Last week, over three dozen state attorneys general joined a settlement agreement with student loan giant Navient to resolve alleged unfair and deceptive practices claims. Here’s what you need to know.
The settlement agreement was reached to resolve an ongoing lawsuit brought by several state attorney general offices against Navient.
According to a website established by these offices to provide information on the settlement, the lawsuit alleged that, “Since 2009, despite representing that it would help borrowers find the best repayment options for them, Navient steered struggling [federal] student loan borrowers into costly long-term forbearances instead of counseling them about the benefits of more affordable income-driven repayment plans.”
The lawsuit also claimed that Navient “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 maintains that it did not engage in any misconduct, wrongdoing, or illegal activities as part of the settlement agreement. The settlement does not assign culpability to Navient.
“The company’s decision to resolve these matters, which were based on unfounded claims, allows us to avoid the additional burden, expense, time and distraction to prevail in court,” said a Navient spokesperson in a statement.
This was a lawsuit brought by state attorneys general – it’s not a class action lawsuit
The settlement agreement was reached to resolve a lawsuit brought by state attorney general offices. It was not a class action brought by individual student loan borrowers. This means that it is not a lawsuit or settlement that borrowers can “join.”
When a state attorney general brings this type of consumer lawsuit, it is brought on behalf of all impacted individuals in that state. Individual borrowers do not have to do anything to potentially benefit from a resolution, but borrowers who reside in states where their state attorney general did not join the lawsuit or settlement have no way to opt-in.
There is student debt cancellation – but with very specific eligibility criteria
The settlement agreement with Navient does provide for $1.7 billion in student loan cancellation, which is good news for thousands of borrowers. But the debt cancellation has very specific eligibility criteria:
- Only certain private student loans qualify for cancellation. There is no federal student loan cancellation from this settlement agreement.
- Private student loans will qualify only if they meet specific requirements. In most cases, the loans must have been originated by Navient or its predecessor, Sallie Mae, between 2002 and 2014. The loans must be at least seven months delinquent as of June 30, 2021, and must still be collectible and/or reportable to consumer credit bureaus under applicable state and/or federal laws.
- Only borrowers who took out these private loans to attend certain for-profit educational institutions, like ITT Technical Institute or the Art Institutes, would qualify. A full list of covered institutions can be found here.
Some federal student loan borrowers can get restitution
Around 350,000 federal student loan borrowers may be entitled to $95 million in restitution under the settlement agreement. This equates to approximately $260 per eligible borrower – it’s not nothing, but it’s also not going to be a life-changing sum of money for people.
These borrowers, too, are only eligible under specific circumstances:
- Borrowers must have entered repayment on their federal student loans before 2015.
- A borrower’s federal student loan(s) must have been eligible for an income-driven repayment plan like Income Based Repayment (IBR) and had not been enrolled, but a Navient representative steered the borrower into forbearance instead during a phone call.
- The resulting forbearance must have lasted at least two consecutive years, and at least half of that time must have been a prospective forbearance – meaning to postpone payments in the future, rather than a retroactive forbearance to resolve a past delinquency.
Not all states are participating in the settlement
Since the settlement is to resolve a lawsuit brought by state attorneys general, only residents of states that are joining the settlement would be eligible for relief. Many, but not all states, have joined. A full list of participating states can be found here.
No application is required (or allowed)
If you think you are eligible for relief, there’s not a whole lot that can be done. The relief will be distributed automatically by settlement administrators. There is no application process.
Timing of relief
According to settlement administrators, “borrowers receiving private loan debt cancellation will receive a notice from Navient by July 2022, along with refunds of any payments made on the canceled private loans after June 30, 2021.”
As for federal student loan borrowers, “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.”
In addition to private student debt cancellation and restitution for some federal student loan borrowers, the settlement agreement includes other relief for borrowers, including requirements that Navient agents explain to borrowers the benefits of income-driven repayment plans and to offer these as options before placing borrowers into forbearance.
Navient must also train specialists to better counsel borrowers on federal loan repayment programs as well as Public Service Loan Forgiveness.
How to get more information
The settlement administrator has set up a website where borrowers can get an overview of the Navient settlement details. In addition, borrowers can get information by contacting their state attorney general offices.
Some individual state attorney general offices – such as the Massachusetts state attorney general’s office — have set up consumer-facing websites to provide more specific details to residents of their states.