WASHINGTON, D.C. — The Consumer Financial Protection Bureau (CFPB) has taken action against the National Collegiate Student Loan Trusts and Pennsylvania Higher Education Assistance Agency (PHEAA) for what it said have been “multi-year servicing failures.”
The National Collegiate Student Loan Trusts purchase and securitize student loans, and PHEAA services the loans.
The CFPB has alleged the defendants failed to respond to borrowers seeking relief from student loan payments, including during the COVID-19 national emergency, and has proposed stipulated final judgments, which, if entered by the court, would require the National Collegiate Student Loan Trusts and PHEAA to pay $400,000 and $1.75 million in penalties, respectively, to the CFPB’s victims relief fund.
The organizations would also pay nearly $3 million in redress to harmed borrowers.
‘Infamous Example’
“During the leadup to the financial crisis, there was a boom in subprime-style student lending,” the CFPB said in announcing its action. “Student lenders worked with investment bankers to turn student loans into securities. 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 held approximately 163,000 private student loans with approximately $907 million in outstanding balances, according to the CFPB.
The CFPB explained Pennsylvania Higher Education Assistance Agency, which is commonly known as American Education Services or AES, is a student loan servicer with its principal office in Harrisburg, Penn. It is a public corporation organized under the laws of the Commonwealth of Pennsylvania. As of December 2023, PHEAA serviced a portfolio of student loans worth roughly $17.8 billion. It has been the primary servicer for active loans held by the National Collegiate Student Loan Trusts since at least 2006, the CFPB.
Second Action Taken
The Bureau noted this is its second public enforcement action against the National Collegiate Student Loan Trusts, having earlier filed a lawsuit against this “web of investment vehicles alleging, among other things, that the National Collegiate Student Loan Trusts brought improper debt collection lawsuits for private student loan debt that they could not prove was owed or that was too old to sue over.”
The CFPB said the National Collegiate Student Loan Trusts claimed that, as trusts, they were not covered under the Consumer Financial Protection Act. In March 2024, the United States Court of Appeals for the Third Circuit ruled the National Collegiate Student Loan Trusts are covered persons under the Consumer Financial Protection Act. That case remains pending in federal court.
Requests ‘Went Unanswered’
In its newest case, the CFPB is alleging the defendants violated the Consumer Financial Protection Act.
“The CFPB’s complaint alleges that from 2015 until 2021, thousands of borrower requests—often seeking forms of payment relief—went unanswered,” the Bureau said. “These included requests for co-signer release, extension of forbearance or deferment, loan settlement or forgiveness, Servicemember Civil Relief Act benefits, or other forms of payment or interest rate reduction.
“The defendants failed to properly respond to borrower requests for years, including during the COVID-19 pandemic,” the CFPB said. “Thousands of borrowers sent requests during the pandemic seeking forbearance on loans held by the National Collegiate Student Loan Trusts. However, many of those requests were mishandled.”
The Allegations
According to the CFPB, specifically, the defendants harmed consumers by:
- Failing to ensure responses to borrower requests. “The National Collegiate Student Loan Trusts’ internal processes for handling borrower requests broke down in 2015, and they failed to take the steps necessary to fix them. Thousands of borrowers waited months and even years for responses to their requests, and many received no answer at all.”
- Failing to provide accurate information to borrowers. “PHEAA misrepresented to consumers that certain requests would be answered when, in fact, the company knew that they would not. The company also failed to inform borrowers that forbearance requests submitted to the National Collegiate Student Loan Trusts would not be appropriately processed, and that other payment relief options were available.”
- Incorrectly denying forbearance requests. “PHEAA denied, or failed to timely respond to, eligible borrower requests for COVID-19-related natural disaster forbearance.
Enforcement Action
If entered by the court, the order would require the defendants to:
- Pay nearly $3 million in redress to borrowers
- Correct outstanding requests
- Pay a $2.15 million fine
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