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Student Loan Debt Could be Erased by Missing Paperwork

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Private student loan debts – possibly tens of thousands of them, worth $5 billion – could be wiped away completely unless creditors start producing the proper paperwork.

In a series of events that mirror that of the 2008 housing crisis and subsequent fall out, the troubled loans involve former students and graduates who have not been able to keep pace with their payments. Americans owe more than $1.4 trillion in student loan debt, which is spread out over some 44 million borrowers – far exceeding the $620 billion owed to U.S. credit card companies. The average graduate in 2016 has more than $37,000 in student loan debt – an increase of six percent from just one year earlier.

Meanwhile, the student loan delinquency rate, as reported by the Federal Reserve, is 11.2 percent. The Consumer Federation of America reports $137 billion federal student loans had not been paid for at least nine months last year, which is a 14 percent uptick in just a single year.

As far as this most recent case, The New York Times reported the issues are arising in disputes between student borrowers and a number of creditors who have been aggressively pursuing them in court after those students went into default on their debts. The problem for the creditors in these cases is they have not been able to prove who owns the loans because that documentation is missing. Many of these cases are fundamentally flawed because there is no clear record of ownership. Without that, creditors aren’t able to prove that they have standing to collect on those debts, and numerous cases have been dismissed.

There is no denying the similarities between this and the billions of dollars in subprime mortgage loans roughly 10 years ago deemed uncollectible by courts due to documentation that was either fake or missing. Former students are now learning that their private loans, unlike dodgy mortgages, not only come with much higher interest rates, they also have far fewer consumer protections. Those who attended for-profit schools may be especially vulnerable because they have less ability to find adequate work that will allow them to pay back those debts.

One of the primary defendants in these actions is an organization called National Collegiate Student Loan Trusts. According to court records produced by the Times, the company is having a difficult time proving ownership of the loans in question. Those loans were originated by a number of banks and then sold to private investment companies. Lawyers for the firm say the risk of default on its loans is increasing as more cases involve a lack of important ownership records. The company holds approximately 800,000 student loans with a value of approximately $12 billion. A little less than half of that amount is in default. Though the company has been working to pursue borrowers who have fallen behind. However, in some cases, defendants say the company is coming after them for loans they never took out. The company has been unable to prove its stance on many of those cases.

Our Miami debt defense attorneys want to point out this does not mean it’s a free-for-all on student loan debt, and that it’s safe to walk away. On the contrary, student loan debt is one of the few types of debt that can’t be discharged in a bankruptcy. However, it does mean that if you are facing litigation for student loan default, you do need to contact an attorney with extensive experience and ample understanding of what is expected of these firms in order to prevail. Whether it’s possible to negotiate a settlement or have the loans wiped out in entirely will depend on the individual facts of each case.

If you’re battling debt collection in Miami or the surrounding areas contact Jacobs Legal for a confidential appointment to discuss your rights. Call (305) 358-7991. Also, don’t miss Miami Foreclosure Attorney Bruce Jacobs on 880AM/the Biz, every Wednesday at 5 p.m. on “Debt Warriors with Bruce Jacobs and Court Keeley,” discussing foreclosure topics that matter to YOU.

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