PA Student Loan Servicer Sued for Alleged Illegal Money Collection, Fraud

(WJET/WFXP) — The Consumer Financial Protection Bureau (CFPB), an independent U.S. federal agency responsible for consumer protection in the financial industry, announced Friday, May 31, 2024 that it has filed a lawsuit against Pennsylvania Higher Education Assistance. Agency (PHEAA.) PHEAA also does business as American Education Services (AES) and is one of the nation's largest private student loan servicers.

In the complaint, the CFPB claims PHEAA illegally collected student loan payments on previously forgiven loans and sent false consumer information to credit reporting companies. The lawsuit asks the court to order PHEAA to stop its illegal behavior, reimburse borrowers it harmed, and pay a civil penalty.

PHEAA ignored its responsibilities and illegally pursued borrowers for loans they no longer owed. The CFPB is suing PHEAA for demanding money from borrowers they don't owe and for reporting false information to credit reporting companies.

Rohit Chopra | Director of the CFPB

According to the lawsuit, PHEAA does not distinguish between discharged and undischarged private student loans. The lawsuit alleges that between 2017 and 2021, AES collected or attempted to collect approximately 7,900 private student loans after bankruptcy proceedings. As a result, consumers paid thousands, if not tens of thousands, of dollars that they did not owe because their loans had already been paid off.

The lawsuit also states that AES provided inaccurate information to credit reporting companies regarding borrowers' outstanding debt, causing financial harm to the borrower. Additionally, AES is accused of sending inaccurate and misleading chargeback letters and billing statements to borrowers who no longer had any financial obligation to pay discharged debts.

This is actually the second public action against PHEAA this year. The other complaint, filed on May 6, 2024, alleged that PHEAA failed to provide accurate information to borrowers and improperly denied forbearance requests. If a court accepts this complaint, PHEAA and the National Collegiate Student Loan Trusts would be ordered to pay more than $5 million for the failures.