Student Loan Borrowers May Get $3 Million In Compensation For Servicing Failures

FORBES

Adam S. Minsky, Senior Contributor

May 7, 2024

A federal financial watchdog agency filed an enforcement action this week against a widely known student loan servicing agency and a collection of private student loan trusts. If approved, the student loan companies may have to pay millions of dollars in penalties, as well as $3 million in compensation to borrowers plus refunds or additional reimbursement.

The Consumer Financial Protection Bureau, an independent federal agency that oversees the financial services sector, announced on Monday that it filed the action against National Collegiate Student Loan Trusts and the Pennsylvania Higher Education Assistance Agency (known as PHEAA). The CFPB accused the entities of widespread “multi-year servicing failures” that harmed borrowers, particularly during the Covid-19 pandemic.

National Collegiate Trusts are a collection of corporate trusts that hold securitized private student loans. PHEAA typically services these loans on behalf of the trusts, doing business as American Education Services. Importantly, private student loans don’t qualify for federal student loan forgiveness and repayment programs, making these loans particularly problematic for borrowers who are experiencing distress.

“The CFPB has taken action against a web of investment trusts that failed student loan borrowers, including at the height of the pandemic,” said Rohit Chopra, Director of the CFPB, in a statement on Monday. “Our law enforcement action makes clear that investors cannot sidestep accountability by playing games of corporate musical chairs.”

Here’s the latest.