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Could at least $5 billion of student loans be erased?
As reported by the New York Times, about $5 billion of student loan debt owned by the National Collegiate Student Loan Trusts – one of the nation’s largest owners of student loans – could be erased by judges due to alleged improper documentation and missing ownership records.
The National Collegiate Student Loan Trusts holds 800,000 private student loans through 15 different trusts, which collectively own approximately $12 billion of student loan debt, according to the New York Times.
Of that amount, about 160,000 private student loans are in default. These student loans were originally issued by banks, and then subsequently sold through securitizatio n to investors, including the National Collegiate Student Loan Trusts. Ownership records may have been lost in the process.
The New York Times reports that given the incomplete ownership records, it is not exactly clear who owns the individual student loans. If true, this could pose a major problem for National Collegiate, which is seeking to collect unpaid student loan debt from borrowers who have defaulted.
The paperwork dilemma pits student loan borrowers who have struggled to make student loan payments against creditors seeking to collect on unpaid student loan debt.
National Collegiate filed tens of thousands of lawsuits against borrowers – including about 800 this year – mostly in state and local courts in order to collect on the unpaid student loan debt.
While National Collegiate has prevailed in many cases, student loan borrowers have won other cases when National Collegiate could not produce documents supporting proper chain of title and ownership.
Part Of A Larger Issue
While these lawsuits involve borrowers who have defaulted on their student loans, the student loan crisis continues to grow.
More than 44 million student loan borrowers collectively owe more than $1.4 trillion in student loans, according to the most recent student loan debt report from personal finance site Make Lemonade.
Student loan debt is now the second highest consumer debt category – second only to mortgages.
According to Make Lemonade, about 11% of students default on their student loans each year.
Federal vs. Private Student Loans
Federal student loans are issued only by the federal government, and include several benefits for student loan borrowers, including access to federal student loan repayment programs, deferral and forbearance.
Federal student loans are fixed-rate student loan debt, and therefore, the interest rate will never change despite movements in interest rates.
Student borrowers who elect federal repayment programs eventually can have their federal student loans forgiven after meeting certain requirements for federal programs such as Public Service Loan Forgiveness, Teacher Student Loan Forgiveness and repayment plans such as Pay As You Earn (PAYE), Revised Pay As You Earn (REPAYE) and Income-Based Repayment (IBR).
Private student loans are issued by private lenders and do not offer benefits such as federal repayment programs or forbearance. However, given the cost of higher education, private student loans are common for students once they have borrowed the maximum amount of federal student loans.
Many private student loans carry variable interest rates, which can rise or fall based on movements in interest rates. In the current rising interest rate environment, student loan borrowers may pay more interest as interest rates move higher.
Considerations For Student Loan Borrowers< /p>
For private student loans, borrowers should consider the following:
Make sure to borrow the maximum amount of federal student loans before you borrow private student loans. Federal student loans are fixed-rate, and typically carry a lower interest rate than private student loans. Make sure to compare student lenders to find the best rate.
Use a student loan calculator so that you fully understand the cost of your borrowing decision.
If you want to pay the same student loan payment each month and not be impacted by movements in interest rates, then borrow a fixed-rate student loan.
If you already borrowed a variable-rate private student loan and want to switch to a fixed-rate student loan, you can refinance student loans with a private lender.
There is no student loan forgiveness for private student loans. If you’re offered loan forgiveness from a private lender or see an ad for “Obama Loan Forgiveness,” these are not official forgi veness programs endorsed by, or affiliated with, the federal government.
Student loan refinancing helps you lower your interest rate and monthly payment, and also provides flexible loan terms typically ranging from five to 20 years. To qualify for student loan refinancing, you’ll need to be employed, have strong credit and income, and a demonstrated history of financial responsibility.