In my opinion, private student loans are the worst debt in America, bar none. I didn't come to this conclusion lightly, but only after comparing the legal options available to clients facing foreclosures, tax liens, etc. and speaking to borrowers who tell me they have their federal loans under control, but have no solution to their private student loans. Although IRS taxes can be discharged in bankruptcy in certain instances, private student loans will never be automatically discharged. The unwillingness of private student loan businesses to offer a borrower a plan to rehabilitate a private student loan to escape default on a credit report has led some observers to conclude this is creating a real drag on the economy. With $1.2 trillion in student loans totaling more than this nation's entire credit card debt, the private student loan problem is one begging for a solution. With the law presenting so few options, creative lawyering may help borrowers facing this type of lawsuit to help level the playing field.
In a December 3, 2014 article in the Wall Street Journal, the Ombudsman of the Consumer Financial Protection Bureau accused the private student loan industry of failing to do enough to help borrowers in financial distress. While lawsuits are rare in the collection of federal student loans, they are much more common for private student loans. I've represented several clients facing lawsuits filed by National Collegiate Student Loan Trusts ("NCT"), the assignee of thousands of securitized private student loans. The number of lawsuits filed by NCT has become a national phenomena with one Businessweek reporter in an article on June 3, 2015 describing NCT as a "lawsuit machine," filing more than one lawsuit per day in some states. A review of New Hampshire civil dockets indicates there have been at least 113 lawsuits filed by NCT in New Hampshire courts from 2014 to present. Most are filed in Superior Court with a few in District Court. Most borrowers are unrepresented despite the dire consequences of a default. Judgments are collectible for 20 years in New Hampshire. The usual scenario before litigation involves a demand for a payment far beyond the borrower's means and a refusal to negotiate something more affordable. Unlike federal loans, private student loans are not mandated by law to offer borrowers affordable repayment plans. This impasse inexorably leads to a default and litigation although few private student loan businesses are as litigious as NCT. With relatives often acting as co-signers, lawsuits often involve a parent as co-defendant and the possibility of an attachment against a home with significant equity.
Lawyers defending borrowers from NCT lawsuits have found NCT susceptible to one defense in particular - that of standing. NCT never has a contractual relationship with a borrower, only acquiring a loan along with thousands of others after multiple assignments. The amount of SEC documentation necessary to assign securitized student loans multiple times is staggering, so it's not surprising this "shell game" can create issues regarding who owns any particular loan. One recent New Hampshire case illustrating the problem is that of NCSLT 2006-1, 2007-4 v. Glynn, 219-2015-CV-00209 (NH Sup. Ct. 2015) where Judge Houran dismissed two lawsuits filed by NCT. NCLST sued Glynn who filed a motion to dismiss, alleging the court did not have subject matter jurisdiction to hear the dispute because plaintiff did not own the debt, and, therefore, had no standing. The complaint attached a copy of the note indicating the lender was Bank of America, but no evidence of assignment. The court scheduled an evidentiary hearing requiring plaintiff to produce proof it owned the debt. After considering a number of documents submitted by NCT, Judge Houran at page 3 of that opinion held:
The court determines that the evidence presented is insufficient to demonstrate that the plaintiff owns the debt. As noted above, the 2007 pool supplement assigned certain loans to NCF [i.e. National Collegiate Funding, LLC] - namely the loans listed on Schedule I. However, NCSLT has failed to provide the court with a copy of Schedule I. Without Schedule 1, the court cannot determine which loans Bank of America assigned to NCF. Thus, the court determines that NCSLT has failed to establish it owns Glynn's debt.
Judge Houran's decision is far from unique as a growing number of courts in other jurisdictions have arrived at similar conclusions albeit flying under the radar as unreported cases.
So what do you do if you're sued?
Don't default. It's reasonable to require NCT to prove it owns your loans before a court orders you to pay an amount that with principal, interest and attorney's fees dwarfs the original amount you borrowed.
If you do decide to hire a lawyer, make sure it is someone who is experienced in NCT litigation. Securitizing thousands of private student loans at once involves a maze of documents where the important information is buried in the fine print. One of the key roles of a lawyer in complex litigation is to simplify the issues for a judge with limited time to devote to any one case. Like a game of '3 card monte,' NCT litigation can be a real 'shell game' and knowing where to look can spell the difference between success and failure. Best case scenario, some of my clients have had their NCT's cases dismissed. Worst case scenario, a lawyer can usually work out a favorable settlement.
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), 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 attorneygaudreau.com, by email at Richard@attorneygaudreau.com, or by calling 603-893-4300.