If you’ve been sued for a private student loan by National Collegiate Student Loan Trust, there’s a good chance you have no idea who they are. Here’s what I know, and what you need to know.
Have a private student loan?
Chances are pretty good that National Collegiate Student Loan Trust is involved.
This entity isn’t a lender, servicer or guarantor of your loan. Instead, it’s a series of trusts that contain private student loans packaged and sold as investment vehicles.
Due to the convoluted ways in which these sorts of trusts operate, there’s some doubt as to whether anyone can prove where your loan ends up.
Here’s how it unwinds.
A Bank Lends Money For Private Student Loans
Federal students loans originate from the U.S. Department of Education, which lends the money to students.
But those funds are limited, and college is expensive. So many students look to banks as a way to make up the shortfall. We’re talking about well-known financial institutions such as:
- JPMorgan Chase Bank, N.A.
- Charter One Bank, N.A.
- Bank of America, N.A.
- RBS Citizens, N.A.
- Union Federal Savings Bank
These, in the world of student loan securitization, are called the Originators.
The National Collegiate Funding LLC
Shortly after the bank lends you the money, the loan is transferred to an entity called The National Collegiate Funding LLC. This company has no function aside from hanging onto the loan until it’s ultimately transferred to into the trust.
They don’t collect your private student loan money, nor do they take any action whatsoever. They merely take the loans and deposit them into the trust.
In technical terms, this company is called the Depositor.
So Who Collects The Money?
Someone has to collect the money on the private student loan, right?
It’s not the bank. It’s not the depositor.
The Servicer is the company that collects the money on your private student loans. They send you bills each month and handle the accounting.
In return for this work, the servicer gets paid by the trust that owns the loans.
National Collegiate Student Loan Trust
There is more than one National Collegiate Student Loan Trust. In fact, there are many of them.
Each trust is identified using a numeric code; for example, there is National Collegiate Student Loan Trust 2007-3 as well as National Collegiate Student Loan Trust 2007-2.
Each separate trust holds a bucket of private student loan debts that have worked their way from the Originator to the Depositor. In fact, National Collegiate Student Loan Trust 2007-3 holds private student loan debt with a face value of $1,464,000,000.
Click here to see the Prospectus Supplement for National Collegiate Student Loan Trust 2007-3. Fair warning though: reading it will make your head hurt.
What Happens To The Loans Once They’re In The Trust?
Once the loans are safely in the hands of National Collegiate Student Loan Trust, bonds are sold to investors. Each bond entitles the investor to receive distributions from the trust based on the amount of money that comes in from private student loan borrowers.
The greater the percent of loans in the trust that paid, the better the return on the investor’s investment. But if too many of those loans go into default, the investors don’t make very much money.
How Trust Investors Minimize Their Risk
Investors minimize their risk in two ways.
The first involves the way in which the loans are piled into the trust. Some loans are riskier than others, so in theory they’re balanced out in the trust.
The second is far more interesting, and that’s the fact that the loans are guaranteed. Until 2008 these loan guarantees were handled primarily by The Education Resources Institute, Inc. (TERI), a nonprofit organization that touted itself as the largest private student loan guarantor in the county.
TERI filed for Chapter 11 bankruptcy in 2008 due in part to the acceleration of student loan defaults.
Who Owns YOUR Loan?
It’s difficult to say whether your private student loan is in a trust. Actually, it’s difficult to say which trust contains your loan.
That’s because each trust contains thousands of loans. Though each loan is supposedly on some master list, National Collegiate Student Loan Trust is seldom if ever willing to provide it to anyone.
They also don’t usually provide proof of the transfer of the individual loan from the bank to the Depositor to the Trust.
Much like the mortgage mess, there’s very little if any paper trail involved in the world of private student loan securitization.
If You’re Sued By National Collegiate Student Loan Trust
When someone sued you for a debt – any debt – some of what the creditor needs to prove includes:
- that you took out a loan;
- that the entity suing you owns the loan and the right to collect on the loan; and
- that the amount of money that the entity claims you owe is the proper amount due.
Can National Collegiate Student Loan Trust prove that you owe the money? It depends on whether they can provide a copy of the signed Promissory Note.
Does National Collegiate Student Loan Trust own the loan and the right to collect on the loan? It depends on whether they can show that the loan went from the original lender to the Depositor to the Trust.
Is the amount they claim to be due correct? It depends on whether they can show a complete and accurate accounting of how they came to the amount they’re claiming.
There are more issues involved in defending a private student loan collection lawsuit brought by National Collegiate Student Loan Trust, but now you can see that it’s usually a good idea to fight the case and make them prove every element before you agree to pay them any money.
The picture above is taken from the Prospectus Supplement for National Collegiate Student Loan Trust 2007-3.