CFPB to require loan organizations to pay for student loan servicing failures

On Monday, the Consumer Financial Protection Bureau (CFPB) said it was taking action against the National Collegiate Student Loan Trusts and Pennsylvania Higher Education Assistance Agency ( PHEAA) for failure to adequately service student loans.

According to the CFPB, the National Collegiate Student Loan Trusts purchases and securitizes student loans, while PHEAA services the loans. CFPB alleges that the two organizations failed to respond to borrowers seeking relief from student loan payments, including during the COVID-19 pandemic. CFPB proposed judgements against the organizations, which would require them to pay more than $3 million in redress for harmed borrowers and $2 million in total ($400,000 for National Collegiate and $1.75 million for PHEAA) to the CFPB victim’s relief fund.

“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.”

The CFPB said prior to the pandemic, there was a boom in subprime-style student lending, which student lenders turned into securities. The National Collegiate Student Loan Trusts is a group of 15 securitization trusts organized under Delaware law that acquired student loans. As of Feb. 2024, the organization held an estimated 163,000 private student loans with more than $900 million in outstanding balances. This the CFPB’s second public enforcement action against National Collegiate, officials said.

PHEAA, also known as American Education Services or AES, is a student loan servicer located primarily in Harrisburg, PA. The company serviced a portfolio of student loans worth around $17.8 billion, the CFPB said.

The CFPB said the two organizations violated the Consumer Financial Protection Act and that from 2015 to 2021, thousands of borrower requests went unanswered. The borrower requests included co-signer release, extensions of forbearance or deferment, loan settlement or forgiveness, Servicemember Civil Relief Act benefits and other forms of payment or interest rate reductions. CFPB said the organizations filed to handle borrower requests, failed to provide accurate information to borrowers, and incorrectly denied forbearance requests.

The proposed punishments for the organizations include redress of $200 to borrowers who did not receive a timely response to exception requests, correcting outstanding requests and $2.15 million in fines. Further redress, including reimbursement or return of borrower or co-signer payments and reimbursement or waiving of fees, will be calculated later, the agency said.

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