On May 31, 2024, the CFPB sued student loan servicer Pennsylvania Higher Education Assistance Agency (PHEAA), which does business as American Education Services (AES), for illegally collecting on student loans that have been discharged in bankruptcy and sending false information about consumers to credit reporting companies. The CFPB seeks to stop PHEAA’s illegal conduct and fine the company for its illegal practices.
CFPB Director Rohit Chopra said the following in a statement:
“PHEAA has ignored its responsibilities and illegally pursued borrowers for loans they no longer owe. The CFPB is suing PHEAA for demanding money from borrowers that they do not owe and for reporting false information to credit reporting companies.”
The United States Bankruptcy Code provides consumers a financial fresh start by discharging debts after meeting a more stringent legal standard and prohibiting creditors from collecting on discharged debts. However, certain private student loans are discharged in normal bankruptcy proceedings including money borrowed to pay for tuition at schools that do not qualify for federal Title IV funding, loans for medical and dental residency, loans to students attending school less than half-time, or loans where the loan amount was higher than the cost of attendance. AES services both types of student loans.
The CFPB alleges that PHEAA violated the Consumer Financial Protection Act and the Fair Credit Reporting Act’s implementing regulation by:
Failing to maintain policies and procedures to identify when loans are discharged by bankruptcy; AES fails to recognize that some private student loans are discharged in bankruptcy and instead treats nearly all private student loans as though the consumer still owes those debts;
Illegally collecting on discharged loans and furnishing inaccurate information to credit reporting companies regarding borrowers’ outstanding debt; and
Falsely telling borrowers they still owe payments on discharged loans by sending inaccurate and misleading repayment letters and billing statements.
The CFPB’s lawsuit against PHEAA seeks a stop to alleged unlawful conduct, redress for affected consumers, the imposition of a civil money penalty paid into the CFPB’s victims relief fund, and other relief.
Read the CFPB’s press release here.
The full complaint can be found here.