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Student Loan Debts May Be Wiped Clean, Part 2

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A recent report by The New York Times details how billions of dollars in student loan debts have the potential to be wiped clean because of lapses in paperwork tracking – mirroring what happened during the 2008 housing crisis. At the center of this controversy is an organization called National Collegiate Student Loan Trusts. This is a group that purchased student loan debts from investors after they had been purchased from banks.

However, now they can’t locate the paperwork that proves who owns the loans. Absent that proof, the trust is unable to prove it is allowed to collect that debt, meaning courts have little choice but to dismiss the case – and the alleged outstanding debt. As our debt defense attorneys in Miami know, many cases unfolded like this:

  • Students borrowed the money from loan originators, mostly large banks and other sizable financial institutions.
  • Banks bundled numerous loans together and then sold them to a depositor, which in this case was National Collegiate Funding LLC.
  • Depositor sold the loans to a number of trusts, such as NCSLT.
  • Trust employs a student loan servicer, responsible for sending monthly payments statements and money is sent back to the trusts.

If a student in turn defaults, it’s turned over to U.S. Bank, which in turn subcontracts the debt collection, with the help of numerous law firms, which file lawsuits against those borrowers.

This, our Miami debt defense attorneys know, is where these firms are running into trouble. Without the proper paper trail, they can’t prove they are the owners of that debt.

Many of the delinquent borrowers explain they were encouraged to seek degrees in order to escape poverty. No one explained to them the intricacies of interest rates or other fine print. A substantial number were unable to gain employment in their chosen fields. Their degrees did not help them gain an edge in the market. They found themselves in vulnerable industries and positions, with inflexible hours and low pay. Bimonthly checks often were insufficient to cover basic expenses, and they fell behind.

But in addition to the loans students did take out, some claimants argue they are being held responsible for debts they did not acquire. Attorneys for debtors noted the system used by these debt collectors was inaccurate, and they were being held responsible for debts they never actually took out.

The debts passed through so many hands before the collection action finally took place, the legal documentation proving ownership has been lost. Unlike in the mortgage crisis, the issue here is more lost paperwork than falsified paperwork. Still, it is a critical flaw in these cases.

Although a growing number of these cases are being dismissed, they are still worth pursuing by the trust because in many cases, borrowers never show up to court to fight. When that happens, the trust wins a default judgment, which gives the trust the ability to collect the debt by garnishing paychecks and siphoning federal benefits from defendants’ Social Security accounts. This can end up haunting borrowers for decades to come.

That’s why it’s important to consult with an experienced debt defense lawyer who can help determine whether you might be entitled to a dismissal of the case against you.

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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