When you take out a private student loan, there can be holes in your knowledge about who actually owns your debt and who stands to profit from your payments.
The US private college loan system is a bit more complicated than you owing money to your lender. Many financial entities are involved in the student loan industry who profit, accept payments, process payments, own the debt, sell the debt, and demand payment for accounts in default.
Student loan trusts are part of this industry. Trusts often buy student loan debt from big-name banks and then employ fraudulent tactics to collect debts.
Private College Loans
When you take out a private student loan, you are borrowing from a bank initially. Several banks offer loans to college students who need more money than the Federal system is offering. Once you have the loan, the bank likely sells your loan to another bank and that bank may sell to someone else. Eventually, your loan may end up belonging to a Trust.
Who Do You Owe Money To?
You may think that you owe XYZ Bank where you took out a loan when in reality, you owe money to a completely different entity. One of the more common entities that actually own private student loans is called a “Trust.” A Trust is a bit like a business. The trusts who own student loan debt profit from the money that you pay each month.
Because they own your loan, the interest portion of the payment collected each month is their income. The student loan trust owns your debt but doesn’t collect your payments or interact with you in any way.
Who Collects My Payments?
Trusts do not collect your payments. They hire a company called a “Servicer” to do that. Your servicer sends you bills each month and collects your payments. The servicer earns money from the trust for keeping track of your debt and managing your payments.
Who Else Is Involved in This?
Another type of company that can become involved in this labyrinthine business arrangement is called a debt collector. Because students sometimes default on their loans, the trusts who own the loan will at that point employ a debt collector to chase you down and demand payment. Sometimes they even sell your debt to the debt collector for pennies on the dime. When you pay the debt collector, they profit instead of the trust which owned your debt before.
You can see how this system could be confusing for students who take out loans. Many are unaware that a trust owns their actual loan and that the monthly payment is going to a servicer instead of to their original lender.
Problems with Student Loan Trusts
In 2017, the Consumer Protection Finance Bureau sued a group of trusts called National Collegiate Student Loan Trusts. The several trusts involved in the lawsuit owned billions of dollars in private student debt. The CPFB sued on behalf of students whose rights were being trampled on by the trust’s debt collectors.
Some of the students had defaulted on their loans and quit paying. Others had stopped paying so long ago that they no longer owed the money because the statute of limitations had run out.
Debt collectors were using outright fraudulent and intimidating tactics that are against the law. Cases were dismissed for the reasons below:
- The debt collectors could not prove the entire chain of assignment. This means that the debt collectors could not prove who had owned the student loan over the years. 5 different banks or trusts could have owned the loan, but the debt collector had no documentation to prove this.
- The statute of limitations had run out. According to their state law, the student who owed the debt had not paid in years, and no longer owed the student loan. The debt collectors knew about the statute of limitations but took the student to court anyway to collect a debt the student no longer owed.
- Debt collectors did not possess the student’s signature page or original paperwork that proved they owed the debt.
- Debt that was not actually for college had already been discharged under a bankruptcy suit. If you owed $10,000 for college and $20,000 for living expenses and had a bankruptcy, the $20,000 would have been discharged from your debt during the bankruptcy. The debt collecting agencies were suing for money that was no longer owed.
What You Can Do
If you are in default and receive a letter demanding payment, find out from your servicer who actually owns your loan now and require an account payment history to verify the date of the last payment. Also, require a chain of service document and proof that you owe the debt in the form of your original signature page.
Just because a Student Loan Trust owns your debt does not mean that they legally own it. If they can’t prove ownership, it is not a legally binding debt.
If a debt collector cannot prove that you owe the debt, contact a knowledgeable consumer rights attorney to file a motion to dismiss your case. Often, servicers or loan debt collectors use false information and scare tactics to make students pay money that is not legally owed.
The consumer protection attorneys at Law Zebra specialize in working with students whose rights are ignored. If you do not legally owe money but are facing a lawsuit, contact us to walk you through the process of having your case dismissed.