Since 2012, the for-profit student loan company, National Collegiate Student
Loan Trust, has filed thousands of lawsuits in courts around the country
to date – all against former students who are unable to pay unsurmountable
monthly loan payments. These former students, who can barely afford to
pay back these interest-laden loans totaling as much as $800 a month or
more, are often without an attorney, which benefits National Collegiate
in more ways than one.
In a majority of these cases, the company obtains a default order against
an unrepresented (pro se) defendant who simply fails to appear. However
the cases end quite differently when the former students are represented
by an attorney. In these cases, National Collegiate either drops the case
or agrees to an out of court settlement much of the time.
National Collegiate, formed by Boston financial firm First Marblehead Corp.,
arguably lacks the requisite information about individual loans because
financial institutions such as Chase, Charter One, Citizens Bank, and
Bank of America sell off their education debt to National Collegiate,
which it then takes on and packages as an investment vehicle. This is
a similar model to the financial instruments involving bundled mortgage
debt that largely contributed to the 2008 financial crisis. Following
the numerous foreclosures on homes, Connecticut lawyers began demanding
actual loan documents from institutional lenders who could not produce
such documentation because of the multiple transfers of debt.
As more and more
student debtors are getting taken into court, they should keep in mind that when creditors
sue, they have to prove that they own the loan, have the right to collect,
and the amount of money demanded is the proper amount due. Surprisingly,
these simple facts often cannot be proven, and they may lack documented
proof that debtors even owe the debt, and other times, the collection
period on the debt has actually since expired. While the best advice is
to not borrow in the first place, many students and former students are
already in this predicament. What they can do is challenge lenders like
National Collegiate on the very basis of these lawsuits, rather than default
and face harsh penalties.