(RNN) - Private college loans taken out by thousands of students around the country may be dismissed by judges because of the lender's flawed paperwork, The New York Times reported.
The National Collegiate Student Loan Trusts "is struggling to prove in court that it has the legal paperwork showing ownership of its loans," the newspaper said.
National Collegiate, which holds $12 billion in 800,000 private loans, has at least $5 billion of loans that borrowers are failing to repay.
Banks originally made the loans and sold them to investors. Sometimes, while passing through many hands, documents disappeared.
Judges have dismissed the lender's lawsuits against dozens of former students, the Times reported, because of "incomplete ownership records and mass-produced documentation."
Lawyers for National Collegiate, one of America's largest owners of private student loans, said in alegal filing there is the likelihood of more defaults.
In comparison to federal loans, the private loans have higher interest rates, and many of them were to students attending for-profit schools.
The Times story said often the lender wins the default lawsuits because borrowers either choose to settle or ignore the summons and fail to come to court and demand that the lender produce the proper paperwork to show ownership of debt.
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