Friday, January 21, 2022

Navient Enters Massive Student Loan Forgiveness Settlement. Details Clear-ish.

It was announced today that many, but not all states that participated in a lawsuit against Navient in 2017. At the time Navient called the suit, “completely unfounded” but the announcements today reflect the opposite.

Details of Settlement

We have both a lot of information and a lot of unanswered questions about how all of this is going to actually play out.

Probably the most authoritative place to get specific details on the settlement is from the settlement administrator. Their website is navientagsettlement.com.

What Does the Settlement Do For Debtors?

Under the settlement, $95 million that Navient has agreed to pay to the States will be used as restitution to compensate federal loan borrowers who were placed in certain types of long-term forbearances. Navient has also agreed to provide debt-cancellation to certain borrowers, and to reform its loan-servicing practices.

Restitution. Qualifying federal loan borrowers who were residents of one of the following states or had an address with a military postal code as of January 2017 will be issued a check in the amount of approximately $260. The restitution-participating states are: AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, IL, IN, KY, LA, MA, MD, ME, MN, MO, NC, NE, NJ, NM, NV, NY, OH, OR, PA, TN, VA, WA, and WI.

Debt Cancellation. Certain private loan borrowers will receive a notice from Navient that their qualifying private loan has been cancelled, and that the credit bureaus will be alerted to remove the loan’s tradeline. (A tradeline is information about a consumer account that is sent to credit bureaus. Tradelines contain data such as the account balance, payment history, and the status of the account, e.g., current, past due, or charged-off). To qualify, the borrower’s mailing address on file with Navient as of June 30, 2021, must be within one of the restitution-participating states listed above, Arkansas, Kansas, Michigan, Rhode Island, South Carolina, Vermont, West Virginia, or associated with a military address postal code.

​​Conduct Reform. The settlement requires Navient to reform its conduct and cease unfair and deceptive practices in servicing and collecting student loans. It includes terms designed to ensure that Navient improves its servicing and debt collection operations. – Source

Federal Student Loan Debtors Get a Taste

Certain federal student loan debtors will be eligible for a giant restitution check of $260.

Generally, borrowers are eligible for restitution if they:

  • Resided in a restitution-participating state as of January 2017;
  • Entered repayment on a Direct or FFEL Program loan before January 2015;
  • Had at least one federal loan that was eligible for income-driven repayment;
  • Had at least two years of consecutive verbal or administrative forbearance between October 2009 and January 2017, where at least one of the forbearances was entered through a phone call, and where at least half of the forbearance time was prospective (i.e., not used to bring a past-due loan current); and
  • Did not enroll in income-driven repayment prior to the forbearance period.

Now to the Biggest News for Private Student Loan Debtors

The settlement administrators site says private loan debt relief will primarily go to borrowers who took out private subprime student loans (made to borrowers with low credit scores) through Navient’s predecessor, Sallie Mae, between 2002 and 2014, and then had more than seven consecutive months of delinquent payments prior to June 30, 2021.

You can read into that whatever you want. But it seems only loans taken out between 2002 and 2014 are eligible.

The debt relief also includes certain other, non-subprime private student loans made by Sallie Mae Bank and certain other lenders between 2002 and 2014 for borrowers to attend specific for-profit schools that have been subject to state or federal law enforcement actions.

I have no clarity on what is a certain type of ​non-subprime private student loan. That is not defined clearly.

However, we do have a list of those specific schools included.

For-Profit School List

Company Name

Representative School Brands

Advanced Career Technologies, ABC Training Center of Maryland, and The Career Institute

American Career Institute, The Career Institute of American International College, and Clark University Computer Career Institute

Alta College

Westwood College and Redstone College

Apollo Group

University of Phoenix

ATI Enterprises

ATI Career Training Center

Bridgepoint Education

Ashford University

Career Education Corporation

Le Cordon Bleu, Sanford Brown, American InterContinental University, Brooks Institute, Colorado Technical University, Briarcliffe College, Harrington College of Design, International Academy of Design & Technology, and Missouri College

Center for Excellence in Higher Education

College America, Independence University, Stevens-Henager College, and California College San Diego

Corinthian

Bryman Institute, Everest Institute, Everest College, Heald College, and WyoTech

DeVry

DeVry University, Ross University, Keller Graduate School of Management, and Carrington College

Education Corporation of America

Virginia College and Brightwood College

Education Management Corporation

Art Institute, Argosy University, Brown Mackie, and South University

Minnesota School of Business

Minnesota School of Business and Globe University

Graham Holdings

Kaplan University, Kaplan Career Institute, Kaplan College, and Mount Washington College

ITT Educational Services

ITT Technical Institute

Lincoln Educational Services

Lincoln Technical Institute

B&H Education

Marinello School of Beauty

Premier Education Group

Salter College, Branford Hall, Hallmark Institute of Photography, Harris School of Business, American College of Medical Careers

Am I Eligible for Private Student Loan Forgiveness?

