National Collegiate Trust Lawsuit Dismissed

National Collegiate Trust Lawsuit Dismissed Due To Congressional Intention

Is your college or university challenging a National Collegiate Trust lawsuit? If so, read on! At the conclusion of this article, share 5 killers, but very common defenses used to fight these lawsuits. Without further delay….

National Collegiate Trust is not a bank, an investor, or a lending institution. Rather, it is a network of universities that are collectively referred to as National Collegiate Trust. In short, it is a group of different trusts, each under the supervision of the US Department of Education. The Department of Education’s Office of Student Aid and its predecessor, the Federal Higher Education Loan Program (FFELP), created the National Collegiate Trust.

As its name indicates, the goal of the national collegiate trust is to extend educational opportunities to anyone who is willing to participate in post-secondary education.

Each year, tens of millions of federal loans are issued in the names of students who qualify for these programs. However, there are limits. In other words, the US Department of Education cannot “issue” loans to anyone who is ineligible, whether they are attending an accredited college or university, without first determining if such individuals are eligible to receive such loans in the first place.

In the past, the Department of Education has had no way to determine whether or not a student was properly qualified to receive any federal student loan, without having that person submits a formal written declaration of eligibility.

At that point, if the applicant was determined eligible, then he or she would have to submit a consent form to the Office of Student Aid and the United States Department of Education, which would then determine whether or not to grant the applicant access to those specific federal loans. (In other words, the OUS faculty members could deny the application for lack of required consent.) At this point, the student’s eligibility to obtain any federal student loan was, in fact, without prejudice.

The current situation is different. While the Department of Education has had some flexibility in determining who is eligible to receive federal loans, it has not been able to determine who is in default of debt without prejudice.

This means that if you are a borrower in default of debt, even if you have fulfilled all of your other eligibility requirements, your loan can still be denied unless your default continues for 30 days. While borrowers in default of debt can certainly be considered “qualified” to receive federal student aid, the very basis upon which the OUS establishes a determination of default (i.e., non-payment of accrued tuition and fees during the grace period) is contingent upon the borrower proving that he or she is in financial trouble. If the borrower fails to do so, then he or she can be considered to have met the criteria for default and will be subjected to discipline from the Department of Education.

As noted above, the OUS does not have the same standard with which it dismisses applications based on the provision of false information about credit history.

Therefore, if you were found to have provided false information (and this is a very subjective and technical matter), you may very well be subject to being dismissed from the lawsuit as well. The new York Court has refused to address whether the Education Department’s failure to apply the appropriate statute of limitations when determining who is in default of debt constitutes “fault” sufficient to cause the denial of a federal student aid program.

As noted, the new York Court has refused to apply the deference given to Congress in interpreting the scope of the National College Student Loan Act. Consequently, if the courts were to follow Congress’s drafting efforts, they would find that the vast majority of college students fall within the ambit of the statutes even when they are not delinquent on their student loans.

Therefore, under the majority’s interpretation, any student loans which become overdue must be discharged. This would apply to all federal student loans, regardless of whether the loans were in good standing at the time of the borrower’s graduation or not. Such judgments could further chill the academic community due to the certainty that any reputable academic institution would be adversely affected should a lawsuit find its way to court.

In light of the fact that the new York Court has refused to apply the appropriate scope of the National College Student Loan Act to the facts here, I would submit that the issue here is one of statutory construction rather than of judicial review. As was explained above, Congress has chosen a narrower definition of “fault” under the Act so that it will apply to more defensible cases. However, Congress has also provided for an exception to the limitation on “fault” when the parties can show that the statute is being applied in a selective way (e.g., there is a conflict between the parties as to the amount of liability). Because Congress has created such a broad exception, litigants must be extremely careful when they attempt to litigate within the confines of the Act. If the college does not recognize the statutory construction involved, the case should be dismissed as moot.

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