You may have heard that some private student loans are getting wiped away thanks to missing paperwork.
National Collegiate Student Loan Trusts, a massive student loan entity comprising 15 trusts that own a total of $12 billion in private student loans, is at the center of the controversy. The company bought bundles of student loan debt from banks and financial institutions, and in the process, had trouble keeping track of proper files.
The organization has filed an average of four cases a day on the 800,000 private student loans it holds, winning many of them because plaintiffs simply don’t respond or show up to court.
But many of these lawsuits have been thrown out by judges, according to the Times, because debtholders like National Collegiate cannot actually prove they should be paid.
Am I off the hook?
You may be tempted to wonder — do I really have to pay my loans now? In fact, National Collegiate is worried that news of these dismissed lawsuits will entice people to go into default on purpose.
But it’s not that easy.
For one, you agreed to pay back the debt when you borrowed the money. And it’s not as if National Collegiate won’t fight for every penny it’s owed.
If you default on your private debt, and the owner of your debt has all the paperwork, bad things can happen. Your credit score would likely suffer, you might face a wage garnishment, and pay extra collection fees.
Lower your bill
Private student loans generally offer fewer tools, such as income-based repayment, than federal debt to help you lower your payment if you’re falling behind.
That being said, you do have some options.
If you can’t keep up, contact your lender immediately. While each case will be handled differently, depending on your particular circumstance, whomever owns your debt may work with you to avoid default.
You might also consider refinancing. Borrowers with higher credit scores and incomes will have an easier time securing lower interest rates, making this a better avenue for more financially secure borrowers.
If you’re well behind on your loans, and have been served with a lawsuit, you need to lawyer up. Try contacting your local legal services organization for help if you cannot afford representation.
“Otherwise, find an attorney with experience defending debt collection lawsuits,” says National Consumer Law Center attorney Robyn Smith, who also recommends forwarding a link to a NCLC’s robo-signing paper since many attorneys may not be aware of this issue.
Keep in mind there’s a difference between a lawsuit from the bank that made the loan and an entity, like National Collegiate, that bought packages of loans.
“If a lawsuit is filed by the original lender, then it can easily prove loan ownership using the Truth in Lending Act (TILA) notice/promissory note,” says Smith.
It’s when a loan has been sold and resold that an institution runs into trouble “if it cannot provide documentation showing the chain of transfer from the original loan to the holder itself.”
You can check the TILA notice to see the identity of the original lender. If you don’t have one, ask the loan servicer. If the servicer refuses, since it doesn’t have to provide one, then file a complaint with the Consumer Financial Protection Bureau and your state attorney general.
And seek legal representation even if you’ve already had a judgement entered against you.
“We have seen many instances where the lawsuit was not properly served,” says Smith. “If this is the case, an attorney may be able to help the borrower get the default judgement vacated and defend against the lawsuit.”