Newly Released Documents Show Pennsylvania Higher Education Assistance Agency (PHEAA) Sought to Block Federal Inquiry into Private Student Loan Collection Scheme
September 19, 2023 | WASHINGTON, D.C. — Consumer Financial Protection Bureau (CFPB) Director Rohit Chopra has rejected an effort by the Pennsylvania Higher Education Assistance Agency (PHEAA) to evade a federal inquiry into its treatment of private student loan borrowers who had successfully discharged debts in bankruptcy.
Newly released documents show that enforcement officials at the CFPB launched an investigation into PHEAA earlier this year, seeking data and records related to its private student loan collection practices. PHEAA petitioned Director Chopra to quash this investigation, arguing that the Bureau lacked the authority to protect private student loan borrowers from PHEAA’s alleged abuses.
Mike Pierce, executive director of the Student Borrower Protection Center (SBPC) and a former senior official at the CFPB, released the following statement:
“Once again, disgraced student loan giant PHEAA is in the crosshairs of federal law enforcement for allegedly cheating student loan borrowers out of their rights. This is the behavior of a company led by executives who believe it is above the law and who cannot be bothered to treat people fairly. Given this firm’s chronic and dire track record of ripping off student loan borrowers in Pennsylvania and across the country, these latest allegations are shocking, but no surprise. Having swiftly rejected PHEAA’s latest attempt to dodge oversight, I’m confident that the CFPB can quickly deliver justice to borrowers caught in PHEAA’s latest scheme.”
A copy of the CFPB Director’s Decision and Order Rejecting PHEAA’s petition to set aside CFPB’s subpoena is available here: https://files.consumerfinance.gov/f/documents/cfpb_decision-and-order-on-petition-by-pheaa_2023-09.pdf
Earlier this year, CFPB released a bulletin demanding student loan servicers halt and return unlawful debt collection on loans discharged through bankruptcy. The announcement stems from the findings of a SBPC exposé of a years-long scheme by private student loan companies to rob millions of borrowers of their right to file bankruptcy. In total, SBPC estimates this industrywide scheme implicates as much as $50 billion in outstanding private student loan debt.
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.
Today’s newly-public enforcement action against PHEAA marks the first time that the CFPB has publicly acknowledged that it is investigating a specific student loan company for unlawfully denying student loan borrowers’ bankruptcy rights.
Background
In January 2021, SBPC published the results of an 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 U.S. 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.
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
The Student Borrower Protection Center (SBPC) is a nonprofit organization focused on alleviating the burden of student debt for millions of Americans. The SBPC engages in advocacy, policymaking, and litigation strategy to rein in industry abuses, protect borrowers’ rights, and advance economic opportunity for the next generation of students.
Learn more at protectborrowers.org or follow SBPC on Twitter @theSBPC.