Some Student Loan Borrowers May See Debt Collection Stopped

Federal regulators have ordered the National Collegiate Student Loan Trusts to stop certain debt collection activities, providing relief for some borrowers who have been targeted by unlawful lawsuits. This is part of a proposed legal settlement that requires the trusts to pay $2.25 million in compensation to affected student borrowers.

Why It Matters

The Consumer Financial Protection Bureau (CFPB) found that the National Collegiate Student Loan Trusts, a collection of securitized private student loan entities, engaged in illegal debt collection practices. These included filing lawsuits without the necessary documentation to prove ownership of the loans and attempting to collect debts that were past the statute of limitations.

If a judge approves the settlement, some borrowers who were previously subject to aggressive collection tactics will now see those lawsuits halted.

What to Know

The CFPB’s enforcement action specifically targets loans that were improperly pursued in court. The agency alleges that the trusts’ subservicers filed cases against borrowers without the required legal documentation to prove either that they owned the loans or that the borrower owed the debt. Some lawsuits also involved false and misleading affidavits.

As part of the settlement, the National Collegiate Student Loan Trusts must:

• Cease collection efforts on debts that were improperly pursued in legal proceedings.
• Compensate borrowers harmed by the illegal collection tactics with $2.25 million in redress.
• Improve record-keeping and compliance practices to prevent future violations.

This enforcement action follows a March 2024 ruling by the U.S. Court of Appeals for the Third Circuit, which determined that the trusts are subject to the Consumer Financial Protection Act. The Supreme Court declined to hear the trusts’ appeal, leaving the lower court’s decision in place.

Private Student Loan Debt Statistics

As of January 2025, data from the Education Data Initiative shows that private student loan debt accounts for approximately 7.57 percent of the total $1.77 trillion in U.S. student loan debt, amounting to about $134.3 billion. Of this, around $29.3 billion (21.8 percent) consists of refinance loans. The default rate for private student loans was reported at 1.61 percent as of the first quarter of 2024.

Who’s Eligible for Stopped Collections

Borrowers eligible for stopped collections include those whose loans were part of improperly filed lawsuits by the National Collegiate Student Loan Trusts. This includes individuals sued without proof of loan ownership, borrowers pursued for debts beyond the statute of limitations and those targeted with misleading affidavits.

Additionally, borrowers with loans subject to the settlement’s provisions should see their collection efforts halted. Affected borrowers will receive notifications detailing the cessation of collection actions and any applicable redress.

What People Are Saying

The CFPB in a recent press release stating enforcement action: “The Trusts must 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.”

Jay S. Fleischman, a student loan lawyer representing borrowers in collection lawsuits filed in New York and California, previously told Newsweek: “This isn’t the CFPB’s first attempt to take action against National Collegiate. On September 18, 2017, the Bureau filed a complaint and proposed consent judgment against National Collegiate. The court then denied the Bureau’s motion to approve the proposed consent judgment on May 31, 2020. Though the March 2024 decision by the Third Circuit makes it more likely that the stipulated judgment is entered, there’s no guarantee of that happening.

The court has ordered that objections be filed on or before February 17, 2025, and responses to objections be filed on or before February 24, 2025.”

What’s Next

The most recent update from the CFPB detailing enforcement actions, including the cessation of collections, notes that the judgment is stipulated. This means the courts must decide to enter the judgment before it becomes final.

If the judgment is accepted, borrowers impacted by the halted debt collection efforts should receive notifications outlining the status of their loans and whether they qualify for relief. The CFPB has stated that it will monitor compliance with the settlement and take further action if necessary.