Lost Paperwork Could Lead To Billions In Student Loans Being Wiped Off The Books
This fantasy scenario may come true for thousands of indebted grads.
If it were a plot point in a film, it would sound far-fetched: Disorganized paperwork leads to thousands of student loan borrowers kissing their obligations goodbye and carrying on with their lives.
But it appears to be happening right now. $5 billion of the $12 billion private student loan portfolio held by the National Collegiate Student Loan Trusts remains in some degree of default, with borrowers having failed to meet their payment obligations. However, as National Collegiate looks to collect on that distressed debt, the firm is struggling to substantiate its claim to rightfully collect from the debtors.
According to The New York Times, the loans were originally made “more than a decade ago by dozens of different banks, then bundled together by a financing company and sold to investors through a process known as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.”
One of the principal firms involved in the securitization or “owning” of the debts is Vantage Capital Group, a private equity firm. Said Donald Uderitz, founder of Vantage Capital: "It's fraud to try to collect on loans that you don't own. We want no part of that. If it's a loan we're owed fairly, we want to collect. We need answers on this."
Since every claim in the portfolio differs, there’s no universal answer to the ownership, so the claims are sorted through on a case-by-case basis. It’s a time-consuming and expensive process to sort through each of the thousands of individual loans held by the company, but things aren’t looking good for the prospect of collection. According to the Times, not one of the 400 randomly sampled loans had a clear chain of ownership, indicating that the entire portfolio may end up proving more trouble than it's worth and perhaps letting thousands of borrowers off the hook.
But with $5 billion at stake, the company will no doubt try its hardest to claim the money it believes it’s entitled to, leaving many student loan borrowers hopeful that their dream of becoming debt-free could come much sooner — and cheaper — than they ever imagined.