Could your student loan be voided: What’s really going on

At least $5 billion in private troubled student loans may be dismissed because paperwork that proves loan ownership is missing.

A group of creditors may not be able to collect on the loans even after taking student borrowers to court because of the missing paperwork, The New York Times reported. The missing documentation may mean tens of thousands could be off the hook for paying back loans, according to The Times report.

Below are three questions answered about how this student loan issue is playing out:

RELATED: Student loan debt default rates ranked by Ohio colleges

1. Could my loans be wiped away?

It depends. The loans in question are owned by National Collegiate Student Loan Trusts, so if your loan is owned by someone else, the chances appear to be slim.

Most of the loans that National Collegiate owns were given to students more than a decade ago, so anyone who took out a private student loan from 2007 and after is unlikely to have the missing paperwork reported by The Times.

Students or former students with loans held by National Collegiate also won't have their debt magically wiped away, according to an expert interviewed by Time Magazine. That's because the people who had their debts erased were first sued by National Collegiate for being several months behind on their loan payments.

2. How did this happen in the first place?

National Collegiate’s troubled loans did not start out with the organization.

The loans were made more than a decade ago by several banks, including Bank One, Charter One Bank, Bank of America, JPMorgan Chase, GMAX Bank, RBS Citizens Bank and Union Federal Savings Bank, according to Time.

RELATED: Experts think college students need better ‘financial literacy’

The debt passed through several hands before landing in National Collegiate’s trusts, important paperwork documenting the loans’ ownership disappeared, The Times reported. The information surfaced in court cases involving the trusts in both state and federal courts in Delaware and Pennsylvania, according to The Times.

3. How does this compare with student loan debt as a whole?

Although $5 billion may be a lot of money, its only a fraction of both the private student loan market and the student loan market as a whole.

National Collegiate owns around 800,000 private student loans totalling around $12 billion, according to The Times. That means the $5 billion in question represents less than half of the organizations loans.

The private student loan business is actually much larger even. Private student loans account for around $108 billion of student loans, according to The Times.

Overall, there is about $1.3 trillion in outstanding student debt among Americans, Time Magazine reports.

About the Author