More than 1,500 Del. student loan borrowers to receive relief following Navient settlement

DELAWARE – Delaware Attorney General Kathy Jennings announced on Thursday that one of the nation’s largest student loan servicers, Navient, will provide $1.85 billion in relief to student borrowers until a multistate settlement stemming from allegations of widespread unfair, deceptive, and predatory practices.

More than 97% of Delaware’s $5.34 million share of the settlement will go directly to Delaware borrowers in the form of borrower restitution or private loan forgiveness.

We’re told the Delaware Department of Justice played a leading role in investigating Navient’s alleged misrepresentations regarding the dischargeability of private student loans in bankruptcy. The state’s investigation reportedly focused heavily on a private loan known as a “tuition answer loan, which typically required borrowers to agree at the time of origination that the loan would not be dischargeable in bankruptcy.

Officials say the investigation also reviewed further allegations of misconduct by Navient, including:

  •  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
  • originating subprime loans for students attending for-profit colleges with low graduation rates

According to the AG, the interest that accrued because of Navient’s forbearance steering practices was added to the borrowers’ loan balances, pushing borrowers further into debt. If the company had 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 to 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, despite knowing that a very high percentage of borrowers would be unable to repay the loans. We’re told Navient made these risky loans as “an inducement to get schools to use Navient as a preferred lender” for highly-profitable federal and prime private loans, with no regard for borrowers and their families.

Under the terms of 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. Navient will also pay $142.5 million to the attorney general. As part of the settlement, Delaware will receive a total of $400,000 in restitution payments for 1,528 federal loan borrowers. In addition, 145 Delaware borrowers will receive nearly $4.8 million in private loan debt cancellation.

Navient will be required to explain the benefits of income-driven repayment plans and to offer to estimate income-driven payment amounts before placing borrowers into option forbearances. 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 and will also receive a refund of any payments made on the cancelled loans after June 30, 2021. Federal loan borrowers who are eligible for restitution payment of approximately $260 will receive a postcard in the mail later this spring. Borrowers who qualify under this settlement do not need to take any action except to update or create their studentaid.gov account to ensure their address is current.

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Categories: Delaware, Education, Local News