The student loan crisis in our country is starting to look more and more like the housing collapse that crippled our economy 10 years ago.
College debt is now more than one point four trillion dollars, and more than eleven percent of borrowers are defaulting on their loans...but tens of thousands of them may be getting a break.
Remember during the mortgage crisis when billions of dollars in subprime loans were dismissed in court because lenders lost or mismanaged payments? Well the same thing is going on now for those who took out private loans they may not owe.
Carla Davis was a young and starry eyed 17-year-old when she borrowed nearly fifty thousand dollars pay for her Early Childhood Education degree at Kent state University.
"I assumed I would graduate college, get a good job, make a good salary, make payments and that would eventually get paid off," said Carla.
She paid all right. At one point, more than seven hundred dollars a month, on a $30,000 teacher’s salary in Cleveland.
And the people billing her wouldn't take a dime less. So, when she couldn't afford to pay, they garnished 20% of her wages.
There's just one small problem. The company which claims Carla, and tens of thousands of students owe them money, doesn't have the paperwork to prove it.
"Over and over again we are finding cases where National Collegiate Loan paperwork is screwed up. We have had them in five different counties in Ohio,” said Consumer Attorney Marc Dann.
National Collegiate Student Loan Trusts is one of the nation's largest lenders with about 12 billion dollars in loans. At least 5 billion worth, are now being challenged, with dozens of lawsuits being thrown out. In one case, they sued a student over a college she never even attended.
"They rely on the fact people don't understand the paperwork they are getting," said Dann
It's partly because of the convoluted world of student loans.
You see students like Carla borrow money from the bank.The bank sells those loans to a financial company like NCL, which distributes it among multiple trusts its own.Those trusts then sell the loans to investors like stocks.
Meantime, a separate company is hired to handle all the billing.
So with the debt changing hand so many times, the borrower has no idea whom they owe. Add in sloppy book keeping, it's just like the robo-signing mess during the mortgage crisis
"So she is essentially being sued by a stranger, and if you have a chance to put them to their proof in court, then they very rarely can come up with the proof they need to get a judgment,” said Dann.
NCL is blaming their billing company for this mess. In fact, it's suing them over their record keeping.
It's why students are now fighting back. And NCL keeps losing cases.
“And at the end of the day, a young woman like Carla who wants to be a pre-school teacher in Cleveland g-d bless her is left holding the bag," according to Dann.
At one point Carla faced lawsuits by six separate companies. So far, attorneys have been able to get four dismissed.
In the meantime, that $50,000 loan she took out has ballooned to more than $80,000 with interest, and she's living at home in fear.
"Since I am being sued, I feel like I can't own a car. I can't own a house because they can take it," said Carla.
We called a whole bunch of people associated with National Collegiate Loan as well as their counsel. No one returned my calls. The company that does the servicing for NCL says it has nothing to do with the collection efforts that are now under scrutiny.
Full Statement from National Collegiate Student Loan’s Servicer:
PHEAA was not a party to any proceedings against the National Collegiate Student Loan Trusts’ student loan borrowers for default. PHEAA does not perform collection activities for the Trusts with respect to student loans that are more than 30 days delinquent. Collection activities with respect to student loans that are more than 30 days delinquent are performed by the Trusts’ special servicer, and the lawsuits mentioned in the media were brought on behalf of the Trusts by the special servicer.
Media reports have stated that one or more of the National Collegiate Student Loan Trusts have been unable to produce documentation in court sufficient to prove that the Trusts had acquired ownership of the student loans from a prior lender or owner. PHEAA was not a party to those transactions, and PHEAA was not responsible to create, confirm, or establish the existence of, any sale documentation establishing the chain of ownership of the loans from the originators, prior lenders or prior owners to the Trusts. PHEAA acts solely as a contract servicer, and as a custodian of certain borrower-level documentation, for the Trusts in accordance with the requirements set forth in its contracts.
PHEAA is not a party to any of the Indentures under which interests in the student loans were pledged by the Trusts to secure payment to investors in the related notes.
- Keith New | Director, Public & Media Relations | PHEAA, Fedloan Servicing & American Education Services