How 1,000s Of Student Loans Worth Billions Are Getting Erased On A Technicality

Tyler Durden's picture

National Collegiate Funding (NCF) is an umbrella name for 15 trusts that collectively hold 800,000 private student loans, totaling some $12 billion in outstanding obligations.  The only problem is that roughly $5 billion worth of those loans, or over 40%, are currently in default (and you thought auto delinquencies were bad). 

Now, ordinarily when a student defaults on their loan, NCF simply files a lawsuit in local or state court as a means for negotiating a settlement or payment plan with the borrower.  Often times, NCF wins these cases automatically as the borrowers don't even bother to show up for their court date.  In cases like that, NCF can use their court victory to garnish wages and/or federal benefits from entitlement programs like Social Security which can haunt borrowers for decades (we actually wrote about it here:  Baby Boomers Increasingly Having Social Security Checks Garnished To Cover Student Loan Payments).

That said, NCF is increasingly finding that, much like the subprime mortgage debacle from 10 years ago, student lending institutions apparently had a really hard time keeping tracking of paperwork over the years and/or processed deeply flawed contracts with incomplete ownership records and mass-produced documentation (who can forget that whole robo-signing catastrophe). 

As the New York Times points out today, student loans, much like mortgages, are often originated at large commercial banks before being sold to numerous other financial institutions and ultimately ending up in a securitization owned by some unsuspecting European pension funds.  And while pooling these student loans in such a complicated way into securitizations apparently magically eradicates all default risk associated with the underlying loans (just ask any 22 year old on the JPM securitization desk and he/she will confirm the same), it also makes it extremely difficult to prove ownership.

Student Loans

 

Of course, courts generally shy away from awarding judgements to folks who can't adequately prove they actually own something.  And, as a result, 1,000s of students are finding they can easily get their student loans expunged on a technicality.

Take the case of Samantha Watson, a 33-year-old graduate of Lehman College in New York who fell behind on her student loans primarily because she "didn’t really understand about things like interest rates."  Luckily, she doesn't need to invest the time to learn how to multiply by fractions because, when NCF failed to provide adequate ownership records, some $31,000 worth of her student debt was magically erased.

Last year, National Collegiate unleashed a fusillade of litigation against Samantha Watson, a 33-year-old mother of three who graduated from Lehman College in the Bronx in 2013 with a degree in psychology.

 

Ms. Watson, the first in her family to go to college, took out private loans to finance her studies. But she said she had trouble following the fine print. “I didn’t really understand about things like interest rates,” she said. “Everybody tells you to go to college, get an education, and everything will be O.K. So that’s what I did.”

 

Ms. Watson made some payments on her loans but fell behind when her daughter got sick and she had to quit her job as an executive assistant. She now works as a nurse’s aide, with more flexible hours but a smaller paycheck that barely covers her family’s expenses.

 

When National Collegiate sued her, the paperwork it submitted was a mess, according to her lawyer, Kevin Thomas of the New York Legal Assistance Group. At one point, National Collegiate presented documents saying that Ms. Watson had enrolled at a school she never attended, Mr. Thomas said.

 

“I tried to be honest,” Ms. Watson said of her court appearance. “I said, ‘Some of these loans I took out, and I’ll be responsible for them, but some I didn’t take.’”

 

In her defense, Ms. Watson’s lawyer seized upon what he saw as the flaws in National Collegiate’s paperwork. Judge Eddie McShan of New York City’s Civil Court in the Bronx agreed and dismissed four lawsuits against Ms. Watson. The trusts “failed to establish the chain of title” on Ms. Watson’s loans, he wrote in one ruling.

 

When the judge’s rulings wiped out $31,000 in debt, “it was such a relief,” Ms. Watson said. “You just feel this whole weight lifted. My mom started to cry.”

But Watson's experience is hardly unique.  One defense attorney in Iowa told the New York Times that she represented some 30 borrowers in cases against NCF and only lost 1 of them. 

Jason Mason, 35, was sued over $11,243 in student loans he took out to finance his freshman year at California State University, Dominguez Hills. His lawyer, Joe Villaseñor of the Legal Aid Society of San Diego, got the case dismissed in 2013, after the trust’s representative did not show up for a court-ordered deposition. It is unclear if the trusts had the paperwork they would have needed to prove their case, Mr. Villaseñor said.

