Thousands of Student Loan Debts Could Be Erased Because of Missing Paperwork

Thousands of Student Loan Debts Could Be Erased Because of Missing Paperwork

They aggressively hound student borrowers who fall behind on their bills and have brought tens of thousands of lawsuits against defaulters in the past five years.

The entire $5 billion of loans that are in default right now stand a chance at being basically wiped away.

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The National Collegiate Student Loan Trusts, one of the largest owners of private student loans in the United States, is at the center of a legal dispute over at least $5 billion in loans, the New York Times reported on Monday. But such cases may become more common: "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", the company's lawyers warned in a recent filing. For the economists who have always been anxious about the US's impending student-loan crisis, it's even worse. Of the almost 50% of respondents who reported having a 401 (k), almost one-quarter said they would prefer student loan assistance over their 401 (k) plan.

The student loans held by National Collegiate were made "more than a decade ago by dozens of different banks, then bundled together by a financing company and sold to investors through a process known as securitization", and they weren't guaranteed by the federal government, according to the Times. The debt passed through too many hands before reaching National Collegiate's trusts, and imperative paperwork that documented who owned the loans disappeared. Due to steep interest rates on private loans, borrowers can often end up paying hundreds, and in some cases thousands, of dollars in monthly payments.

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