As Gaudreau explained, there are big differences between federal student loans and private loans. The federal student-loan program offers alternative repayment plans that lower monthly payments for borrowers who run into financial trouble. In addition, the Department of Education offers loan forgiveness for people who borrowed to attend an institution that closed while they were enrolled and for people who were defrauded by the institution they attended.
Private student loans offer none of these protections, and private creditors have responded heartlessly toward their defaulted student-loan debtors. In many instances, private lenders have turned over their defaulted student loans to collection agencies. In particular, National Collegiate Student Loan Trust (NCT), a debt collector with a deceptively benign name, has filed law suits against numerous student-loan debtors, as many as one a day in some states, according to a Bloomberg Business Week article.
In some cases, however, NCT has not been able to show that it is the real party in interest in those lawsuits. In other words, NCT cannot always produce the paperwork that demonstrates it has the authority to collect the loan.
In such cases, some debtors have been able to persuade judges to dismiss these collection suits. So if you have been sued because you defaulted on a private student loan, your lawyer should demand that the debt collect produce evidence that it has the right to sue you for your student-loan debt.
Why would a debt collector sue someone without being able to show it has the authority to collect on the debt? I am not certain, but here is my best guess. I think private banks and lenders (Wells Fargo, Sallie Mae and some other prominent names) have bundled thousands of basically noncollectable student loans and sold them to debt collectors like NCT, without providing the debt buyers with all the necessary legal documents for the individual loans. The debt collectors may have bought these loans for pennies on the dollar.
The debt collectors then sue distressed borrowers, betting the borrower are too unsophisticated to know how to find out whether the debt collector has the legal authority to collect the debt. .
In most instances, it is a safe bet. Distressed student-loan debtors usually do not have enough money to hire lawyers to defend their interests. In some cases, they naively admit to damaging "Requests for Admissions" that the creditors send them in the mail. By doing so, debtors give up their legal rights without knowing it.
In essence, private student-loan debt collectors maybe engaging in the contemporary equivalent of the "robo-signing" scandal that occurred during the home-mortgage crisis of 2008. A lot of home owners lost their homes in foreclosure actions even though the agencies that confiscated their houses sometimes couldn't prove they had the legal authority to sue the homeowner in the first place.
So if you have been sued by NCT or another student-loan debt collector, read Gaudreau's article and then hire a lawyer. The first thing your attorney will probably do is demand that the debt collector produce the evidence that is has the authority to sue you. If it can't produce that evidence, it shouldn't have sued you, and you have a good chance of getting your case dismissed.
Justice! Wouldn't it be nice to see a little of it come your way?
Richard Gaudreau. In Spate of National Collegiate Student Loan Trust Lawsuits One Defense Stands Out. Huffington Post, April 25, 2016. Available at http://www.bloomberg.com/news/articles/2015-06-04/the-student-debt-collection-mess
Jamie P. Hopkins & Katherine A. Pustizzi. A Blast From the Past: Are the Robo-Signing Issues That Plagued the Mortgage Crisis Set to Engulf the Student Loan Industry? 45 University of Toledo Law Review 239 (Winter 2014). Available at https://papers.ssrn.com/sol3/papers.cfm?abstract_id=2413848
Natalie Kitroeff. The Lawsuit Machine Going After Student Debtors: "This is robosigning 2.0". BloombergBusinessweek.com, June 3, 2015. Available at
Gloria J. Liddell & Pearson Liddell, Jr. Robo Signers: The Legal Quagmire of Invalid Residential Foreclosure Proceedings and the Resultant Potential Impact on Stakeholders. 16 Chapman Law Review 367 (Winter 2013).