Private Student Loan Business Declares War on Borrowers

When unemployment, illness or a divorce force consumers to choose between paying the rent or a student loan, private loan servicers insist on full payment. So begins the chronic slide into bad credit, nasty collection calls, and eventual lawsuits.
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The ombudsman of the Consumer Financial Protection Bureau has accused the private student loan industry of failing to do enough to help borrowers in financial distress. While lawsuits are uncommon in the collection of federal student loans, one private student loan business, National Collegiate Trusts ("NCT"), a creation of First Marblehead Bank , has filed a massive number of lawsuits against borrowers across the United States. Anecdotal reports from lawyers in Florida, New York, Michigan, Pennsylvania, New Hampshire, and California confirm an unusual number of lawsuits filed by NCT in those states. Since student loan lawsuits are often filed in district or superior courts where online access is spotty, exact figures are difficult, permitting NCT to fly under the radar of mainstream media until now.

As more states automate their civil dockets, however, a definitive picture has emerged. One database in Missouri reports the trifecta of National Collegiate Student Loan Trusts, National Collegiate Master Student Loan Trust, and National Collegiate Trust have filed 1,441 civil cases in Missouri state courts since 2011. This is an extraordinary number by any reckoning, averaging out to almost one per day. Similarly, an online database in Connecticut reports 349 NCT cases filed since 2011. Indiana reports 571 cases from 2011 through 2014 while an Arizona search found 282 lawsuits from 2011 through 2014. Oklahoma reports 406 cases filed by NCT just in its District Courts alone, a number that excludes cases filed in Superior Court. Ironically, the day I began writing this article, I received two calls from borrowers in Tennessee and Texas looking for help defending NCT lawsuits. There is little doubt NCT has embarked on a national campaign to sue borrowers in default on an unprecedented scale in the student loan industry.

Private student loans are the worst debt in America bar none. I didn't come to this conclusion lightly, but only after representing clients in foreclosures, tax liens and lawsuits for 25 years. Private student loans enjoy the same protection from a discharge in bankruptcy as federal loans but offer none of the benefits. The law requiring federal student loan servicers to offer reasonable repayment plans to borrowers in financial trouble does not apply to private student loans. As a result, private student loan servicers can just refuse to work with people, and there's no law requiring them to change their attitude. The National Consumer Law Center stated in a report to the Consumer Financial Protection Bureau for proposed legislation to remedy this problem that

"[i]n all our efforts working with many borrowers and many lenders, we have not encountered any private student lender with a rehabilitation program or any other program to allow borrowers to get out of default and back into repayment."

When unemployment, illness or a divorce force consumers to choose between paying the rent or a student loan, private loan servicers insist on full payment. So begins the chronic slide into bad credit, nasty collection calls, and eventual lawsuits.

Francisco Reynoso knows these frustrations better than most. He cosigned for his son's loans and began receiving bills from NCT after his son passed away. Given he had never signed a contract with NCT, he wanted to be sure NCT owned the loans and knew the correct balance. Since his yearly income is only $21,000, these were not idle requests, however, NCT has to date ignored them, leaving him in limbo.

National Collegiate Trusts have acquired thousands of student loans which are bundled together and sold to Wall Street investors like shares of stock. First Marblehead processed 375,000 loan applications for $1.03 billion for NCT loans in the first quarter of 2005 alone. NCT student loans have been transferred at least twice before arriving at a National Collegiate Trust, assuming of course all of the legal prerequisites for transfer occurred along the way for each and every loan. A number of courts have questioned whether NCT can prove it owns the loans. Courts in both Ohio and Florida have denied NCT relief because it could not prove it had the right to collect the debt. Without proof of ownership, in legal parlance, NCT didn't have 'standing' to proceed with a lawsuit. The individual loan borrower is just a number in this 'assembly line' approach to student loan collection. The devil is in the details.

So what can you do if you're sued by National Collegiate Trust:

(1)First of all, don't default unless you're prepared to live with the consequences. There are deadlines to answer a complaint. A default judgment is good for 20 years in many states. It's reasonable to make sure NCT owns your loan and is entitled to collect the balance before you decide what to do. If you default, you've waived any defenses like standing and the statute of limitations.
(2)Get a copy of the original loan documents and all correspondence. If you don't have them, ask your servicer for a copy. If you're involved in litigation, consider making a request for the documents you need. How you do this varies from state to state and is beyond the scope of this article.
(3)In some cases, the Federal Fair Debt Collection Practices Act and state law equivalents can provide protection from unreasonable collection actions. Know your rights.

The above is not intended as legal advice for your particular situation. Questions should be addressed to student loan attorneys admitted to practice within your state. Richard Gaudreau is a lawyer admitted to practice in New Hampshire (NH) and Massachusetts (MA) focusing on bankruptcy and student loans. He has successfully litigated student loan issues in the U.S. Bankruptcy Court, First Circuit Bankruptcy Appellate Panel, and Federal First Circuit Court of Appeals. He may be reached through his website at, by email at, or by calling 603-893-4300.

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