At the center of the storm is one of the nation’s largest owners of private student loans, the National Collegiate Student Loan Trusts. It is struggling to prove in court that it has the legal paperwork showing ownership of its loans, which were originally made by banks and then sold to investors. National Collegiate’s lawyers warned in a recent legal filing, “As news of the servicing issues and the trusts’ inability to produce the documents needed to foreclose on loans spreads, the likelihood of more defaults rises.”
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Robyn Smith, a lawyer with the National Consumer Law Center, a nonprofit advocacy group, has seen shoddy and inaccurate paperwork in dozens of cases involving private student loans from a variety of lenders and debt buyers, which she detailed in a 2014 report.
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But National Collegiate’s problems are especially acute, she said. Over and over, she said, the company drops lawsuits — often on the eve of a trial or deposition — when borrowers contest them. “I question whether they actually possess the documents necessary to show that they own loans,” Ms. Smith said.