All I can tell you is the best thing to do is sit and wait for a notice in the mail. The settlement administrator says, “Navient will notify eligible private loan borrowers of the discharge of their private loans in writing by July 2022. Consumers who are eligible for the private loan cancellation under the settlement do not need to take any action.”

Federal student loan holders eligible for their $260 check will have it automatically distributed. If you are eligible for a payment, the settlement administrator will send a postcard to you in the mail later this spring. Checks are expected to be sent by mail in mid 2022. To ensure the settlement administrator can find you, federal loan borrowers who may be eligible for a restitution payment are encouraged to update their contact information in their studentaid.gov account or create an account if they do not already have one.

Press Release

Most of the details we have at the moment come from information distributed as part of the settlement agreement and administration.

The public statement says:

39 state Attorneys General announced today that Navient, known as one of the nation’s largest student loan servicers, will provide relief totaling $1.85 billion to resolve allegations of widespread unfair and deceptive student loan servicing practices and abuses in originating predatory student loans.

This settlement resolves claims that since 2009, despite representing that it would help borrowers find the best repayment options for them, Navient steered struggling student loan borrowers into costly long-term forbearances instead of counseling them about the benefits of more affordable income-driven repayment plans.

According to the attorneys general, the interest that accrued because of Navient’s forbearance steering practices was added to the borrowers’ loan balances, pushing borrowers further in debt. Had the company instead provided borrowers with the help it promised, income-driven repayment plans could have potentially reduced payments to as low as $0 per month, provided interest subsidies, and/or helped attain forgiveness of any remaining balance after 20-25 years of qualifying payments (or 10 years for borrowers qualified under the Public Service Loan Forgiveness Program).

Navient also allegedly originated predatory subprime private loans to students attending for-profit schools and colleges with low graduation rates, even though it knew that a very high percentage of such borrowers would be unable to repay the loans. Navient allegedly made these risky subprime loans as “an inducement to get schools to use Navient as a preferred lender” for highly-profitable federal and “prime” private loans, without regard for borrowers and their families, many of whom were unknowingly ensnared in debts they could never repay.

Under the terms of the settlement, Navient will cancel the remaining balance on $1.7 billion in subprime private student loan balances owed by more than 66,000 borrowers nationwide. In addition, Navient will pay $142.5 million to the attorneys general. A total of $95 million in restitution payments of about $260 each will be distributed to approximately 350,000 federal loan borrowers who were placed in certain types of long-term forbearances. Borrowers who will receive restitution or debt cancellation span all generations: Navient’s harmful conduct impacted everyone from students who enrolled in colleges and universities immediately after high school to mid-career students who dropped out after enrolling in a for-profit school in the early to mid-2000s.

The settlement includes conduct reforms that require Navient to explain the benefits of income-driven repayment plans and to offer to estimate income-driven payment amounts before placing borrowers into optional forbearances. Additionally, Navient must train specialists who will advise distressed borrowers concerning alternative repayment options and counsel public service workers concerning Public Service Loan Forgiveness (PSLF) and related programs. The conduct reforms imposed by the settlement include prohibitions on compensating customer service agents in a manner that incentivizes them to minimize time spent counseling borrowers.

The settlement also requires Navient to notify borrowers about the U.S. Department of Education’s recently announced PSLF limited waiver opportunity, which temporarily offers millions of qualifying public service workers the chance to have previously nonqualifying repayment periods counted toward loan forgiveness—provided that they consolidate into the Direct Loan Program and file employment certifications by October 31, 2022.

As a result of today’s settlement, borrowers receiving private loan debt cancellation will receive a notice from Navient by July 2022, along with refunds of any payments made on the cancelled private loans after June 30, 2021. Federal loan borrowers who are eligible for a restitution payment of approximately $260 will receive a postcard in the mail from the settlement administrator later this spring.

Federal loan borrowers who qualify for relief under this settlement do not need to take any action except update or create their studentaid.gov account to ensure that the U.S. Department of Education has their current address.

Until recently, Navient had a contract to service federal student loans owned by the U.S. Department of Education, including a large portfolio of loans made under the Direct Loan Program and a smaller portfolio of loans made under the Federal Family Education Loan (FFEL) program. On October 20, 2021, the U.S. Department of Education announced the transfer of this contract from Navient to Aidvantage, a division of Maximus Federal Services, Inc. However, Navient will continue to service federal student loans made under the FFEL Program that are owned by private lenders, as well as non-federal private student loans.

The settlement was led by Pennsylvania, Washington, Illinois, Massachusetts, and California, and was joined by attorneys general in Arizona, Arkansas, Colorado, Connecticut, the District of Columbia, Delaware, Florida, Georgia, Hawaii, Indiana, Iowa, Kansas, Kentucky, Louisiana, Maine, Maryland, Michigan, Minnesota, Missouri, Nebraska, Nevada, New Jersey, New Mexico, New York, North Carolina, Ohio, Oregon, Rhode Island, South Carolina, Tennessee, Vermont, Virginia, West Virginia, Vermont, and Wisconsin.

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