Good News For Those With Student Loan Debt: Your Creditor May Have Lost The Paperwork

From time to time, everyone has a purchase they would love to return to the store for a refund, but they can’t find the receipt. Keeping up with paperwork can be difficult sometimes, but most people wouldn’t have any trouble keeping a $5 billion receipt perfectly safe.

One of the largest holders of student loan debt in the country has lost paperwork verifying roughly $5 billion in student loans, and Americans who owe money on those loans may be in luck.

The National Collegiate Student Loan Trusts is having a difficult time suing borrowers who have defaulted on student loan payments because it cannot provide proof that it owns the loans.

According to the New York Times, the 800,000 student loans that National Collegiate Student Loan Trusts owns were created more than 10 years ago by dozens of different banks and have been securitized, bundled and sold throughout the years.

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Private student loan originators, typically banks such as JPMorgan Chase & Co. (NYSE: JPM) or Bank of America Corp (NYSE: BAC), lend to students, but they don’t keep those loans on their balance sheets for long. Loans are quickly transferred to trusts such as the National Collegiate Student Loan Trusts prior to being securitized and sold to bond investors.

Paper trails documenting ownership hit dead ends or are so convoluted that National Collegiate Student Loan Trusts is having a difficult time proving ownership in court.

If there is no documented ownership of the loans, borrowers may legally be off the hook for their payments.

Unfortunately, it seems the only way borrowers can find out whether or not ownership of their loans is documented is to default on them, go to court and hope National Collegiate Student Loan Trusts can’t prove ownership. Regardless of the outcome, defaulting on any loan payment can have severely negative implications for a borrower’s credit score.