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By Ashley Parks
Associate Editor
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Borrowers holding private student loans managed by the National Collegiate Student Loan Trusts (NCSLT) may soon receive a share of $2.25 million in compensation for alleged improper debt collection practices.
The proposed settlement, filed on January 16, would resolve a years-long legal battle initiated by the Consumer Financial Protection Bureau (CFPB). The judgment requires court approval and aims to address years of deceptive and unfair practices targeting thousands of borrowers.
Why It Matters
Data from the Education Data Initiative shows that while the vast majority of outstanding student loan debt is federal, at 92.4 percent as of Q4 2024, 7.57 percent of student loan debt belongs to private borrowers. These private borrowers are the ones who are most likely to be impacted by the results of this lawsuit. Federal student loan borrowers are not eligible.
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The settlement stems from years of legal wrangling following a 2017 CFPB complaint alleging NCSLT filed lawsuits using false or misleading affidavits and attempted to collect on loans past the statute of limitations. In March 2024, the U.S. Court of Appeals for the Third Circuit confirmed that NCSLT is subject to federal consumer protection laws, clearing the way for the proposed settlement.
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What To Know
The case highlights significant concerns over debt collection practices within the private student loan sector, especially involving securitized loans. According to the CFPB, NCSLT engaged in improper lawsuits against borrowers, often without the necessary documentation to prove debts were owed.
The CFPB alleges that NCSLT's debt collection practices were unlawful for several reasons:
- Unverified Debts: Lawsuits were filed without proof that the borrowers owed money or that NCSLT even owned the loans in question.
- False Affidavits: Many affidavits used in court claimed personal knowledge of loans, which was later proven false.
- Time-Barred Claims: NCSLT attempted to collect debts even after the statute of limitations had expired.
Under the settlement, NCSLT must cease collections on specific debts covered by the lawsuit and pay $2.25 million in restitution to borrowers harmed by their practices. Borrowers eligible for compensation will be contacted by the CFPB or an authorized third party.
Who's Eligible for a Payment
Borrowers eligible for payment from the lawsuit include those who were sued by NCSLT without proper documentation, those whose debt collection cases relied on false affidavits and borrowers from whom NCSLT attempted to collect debts even after the statute of limitations had expired.
All eligible borrowers will also be holders of private student loans since these loans were securitized and managed by the trust entities. Borrowers with federal student loans are not affected by this lawsuit or eligible for compensation under the settlement.
What People Are Saying
Tia Elbaum, a spokesperson for the CFPB, told Newsweek: "In addition to monetary redress, the settlement requires the Trusts to ensure that the subservicer take certain actions concerning pending collections lawsuits filed between November 1, 2012, and September 18, 2017, that involved time-barred debt or chain-of-assignment documentation that could not be located. Such required actions include: (i) withdrawing, dismissing, or terminating all such pending collections lawsuits; (ii) ceasing post-judgment enforcement activities; (iii) seeking to remove, withdraw, or terminate any active wage garnishment, bank levies, or similar means of enforcing judgments or settlements; and (iv) ceasing accepting settlement payments."
Jay S. Fleischman, a student loan lawyer representing borrowers in collection lawsuits filed in New York and California, told Newsweek: This judgment reminds debt buyers and securitized trusts of their responsibilities to maintain proper records and documentation and the financial penalties they will face for misleading borrowers. The judgment calls into question the validity of any lawsuit filed by National Collegiate in the future, potentially putting borrowers and their lawyers in a stronger position for settlement and trial.
Rohit Chopra, director of the CFPB, said in a press release from March 2024: "The CFPB has taken action against a web of investment trusts that failed student loan borrowers, including at the height of the pandemic. Our law enforcement action makes clear that investors cannot sidestep accountability by playing games of corporate musical chairs."
What's Next
For borrowers impacted by NCSLT's practices, the next steps involve court approval of the proposed judgment. If approved, restitution payments will be distributed. In addition to financial redress, the settlement mandates compliance measures to prevent future violations. Borrowers concerned about potential violations or seeking more information can visit the CFPB's website or contact their office directly.
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