1,500 Delaware borrowers to get loans forgiven, restitution in Navient settlement

Navient has agreed to a nearly $1.9 billion settlement of a suit that charged it used unfair, predatory practices.

More than 1,500 state residents who borrowed money from student loan provider Navient will get a part of Delaware’s $5.34 million share of a settlement in a suit charging the company used unfair, deceptive and predatory practices.

Of those, 145 Delaware borrowers will get nearly $4.8 million in private loan debt cancellation. Others will get restitution payments.

Attorney General Kathy Jennings announced Thursday that most of Delaware’s share will go to the people who borrowed money.

The company was charged with practices that included making borrowers agree that their loans could not be included in bankruptcy proceedings, refusing to allow borrowers to switch to loan forms like income-based  payment schedules, adding interest and fees to loans when it should not have, failing to point customers to loan-forgiveness programs and charging more for loans for schools with low graduation rates.

“Addressing the student loan crisis is one of my biggest consumer protection priorities,” Jennings said in a press release. “We have to recognize that even when the playing field is level, student borrowers are fighting an uphill battle. Between rising tuition and a generation of teenagers who were told that a four-year degree was vital to their success, student debt has become a crisis.

“With Day One debt burdens sometimes eclipsing six figures, it’s no surprise that thousands of people struggle to make ends meet. At a minimum, loan servicers should be expected to follow the law.”

Delaware’s share of the $1.895 billion multistate settlement came after the Delaware Department of Justice helped investigate Navient’s alleged misrepresentations regarding the right of private student loans to be included in bankruptcy proceedings, the press release said.

Delaware’s investigation focused on a private loan known as a “tuition answer loan.” It required borrowers to agree at the time of origination that the loan would not be dischargeable in bankruptcy.

The DOJ’s Consumer Protection Unit reviewed promissory notes and interviewed about 100 Delaware borrowers during the course of its investigation.

The multistate investigation also looked at Navient:

• Steering borrowers into expensive “forbearances” to avoid default, which did nothing to reduce their existing debt burden or interest rate;
• Failing to direct consumers to alternative repayment options such as income-driven repayment plans or public service loan forgiveness; and
• Originating subprime loans for students attending for-profit colleges with low graduation rates.

The interest that accrued because of Navient’s forbearance steering practices was added to the borrowers’ loan balances, pushing borrowers further in debt, the press release said.

If 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), the press release said.

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, the press release said.

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, snaring unknowing borrowers and their families debts they could never repay.

Under the settlement, Navient will cancel the remaining balance on more than $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.

Navient’s 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.

As part of the settlement, Delaware will receive a total of $400,000 in restitution payments for 1,528 federal loan borrowers.

The settlement requires 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 and related programs.

Navient also may not compensate 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.

Borrowers receiving private loan debt cancellation will be notified by Navient no later than July 2022; they will also receive a refund 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 to update or create their studentaid.gov account to ensure that the U.S. Department of Education has their current address. For more information, got to www.NavientAGSettlement.com.

Betsy Price