammed by judges in New Hampshire, Ohio, and Texas, who threw out multiple lawsuits initiated by the litigious company when possession could not be clearly delineated.
Companies relying on debt for profit similarly depend on customer ignorance and the potential for late and other fees — something 33-year-old mother of three, Samantha Watson, discovered to her horror when National Collegiate sued her.
“Everybody tells you to go to college, get an education, and everything will be O.K. So that’s what I did,” Watson — the first in her family to attend university — told the Times, echoing countless others.
A sick daughter meant Watson, who graduated in 2013, had to rearrange jobs and schedules. But, despite finding a niche with the flexible hours she needs, smaller paychecks meant less money to allot for expenses not considered crucial — loan debt naturally fell behind, and National Collegiate sued.
- Image: TIME Magazine.
Like so many others, Watson said she “tried to be honest” in court proceedings, but paperwork from National Collegiate was a hot mess.
“I said, ‘Some of these loans I took out, and I’ll be responsible for them, but some I didn’t take,’” the mother explained.
Due to horrendously flawed records and a dearth in proof of debt ownership, a judge tossed Watson’s case in the dustbin.
If you plan to attend college — and aren’t somehow independently wealthy — NBC News offered a bit of guidance laced with critical caveats:
“To be smart about financing your degree, avoid taking out private loans or attending for-profit colleges. Private loans often come with high-interest rates (as high as 13.74 percent) which can make your monthly payments balloon over time. They also lack the consumer protection benefits of federal loans.
“Before you take out a private loan be sure to take advantage of your federal student loan options. The Institute for College Access and Success reports that 47 percent of private loan borrowers could have used more affordable federal loans.”
Borrowing money must be a well-informed decision, not to undertaken lightly or without consultation with appropriate institutions, qualified advice, or diligent research — but, as the case of National Collegiate shows, even the best laid plans can go awry.
Just be sure you know the terms of any loans — governmental or private — before voluntarily placing that millstone of debt around your neck.