Private lender could run out of papers for $ 5 billion in student loans

billions of rejected student loans

If the lender cannot prove that they own the loan, the borrower may not have to repay.

Getty / Dan Kitwood

Billions of dollars in student loans can be wiped out for tens of thousands of borrowers in the United States because a lender failed to follow documents verifying loan ownership, according to the New York Times.

The National Collegiate Student Loan Trusts, which holds 800,000 private loans and is one of the largest owners of private student loans in the country, is at the center of the litigation, reports the Times.

Borrowers fail to repay more than $ 5 billion of the $ 12 billion in private student loans held by National Collegiate, putting the loans in default. The organization has filed more than 800 lawsuits against borrowers this year alone in an attempt to repay – and National Collegiate typically wins because borrowers choose to settle or not to go to court, according to the Times.

When borrowers come forward to fight, the cases are not that simple. Disorganized or missing documents have made it difficult for the National Collegiate to prove that it actually owns the delinquent loan it is demanding repayment, according to the Times. To be clear, the Times reports, the organization’s legal problems do not include document forgery.

The student loans held by National Collegiate were made “over ten years ago by dozens of different banks, then pooled by a finance company and sold to investors through a process called securitization,” and they were not guaranteed by the federal government. , according to the Times.

Donald Uderitz, the founder of Vantage Capital Group, a private equity firm in Delray Beach, Florida, is one of the financiers behind National Collegiate trusts, and even he seems bewildered by the missing documents. In 2015, he hired a contractor to audit the service company that bills National Collegiate borrowers on a monthly basis and found that none of the 400 randomly sampled loans contained documents showing a chain of ownership.

“It’s a fraud to try to collect loans you don’t own,” Uderitz told The Times. “We don’t want any part of this. If it is a loan owed to us fairly, we want to collect. We need answers on that.”

Private student loans lack the consumer protection and manageable interest rates that come with federal student loans, which now represent a $ 1.3 trillion market. Due to the high interest rates on private loans, borrowers can often end up paying hundreds – and in some cases thousands – of dollars in monthly payments.

Notably, federal student loan borrowers have the option of requesting a loan forgiveness or loan discharge, as in the case of an incomplete degree from a former for-profit college, unlike private borrowers.

Read the full article in the New York Times »

Previous Co-op and Starling to start offering up to £ 50,000 in rebound loans to small businesses
Next Ten Guaranteed Ways to Appear Smarter Than You Are