Private student loans do not often make the news, primarily because the vast majority of student loans are made by or guaranteed by the federal government, and comparatively few people take them out these days. Currently only $108 billion out of the $1.34 trillion in student loans are originated by private lenders with no connection to the federal government. Congress made private student loans much harder to discharge in a New York bankruptcy since 2005, and they are ineligible for income-driven repayment plans and other consumer protections the government offers its student debtors. Unsurprisingly, the consequences of poor regulation of private student lending has contributed to serious abuses by lenders, according to a New York Times article.
The article focused on an overall situation that resembles both the robo-signing scandal of several years ago and the perils of fraudulent debt collectors. One of the largest purchasers of private student loans, the National Collegiate Student Loan Trust, has been aggressively pursuing borrowers even though it does not have the sufficient legal documentation to do so successfully. $5 billion of the trust’s $12 billion in student loans are in default.
How are the trust’s practices similar to the robo-signing banks’? Sitting on a large number of properties in foreclosure, the banks cut corners in preparing the necessary affidavits to prove that they owned the mortgages and that the homes were indeed in foreclosure. With the private student loans, many debtors have been able to show in court that the trust’s documents are materially incorrect, or that it could not prove the chain of ownership of the debtor’s loans it claimed to own.
One result is many debtors have successfully convinced courts to dismiss the cases against them over loans they did not actually owe. The Times also observed that some student debtors effectively obtained a free discharge of their loans because the creditor suing them could not prove it was the bona fide owner. In many cases, the trust inexplicably drops cases against debtors on the eve of court hearings. One debtor reported that the trust’s representative failed to appear for a court-ordered deposition.
The New York Times article is here.
Private-student-loan debtors should not hope their creditors’ ineptitude will spare them of their obligations. If you are sued, however, then make sure the lender proves it owns your loan. Even though private student loans may be hard to discharge in bankruptcy, a bankruptcy can free up income for their education obligations. Many debtors owe significant unsecured debts to other lenders, so discussing your situation with an experienced New York bankruptcy lawyer is not futile.
For answers to more questions about bankruptcy, the automatic stay, effective strategies for dealing with foreclosure, and protecting your assets in bankruptcy please feel free to contact experienced Brooklyn bankruptcy attorney Bruce Weiner for a free initial consultation.
