In January 2022, Navient, one of the country’s largest student loan servicers, reached a $1.85 billion settlement over allegations it defrauded students with deceptive and predatory loan practices. The settlement resolves a lawsuit brought against Navient by 39 state attorneys general, and it provides some borrowers with student loan relief.
The allegations: Navient directed struggling borrowers toward costly forbearance plans rather than into more appropriate income-driven repayment (IDR) plans. As a result, borrowers accrued unnecessary interest that bloated their loan balances and pushed them further into debt. Had borrowers received appropriate guidance, they could have been placed in an IDR plan with reduced payments, in some cases as low as $0 per month, depending on income.
WHAT KIND OF STUDENT LOAN RELIEF DOES THE SETTLEMENT PROVIDE?
The settlement provides two kinds of relief. Keep in mind, it’s limited and doesn’t apply to many borrowers.
Private student loan cancellation. Borrowers who took out private student loans with Sallie Mae to attend for-profit colleges between 2002 and 2014 may be eligible for loan cancellation (aka discharge). The balance or a portion of the balance you owe could be canceled, and any payments made after June 30, 2021, could be refunded.
Eligible borrowers may include those who were issued a subprime loan (made to borrowers with low credit scores) or those who attended a specific non-profit school. Check the settlement information for a list of schools.
Restitution. Borrowers with federal student loans who were steered into long-term (2+ years) forbearance periods—periods of no payment—rather than receiving counseling on income-driven repayment plans may receive a “restitution” payment of $260. Loan forgiveness isn’t being offered to these borrowers.
WHAT SHOULD I KNOW ABOUT ELIGIBILITY?
To be eligible for federal loan restitution—the $260 payment—you must be a resident of one of the 39 states that sued Navient. The restitution-participating states are: AZ, CA, CO, CT, DC, DE, FL, GA, HI, IA, IL, IN, KY, LA, MA, MD, ME, MN, MO, MS, NC, NE, NJ, NM, NV, NY, OH, OR, PA, TN, VA, WA, and WI.
To qualify for cancellation on certain private subprime loans, borrowers must reside in any of the above restitution-participating states, or Arkansas, Kansas, Michigan, Rhode Island, South Carolina, Vermont, or West Virginia. A military address postal code also qualifies.
Review the information at navientagsettlement.com for more details on eligibility.
WHAT SHOULD I DO IF I THINK I QUALIFY?
You don’t need to take any action to receive benefits, so if you’re not sure you qualify, don’t worry. Navient will notify all borrowers (in writing) who receive private loan cancellation or restitution payments.
Right now, the best thing is to make sure your contact information is up to date with the U.S. Department of Education and Navient. Go online to studentaid.gov to review and update your information and then call or go online to Navient to review or update your information for any private loans.
If your loans are canceled due to the settlement, you may owe taxes on the forgiven amount. It’s worth checking with a qualified tax professional about the tax implications.
HOW THE PUBLIC SERVICE LOAN FORGIVENESS (PSLF) WAIVER FACTORS IN
As part of the settlement, Navient must reform its counseling practices. The servicer is required to explain forbearance, deferment, and income-driven repayment plans to borrowers, as well as help them determine the best repayment option for them.
Navient is also required to educate borrowers about Public Service Loan Forgiveness (PLSF) for federal loans and notify them about the PSLF limited waiver available through October 31, 2022.
If you work in qualified public service (a 501c3 or a government job), you might benefit from the waiver, whether your loans are held by Navient or another servicer. PSLF still requires that you be working for a qualifying public service employer, but it has eased other requirements.
You might qualify for forgiveness if you have any of the following:
- Direct Loans not in repayment through a qualifying income-driven repayment plan
- FFEL, Perkins, or other federal student loans not consolidated into a Direct Loan
- Payments that were disqualified because they were late or partial payments
Make sure to apply before October 31, 2022.
WHAT ELSE TO KNOW ABOUT STUDENT LOAN FORGIVENESS
The Department of Education offers several federal forgiveness programs besides PSLF. There’s also the Teacher Loan Forgiveness program, or you might be eligible for forgiveness in your state if you work in a particular profession. It’s worth researching.
Forgiveness is also offered through Income-Driven Repayment Plans. In one of these plans, you make qualifying income-based payments for 20 or 25 years, depending on the plan, after which the balance is forgiven. Private student loans aren’t typically eligible for forgiveness. Keep an eye on studentaid.gov for updates on student loan forgiveness, who qualifies, and where to learn more.
IF YOU WON’T BENEFIT FROM THE NAVIENT SETTLEMENT, WHAT CAN YOU DO?
Even if you aren’t included in the Navient settlement, your federal student loans may qualify for discharge if you believe you were defrauded or deliberately misled by false promises or misrepresented information. The primary reasons someone might qualify for discharge:
- False certification. Discharge for false certification applies to borrowers who think their school falsely certified their eligibility to receive loans. For example, if the institution falsely certified your ability to benefit from the program, falsely certified your eligibility for the program, or signed your name to the application or promissory note without your authorization.
- Unpaid refund discharge. If you withdrew from the school, and it didn’t properly refund the loan when you withdrew, you could be eligible for the portion of the loan not refunded to be discharged.
- Borrower defense against repayment discharge. Finally, if you believe the school misled you, engaged in misconduct, or violated state law, you may be eligible for discharge. Examples include misrepresenting graduates’ job placement rates, employment prospects, accreditation status of programs, ability to transfer credits, and program completion claims.
Start by submitting your complaint through the Federal Student Aid Feedback Center or by calling 877-557-2575 for the Federal Student Aid Ombudsman Group. The ombudsman group can help you understand your rights, assist in identifying and evaluating your options for resolving specific concerns, and refer you to the appropriate resources.
The discharge application forms can be found on the StudentAid.gov website. Review the information before applying: unpaid refund discharge, false certification discharge, or borrower defense discharge.