In 2017, the CFPB took action against the NCSLT, which consists of over a dozen individual trusts, addressing concerns about unethical and possibly illegal debt collection methods, Forbes reported.

“During the leadup to the financial crisis, there was a boom in subprime-style student lending,” the CFPB said in statement, per Forbes. “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 shared the suggested settlement agreement in early January. If the court approves it, this judgment will end nearly eight years of legal battles involving the National Collegiate Student Loan Trusts. Allegedly, the group buys bundles of private student loans and often sues borrowers who don’t pay their loans. The agreement will compensate affected borrowers financially and stop any new or ongoing lawsuits related to specific student loan collections.

In May 2024, CFPB Director Rohit Chopra shared her thoughts on the matter in a statement.

“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.”

Court documents revealed that NCSLT is being accused of unlawful debt collection practices, including filing lawsuits without proper documentation to verify loan ownership or borrower debt. The CFPB claims NCSLT provided false affidavits, falsely asserted personal knowledge of the debts and inaccurately stated proper notarization. Additionally, the CFPB claimed NCSLT attempted to collect on private student loan debt after the statute of limitations expired.

Under the terms of the potential court order, NCSLT would be required to pay $2.25 million to the CFPB “in redress” as compensation for affected private student loan borrowers.

“The funds will be paid to the CFPB for the purpose of providing relief to borrowers who were harmed,” the agency stated, reported Forbes.

The judgment would also require NCSLT to halt certain ongoing debt collection lawsuits, particularly those involving debts that are past the statute of limitations or lack the necessary supporting documentation. It would also mandate the end of related collection efforts tied to these cases.

 

Additionally, not all private student loan borrowers, including those with NCSLT loans, will be impacted by the judgment, even if it is finalized. Only certain NCSLT accounts are included. For example, in cases where parties have identified that NCSLT lacks documentation to validate private student loan debts or where a trust has pursued a collections lawsuit after the statute of limitations has expired under state law.

The proposed relief offers monetary compensation but excludes loan forgiveness. Private student loans are typically ineligible for forgiveness programs, while federal loans may qualify for specific discharges. The CFPB hasn’t clarified the relief calculation, borrower notification or compensation timing. For more information, visit the CFPB’s website or call (855) 411-2372.