Many financial experts see similarities between the 2008 subprime housing crisis and today’s $108 billion private student loan market. A decade ago, billions in subprime mortgage loans were ruled uncollectable by courts over missing or fraudulent documents.
For a variety of reasons, mostly involving financial challenges and credit scores, borrowers turn to private student lenders. Unlike federal programs, these loans usually carry higher interest rates and reduced consumer protections.
Those tens of thousands of borrowers have struggled to keep pace with their private loan payments. In response, creditors have pulled out all the stops in their aggressive collection tactics, taking them to court after they fell into delinquency.
In the eye of this legal storm is one of the country’s largest owners of private student loans. National Collegiate is an umbrella name for 15 trusts holding 800,000 private student loans valued at $12 billion.
By the time they receive the debt in their trusts, a decade has likely passed. The loans have gone through many hands. Critical paperwork falls by the wayside, if not vanishing into thin air.
Now National Collegiate finds themselves unable to secure the money owed to them. Critical flaws in their cases include missing or error-filled paperwork and incomplete ownership records. Judges throughout the nation have already dismissed dozens of lawsuits and wiped away the loans.
The total could reach $5 billion all because they cannot prove ownership of the debt.
National Collegiate alone brings at least four new collection cases every day. This year alone, they have already filed 800 lawsuits with tens of thousands over the past five years.
While other borrowers have similar problems, their problems and tactics are unique. As fast as they file lawsuits, they drop them, often the night before a deposition. One of their own financers who sides with the critics called out National Collegiate on their litigious ways, requesting a stop to the legal actions.
For now, the legal battle continues in multiple courts with no resolution in sight. Thousands of requests for forbearances and other assistance continue to go unanswered. Borrowers caught in the middle cannot even get the most basic of information because no one involved in the borrowing can agree on who has authority to make these decisions.