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The Almighty Buck Businesses Education The Courts

$12 Billion In Private Student Loan Debt May Be Wiped Away By Missing Paperwork ( 399

New submitter cdreimer shares a report from The New York Times (Warning: source may be paywalled; alternate source): Tens of thousands of people who took out private loans to pay for college but have not been able to keep up payments may get their debts wiped away because critical paperwork is missing. The troubled loans, which total at least $5 billion, are at the center of a protracted legal dispute between the student borrowers and a group of creditors who have aggressively pursued them in court after they fell behind on payments. Judges have already dismissed dozens of lawsuits against former students, essentially wiping out their debt, because documents proving who owns the loans are missing. A review of court records by The New York Times shows that many other collection cases are deeply flawed, with incomplete ownership records and mass-produced documentation. Some of the problems playing out now in the $108 billion private student loan market are reminiscent of those that arose from the subprime mortgage crisis a decade ago, when billions of dollars in subprime mortgage loans were ruled uncollectable by courts because of missing or fake documentation. And like those troubled mortgages, private student loans -- which come with higher interest rates and fewer consumer protections than federal loans -- are often targeted at the most vulnerable borrowers, like those attending for-profit schools.

At the center of the storm is one of the nation's largest owners of private student loans, the National Collegiate Student Loan Trusts. It is struggling to prove in court that it has the legal paperwork showing ownership of its loans, which were originally made by banks and then sold to investors. National Collegiate is an umbrella name for 15 trusts that hold 800,000 private student loans, totaling $12 billion. More than $5 billion of that debt is in default, according to court filings.

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$12 Billion In Private Student Loan Debt May Be Wiped Away By Missing Paperwork

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  • uh-oh (Score:5, Funny)

    by turkeydance ( 1266624 ) on Monday July 17, 2017 @09:32PM (#54829965)
    paper in 2017?
    • It's more complex (Score:5, Informative)

      by goombah99 ( 560566 ) on Tuesday July 18, 2017 @12:08AM (#54830597)

      well I think that's the problem. They don't have the paper.

      It's also not simply people lying to get out of loans, it's courts fed up with high pressure tactics to get payment on loans that were never made! Then when they are contested the loan companies dont' show up in court. It's the courts that are invaldating the loans for their own purposes not just because people are trying to weasle out

      from the article:
      “I tried to be honest,” Ms. Watson said of her court appearance. “I said, ‘Some of these loans I took out, and I’ll be responsible for them, but some I didn’t take.’”

      In her defense, Ms. Watson’s lawyer seized upon what he saw as the flaws in National Collegiate’s paperwork. Judge Eddie McShan of New York City’s Civil Court in the Bronx agreed and dismissed four lawsuits against Ms. Watson. The trusts “failed to establish the chain of title” on Ms. Watson’s loans, he wrote in one ruling.

      When the judge’s rulings wiped out $31,000 in debt, “it was such a relief,” Ms. Watson said. “You just feel this whole weight lifted. My mom started to cry.”

      • by batukhan ( 4849151 ) on Tuesday July 18, 2017 @02:55AM (#54831085)
        That'll be $35,000 in legal costs
      • Re:It's more complex (Score:4, Informative)

        by ElizabethGreene ( 1185405 ) on Tuesday July 18, 2017 @09:24AM (#54832245)

        well I think that's the problem. They don't have the paper.

        Here is an interesting data point. Last year John Oliver's Last week tonight tv show wanted to do a deep dive into collection agencies. They formed a collection agency and bought literally millions of dollars in medical debt. You would think that this debt would be handed off as thousands of pounds of paperwork or gigabytes of scanned documents.

        You'd be wrong. They bought an excel spreadsheet of names, addresses, social security numbers, etc.

        "Ask for proof of the debt" appears to be a valid strategy to check abuses in the collection industry.

