Keeping track of files and paperwork is something we universally consider intern work. On account of how incredibly mindless and simple it is to do, we feel comfortable handing that sort of responsibility to the rookies.
Whether they’ve got bad interns, no interns or no administrative savvy whatsoever, the National Collegiate Student Loan Trusts — one of the biggest owners of private student loans in the game — dropped the ball. Hard.
According to a recent report in the New York Times, the company is now struggling to prove ownership of their loans in court because they don’t have the required legal paperwork. Thus, the tens of thousands of students who took out loans on National Collegiate’s books could be completely off the hook.
How does something like this happen?
It’s akin to a game of telephone. Someone starts with “I ate Kevin’s nachos” and the last kid down the line ends up hearing, “Spy gate and pistachios.” Only in this game of telephone, the kid at the end is sitting on billions of dollars of uncollected debt, and that wrong phrase means the debt stays uncollected.
When a student takes out a private loan, they do so from some large institution, such as a bank. The bank will take a collection of its student loans, bundle them up and sell them to someone — or, something — with even deeper pockets, called a “depositor.” Then, the depositor does the same, selling it off to the folks with the deepest pockets of all: trusts. That’s where our friends at National Collegiate come in.
The trusts then turn to loan servicers to do exactly that — service the loan — who, in turn, use outside collection agencies to track down students and collect their money. It’s during the first part of this process that the administrative ball-dropping occurred.
When National Collegiate purchased its loans from the depositor, it never took the time to make sure it had the proper paperwork that would ensure its legal ownership of the loans.
As loan default and delinquency continues to soar, National Collegiate is trying to take the borrowers to court in order to collect. Without this paperwork, it has no case against the delinquent borrowers. And, thus, it is out a ton of money.
Suits hold no water
Now, case after case being brought against delinquent private loan borrowers is being tossed out. National Collegiate isn’t the only company in the weeds, they’re just one of the largest.
While this may seem pretty hilarious (it is), it should also shock you to the point of major concern. If you’re one of the tens of thousands of students being preyed upon by debt collectors who may have just learned you don’t legally owe the rest of your debt, great for you. For the rest of us, just think: These are the people at the helm of our nation’s economic well-being.
Yup. It’s a mess up there.
There is an entire industry devoted to selling off packages of our debt to other people just so that they aren’t the ones responsible for it when it all comes crashing down. There are people whose jobs are to crunch numbers and figure out how many inevitably bad student loans they can buy, and how many good ones they’ll need to cover their losses. The expectation is that a huge chunk of loan borrowers won’t pay off their loans.
This is not an industry run by geniuses or experts. It’s one ruled by gamblers and players of odds.
If you are someone who has defaulted on your private loans or are behind on payments, our hope is that your financial situation improves in the near future. However, if that doesn’t happen and you are issued a court summons or lawsuit, don’t just throw your hands up.
If nothing else, this should prove you’ve got a reasonable case against contesting whatever claim is brought against you. Do your homework.
But more importantly, this is Exhibit A in why we need urgent student debt and education reform. Without it, we’re just going to continue distributing loans to people who can’t pay them, playing a numbers game, digging ourselves deeper and deeper into economic ruin.
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