Securitization of Student Loans

The student loan industry consists of a complex combination of lenders, servicers, and guarantors. The process can be described as follows:

1) A consumer takes a loan out from an original lender

(The source of the actual funds)

2) Then there is the company that interacts with you and sends you your monthly bills which is called the servicer.

3) Frequently, these loans are transferred, sold and assigned to new lenders. This could be where it stops or the loans could be sold several times. OR

4) In addition, student loans are securitized into investment vehicles that can play on the open market. Securitized student loans are very similar to the mortgage backed securities that were partly to blame for the recent market crash. For some time now lenders have been doing the same with student loans. Securitized student loans can be recognized as they are usually labeled a certain way.  For example, ” (SLM) Student Loan Trust for Sallie Mae”, or (NCSLT) “National Collegiate Student Loan Trust for National Collegiate loans”.  Another commonality amongst securitized student loans is that they are associated with American Education Services(AES) and Arrowood Indemnity Company which are just some of the more popular cases. There are other companies as well.

5) Unfortunately in today’s economic climate the next step is the next topic to be discussed. The student cannot pay the loan.

Consequently, one of the most important issues in our country today:

1) Lenders sue students all the time even though they may have been misled that they would find gainful employment as discussed in one of my previous posts. (Of course, getting your loan cancelled as discussed in that post is ideal, but there are other options if that doesn’t work.)

2) Once it gets to the point where SLM, NCSLT, Arrowood or AES have the account, these agencies act like a guarantor or insurance company. For example, if there was a PNC  or Discover student loan that went into default, eventually NCSLT or one of the others pay PNC or Discover as the guarantor and take over the debt to try and collect or recover as much of the defaulted loans as possible.

3) These student loan companies have contracts with certain local debt collection law firms. These firms commonly represent unsecured creditors (credit card debt and student loan debt). Some of the debt collection firms I deal with on a regular basis and have worked out excellent settlements with are Zwicker & Associates, Debski & Associates, Pollack and Rosen, Modlin & Associates, and The Federated Law Group. Also Portfolio Recovery and Midland Credit have in-house counsel they use for debt collection.

Even if you are at this point there is help!

There are many valid defenses available to consumers who are either being pursued or sued by these companies. These loans are securitized, sold and bought all the time, which means that these companies have the same burden to show a chain-of-title and all the proper assignment documents for the debt to have valid standing. This is not easy for them to do. Consequently, this gives our firm leverage to fight back!