The Consumer Financial Protection Bureau recently filed an enforcement action against National Collegiate Student Loan Trusts and the Pennsylvania Higher Education Assistance Agency for failing student loan borrowers and harming them during the Covid-19 pandemic. The action may result in the student loan companies paying millions of dollars in penalties, as well as $3 million in compensation to borrowers, along with possible refunds or reimbursements. The CFPB accused the entities of “multi-year servicing failures” that negatively impacted borrowers, especially during the pandemic.
Private student loans owned by National Collegiate Trusts and other lenders can be a significant burden for borrowers, particularly those facing financial difficulties, as they do not qualify for federal student loan forgiveness or flexible repayment options. When borrowers are unable to afford their payments, their only options are often short-term deferments or forbearances. National Collegiate Trusts are a collection of trusts that purchased securitized private student loans more than a decade ago, and they outsource their servicing operations to third parties like PHEAA, operating as American Education Services.
The CFPB alleged that National Collegiate Trusts and PHEAA failed to respond to borrower requests for relief between 2015 and 2021, including requests for co-signer release, forbearance or deferment extensions, loan settlement or forgiveness, and other forms of payment or interest rate reductions. The defendants did not properly respond to borrower requests for years, including those during the Covid-19 pandemic, violating various federal statutes. PHEAA claimed they had no authority to make unique borrower decisions without instruction during the relevant period.
If approved by a court, National Collegiate Trusts and PHEAA may have to pay over $2 million in penalties to the CFPB’s victims relief fund, in addition to compensating borrowers with $3 million in redress. Borrowers who did not receive timely responses to exception requests may receive $200 payments, with the possibility of further relief in the form of refunds or fee reimbursements. The CFPB’s action has been welcomed by advocates for borrowers, who see it as a crucial step in holding predatory companies accountable and putting money back into the pockets of affected borrowers.
This enforcement action is not the first involving National Collegiate Trusts, as a previous CFPB lawsuit alleged improper debt collection lawsuits against borrowers for debts that were time-barred or unproven. This ongoing lawsuit is still pending in federal court, but a judge ruled in March that the trusts are covered by the Consumer Financial Protection Act, indicating the potential for further legal action against these entities. The CFPB’s Director emphasized the importance of holding investors accountable, particularly during times of economic distress like the Covid-19 pandemic.
