Private School Loans Debts May be wiped Away as Paperwork Goes Missing

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$5B in troubled student loans, taken out by tens of thousands of people to pay for college, may get their debt wiped away because critical paperwork is missing.  The loans are at the center of a legal dispute between the student borrowers and a group of creditors who have aggressively pursued in court after they fell behind on payments.

According to The New York Times, judges have dismissed dozens of lawsuits against former students, wiping the debt, because the documents proving who owns the loans are missing.  A review of the court record by the Times shows that collection cases are profoundly flawed, with incomplete ownership records and mass-produced documentation.

The problems with the missing documentation are reminiscent of the subprime mortgage crisis a decade ago when billions of dollars in subprime mortgage loans were ruled uncollectible by courts because of mission for fake documentation.  And similar to those troubled mortgages, private school loans, which come with higher interest rates and fewer consumer protections than federal loans-are often targeted at the most vulnerable borrowers, like those attending for-profit schools.

 

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