The United States biggest student loan holder has been asked to refund millions of dollars to the affected people. At the same time, it has been asked to halt collection activities temporarily until the issue is resolved. These orders were released on Monday by federal regulators. The National Collegiate Student Loan Trusts is being accused by the federal regulators of holding close to $12 billion in the form of student loans. These funds were released by banks. National Collegiate Student Loan Trusts reached an agreement with Consumer Financial Protection Bureau about how they would resolve the issue. First, they agreed that NCSLT would pay a fine of $19 million. These fines would cover borrower refunds as well as penalties. If proven by the Consumer Financial Protection Bureau, the National Collegiate Student Loan Trusts could pay a fine for forgiven loans and additional payments. All this was discovered when it was proven that the loan provider could not account for some student loans. In fact, some of these loans were never issued. As a result, the loan provider decided to file misleading and false affidavits about the case. This is according to Richard Cordray who is the director of Consumer Bureau. Beyond the $19 million, National Collegiate reached an agreement that they would set aside approximately $3.5 million that would be used to refund approximately 2,000 borrowers.
National Collegiate said that their borrowers had been coerced into paying loans that they never received. These borrowers also sued National Collegiate for demanding loans beyond their jurisdiction. In some cases, the statute of limitations prohibited loan collection. In others, National Collegiate didn’t have the proper documentation that was needed to collect these debts. As a result, the company that was hired to collect these debts for National Collegiate was asked to make an additional payment of $2.5 million. The company is known as Transworld Systems. It has been reported that there is a likelihood that some of these debts might be set aside. After the investigation was complete, National Collegiate was ordered by the consumer bureau to hire an independent auditor. The auditor will be charged with looking into the 800,000 loans cases. This means that the trust will not be able to collect debts that they cannot prove. This comes amid discovery that trusts working with the National Collegiate are operating without needed paperwork. This means that the cost of writing off all the loans could be $21 million.