Hastily Made and Resold Loans Have Sketchy Paper Trails

The title of this article could have been from 2008, but today the loans in questions are private student loans.

Private loan trust company National Collegiate has been suing delinquent borrowers for private student loans it bought from various banks. It’s no wonder that National Collegiate is aggressively pursuing these loans; 42% of the $12 billion they hold are delinquent. If those people don’t pay, it’ll spell trouble for the company, but unfortunately for Collegiate, they seem to have misplaced paperwork on many of them:

Judges throughout the country, including recently in cases in New Hampshire, Ohio and Texas, have tossed out lawsuits by National Collegiate, ruling that it did not prove it owned the debt on which it was trying to collect.

Besides that, you have loan holders who barely make ends meet or understand what “interest rates” are:

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.

Giving out these loans in the first place was irresponsible. I’ve had a lot to say on student loans over the past year (1, 2, 3), and this latest news is not making it any better.

Colleges (or high schools, or both) need to teach students what student loan debt means for their future. Student loan providers — especially private ones — need heavier regulation to prevent them from making irresponsible loans and then packaging them up as “trusts” without the proper paperwork. Borrowers need to understand that the “go to college, get an education, and everything will be O.K.” days are long gone, and it’s really “go to college, get saddled with tens of thousands of dollars in debt, get a minimum wage job, and die in poverty”.

We’re all going to pay for this someday.