On July 19, the New York Attorney General’s Office initiated an investigation into the National Collegiate Student Loan Trusts, sending subpoenas to request information on every collection lawsuit filed by National Collegiate against residents of the state. National Collegiate, one of the largest owners of private student loan debt in the nation, has been aggressively pursuing borrowers in court for failure to stay current on their student loan payments.
National Collegiate owns 800,000 private student loans, worth more than $12 billion. According to court filings, more than $5 billion of those loans are currently uncollectable due to lack of proper paperwork. These loans originated several years ago and were subsequently bundled into securities and sold to investors. During this process, key paperwork concerning the loans’ ownership was lost.
As a result of the lost paperwork, judges around the country have been dismissing suits filed by National Collegiate’s trusts. One of these suits was the focal point of a recent New York Times article, which detailed how Judge Eddie J. McShan of the Civil Court of the City of New York dismissed four suits by a National Collegiate trust against Samantha Watson due to National Collegiate’s failure to produce the necessary paperwork showing they had ownership of Watson’s loans. Despite the rise in dismissals, National Collegiate’s trusts still prevail in many of the lawsuits they file simply because the borrowers fail to show up in court.
In light of Judge McShan’s and similar rulings, New York Attorney General Eric T. Schneiderman initiated an investigation, seeking documents showing the trusts’ rights, if any, to collect the debts they are pursuing. The investigation concerns National Collegiate’s shoddy recordkeeping regarding ownership of the loans, rather than falsification of documents. In a written statement, Schneiderman said that the recordkeeping issues were “deeply concerning.” He noted, “I won’t allow a generation of New Yorkers to get victimized by the very system that was created to help them get ahead.” The Attorney General’s Office has also sent subpoenas to Transworld Systems, the debt collection company hired by National Collegiate to collect on defaulted loans.