      • Re:It's more complex (Score:4, Interesting)

        by Bob the Super Hamste ( 1152367 ) on Tuesday July 18, 2017 @09:37AM (#54832341) Homepage
        Having dealt with a debt collector that screwed the pooch bad I can understand the courts frustration. When you have a debt collector trying to collect a debt from you that is older than you are and the only match is on the first name something is very wrong with the system. That debt collector screwed up bad enough and I was meticulous enough in my documenting of the incident that my State Attorney General, State Department of Commerce, and Federal Consumer Financial Protection Bureau all opened investigations into them. It didn't hurt that they broke several laws, did in in writing, and then continued to do so over the course of the correspondence, and then denied saying things that there was a provable paper trail for. Things like lie to someone, threaten to garnish their wages and seize assets, disclose information about the debt to an unauthorized 3rd party, calling multiple times a day after making initial contact that day, refusing to identify themselves on the phone, continuing to call after being contacted in writing informing them to no longer call, etc. It also didn't hurt that I can be a vindictive dick who will see things like this through.
    • by houghi ( 78078 )

      Living in Belgium. We must have a lot of things via paper. Especially contracts. That then needs to be scanned.
      If we are unable to find the proof of the debtor, we know that we can't even ask for it. Yes it has happened that we where unable to find the scanned documents. So that is a loss for us. If this happens on occasion, it is just booked off.

      If this would happen on such a large scale, not only would we fire at least one person (and that could be a CxO), but we would fear for the existence of the compan

  • by cunina ( 986893 ) on Monday July 17, 2017 @09:32PM (#54829967)
    This is exactly the scenario that countless spams and clickbait ads have promised,:that if you challenge the bank's record keeping, you can completely free yourself from your mortgage (and here's your $49 kit to help you do it). Except in this case, it's apparently not total bullshit.
    • by jedidiah ( 1196 ) on Monday July 17, 2017 @09:39PM (#54829999) Homepage

      It's not bullshit. Any creditor has to be able to prove that you owe them money. it doesn't require a "special kit". It just requires standing up for yourself.

      Don't trust a bill just because someone sent it to you. It could be a billing error or blatant fraud. Scam artists send out small medical bills betting on the mark being diligent enough to pay their bills but not anal enough to track everything they do.

      Hospitals screw up bills more often than not.

      A whole batch of mortgages were nullified in Texas because the proper paperwork was never filed with the relevant government body. The Yankee corporation in question thought they didn't have to bother. Didn't go over will with the Texas judge in question.

      • Re: (Score:3, Insightful)

        by Anonymous Coward

        Yeah, this is one of the more baffling aspects of modern American culture, especially on the right. They distrust every single thing about the government, but are happy to believe every single thing out of the mouths of large corporations and throw all their trust behind them. What makes this even less understandable is that one of those entities has a clear motive for lying to you quite a lot of the time, and the other doesn't... and many people will still put their trust behind the party that has clear

        • by KGIII ( 973947 ) <> on Monday July 17, 2017 @10:44PM (#54830279) Journal

          You responded to a post about the most publican of republican States, where they didn't just take the word of the corporation...


        • by Vermonter ( 2683811 ) on Monday July 17, 2017 @11:15PM (#54830401)
          Well the reason people are more ready to put their trust in private businesses over the government is because if a business tries to screw you over, they have to answer to the government. In theory the government has to answer to another part of the government, but the government can screw you over much more easily than private business can. Would you rather take your bank to court over wrongful billing, or take the IRS to court over wrongful billing? In that matter, would you rather go to your local bank and talk to someone to get a billing error fixed, or find a way to work with the IRS to get a billing error fixed?
    • by UnknowingFool ( 672806 ) on Monday July 17, 2017 @10:09PM (#54830141)
      In the article, it clearly states that like the mortgage boom, student lending also suffered from the same lax paperwork that plagued some mortgages. Invest companies were in such a hurry to buy loans that they didn't keep up with the paperwork or good record keeping. In a few cases mentioned in the article it's not just a matter of the person getting off free; the bad records meant the borrower trying to levy penalties for loans that the borrower never made. So then the lender has to prove that they own any of the loans but they can't prove it.
  • What about the fake bills for stuff like web services that some office secretary use to just pay with out checking them very hard.

  • by TimothyHollins ( 4720957 ) on Monday July 17, 2017 @09:53PM (#54830057)

    Looks like the average American will have to bail out yet another greedy creditor. I wonder how big the bonuses will be this time.

    • by satsuke ( 263225 )

      Doubtful on a one-off thing like this situation.

