Imagine walking into a court and announcing that Warren Buffett, Donald Trump, and Mark Zuckerberg all owe you money. Sounds pretty fantastic, doesn’t it? That is, until you are told to prove it. Across the country, lending companies are finding themselves in this same situation, due to their inability to produce the critical paperwork declaring loan ownership. According to a massive New York Times report published earlier this week, thousands of private student loan borrowers who have not kept up with payments may have their debt wiped away, resulting in over $5 billion of uncollectible debt just floating in a legal limbo.
One major company hit hard by this economic nightmare is the National Collegiate Student Loan Trust, one of the nation’s largest owners of private student loans. For example, in 2006, Pablo Ramirez took out a private loan of $30,000 to attend the for-profit Westwood College in Fort Worth, Texas. Eight years later, he received a court notice in the mail. National Collegiate had won a judgment against him for defaulting on the loan, and were asking him to now pay $50,000.
When Ramirez contested the ruling, National Collegiate was unable to produce any evidential documents indicating they owned the debt. The judgment against Ramirez was eventually overturned in March 2017 because in the appeals court, National Collegiate “had failed to demonstrate that it was the holder of the note.” Although Ramirez hadn’t kept up with his payments, for now, his debt has been wiped clean.
So far, the student debt issues currently seem to only affect a handful of private loan (about 7.5 percent of the total student loan market, reports data analyst Measure One.) The catch is that most private loans are only used today to fund students attending for-profit colleges (like Westwood, the college attended by Ramirez) that by law, cannot rely on federal funding such as the FAFSA for scholarship. Many of these for-profit college loans have been found to be fraudulent and deceptive in their loan-giving practices.
Fraudulence typically occurs when schools or companies try to cut corners, whether that’s financially or bureaucratically. In the case of National Collegiate, it was carelessness that led to its its billion-dollar mistake. An audit of the company’s loan servicer, the Pennsylvania Higher Education Assistance Agency (PHEAA), reveals that National Collegiate never received assignments for 100 percent of the loans in its investment trusts, which would establish the transfer of ownership.
You may be asking why a company buying thousands of loans wouldn’t think to secure the proper paperwork proving their ownership. The audit suggests that it was for the sake of cutting costs and saving time. The lender assured National Collegiate and its servicer that ownership documentation could be identified after the fact if necessary. “This became a standard process as it was a less costly option,” states the audit. Because most students with loan debt don’t challenge the amount owed, National Collegiate thought removing legal formalities wouldn’t be too costly.
They were wrong. In case after case, lenders have been revealed to not have possession of the necessary ownership documentation. According to the Times, National Collegiate alone has dismissed hundreds of cases as soon as they are challenged to provide proof. In the wake of these refusals, Ramirez and other borrowers-behind-on-payments are basically swimming in free money.
But why do millions of other students have to pay back their loans while Ramirez doesn’t? We must realize that lenders (just like borrowers) have obligations and responsibilities to uphold. It wasn’t Ramirez who told the company to engage in careless transactions and forget to hand over the proper ownership documents. If National Collegiate is able to aggressively attack the borrower whose fallen behind on payments, then the least they can do is prove they own the loan in question.
Too many borrowers don’t question the loaners, as Ramirez did, and are too often taken advantage of by the disorganization of documents and corruption of large corporate aggressors. What America really needs is to hold these companies accountable for their obligations to their borrowers, and uphold the due consequences for violating property record laws, if we are to close the loopholes that have emerged in the American legal and financial systems.