Student Loan Companies May Have To Pay $5 Million For Allegedly Ignoring Borrower Requests – Forbes Advisor – Technologist

A student loan servicer and a group of trusts that hold student loans may have to pay millions of dollars in penalties and compensation after allegedly failing to respond to borrower requests for payment relief.

The Consumer Finance Protection Bureau, or CFPB, has filed a complaint in federal court in Pennsylvania against the National Collegiate Student Loan Trusts and the Pennsylvania Higher Education Assistance Agency (PHEAA). The two entities are accused of violating the Consumer Financial Protection Act—which prohibits unfair, deceptive or abusive practices—by allegedly misleading borrowers and disregarding their official relief requests.

The bureau has also filed documents detailing the steps the companies have agreed to take to settle the matter. If these agreements get court approval, the defendants could pay up to $5 million. Almost $3 million of that sum would go to borrowers.

The National Collegiate Student Loan Trusts acquire, pool and securitize private student loans for sale to investors. Loan payments from student borrowers fund the bonds’ payouts. As of February 2024, the 15 trusts collectively held 163,000 private student loans with a total of $907 million in outstanding balances, according to the CFPB.

Because these loans were issued by private lenders, such as banks, they don’t qualify for federal student loan forgiveness or repayment plan options.

PHEAA has been the primary servicer of student loans held by the trusts since at least 2006. Working on the trusts’ behalf, it manages borrower payments, communications and grants all borrower requests, including deferment, forbearance and repayment assistance.

“Our law enforcement action makes clear that investors cannot sidestep accountability by playing games of corporate musical chairs,” said CFPB director Rohit Chopra in a statement.

Student Loan Firms Accused of Ignoring Borrowers

The CFPB has accused both organizations of “multi-year loan servicing failures” by ignoring debt forgiveness requests and failing to tell borrowers about debt relief options.

According to the complaint, a 2015 dispute between trust stakeholders led to a management breakdown. Nevertheless, from 2015 to 2021, PHEAA redirected borrower requests for payment relief to the trusts, knowing that borrowers would receive no response.

Starting in March 2020, many borrowers sought pandemic-related payment assistance. PHEAA had the authority to grant natural disaster forbearance yet denied at least 323 forbearance requests and postponed 216, the complaint said.

The CFPB said that in late March, PHEAA began approving forbearance requests but failed to respond to borrowers whose earlier applications were ignored or denied.

What Happens Next?

If the court approves the enforcement action, the organizations will have to pay a total of $2 million to the CFPB’s victim relief fund.

Also, some borrowers would receive direct compensation. PHEAA and the trusts would pay $3 million to borrowers whose loan exception requests were ignored. The total would include payments of $200 each to borrowers whose requests didn’t receive timely responses. Some payments, fees and other charges might also be reimbursed.

The companies would also have to approve outstanding requests for co-signer releases and Servicemembers Civil Relief Act benefits, correct credit report errors and cease debt collection activities against borrowers whose relief requests should have been granted.

What To Know About Private Student Loans

Private student loans are more expensive than federal student loans and require a credit check. They typically also don’t offer flexible repayment options. As a result, you may want to consider them only after you’ve borrowed the maximum amount in federal student loans.

If you are planning to get a private student loan, shop around and keep the following factors in mind:

• How much you can afford to borrow
• The loan’s interest rate and fees
• Your credit score, as higher scores can mean lower interest rates
• The duration of the loan and when you’ll have to start making payments
• Whether you can add a co-signer and qualify for a co-signer release later