Billions of dollars in private student loan debt may reportedly be erased because of missing legal documents that have left creditors unable to prove who owns the loans.
The New York Times reported Monday that the missing paperwork could result in tens of thousands of delinquent borrowers having their private student loan debt cleared. The loans in question total at least $5 billion.
Private student loans are a $108 billion market, and lenders often pursue delinquent borrowers in court.
National Collegiate Student Loan Trusts, one of the country's largest owners of private student loans, is locked in a prolonged legal battle with borrowers who have fallen behind on their loan repayments.
But at issue is the group's ability to show paperwork proving that it owns the loans in question.
The loans held by National Collegiate were made by banks to student borrowers more than a decade ago, according to the Times. But as the loans were bundled together and sold to investors, documents proving who owned the loans disappeared.
Donald Uderitz, the founder of the private equity group that is the beneficial owner of National Collegiate's trusts, said he wants the group to end its lawsuits against delinquent borrowers, unless it can prove that it owns the loans.
“It’s fraud to try to collect on loans that you don’t own,” Uderitz told the Times. “We want no part of that. If it’s a loan we’re owed fairly, we want to collect. We need answers on this.”
Already, judges across the country have tossed out dozens of collections lawsuits because of missing documentation, essentially erasing borrowers' debts, according to the Times.