A large-scale paperwork error may permanently clear the student loan debt for thousands upon thousands of college graduates. After taking students to court over late payments, the National Collegiate Student Loan Trusts is unable to prove its ownership over the loans in question. Judges are consequently having to dismiss these lawsuits, wiping away the defendants’ debt.
The National Collegiate Student Loan Trusts is an umbrella group consisting of 15 trusts amounting to 800,000 private student loans valued at over $12 billion. According to The New York Times, the group does not have the necessary paperwork to prove ownership over the loans, since the loans actually originated in banks and were later sold to investors. It has been reported that the loans affected by this oversight amount to $5 billion.
The ongoing crisis – well, for the trust group, that is – proves a larger problem about private loans. While federal loans are funded and regulated by the government, private loans are subject to arbitrary and rapidly rising interest rates. Graduates with federal loans may select payment plans suited to their incomes. Private borrowers, on the other hand, face many issues.
In an interview with The New York Times, Samantha Watson spoke about her experience. The 33-year-old mother of three said she had a difficult time understanding the fine print when she applied for a private loan to attend Lehman College. After falling behind on her payments, National Collegiate took her to court.
There, they filed documents falsely claiming she attended a school she never did. “I tried to be honest,” Watson said. Adding, “I said, ‘Some of these loans I took out, and I’ll be responsible for them, but some I didn’t take.'” Her debt – amounting to $31,000 – has since been wiped entirely.