Some of the worst student loan debt Wall Street ever put together and sold as securities has hundreds of thousands of Americans holding bad debt. However, a tentative deal with the firm that owns close to $8 billion of that debt could see those balances cut.
According to Bloomberg, the Consumer Financial Protection Bureau has been investigating allegations by lawyers representing consumers who say the 15 trusts that own the debt are using sloppy collection procedures against borrowers accused of defaulting. A tentative deal could end the years-long investigation.
The National Collegiate Student Loan Trusts is one of the country’s largest holders of student loan debt. The owner of the trust, VCG Securities, agreed to a preliminary settlement with the CFPB that would pay restitution to borrowers facing civil penalties. Bloomberg reports the settlements would be in “large sums.”
Although terms of the settlement were not immediately disclosed, settlements the CFPB made in the past required these trusts to correct improper business practices outlined by the agency. Reports also indicate borrowers could see their balances cut in half.
The student loan trusts were created a decade ago, and collectively held student loans that totaled more than 874,000. According to Bloomberg, those loans were made to roughly 812,000 people who borrowed money from lenders to pay for their educations. Those lenders would then sell those loans to brokers who would then create the trusts that were ultimately sold to investors. The trusts would promise investors they would receive a specific return from the pool of student loans held in the trust.
As of June, the trusts held $12 billion in loan principal, and according to disclosures by trust administrators, 42 percent of that principal is in default status. Analysts state that the trusts created by National Collegiate Student Loan Trusts are some of the worst ever created.