As paperwork goes missing, private student loan debts may be wiped away

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National Collegiate - which includes 15 trusts that hold 800,000 private student loans - has brought tens of thousands of lawsuits in the past five years against borrowers who have fallen behind on their loan payments.

At the center of the storm is one of the nation's largest owners of private student loans, the National Collegiate Student Loan Trusts. These numbers come from court filings. If it's a loan we're owed fairly, we want to collect.

But according to a New York Times report this week (paywall), the trusts have been failing in court to produce the legal paperwork showing that they actually own numerous $5 billion in loans now in default, meaning that judges across the country have already dismissed dozens of the trusts' lawsuits against students. Of those, roughly 166,000 loans, or $5 billion, are in default.

Since it is unclear who exactly owns the individual loans and National Collegiate is unable to provide official documentation in court, the debt, totaling at least $5 billion, may very well be thrown out.

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The loans were originally granted to students by banks, bundled and then sold to the trust.

More than half of those with student debt would prefer monthly contributions towards their loan debt rather than health care benefits, and almost 48% would choose student loan assistance over a 401 (k).

Judges have already dismissed dozens of lawsuits against former students, essentially eliminating their debts because of the paperwork problem, according to the Times. The debt passed through too many hands before reaching National Collegiate's trusts, and imperative paperwork that documented who owned the loans disappeared.