Americans owe $1.4 trillion in student loans. The average 2016 graduate owes $37,000.

But tens of thousands of student borrowers could see their debt wiped out, because at least one private lending company's paperwork is either lost or disorganized--and therefore it can't actually prove in court that the debts actually still exist.

For borrowers this all sounds too good to be true, but it's both potentially expansive--and an under-exploited loophole.

Expansive in that, according to The New York Times, it could add up to billions of dollars in debt being forgiven, but also under-exploited in that so far, it's only a small number of borrowers who have actually stood up to the lender in court seeing relief. As The Times reported, the benefit so far has been mainly for borrowers who had already stopped paying the loans and sent them into default.

That prompted the private company National Collegiate Student Loan Trusts to sue them--four new lawsuits every day, on average.

Most defendants either don't bother to show up in court, in which case National Collegiate gets a default judgment and can collect the money, or they settle. But in case after case, the The Times reports, when defendants actually fight back, they've won--because National Collegiate can't produce the paperwork.

The case of the disappearing paperwork.

There's no allegation of intentional fraud, The Times points out. Instead, it's apparently a matter of sloppy record-keeping--coupled with the fact that when students take out private loans, they're often sold and bundled together, and then "sold to investors through a process known as securitization."

As the debt has been passed from one entity to another over the years, critical paperwork has simply disappeared. In one New York City case, National Collegiate's paperwork "was a mess," a lawyer told The Times, and it "presented documents saying [the defendant] had enrolled at a school she never attended."

A judge dismissed the complaint and wiped out $31,000 in loans that the former student would otherwise have had to pay.

National Collegiate has filed tens of thousands of similar lawsuits, according to The Times. It's impossible to say how many times it won or lost, but the story quotes lawyers who say they've prevailed time and again because of sloppy paperwork.

One lawyer said she represented defendants in at least 30 cases. All but three were dismissed before trial, and she won two of the three remaining, The Times reported.

"Not a single one..."

Even more compelling, The Times says an audit conducted by the beneficial owner of National Collegiate found that of 400 loans the company was claiming, "not a single one had assignment paperwork documenting the chain of ownership."

And that potentially means that many borrowers who are dutifully paying their outstanding loans--or who were sued by National Collegiate but either defaulted or settled--could potentially have gotten away without paying anything.

And, there's reason to think the problem could have spread beyond National Collegiate, and that other loan holders might not actually have intact paperwork to prove that borrowers actually owe anything.

The Times cites Robyn Smith, a lawyer with the National Consumer Law Center, who "has seen shoddy and inaccurate paperwork in dozens of cases involving private student loans from a variety of lenders and debt buyers, which she detailed in a 2014 report."

If you learned one thing in school...

There are some who say students should be willing to repay the loans, regardless of whether private companies like National Collegiate can produce the documentation. If you know you took out the money, you should pay it off, they claim.

Forget that. For one thing, it appears possible that in at least some cases, the loans aren't just poorly documented, they're flat-out wrong.

Beyond that, you can only imagine how the lenders would react if the situation were reversed: If the students had believed they'd paid off their loans, for example, but hadn't been able to produce the paperwork to prove it? That's the field they're playing on, and borrowers should take advantage of it.

These are for-profit entities, with sophisticated investors who get a premium precisely because of the risk that the loans will be uncollectible--for example, if the alleged loan-holders can't document that they own the debt.

The bottom line is that people shouldn't just assume that the remaining principal, interest, and fees are calculated correctly. We have the rule of law in this country, supposedly. So if you're a borrower, feel free to make them prove it.

Totally unrelated: My colleague Geoffrey James is undergoing a coronary bypass today, and wrote about it here. It's worth checking out his story. Thanks!