New York Attorney General Eric Schneiderman said he has issued subpoenas Wednesday to begin investigating the National Collegiate Student Loan Trusts, a student-debt creditor group whose collection practices have been criticized for allegedly shoddy paperwork.
The attorney general’s action follows a scathing report by the New York Times earlier this week that chronicled attempts by the National Collegiate’s trusts to sue and collect debts from student loan borrowers allegedly without having the paperwork that proves the trusts own the debts. The subpoenas seek to collect information on the lawsuits filed by the National Collegiate’s trusts, including loan titles.
Schneiderman, who has been active in probing for-profit schools and student loan industry abuses, will review collected documents before deciding to file any lawsuit. It’s also possible that other states’ attorneys general will get involved in the case, as they frequently band together to seek injunctive relief or settlements. If their actions result in relief for borrowers, tens of thousands of students whose debts are currently held by the trusts could be tossed out.
“I won’t allow a generation of New Yorkers to get victimized by the very system that was created to help them get ahead,” Schneiderman said in a statement. “We will conduct a full investigation and will hold the perpetrators of any fraud against our students accountable.”
The trusts have had difficulty proving ownership of the defaulted loans – totaling at least $5 billion — that they’re collecting through lawsuits, the Times reported. And judges have dismissed dozens of lawsuits against former students, wiping out their debt.
The loans were initially issued by banks, repackaged as debt securities and were eventually sold to investors, making the ownership paper trail difficult to document.
National Collegiate is a group of 15 trusts that hold about 800,000 private student loans, totaling $12 billion, the Times report said. The trusts have filed “tens of thousands of lawsuits in the past five years” to collect on defaulted loans, the report said.