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CFPB takes action to require National Collegiate Student Loan Trusts and Pennsylvania Higher Education Assistance Agency to pay more than $5 million for student loan servicing failures
WASHINGTON DC – The Consumer Financial Protection Bureau (CFPB) today took action against the National Collegiate Student Loan Trusts and the Pennsylvania Higher Education Assistance Agency (PHEAA) for multi-year service failures. The National Collegiate Student Loan Trusts buys and securitizes student loans, and PHEAA services the loans. The CFPB alleges that the defendants failed to respond to borrowers seeking relief from student loan payments, including during the COVID-19 national emergency. The CFPB today filed proposed stipulated final judgments, which, if approved by the court, would require the National Collegiate Student Loan Trusts and PHEAA to pay $400,000 and $1.75 million in fines, respectively, to the Victim Relief Fund of the CFPB. They would also pay nearly $3 million in reparations to harmed borrowers.
“The CFPB took action against a network of investment funds that failed student loan borrowers, including at the height of the pandemic,” said CFPB Director Rohit Chopra. “Our law enforcement action makes it clear that investors cannot escape responsibility by playing corporate musical chairs.”
During the period leading up to the financial crisis, there was a boom in subprime student loans. Student lenders worked with investment bankers to turn student loans into bonds. The National Collegiate Student Loan Trusts were an infamous example of this type of securitization. The National Collegiate Student Loan Trusts are a group of fifteen securitization trusts organized under Delaware law. The National Collegiate Student Loan Trusts acquire, pool, and securitize student loans, which they then service. As of February 2024, the National Collegiate Student Loan Trusts collectively hold approximately 163,000 private student loans, with approximately $907 million in outstanding balances.
The Pennsylvania Higher Education Assistance Agency, commonly known as American Education Services or AES, is a student loan servicer based in Harrisburg, Pennsylvania. It is a public corporation organized under the laws of the Commonwealth of Pennsylvania. As of December 2023, PHEAA has serviced a student loan portfolio worth approximately $17.8 billion. It has been the primary manager of active loans held by the National Collegiate Student Loan Trusts since at least 2006.
This is the CFPB second public inspection action against the National Collegiate Student Loan Trusts. The CFPB previously filed a lawsuit against this network of investment vehicles, alleging, among other things, that the National Collegiate Student Loan Trusts filed improper debt collection lawsuits for private student loan debt that they failed to prove was owed. or that were too old to be processed. . The National Collegiate Student Loan Trusts argued that, as trusts, they were not covered by the Consumer Financial Protection Act. In March 2024, the United States Court of Appeals for the Third Circuit ruled that National Collegiate Student Loan Trusts are covered persons under the Consumer Financial Protection Act. This case remains pending in Federal Court.
In today’s case, the CFPB alleges that the defendants violated the Consumer Financial Protection Act. The CFPB complaint alleges that from 2015 to 2021, thousands of requests from borrowers – often seeking forms of payment relief – went unanswered. These included requests for cosigner release, extension of forbearance or deferment, loan settlement or forgiveness, Servicemembers Civil Relief Act benefits, or other forms of payment or interest rate reduction.
Defendants failed to adequately respond to borrower requests for years, including during the COVID-19 pandemic. Thousands of borrowers submitted applications during the pandemic seeking forbearance on loans held by the National Collegiate Student Loan Trusts. However, many of these requests were mishandled. Specifically, the defendants harmed consumers by:
- Failing to ensure responses to borrower requests:The National Collegiate Student Loan Trusts’ internal processes for handling borrower applications failed in 2015 and they did not take the necessary steps to correct them. Thousands of borrowers waited months and even years for responses to their requests, and many received no response at all.
- Failing to provide accurate information to borrowers: PHEAA misrepresented to consumers that certain requests would be honored when, in fact, the company knew they would not be honored. The company also failed to inform borrowers that forbearance requests filed with the National Collegiate Student Loan Trusts would not be processed properly and that other payment relief options were available.
- Incorrectly deny forbearance requests: PHEAA has denied or failed to respond in a timely manner to requests from eligible borrowers for COVID-19-related natural disaster forbearance.
Enforcement action
Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions that violate consumer financial protection laws, including engaging in unfair, deceptive, or abusive acts or practices. If issued by the court, the order would require defendants to:
- Pay nearly $3 million in reparations to borrowers: The remedy includes $200 payments to borrowers who did not receive timely responses to exception requests. Additional remedies, such as reimbursement or return of borrower or guarantor payments and refund or waiver of fees, will be calculated after a review of the affected requests.
- Fix pending requests: Defendants will be required to grant certain pending borrower requests for cosigner release and Servicemembers Civil Relief Act benefits, correct credit reporting errors, and cease debt collection activities for certain borrowers who should have been eligible for benefits of the Servicemembers Civil Relief Act, but whose loans went into default. Defendants will also be required to waive late fees for borrowers who should have had claims granted for Servicemembers Civil Relief Act benefits, COVID-related forbearance, or cosigner release.
- Pay one US$2.15 million fine: The National Collegiate Student Loan Trusts will pay a $400,000 fine and the PHEAA will pay a $1.75 million fine. Penalties will be deposited in the CFPB Victim Relief Fund.
Read the stipulated judgments proposed for today.
Read consumer complaints about student loan servicing.
Consumers can lodge complaints about financial products and services by visiting the CFPB website or calling (855) 411-CFPB (2372).
Employees who believe their company has violated federal consumer financial protection laws are encouraged to submit information about what they know to whistleblower@cfpb.gov. To learn more about how to report potential misconduct in the industry, visit the CFPB website.
The Consumer Financial Protection Bureau is a 21st century agency that implements and enforces federal consumer financial laws and ensures that markets for consumer financial products are fair, transparent and competitive. For more information visit www.consumerfinance.gov.