Student loan borrowers have faced countless challenges over the years, and some have been subject to improper and illegal debt collection practices. Fortunately, for those affected, there is now an opportunity for compensation. The Consumer Financial Protection Bureau (CFPB) has proposed a $2.25 million compensation fund for borrowers harmed by unlawful debt collection tactics used by the National Collegiate Student Loan Trusts (NCSLT). This proposed fund aims to bring relief to borrowers who were victims of deceptive practices.
What led to the compensation fund?
The proposed compensation fund addresses specific illegal practices tied to NCSLT, a group of 15 investment trusts that buy and service private student loans. According to the CFPB, NCSLT and its subservicers filed thousands of lawsuits to collect on debts without proper documentation proving they owned the loans or that the borrowers actually owed them. Some of the affidavits submitted in these lawsuits were deemed “false and misleading,” with claims of personal knowledge that the signers did not possess, or in some cases, improper notarization. In some instances, borrowers were pursued for debts after the statute of limitations had expired, adding another layer of unfairness.
CFPB Director Rohit Chopra criticized NCSLT, calling it a “web of investment trusts that failed student loan borrowers, including at the height of the pandemic.” He noted that these practices led to significant financial and emotional distress for borrowers. The proposed compensation fund would offer relief for borrowers affected by these improper tactics, providing a chance for restitution and damages.
Who is eligible for compensation?
While this compensation fund aims to assist many borrowers, not everyone with NCSLT loans will qualify. The relief is specifically targeted at accounts where NCSLT could not provide proper documentation to prove that the debt was valid, or where collection actions violated the statute of limitations. This means that only those who were impacted by these specific unlawful practices will be eligible for compensation.
The CFPB has been clear that the compensation will not include broader loan forgiveness or cancellation, which typically only applies to federal loans under certain discharge programs. However, the funds will help those who were subjected to illegal collection actions, including the withdrawal of ongoing lawsuits connected to invalid or time-barred debts.
CFPB’s proposed judgment also includes a requirement for NCSLT to cease wage garnishments or any other collection activities related to these cases. This will provide immediate relief for borrowers who may still be experiencing active collection actions tied to the affected debts.
How to claim your compensation
If the court approves the proposed judgment, the $2.25 million will be used to provide compensation through a redress fund administered by the CFPB. However, the CFPB has not yet provided specific details on how the funds will be distributed to affected borrowers.
According to the CFPB, the funds will be allocated to borrowers who were harmed by the practices identified in the proposed judgment. While the exact timelines and procedures are still being finalized, the CFPB encourages potentially affected borrowers to take action now. You can stay updated by visiting the CFPB’s official website or contacting them directly at (855) 411-CFPB for more information.
It’s important to note that only borrowers whose debts were pursued without proper documentation or who were subject to collections after the statute of limitations expired will be eligible for compensation. For those who are unsure whether their case qualifies, the CFPB is offering resources to help borrowers determine their eligibility.
The student debt crisis has become a significant financial burden for millions of Americans. With over $1.7 trillion in outstanding loans, many borrowers face years of repayment and mounting interest. The rising costs of education, combined with limited wage growth, exacerbate the struggle, leaving borrowers trapped in debt.
