National Collegiate Student Loan Trusts, one of the country’s largest holders of student debt, has lost several lawsuits because of missing documents.
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New York Attorney General Eric Schneiderman said he has issued subpoenas Wednesday to begin investigating the National Collegiate Student Loan Trusts, a student-debt creditor group whose collection practices have been criticized for allegedly shoddy paperwork.
The attorney general’s action follows a scathing report by the New York Times earlier this week that chronicled attempts by the National Collegiate’s trusts to sue and collect debts from student loan borrowers allegedly without having the paperwork that proves the trusts own the debts. The subpoenas seek to collect information on the lawsuits filed by the National Collegiate’s trusts, including loan titles.
Schneiderman, who has been active in probing for-profit schools and student loan industry abuses, will review collected documents before deciding to file any lawsuit. It’s also possible that other states’ attorneys general will get involved in the case, as they frequently band together to seek injunctive relief or settlements. If their actions result in relief for borrowers, tens of thousands of students whose debts are currently held by the trusts could be tossed out.
“I won’t allow a generation of New Yorkers to get victimized by the very system that was created to help them get ahead,” Schneiderman said in a statement. “We will conduct a full investigation and will hold the perpetrators of any fraud against our students accountable.”
The trusts have had difficulty proving ownership of the defaulted loans – totaling at least $5 billion — that they’re collecting through lawsuits, the Times reported. And judges have dismissed dozens of lawsuits against former students, wiping out their debt.
The loans were initially issued by banks, repackaged as debt securities and were eventually sold to investors, making the ownership paper trail difficult to document.
National Collegiate is a group of 15 trusts that hold about 800,000 private student loans, totaling $12 billion, the Times report said. The trusts have filed “tens of thousands of lawsuits in the past five years” to collect on defaulted loans, the report said.
Donald Uderitz, the beneficial owner of National Collegiate’s trusts who bought the equity interest in the trusts in 2009, told USA TODAY he’s “glad” the attorney general is getting involved.
“It’s fraud to collect on loans you don’t own. We want no part of that,” he said.
Uderitz said the trusts already were working with their loan servicer and collectors before he bought the equity interest. And he has been not been successful in trying “to replace and remedy” some of their alleged collection issues because they won’t take his directions to change their practices. “It’s been frustrating,” he said.
The Pennsylvania Higher Education Assistance Agency — also known as PHEAA or American Education Services — is the trusts’ main loan servicer. If loans default, they are sent to US Bank for collection. “They won’t take our directions,” Uderitz said, adding they’re fighting in courts over the issue. “I’m not happy with the collection practices that have been going on for the last five years.”
US Bank works with Transworld Systems, a debt collection company, for collecting on defaulted loans. Transworld also received subpoenas from the attorney general’s office. It couldn’t be reached for comment.
“It wouldn’t surprise me if this isn’t the last attorney general looking at their collection practices,” Uderitz said.
PHEAA couldn’t immediately be reached for comment. US Bank declined to comment.
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