Student loan giant’s lost paperwork results in thousands of dismissed loans

The lost paperwork is further evidence that the loan-industry complex is disinterested in acting on behalf of their student-borrowers.


The New York Times released a bombshell report last week detailing the dismissal of student loans by judges in states across the country. The dismissals could impact tens of thousands of borrowers and result in billions of dollars lost for the trusts at the center of the scandal.

The National Collegiate Student Loan Trusts, a collection of 15 trusts that together make up one of the nation’s largest owners of private student loans, is paying the price for aggressively litigating against students who were behind on students loans. The problem is simple: National Collegiate can’t prove that they own the loans they’re trying to collect.

The details, as laid out by the Times, reveal a staggering array of incompetencies by National Collegiate leading to the dismissal of at least $5 billion in student debt.

In one instance, a lawsuit against a New York student couldn’t name the school the student had attended, while lawyers have also skipped court-ordered depositions, throwing away any pretense of upholding the legal challenge against students. This anecdotal evidence has been reinforced by damning evidence from within the trusts themselves.

A National Collegiate audit of one of the the trusts’ servicers, the Philadelphia Higher Education Assistance Agency (PHEAA), found that none of the nearly 400 randomly selected loans contained appropriate documentation to establish a chain of ownership.

The chance that you’ll be affected by National Collegiate’s paperwork crisis are slim, though. The affected loans, so far, have all originated in 2007 or earlier, so current students and recent graduates are unlikely to be implicated. Most students discover the accidental loan forgiveness only after going to court with National Collegiate.

For those who are curious and concerned, it may be difficult to ascertain whether National Collegiate owns your loans in the first place. One key clue will be the servicer through which borrowers pay their loans; for example, National Collegiate loans are serviced through American Education Services, a subsidiary of PHEAA.

There’s also a more direct approach. According to Robyn Smith, an attorney with the National Consumer Law Center, borrowers can request a paper trail straight from their servicer. While the servicers aren’t legally obligated to turn over documentation, Smith told Money that “you can ask your loan servicer to show you a promissory note proving who owns the loans.”

National Collegiate’s lost paperwork has broad implications that reach well beyond the students who find themselves suddenly free of debt.

The lost paperwork is further evidence that the loan-industry complex is incapable of controlling the massive sum of student loan money and, worse yet, is disinterested in acting on behalf of their student-borrowers. As subprime student debt surges, patience for the loan industry’s practices are wearing thin, especially among attorneys general.

Last week, New York AG Eric Schneiderman announced an investigation into National Collegiate’s collection practices, calling the news “concerning” but “consistent with the increasingly cynical and freewheeling culture we’ve seen take hold across the student loan industry.”

National Collegiate’s struggles, however, are just the latest in a year-long series of scandals rocking the loan industry. Navient, the controversial loan servicer, has already been sued by attorneys general in Washington and Illinois, and National Collegiate’s loan servicer, PHEAA, was threatened with a lawsuit just last month.

Students and borrowers observing the court-ordered loan forgiveness may now be asking: Why not me? With the competence crisis at the heart of the student loan industry, perhaps a better question is: Who’s next?


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