Investors of a sprawling private student loan operation have effectively blocked a settlement proposal that could have provided billions of dollars in relief to 800,000 student loan borrowers.The case involves a set of financial vehicles collectively known as National Collegiate Student Loan Trusts. The National Collegiate Student Loan Trusts are not technically a student loan company (at least in the traditional sense), nor are they even a single organizational entity.
Rather, the name refers to around 15 or so individual trust entities that collectively acquired hundreds of thousands of private student loans that were originally disbursed by private commercial banking entities. These original lenders securitized and sold bundles of private student loans, which were then purchased and transferred by intermediaries, and then ultimately assigned to the National Collegiate Student Loan Trusts.
In 2017, the Consumer Financial Protection Bureau (CFPB) filed a lawsuit against the National Collegiate Student Loan Trusts and its servicer, TransWorld Systems for illegal collections practices. The lawsuit alleged that the trusts filed numerous collections lawsuits against consumers without complete documentation sufficient to prove that the trusts actually owned the loans they were purporting to collection.
The lawsuit also alleged that the trusts relied on sworn affidavits by employees of TransWorld Systems to prove ownership of the student loans, but that at times, these affiants had no actual personal knowledge of the underlying debts at all. As a result, student loan borrowers wound up being forced, via state court judgments, to pay for student loans that they did not owe, or did not have to repay.
The CFPB and the National Collegiate Student Loan Trusts reached a settlement agreement that would have required the Trusts and TransWorld Systems to audit around 800,000 student loan accounts. Some expected that the audits would result in many of those accounts being deemed effectively uncollectible or even forgiven if the audits determined that sufficient documentation of ownership was unavailable.
A federal judge recently rejected the proposed settlement, however. The court sided with several investors and stakeholders involved with the National Collegiate Student Loan Trusts (including some banking entities and debt collectors), concluding that the attorneys acting on behalf of the trusts to negotiate with the CFPB did not have authority to enter into the settlement agreement in the first place.
The end result is that, barring a re-negotiated agreement or another favorable conclusion to the litigation, around 800,000 student loan borrowers with around $12 billion in student loans allegedly held by National Collegiate Student Loan Trusts will continue to be potentially liable for the debt. These borrowers could be subjected to a renewed wave of debt collection lawsuits, and it will be up to individual borrowers (and their attorneys) to fight these lawsuits in court, one by one.
I’m an attorney with a unique practice devoted entirely to helping student loan borrowers. I provide counsel, legal assistance, and direct advocacy for borrowers on a variety of student loan-related matters including repayment management, default resolution, and servicing troubleshooting. I have been interviewed by major national media outlets including The New York Times, NPR, and The Washington Post, and I’ve been named a Massachusetts Super Lawyer “Rising Star” every year since 2015. I regularly present to companies, schools, and professional associations about the latest developments in higher education financing, and I’ve published three handbooks to help student loan borrowers manage their debt. I’m also a contributing author to the National Consumer Law Center’s manual, Student Loan Law, as well as various law review articles. I received my undergraduate degree, with honors, in Philosophy and Political Science from Boston University, and my law degree from Northeastern University School of Law.