Student loans: Billions in debt may disappear
Tens of thousands of borrowers who have fallen behind on their private student loan payments may soon have their debts “wiped away,” said Stacy Cowley and Jessica Silver-Greenberg in The New York Times. At least $5 billion in loans held by the National Collegiate Student Loan Trust, one of the nation’s largest owners of private student debt, may be uncollectible, thanks to shoddy paperwork. Dozens of lawsuits brought by the trust against former students have been dismissed “because documents proving who owns the loans are missing.” The loans were originally made by banks but were later bundled and sold to investors like National Collegiate, which is a collection of trusts that hold $12 billion in student loan debt. National Collegiate “aggressively pursues borrowers who fall behind on their bills,” bringing at least four new collection cases each day. But in one sample of nearly 400 National Collegiate loans, “not a single one had assignment paperwork documenting the chain of ownership.”
You might be asking yourself, “Are my loans affected?” said Kaitlin Mulhere in Money.com. “The short answer: probably not.” National Collegiate holds only a sliver of the $1.3 trillion in outstanding student debt, the vast majority of which is in federal student loans. “You can ask your loan servicer to show you a promissory note proving who owns the loans, but the servicer isn’t legally required to turn that over.” Even if National Collegiate does own your loan, “your debt won’t be magically erased” overnight. Judges have dismissed only cases in which borrowers have been sued for not paying their debts, which often happens when payments are at least several months overdue. If you are sued, don’t ignore the summons. Creditors like National Collegiate rely on borrowers not showing up in court, which allows them to win a default judgment to collect any debts.
“It’s important to know that creditors generally can’t come after you unless they can prove you owe them money,” said Shahien Nasiripour in Bloomberg.com. But while borrowers hoping to dodge massive debts might be tempted to try their luck in court, “this strategy probably isn’t for you” if you can afford to make your payments. Deliberately defaulting on your loans “can have ruinous consequences for your credit.” There’s also a “real chance” you will lose if you are sued, leaving you stuck with legal fees on top of existing debt. It’s best to avoid private student loans in the first place, said Abigail Hess in CNBC.com. Private loans often come with higher interest rates and “lack the consumer-protection benefits of federal loans.” A recent study by the Institute for College Access and Success found that nearly half of private-loan borrowers could have taken advantage of more affordable federal loans. It’s just another way “you can make sure your education pays off.”