Paperwork Errors Could Wipe Out $5B in Student Loans

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At least $5 billion in private troubled student loans may be dismissed because paperwork that proves loan ownership is missing. The New York Times reported that loans held by the group were originally owned by banks and then sold to investors.

That's a big number, but it accounts for a relatively small fraction of overall USA student debt.

Tens of thousands of people who used private student loans to afford college have not been able to make timely payments, yet they still may have those loans forgiven because of missing paperwork that is legally critical to defining who owns the student loans. However upon picking up your diploma, most graduates also picked up the tab and entered into the world of student loan debt.

National Collegiate isn't a lender, guarantor, or loan servicer. He is Donald Uderitz, the founder of Vantage Capital Group, a private equity firm in Delray Beach, Fla., that is the beneficial owner of National Collegiate's trusts.

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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, says Robyn Smith, an attorney with the National Consumer Law Center.

Document: National Collegiate's Audit of P.H.E.A.A.

To attend these expensive for-profit schools, students will take on large amounts of high-interest private loans, only to discover their job prospects are not dramatically improved upon graduation. This is similar to what happened in the 2000s during the subprime mortgage crisis, when judges ruled in favor of borrowers, saying the companies could not collect subprime mortgage loans because the documents were either missing or forgeries.

You see, trusts like the NCSLT typically win default lawsuits automatically-almost be default, pardon the pun-because borrowers typically don't even show up to court (probably assuming that they can not win the case). This means that there is no national tally of just how often National Collegiate's trusts have gone to court.

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