No, there’s nothing wrong with your reading. $5 billion in student loans vanished overnight. The National Collegiate Student Loan Trusts is one of America’s biggest (private) student loan owners. They own 800,000 student loans in point of fact, worth upward of $12 billion. $5 billion of those loans are now off the books thanks to a legal dispute revealing that National Collegiate didn’t do their homework. Literally.
“These failures – including the loss of the original loan document necessary to collect on the delinquent loans – have already rendered as much as $5 billion in loans uncollectable.”
Student loan debt in the US is now more than $1 trillion. It has reached the point where America’s grandfathers and grandmothers are taking loans out themselves to help pay for their grandchildren’s debts – to the tune of over $66 billion.
So how did this happen? And might it affect you?
As mentioned above, National Collegiate owns private student loans. These are loans not guaranteed by the federal government – like they are in other countries, such as Canada, where student loans are underwritten by the government.
Instead National Collegiate’s student loans were a product of what’s called “securitization”; basically, a student borrows from the bank, the lender (National Collegiate) then bundles what the student borrowed from the bank (along with other student loans), and everything borrowed from the bank is then sold to investors for that big massive bundle to be “secured”. For a more detailed explanation, see the following New York Times chart:
If it sounds complicated, it’s because it is. Even the simplified chart begs the question, ‘all that just so I can take out a loan to help pay for college?’ And it was certainly complicated enough for National Collegiate to lose track of critical documents. For example, an ‘assignment’, is a transfer of debt from one party to another.
According to the lawsuit filed against National Collegiate, “100% of the accounts did not contain an Assignment. It is unknown whether Assignments were appropriately issued. Based on representations made by PHEAA, it is likely that the Assignments do not exist.”
The court didn’t mince words over the scope of National Collegiate’s incompetent actions either. As you can probably figure out from the chart, that’s a lot of money going from one hand to another. And that looks like a lot of hands. This process was apparently as confusing to the lenders as it was to the borrowers.
“Such confidential information includes, but is not limited to, countless individuals’ personal and financial information. While Plaintiffs are unaware of the full extent of improper disclosures, Plaintiffs confirmed during the Emergency Audit that PHEAA transferred student loans to third parties without prior approval…”
Just as confusing, per the the same court document, National Collegiate “indicated that it does not have all promissory notes because it was never required to obtain them.” Promissory notes are written promises of payment between parties. Something you assume would be mandatory to obtain.
Perhaps more alarmingly, per the Times article;
A random sample of nearly 400 National Collegiate loans found not a single one had assignment paperwork documenting the chain of ownership, according to a report they had prepared.
If there’s a lesson learned here, it’s that you should never lose paperwork connected to student loans. Especially if they’re private school loans. Not only do you have options, but you might even have reason to suspect your lender doesn’t have custody on your collection to begin with.