A federal consumer protection enforcement agency announced this month that under a proposed judgment, a group of private student loan companies would have to pay $2.25 million in compensation to student loan borrowers over allegations of improper or illegal collections practices.
The Consumer Financial Protection Bureau, or CFPB, announced the proposed stipulated judgment earlier in January. The judgment, if approved by the court, would resolve nearly eight years of litigation against National Collegiate Student Loan Trusts, a collection of entities that purchase securitized packages of private student loans and often filed lawsuits against borrowers who defaulted on those debts. The judgment would provide for financial compensation to impacted borrowers and a bar on filing or continuing certain student loan collections suits.
Here’s what borrowers should know.
National Collegiate Student Loan Trusts Purchased Securitized Private Student Loans
The CFPB initiated the lawsuit against National Collegiate Student Loan Trusts, or NCSLT, in 2017 alleging that the entities (which are a collection of more than a dozen separate trusts) were engaging in improper or unlawful collections practices.
“During the leadup to the financial crisis, there was a boom in subprime-style student lending,” explained the CFPB in a statement released earlier in January. “Student lenders worked with investment bankers to turn student loans into securities. The National Collegiate Student Loan Trusts are an example of this. The Trusts are a group of fifteen securitization trusts organized under Delaware law that acquire, pool, and securitize student loans, which they then service.”
The CFPB alleged that NCSLT engaged in unlawful debt collection practices, including filing “thousands of cases although they did not have or could not find the documentation necessary to prove either that they own the loans or that the consumer owed the debt;” filing “false and misleading affidavits” where “affiants claimed personal knowledge of the student loan debt they did not have” or “misrepresented that affidavits were properly notarized when they were, in fact, not;” and attempting to collect on private student loan debt after the applicable statute of limitations period had expired.
NCSLT is a “web of investment trusts that failed student loan borrowers, including at the height of the pandemic,” said CFPB Director Rohit Chopra in a statement last spring as the agency pursued a separate enforcement action against the private student loan entities.
Proposed Judgment Would Result In Monetary Compensation For Some Private Student Loan Borrowers
The CFPB’s lawsuit against NCSLT and related entities went on for years, but appears to potentially be reaching a conclusion following the CFPB’s filing of a proposed judgment. The action comes as NCSLT lost a key issue on appeal.
“Today’s action follows a March 2024 ruling by the United States Court of Appeals for the Third Circuit that the Trusts are covered persons under the Consumer Financial Protection Act,” said the CFPB in its statement. “The National Collegiate Student Loan Trusts had previously claimed that, as trusts, they were not covered under the Consumer Financial Protection Act. In December, the Supreme Court declined to hear the Trusts’ appeal, leaving the Third Circuit decision in place.”
Under the proposed judgment, NCSLT would have to pay $2.25 million to the CFPB “in redress” to impacted private student loan borrowers. “The funds will be paid to the CFPB for the purpose of providing relief to borrowers who were harmed,” said the agency.
In addition, under the judgment, NCSLT would need to “take steps to end certain pending debt collection lawsuits involving time-barred debt or where necessary documentation cannot be located, and to otherwise cease debt collection activities related to debt identified in those lawsuits.”
“With regard to Debt associated with Collections Lawsuits identified in the Master List, Defendants are permanently restrained and prohibited from taking any action to cause any service provider to collect or to seek to collect the Debt; furnish information to consumer reporting agencies on the Debt; or resell the Debt,” says the text of the proposed judgment. NCSLT would also need to “withdraw, dismiss, or terminate all pending Collections Lawsuits” associated with covered private student loan accounts, and “cease post-judgment enforcement activities,” including actions to garnish wages or bank accounts to satisfy unpaid judgments.
What Private Student Loan Borrowers Should Know About The Proposed Relief
Importantly, the CFPB’s announcement is in regards to a proposed judgment. The court handling the litigation must still give final approval and enter the judgment. The CFPB is an independent federal agency, but Trump administration officials have long expressed hostility to the institution, and it is unclear if officials will take steps to delay, undermine, or prevent the proposed judgment from going into effect.
In addition, not all private student loan borrowers — and not even all borrowers with NCSLT loans — will be impacted by the judgment, even if it is officially entered by the court and finalized. Only certain NCSLT accounts are covered (i.e., such as those where the parties have identified already that NCSLT does not have the proper documentation to prove the validity of private student loan debts it is collecting on, or where a trust has filed a collections lawsuit after the statute of limitations period has expired under the applicable state law).
And the proposed relief, while including monetary compensation to private student loan borrowers, does not provide for any student loan forgiveness or cancellation. Private student loans typically don’t qualify for student loan forgiveness, while federal student loans can potentially be eligible for a number of different discharge programs, depending on the circumstances.
“Any funds received by the Bureau in satisfaction of this judgment will be deposited into a fund or funds administered by the Bureau or the Bureau’s agent according to applicable statutes and regulations to be used for redress to Affected Consumers as identified by the Bureau, including but not limited to refund of moneys, restitution, damages, or other monetary relief, and for any attendant expenses for the administration of any such redress,” says the proposed judgment. “The Bureau may use any remaining funds to pay additional redress to Affected Consumers. If the Bureau determines, in its sole discretion, that additional redress to Affected Consumers is wholly or partially impracticable or otherwise inappropriate, or if funds remain after the additional redress is completed, the Bureau will deposit any remaining funds in the U.S. Treasury.”
The CFPB has not made clear how specific amounts of relief will be determined for individual borrowers, how private student loan borrowers will be notified, or when they can expect to receive any relief. Potentially covered private student loan borrowers can contact the CFPB by “visiting the CFPB’s website or by calling (855) 411-CFPB (2372).”
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