CFPB files lawsuit against student loan servicer

On Friday, the Consumer Financial Protection Bureau (CFPB) announced it had filed a lawsuit against Pennsylvania Higher Education Assistance Agency (PHEAA) for illegally pursuing borrowers whose loans have been discharged.

The agency said the company, which does business as American Education Services (AES) allegedly illegally collected money for loans that had been discharged in bankruptcy proceedings and sent false information about those loans to credit reporting companies. In the suit the CFPB asked the court to order PHEAA to stop its illegal activities and to pay civil penalties.

“PHEAA has ignored its responsibilities and illegally pursued borrowers for loans they no longer owe,” CFPB Director Rohit Chopra said. “The CFPB is suing PHEAA for demanding money from borrowers that they do not owe and for reporting false information to credit reporting companies.”

Headquartered in Harrisburg, PA, PHEAA services a portfolio of student loans worth roughly $17.8 billion. Under U.S. Bankruptcy Code, some private student loans are discharged in normal bankruptcy like other unsecured consumer debt. These “non-qualified” private student loans include money borrowed to pay for tuition non-Title IV schools, loans for medical or dental residency, loans to attend school less than half-time and loans were the loan amount is higher than the cost of attendance.

CFPB said in its filing that PHEAA’s illegally collected on 7,934 private student loans after a bankruptcy proceeding, at least 177 of which were loans eligible for discharge in bankruptcy. CFPB said the borrowers were subject to illegal collections on loans they did not owe, and had inaccurate information about them reported to credit reporting agencies about the outstanding debt.

This is the second action against PHEAA this year. Last month, the agency filed a complaint that would require PHEAA and National Collegiate Student Loan Trusts to pay more than $5 million for student loan servicing failures.

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