Student loan companies ignored student borrowers seeking payment relief, including during the pandemic, CFPB charges

Check out carefully any student loan servicer you’re considering using. There are some bad actors in the student loan business.

For example, the Consumer Financial Protection Bureau Monday took action against the National Collegiate Student Loan Trusts and Pennsylvania Higher Education Assistance Agency 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 filed proposed final judgments Monday, 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 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,” Rohit Chopra, CFPB director, said in a statement.

During the leadup to the financial crisis, there was a boom in subprime-style student lending, Chopra said. Student loan 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, he said. A group of 15 securitization trusts, 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 held about 163,000 private student loans with about $907 million in outstanding balances.

Pennsylvania Higher Education Assistance Agency, known as American Education Services or AES, is a student loan servicer with its main office in Harrisburg, Pennsylvania. As of December 2023, PHEAA serviced student loans worth about $17.8 billion.

This is the CFPB’s second enforcement action against the National Collegiate Student Loan Trusts.

In Monday’s case, the CFPB 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, Chopra 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.

So, it’s buyer beware when you sign up for a student loan like most other consumer transactions.