05/06/2024 | Press release | Distributed by Public on 05/06/2024 10:37
WASHINGTON, D.C. - The Consumer Financial Protection Bureau (CFPB) today took action against the National Collegiate Student Loan Trusts and Pennsylvania Higher Education Assistance Agency (PHEAA) for multi-year servicing failures. The National Collegiate Student Loan Trusts purchase and securitize 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 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. They would also pay nearly $3 million in redress to harmed borrowers.
"The CFPB has taken action against a web of investment trusts that failed student loan borrowers, including at the height of the pandemic," said CFPB Director Rohit Chopra. "Our law enforcement action makes clear that investors cannot sidestep accountability by playing games of corporate musical chairs."
During the leadup to the financial crisis, there was a boom in subprime-style student lending. 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.
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, Pennsylvania. 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.
This is the CFPB's second public enforcement action against the National Collegiate Student Loan Trusts. The CFPB 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 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.
In today's case, the CFPB alleges that 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. 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. 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. Specifically, the defendants harmed consumers by:
Under the Consumer Financial Protection Act, the CFPB has the authority to take action against institutions violating consumer financial protection laws, including engaging in unfair, deceptive, or abusive acts or practices. If entered by the court, the order would require the defendants to:
Read today's proposed stipulated judgments.
Read consumer complaints about student loan servicing.
Consumers can submit complaints about financial products and services by visiting the CFPB's website or by calling (855) 411-CFPB (2372).
Employees who believe their company has violated federal consumer financial protection laws are encouraged to send information about what they know to [email protected]. To learn more about reporting potential industry misconduct, visit the CFPB's website.