      So perhaps the system will work as designed, the creditors took a risk by extending credit, and due to their own actions are unable to collect on the debt.

      e.g. they took the risk and should take the loss for their bet. The exact thing that should have happened in the housing crash of the last decade (bail out the people who will lose their home, not the bank that booked their profit up front with no value assigned to the underlying loan).

  • Dang! This almost makes me wish I had student loans instead of working 50 hours a week to get through college and pay as I went. It would have been a lot easier.

  • by roc97007 ( 608802 ) on Monday July 17, 2017 @10:12PM (#54830151) Journal

    "deeply flawed" documentation.

    I really wonder about that. I had difficulty getting a job after college, and like a lot of others my student loan went into collection. Two years after graduation, in another state, I landed a well paying job, contacted the collection agency through an old notice and made payments, eventually paying it off.

    And then, about a year later, I got contacted by a collection agency (the same or a different, I don't know -- didn't keep track) that I still owed $500-something on my student loan. I was doing well at the time, so I paid it off again just to make it all go away.

    Three years later, I moved to a different state and got a new job, and a collection agency *again* contacted me about my student loan, saying I still owed a little over $200. I argued vehemently that I had already paid off the damn thing twice. They got really rude over the next few weeks, called work and home at all hours, and being nasty to whomever answered. I swallowed my pride and paid it off for a third time.

    That was a couple decades ago, and I haven't gotten any calls since. But here's the punchline. My most recent job required that I provide evidence of my degree. I'd never been asked this before, and looking through all my decades-old paperwork, some never opened through moves from one state to another to another, I couldn't find my diploma.

    No problem, right? Contact the school, get a copy of the diploma, send it to HR.

    The school had no record that I had ever attended.

    Let that sink in for a moment.

    So I went backwards from the student loan docs, which showed that I attended the school from year1 to year2. The school eventually had to admit that I had been a student there, but they had lost all records of that time. I got them to put that in a letter, which my work grudgingly accepted. Next time I'm not putting my education on my resume.

    • Next time I'm not putting my education on my resume.

      Your story was pretty interesting and a good cautionary tale to share with us, but that's not the conclusion I would advise. If you're in IT, I want to warn you that for some time now many IT jobs flat out require a college degree just to even talk to them about the opening, let alone get hired. I've worked with guys over 50 who don't have college degrees but do have decades in the field and in some cases they get sort of grandfathered in based on experience, but I have also known of one of the guys gett

  • Student loans need better regulation before we have the equivalent of the mortgage meltdown for education loans.

    The mortgage bubble nearly threw us into Great Depression 2.0. (Yes, I do credit Obama for saving us. GOP's "recovery" plan was too close to Hoover's for comfort.)

    • the mortgage thing was a problem because the banks loaned more than the houses were worth and thus could not get their money back. Short of dying or dropping off the grid you're gonna pay those loans. Hell, if you live in the south they've got debtor's prisons for you.
      • by Tablizer ( 95088 )

        the mortgage thing was a problem because the banks loaned more than the houses were worth and thus could not get their money back.

        They were "worth" sufficient during the bubble, but it was of course a bubble.

        Similarly, if the financial worth of college education dropped across the board due to recession, outsourcing, automation/AI, fraud, or a combo, the bottom could fall out on college loan repayments.

        • I did some financial model implementation for a mortgage company. When we added the part about varying property values, it was about how fast they'd increase. Moreover, the models were based on cases where mortgages were never underwater, and there just wasn't the data to predict based on that.

  • Once again, being a responsible adult who pays their bills leaves you fucked.

    I think I'm doing this adulting thing wrong.

  • for decades. Yeah, bad or unfinished degrees from people who's lives are a mess. A lot of them not all there in the head (I had a rough upbringing, so I know a lot of flakes). I can't get too worked up by this. The college graduates that make it more than pay for the ones that don't. And the folks whining about paying are the ones benefiting from their labor.

    I'm pretty sure the majority of people reading this would like to see free college. The question is when are we gonna put our votes where our mouth
  • by GerryGilmore ( 663905 ) on Tuesday July 18, 2017 @01:57AM (#54830951)
    .... the magic words are "Show me the paperwork indicating that I owe you this debt.". Most collection agencies have ZERO paperwork showing that they are entitled to collect, but rely on intimidation to get people to comply. Fight back! Make them at least show the paperwork! Chances are, they don't have it.

Money is better than poverty, if only for financial reasons.