The National Collegiate Student Loan Trust may have made the most colossal clerical mistake in history. Find out what happened and if your private student loans are affected.
Many students graduate from high school and decide that they want to go to college to get a degree. They take out large loans to fund their college education and later realize how difficult it is to pay off that bill.
Over $1.3 trillion in student loans is owed in the U.S., and many are struggling to keep up with their payments. Well, last year, a big clerical mistake was uncovered which might get a few lucky loan holders off the hook.
What happened and could you be relieved of your student loans? Here’s what you should know.
What is the National Collegiate Student Loan Trust?
The National Collegiate Student Loan Trust is the umbrella name for a series of 15 trusts. They contain 800,000 private student loans which total around $12 billion, according to the NY Times. The student loans within the trusts are packaged and sold to investors as bonds through the process of securitization.
When a student makes repayments toward their loan, investors make more money. On the other hand, when a student doesn’t repay, investors make less. Reportedly, $5 billion of the National Collegiate Student Loan Trust’s debts are in default.
If a student defaults, the servicer hands the debt off to a servicer of overdue debts, which then subcontracts a debt collection company named TransWorld Systems. TransWorld Systems tries to collect the debt and may turn to debt collection law firms which sue the student.
How do student loans get to the trusts in the first place?
It all starts with the loan originator. A student will apply with an originator such as Bank of America or J.P. Morgan Chase Bank and, if approved, can get the money to pay for school.
After a student loan is disbursed, the originating bank transfers the loan account to a depositor that holds it until it is transferred to a trust. Once in the trust, a servicer is hired by the trust to collect payments from the student. Meanwhile, bonds are sold to investors.
Why does all this happen? It diversifies the risk for lenders which allows them to extend more loans, allows more students to get loans, and it allows investors to diversify their investments.
What did the National Collegiate Student Loan Trust do wrong?
In 2016, a student loan holder in New York fell behind on her payments and ended up getting sued by the National Collegiate Student Loan Trust (NCSLT). She hired a lawyer who reviewed the paperwork from the NCSLT and found it to be a mess.
The defendant received notices for both loans she had and didn’t have. As they dug further, it was discovered that NCSLT couldn’t prove that they owned the loan for which they were suing. This was just the beginning. Several more cases like this came up.
In September of 2017, the Consumer Financial Protection Bureau filed complaints against the National Collegiate Student Loan Trust and Transworld Systems, Inc. saying it had registered over 2,000 lawsuits for debts that it couldn’t prove it owned.
Additionally, the CFPB alleged that false and misleading affidavits were filed in many of the collection lawsuits. Further, over 486 collection lawsuits were filed after the statute of limitations on the debt had expired. The proposed judgment requires that all 800,000 of the trust’s student loans be independently audited.
Further, the company will not be allowed to collect, sue, or negatively report on any loan shown invalid or unverified in the audit. It also will not be able to attempt to collect on debts that are past the statute of limitations and must ensure all of its legal documents are correctly notarized (where applicable), accurate, and correct.
Lastly, it would have to pay the following:
- $3.5 million in restitution to more than 2,000 consumers who were affected
- $7.8 civil money penalty for the National Collegiate Student Loan Trusts
- $2.5 million civil money penalty for Transworld Systems
- $7.8 million in disgorgement to the U.S. Treasury
We are still awaiting a court ruling on this.
Can your student loan be forgiven?
If you have defaulted on a student loan that is held in a National Collegiate Student Loan Trust, and which happens to be one of the loans without proper paperwork, then your student loan would be deemed uncollectible if this judgment goes through. Find out if a student loan lawyer can help you resolve these and other student debt issues.
Learn 5 alternatives when loan forgiveness is not available.
However, of all private student loans, only a small percentage will qualify. $5 million in loans are part of this scandal, and there is over $7.8 billion worth of private student loans in the U.S. It’s worth looking into, but the chances are slim.
If you’re hoping to reduce your student debt, so it’s more affordable, you’ll likely have better luck looking into refinancing and consolidation.
Compare the top student loan refinancing companies so that you can reduce your bill and start saving.
Jessica Walrack is a personal finance writer at SuperMoney, The Simple Dollar, Interest.com, Commonbond, Bankrate, NextAdvisor, Guardian, Personalloans.org and many others. She specializes in taking personal finance topics like loans, credit cards, and budgeting, and making them accessible and fun.