Investors lock in 800,000 student loan borrowers on billions of potential relief
Investors of a sprawling private student loan Operation effectively stalled a proposed settlement that could have provided billions of dollars in assistance to 800,000 student loan borrowers.
The case concerns a set of financial vehicles collectively referred to as National college student loan trusts. The National Collegiate Student Loan Trusts are not technically a student loan company (at least in the traditional sense), nor even a single organizational entity. Rather, the name refers to some fifteen individual trust entities that have collectively acquired hundreds of thousands of private student loans which were originally disbursed by private commercial banking entities. These original lenders securitized and sold bundles of private student loans, which were then bought and transferred through intermediaries, and eventually allocated to the National Collegiate Student Loan Trusts.
In 2017, the Consumer Financial Protection Bureau (CFPB) filed a complaint against the National Collegiate Student Loan Trusts and its manager, TransWorld Systems for illegal collection practices. The lawsuit alleged that the trusts had filed numerous collection lawsuits against consumers without sufficient complete documentation to prove that the trusts actually owned the loans they claimed to collect. The lawsuit also alleged that the trusts relied on sworn affidavits by employees of TransWorld Systems to prove ownership of the student loans, but that sometimes these depositors had no personal knowledge of the underlying debts. As a result, student loan borrowers have been forced, through state court judgments, to pay off student loans that they either did not owe or did not have to repay.
The CFPB and the National Collegiate Student Loan Trusts reached a settlement agreement that would have required the Trusts and TransWorld Systems to audit around 800,000 student loan accounts. Some were waiting that the audits would result in many of these accounts being considered effectively uncollectible or even canceled if the audits determined that sufficient documentation of the property was not available.
A federal judge recently rejected the proposed settlement, however. The court sided with several investors and stakeholders involved in the National Collegiate Student Loan Trusts (including certain banking entities and debt collectors), finding that lawyers acting on behalf of the trusts to negotiate with the CFPB did not had no authority to enter into the settlement. deal in the first place.
The end result is that, unless a renegotiated agreement or other favorable outcome of the litigation, approximately 800,000 student loan borrowers with approximately $ 12 billion in student loans allegedly held by National Collegiate Student Loan Trusts will continue to operate. be potentially responsible for the debt. These borrowers could be subject to a new wave of debt collection lawsuits, and it will be up to individual borrowers (and their lawyers) to fight these lawsuits in court, one by one.