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.