Private Student Loans Wiped Out Due to Poor Paperwork

Student loans record keeping

This week we saw a big story break in regards to student loans in the news: Namely, that up to $5 billion in student loan debt could be wiped off of the books due to improper paperwork. Sounds like a dream come true, right? Read on to learn more about the story, who it impacts, and to find links back where you can learn more.

Story Recap

Long story short, National Collegiate is a servicer of private student loans.

While attempting to recoup payment on about $5 billion in defaulted student loans, it became apparent that they didn’t have certain key paperwork that proved that they actually owned the loans. Without the proper paperwork proving title and ownership over the debt, judges threw out a number of the cases, effectively wiping away the student debt. Huzzah for the borrowers; tough luck for the lenders.

The moral of the story? Paperwork and proper maintenance of records is important. And I’d argue that this goes for student loan borrowers just as much as it goes for student loan lenders. Imagine that you’ve paid off your student loans, but five years down the road you get a past due notice from your lender. It seems that they lost a huge chunk of records in a fire, including records that your loans were in fact paid off. If you didn’t hold onto your receipts proving that you closed out your loans, then it’s very possible they could come after you for payment.

It’s never happened, but hey, you never know. So keep your damn receipts!

via GIPHY

Before You Get Your Hopes Up

This story is more of a cathartic screw you to student loan servicers than it is an effective debt repayment strategy. Sure, it feels good to see the scales of Justice work in the favor of borrowers from time to time, but I just want to point out that letting your loans go into default in the hopes that your servicer will one day lose your paperwork is not the smartest thing to do.

Keep in mind that the student loans in question are “owned” by National Collegiate, who handles about 800,000 student loans worth around $12 billion. If you have loans handled by National Collegiate, then yes, you could be impacted. But the $12 billion in student loans handled by National Collegiate is only a tiny portion of the $1.4 trillion in student loans currently taken out by Americans.

These loans were also fairly old (about 10 years old) and had been held by a number of different banks before being bundled and sold to National Collegiate. It’s a normal, and legal process: The issue lies only in the fact that paperwork is missing or never existed.

Sources and Deeper Analysis

For the full story, check out these stellar articles which dive deeper into the story. Since the New York Times broke the story, we suggest you start there, but the other links below are also great reads:

As Paperwork Goes Missing, Private Student Loan Debts May Be Wiped Away—New York Times
Why $5 Billion Of Student Loans May Be Wiped Out—Forbes
$5 billion in student loans may be dismissed because the lender lost the paperwork—Business Insider
This epic clerical error could wipe out $5 billion in student loan debt—CNBC

About Tim Stobierski

Tim Stobierski is the founding editor of Student Debt Warriors. A freelance writer and editor with a passion for teaching people about all things personal finance, his goal is to help parents and students tackle their student loan problems so that they can live happier, healthier lives. Tim’s writing has appeared in a number of publications, including The Huffington Post, The Hartford Courant, Grow Magazine, and others. His first book of poetry, “Chronicles of a Bee Whisperer,” was published in 2012 by River Otter Press.

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