Pennsylvania Higher Education Assistance Agency Was Accused of Collecting from Borrowers Who had Discharged Debts in Bankruptcy, Will No Longer Face Accountability
February 27, 2025 | WASHINGTON, D.C. — Today, the Consumer Financial Protection Bureau (CFPB) withdrew its lawsuit against the Pennsylvania Higher Education Assistance Agency (PHEAA), the giant student loan servicer whom the Bureau sued in 2024 for illegally pursuing borrowers for debts that had been discharged in bankruptcy.
In response, Student Borrower Protection Center (SBPC) Executive Director Mike Pierce issued the following statement:
“Russ Vought and Donald Trump sided with a lawless and corrupt student loan company at the expense of borrowers across the country—another sign that powerful financial interests are driving the capture and demolition of the federal consumer watchdog. This is a slap in the face to students, student loan borrowers, and working people everywhere.
“PHEAA lied to some of the poorest and most vulnerable Americans, then illegally hounded them for debt that they did not owe, all to make a buck. And today, cowardly political sycophants backed down on the federal government’s only effort to hold PHEAA accountable.
“Of course, like all fascist toadies, Russ Vought will rightly be forgotten by history and sink into well-deserved irrelevance. But until then, law enforcement at every level of government must rush in to fill the void left by a federal consumer protection agency that now stands only to serve billionaires and big corporations. Remember: these people prey on those in need because they are motivated only by the desire to exercise power, and they are motivated to do so because they are cowards. It is everyone’s job to remind Vought and his cronies of their powers’ limits, and to remind the world of their cowardice.”
Background
In May 2024, the CFPB sued PHEAA for “illegally collecting on student loans that have been discharged in bankruptcy and sending false information about consumers to credit reporting companies.” In particular, the Bureau alleged that PHEAA illegally collected on and furnished inaccurate information about loans that had already been discharged in bankruptcy, lied to borrowers about whether they could access relief through bankruptcy, and more.
The CFPB’s action grew in part out of a 2021 SBPC investigation uncovering a sweeping, decades-long scheme to cheat more than 2.6 million borrowers owing on roughly $50 billion in private education credit out of their right to bankruptcy.
SBPC’s investigation outlined the audacious tactics that some of the largest players in the private student loan market, such as Sallie Mae and Navient, undertook to convince struggling borrowers and the public that their customers did not have the right to bankruptcy. These tactics included lying to borrowers in advertisements and contracts, sending harassing collections messages to borrowers who had already undergone bankruptcy proceedings, and telling borrowers that loans were not dischargeable. At the same time, student loan companies were straight with Wall Street investors—warning that these same loans could, in fact, be discharged in bankruptcy.
It is a commonly held belief that private student loans in the United States are simply not dischargeable in bankruptcy, or that they are dischargeable only after a showing of exceptional financial hardship. Both conceptions are false. Instead, only a specific subset of private student loans referred to under the law as “qualified education loans” generally cannot be discharged in bankruptcy. Loans that do not meet the specific definition of a “qualified education loan” are generally dischargeable through the bankruptcy process just like credit card debt, medical debt, or other personal loans.
In early 2023, CFPB released a bulletin demanding student loan servicers halt and return unlawful debt collection on loans discharged through bankruptcy. Later that year, the CFPB rejected an effort by PHEAA to evade the Bureau’s investigation of the company’s harmful tactics regarding the treatment of discharged debts in bankruptcy.
In 2021, PHEAA surrendered its federal student loan servicing contract, following years of allegations by federal and state regulators that the company systematically cheated millions of public service workers out of their rights to student debt relief. PHEAA remains one of the largest servicers of private student loans in the country.
Further Reading
Read our investigation exposing student loan companies’ efforts to rob borrowers of their right to bankruptcy: Morally Bankrupt: How the Student Loan Industry Stole a Generation’s Right to Debt Relief
Read a blog post outlining the issue at the heart of our investigation: Not All Student Loans are Non-Dischargeable in Bankruptcy and Creditors Know This
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About Student Borrower Protection Center
Student Borrower Protection Center (SBPC) is a nonprofit organization focused on eliminating the burden of student debt for millions of Americans. We engage in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance racial and economic justice.
Learn more at protectborrowers.org or follow SBPC on Twitter @theSBPC.