 

“It was a scary time,” Mr. Mason said of being taken to court. “I didn’t know how they would come after me, or seize whatever I had, to get the money.”

 

Nancy Thompson, a lawyer in Des Moines, represented students in at least 30 cases brought by National Collegiate in the past few years. All were dismissed before trial except three. Of those, Ms. Thompson won two and lost one, according to her records. In every case, the paperwork Transworld submitted to the court had critical omissions or flaws, she said.

It almost makes you want to sign up for a masters degree, load up on some student loans and head off to Cancun for spring break...it all seems to be working out really well for millennials (see "31% Of College Students Spend Their Loans On Spring Break").

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Joebloinvestor's picture

The ghost of Linda Green

J S Bach's picture

However these "debts" are repaid... it all ends with the usurers gaining the wealth of the suckers who fell prey to their flase "isms" and ideologies.

Sonny Brakes's picture

Probably the same people establishing all the false requirements for the requirement of credentials.

J S Bach's picture

Wake up, ye sleeping sheeple... to the reality that faces you.  If you lived in a time and nation which held YOUR best interests at heart, then the interest on those "debts" would go toward building and uplifting your descendants ever skyward.  The ensuing generation would then benefit from your efforts and continue the process to God's ultimate goals.  Think LONG-term... beyond your own life.  THIS is what the mature soul does.

847328_3527's picture

And yet the bank calls me when they find a 50 cents error in my checking account from 6 months ago?

tmosley's picture

Won't somebody PLEASE think of the BANKERS!!!!!???

VWAndy's picture

 I do. All the time. Roasted on a spit? Hanging from lamp posts? Sliding into wood chippers?

VWAndy's picture

 I almost had a shot at MERS as a civilian grand juror. The rug got pulled out.

rado_watching's picture

I'm making over $12k a month working part time. I kept hearing other people tell me how much money they can make online so I decided to look into it. Well, it was all true and has totally changed my life. This is what I do,... www.Jobzon3.com Go this web and start your work.. Good luck...

jcaz's picture

Awesome.   Now she's free to buy that new Mercedes on payments.......

doctor10's picture

"...student lending institutions apparently had a really hard time keeping tracking of paperwork over the years and/or processed deeply flawed contracts with incomplete ownership records and mass-produced documentation"

wonder what percentage of those "loans" actually made it to the students' accounts?

N0TME's picture

Ah yes the infamous "Linda Green". Almost forgot about her.

https://livinglies.wordpress.com/tag/linda-green/

boattrash's picture

VWAndy, I wish the IRS could follow the same model as the student loans, and then both of them follow your model.

Urahara's picture

No nail guns, or face down in a puddle?

veritas semper vinces's picture

    Won't somebody PLEASE think of the BANKERS!!!!!???

 

 

It seems that Donald is doing this.Judging by the number of Goldman Sachs guys in his cabinet. Peanutz do see this

VWAndy's picture

 Its good to know Im not the only one thinking in such terms. Thank you for being you.

AVmaster's picture

It's time to just fold college into the same framework as highschool/elementary schools as college has become nothing more than a scam that produces worthless leftard phycopaths...

 

just the tip's picture

i would think that college age children would not need babysitters.  that's all high school is in most public schools.

TuPhat's picture

The usurers don't gain the most.  The fraudelent colleges and universities are the big winners.

doctor10's picture

hmmmm... goes through college...doesn't understand interest rates. Sounds like somebody was defrauded.

fattail's picture

If I found out my executive assistant didn't understand interest rates I would fire her.  single mother tells me she is adept at at least one thing.   I feel like such a sucker for paying back my student loans.

azusgm's picture

Didn't understand borrowing at interest when she took out the loan before she started college.

Bigly's picture

I cannot stop laughing. But this is not really funny.

Who took a paycheck to do such a botched job in documentation?

 

The stupid...it hurts

MrBoompi's picture

If you're lending out trillions of funny money with no collateral to back it you better make damn sure you don't keep good records.  

Shed Boy's picture

“I didn’t really understand about things like interest rates,” she said. “Everybody tells you to go to college, get an education, and everything will be O.K. So that’s what I did.” Stupid is...as stupid does. No amount of education will fix this level of stupid.

just the tip's picture

and she's a nurses aide now.  tells me one thing.  don't get sick and go to hospital.

