The Consumer Financial Protection Bureau has taken enforcement action against National Collegiate Student Loan Trusts and the Pennsylvania Higher Education Assistance Agency for multi-year servicing failures that harmed borrowers, particularly during the Covid-19 pandemic. Private student loans owned by these entities do not qualify for federal student loan forgiveness or repayment programs, making them burdensome for borrowers facing financial difficulties. When borrowers are unable to afford payments, their only options are typically deferments or forbearances, which can provide temporary relief.
National Collegiate Trusts are a group of fifteen securitization trusts that acquire, pool, and securitize student loans. The trusts collectively hold approximately 163,000 private student loans with outstanding balances of around $907 million. The CFPB alleges that National Collegiate Trusts and PHEAA failed to respond to borrower requests for relief between 2015 and 2021, including requests for payment relief, loan forgiveness, and interest rate reduction. The loan servicer for National Collegiate Trusts also misrepresenting responses to consumers and improperly denied requests for Covid-19 forbearance.
If approved, the enforcement action could result in National Collegiate Trusts and PHEAA paying over $2 million in penalties to the CFPB’s victims relief fund. Borrowers may also receive compensation in the form of $3 million in redress, with $200 payments for individuals who did not receive timely responses to exception requests. Additionally, borrowers may receive refunds for payments made or reimbursements for fees. Advocates for borrowers have praised the CFPB’s action, emphasizing the importance of holding predatory companies accountable for their actions that harm borrowers.
The CFPB’s lawsuit against National Collegiate Trusts is not the first legal action taken against them. A previous lawsuit alleged improper debt collection lawsuits brought against borrowers for debts that were time-barred or could not be proven. While that lawsuit is still pending, a judge issued a ruling in March stating that the trusts are covered by the Consumer Financial Protection Act. This latest enforcement action highlights the ongoing issues within the student loan servicing industry and the need for increased protections for borrowers, particularly those with private student loans that lack the same forgiveness and repayment options as federal loans.
Private student loan borrowers often face challenges when trying to obtain relief from their loans, especially in the absence of federal forgiveness programs or income-based repayment options. The enforcement action against National Collegiate Trusts and PHEAA sheds light on the failures within the student loan servicing industry and the impact on borrowers, particularly during times of financial distress like the Covid-19 pandemic. With the potential for millions of dollars in penalties, compensation, and refunds, borrowers may finally receive some much-needed relief from the financial burdens associated with their private student loans.