Shoddy Paperwork Could Erase Your Student Loan Debt

In the United States, roughly 43 million Americans owe more than $1.3 trillion in student loan debt, and the outstanding balances have only risen year over year, according to the New York Fed.

Now, The New York Times reveals that "tens of thousands of people who took out private loans" to fund their educations — to the tune of more than $5 billion — may have those debts erased due to missing and incomplete paperwork.

"At the center of the storm is one of the nation’s largest owners of private student loans, the National Collegiate Student Loan Trusts. It is struggling to prove in court that it has the legal paperwork showing ownership of its loans, which were originally made by banks and then sold to investors," the Times reports. "National Collegiate’s lawyers warned in a recent legal filing, 'As news of the servicing issues and the trusts’ inability to produce the documents needed to foreclose on loans spreads, the likelihood of more defaults rises.'"

To be clear, National Collegiate isn't cheerfully telling people that they are qualified to catch a lucky break. Borrowers have been informed that their debts are canceled after the company has sued them for delinquency. For example, Samantha Watson, a 33-year-old graduate of Lehman College in Bronx, New York fell behind on her private loan payments after quitting a better-paying job as an executive assistant to work as a nurse's aide, which allows her to care for her sick child.

However, when National Collegiate sued Watson for payment, they submitted a "mess" of paperwork, her lawyer told the Times, adding that the company even "presented documents saying that Ms. Watson had enrolled at a school she never attended." The Bronx Civil Court judge reviewing the case agreed with the former student's lawyer over "what he saw as the flaws in National Collegiate’s paperwork" and dismissed four lawsuits against her, erasing $31,000 in debt. "The trusts 'failed to establish the chain of title' on Ms. Watson’s loans, he wrote in one ruling."

If you think you have standing to challenge your student loan owner, there are some options, Mic reports. You'll have to find a way to prove that your lender doesn't have the records needed to back up their claim, but the onus is on them to present a clear paper trail in court that shows whom they bought your loan from, that they now own it, and that you owe money to them. It's not easy, the site explains, mentioning the aggressive tactics some lenders employ to get what they want, but you could come out of it with much lighter pockets in the end.