Private student loans are the worst of a bad bunch, with incredibly high interest rates and penalties on funds used to finance educations at the kinds of "universities" who later get their accreditations yanked for academic malpractice and deceptive advertising -- universities that target the most naive kids from the least educated backgrounds, load them up with debt, waste four years of their lives, and pop them out the door with a useless "degree."
Unsurprisingly, the kinds of companies that float these loans are the fastest and loosest of players. Once they originate the loans, they sell them off to intermediaries who sell them off to other intermediaries and so on, landing them, eventually, in the portfolios of vulture capital funds who use arm-breaker tactics to collect on them (abetted by laws that make student debts much harder to default upon than other kinds of debt).
But playing fast and loose means that these companies often lose track of little details -- like who owes them, how much they're owed, and what they're owed for. Increasingly, people who've been hit with debt-collection threats from the knuckle-dragging profiteers of the student loan industry are showing up in court with attorneys who force the debt-buyers to admit that they don't have title to these loans -- that no one can find the paperwork, that the loans are invalid.
One of these debt companies, National Collegiate, holds $12B worth of potentially useless paper. The whole market is worth $108B. Defaults are mounting, and there are more to come, as smart lawyers figure out how to force debt collectors to admit, under oath, that they have no legal leg to stand on.
Couldn't happen to a nicer industry: the escalation of debt-based finance, with attendant abuse, has been a scourge on America since the Reagan years, and the deeper the economic dependency on debt-fuelled investment, the meaner the debt industry gets, from debtors' prisons to private courts to arrests by Federal Marshalls for delinquent payers. Naturally, the poorer and browner you are, the worse it gets.
Here's a great 2012 guide to telling debt-collectors to go fuck themselves.
“It’s a numbers game,” said Richard D. Gaudreau, a lawyer in New Hampshire who has defended against several National Collegiate lawsuits. “My experience is they try to bully you at first, and then if you’re not susceptible to that, they back off, because they don’t really want to litigate these cases.”
Transworld Systems, a debt collector, brings most of the lawsuits for National Collegiate against delinquent borrowers. And in legal filings, it is usually a Transworld representative who swears to the accuracy of the records backing up the loan. Transworld did not respond to a request for comment.
Hundreds of cases have been dismissed when borrowers challenge them, according to lawyers, often because the trusts do not produce the paperwork needed to proceed.
As Paperwork Goes Missing, Private Student Loan Debts May Be Wiped Away [Stacy Cowley and Jessica Silver-Greenberg/NYT]
(Image: Donkey Hotey, CC-BY)