HRH Feant2's picture

Scary, huh? This will be the pissed off BT1100 that shows up with an attitude and is mad when you ask them for ice water or a towel.

Or this will be the one changing diapers at the nursing home.

Not good.

WeekendAtBernankes's picture

Much more likely she's a CNA in a direct support/home health or assisted living facility role. Part time, $12-$14/hr, maybe a couple more where she lives but I'd be surprised. Anyway, two questions:

1) who is paying the lawyers?

2) a lot of Iowa talk, I'm wondering are H1/F1/EAD-OPT taking advantage of this loophole en masse?

izzee's picture

Well if the Debt is Gone
Then they can Buy Cars n Houses n have babies n send them to school.

Stealth Debt Forgiveness...AND All for the best...These people should never have been roped into this scam in the first place.

Charge it off to the Obama's Book Deal...that shud cover a bit.

just the tip's picture

actually, shouldn't this be in bernie's book deal?  or his wife's land deal?

BidnessMan's picture

This is the path to the eventual necessary Student Loan Jubilee.  It is mathematically impossible for many to ever repay their student loans. 

MrSteve's picture

Many mortgage foreclosures were made void by the simple request :"produce the documents". Mortgage, Deed, contract, title- there are many holes in trying bring suit out of a tranch of bundled contracts. When the lender can't produce a tight package of docs, their case is out the window.

College loan co-signers need to oppose any collections and ask the lender to produce the guarantee documents in court, the ones signed by hand, in original ink. Is this your signature? No I always sign in purple ink, my favorite marker....

VWAndy's picture

 That only works in a real courtroom.

JuliaS's picture

And only if your last name is Clinton.

just the tip's picture

this is mostly about niggers getting whitey to pay for college. didn't understand interest rates?  fuck.   i understood what interest was in the sixth fucking grade.  three kids now and no mention of the father in the discussion of her loan history.  maybe she didn't take, "keep you fucking legs together bitch".   ho's mother cried.  how sweet?

Yen Cross's picture

 lol- let's call this what it really is...

  Underwater Basket Weaving Indoctrinations 101- needs moar donations from it's Alumni<

. . . _ _ _ . . .'s picture

No 'legal consideration', no case - clear across the board.

All digital debt is fraud, but that does not excuse dumb kids who don't read what they sign.

Lost in translation's picture

I hear this weekly, sometimes daily.

But here's the thing: even when I tell underclassmen they've been played, that university is today a banker's scam, that they have to forswear debt, exercise self-restraint/self-denial, and possibly seek out alternative career paths (to include trades), they...

Still...

Won't...

Alter...

Course...

AT ALL.

So, I've largely given up.

VWAndy's picture

 You loaned money to who? For a degree in what? Hahahahahah!

JuliaS's picture

A degree in servitude.

strickler's picture

It's a life long education.

goose3's picture

She went to college, got the debt, got the sheepskin.....

....forgot to get the education.  

Father ¢hristmas's picture

"Last year, National Collegiate unleashed a fusillade of litigation against Samantha Watson, a 33-year-old mother of three who graduated from Lehman College in the Bronx in 2013 with a degree in psychology."

 “I didn’t really understand about things like interest rates,” she said. “Everybody tells you to go to college, get an education, and everything will be O.K. So that’s what I did.”

"Ms. Watson made some payments on her loans but fell behind when her daughter got sick and she had to quit her job as an executive assistant. She now works as a nurse’s aide, with more flexible hours but a smaller paycheck that barely covers her family's expenses."

 

Girl you know I-I-I-I, girl you know I-I-I-I...

*chuckle*

Americans so goddamn fucking full of shit, man lol

Secret Weapon's picture

Down vote for the bold face font. Use your inside voice. We can read and decide the validity of what you are trying to say without your clamoring for attention. Otherwise you look like a ---- TOTAL DOUCHE!

Able Ape's picture

Just when we need qualified people to fix our decaying infrastructure and qualified people to take care of health problems caused by the rabid use of high fructose corn syrup, there's no one around who knows what to do...SAD, so SAD!... The United States of High Fructose Corn Syrup is SUPREMELY FUCKED!...