a piggy bank with a graduation capThousands of students may have their student loan debt dismissed in court, because the original paperwork was lost. Typically student loan payments start after the student graduates from college. Sometimes the student loan payments may start immediately if the student drops out of school.

Students who fall behind on their payments are aggressively pursued by the creditor and their collection agents. Often students have garnishments and liens filed against them by aggressive creditors. Many debt collectors attempt to file judgments in court, against students who refuse to pay back their student loans.

However, as of this writing, billions of dollars in student loan debt falls into the category of “loans missing their original paperwork”. Aggressive creditors continue to fight this controversy in court; actively pursuing students who refuse to pay back their student loan debt.  Simply because the original paperwork cannot be located, judges are forced to dismiss numerous lawsuits. When the lawsuit is dismissed this erases the student debt, and the creditor can no longer collect on the student loan.

Student loans like other loans are often sold to groups of investors. Typically, the original paperwork should accompany each loan sold, however during the process the original paperwork is often lost. Without the ability to establish ownership of the loan, the ability to collect is lost. With incomplete ownership many of the lawsuits brought by creditors are considered worthless and without merit.

This student loan issue sounds much like a previous financial crisis; the subprime mortgage crisis. Several years ago many banks were unable to collect on subprime mortgages, because the original paperwork was lost.  Often subprime mortgages were sold several times by lenders to groups of investors. Billions of dollars in subprime mortgages were deemed uncollectable, because the original paperwork was lost. There is an uncanny resemblance in the type of borrower in these two types of lawsuits.  Many borrowers who had sub-prime mortgages felt victimized because of the high interest rates.  Many of the students with private student loans also feel targeted, because they did not qualify for  federal student loans. Federal student loans have lower interest rates than private student loans.

The National Collegiate Student Loan Trust holds the largest volume of private student loans.  They are also at the center of this ongoing legal dispute. The National Collegiate Student Loan Trust is plagued by their inability to provide original paperwork in court.  The original paperwork is required to show who actually owns the loan.  Without the original loan documentation, the judge has no alternative but to dismiss the lawsuits filed by creditors.  As this knowledge is broadcast throughout the media, many attorneys representing creditors feel the losses will continue to escalate on a daily basis.

Over fifteen separate trusts  comprise the National Collegiate Student Loan Trust.  Estimates are the National Trust has over 850,000 loans, with a total of approximately thirteen billion dollars. Almost thirty-eight percent, or five billion dollars of this student loan debt is currently in default. Thousands of lawsuits have been filed by creditors, hoping to collect on the student debt. Without the proper documentation the creditor has no hope of winning a lawsuit.  Often the  only way the creditor can win is if the debtor does not appear in court. If the debtor does not appear in court, the creditor wins by default.

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