Delaware attorney general announces student loan settlement

Delaware State News
Posted 1/13/22

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

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Delaware attorney general announces student loan settlement

Posted

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

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

“Addressing the student loan crisis is one of my biggest consumer-protection priorities,” said Ms. Jennings. “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 ... 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.”

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 focused heavily on “tuition answer loans,” which typically require borrowers to agree at origination that the loan would not be dischargeable in bankruptcy.

DOJ’s Consumer Protection Unit reviewed promissory notes and interviewed nearly 100 Delaware borrowers.

The inquiry 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.
  • Originating subprime loans for students attending for-profit colleges with low graduation rates.

Under the terms of the settlement, Navient will cancel remaining balances on more than $1.7 billion in subprime loan balances owed by more than 66,000 borrowers nationwide.

In addition, Navient will pay $142.5 million to the attorneys general of the states involved.

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 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. Additionally, 145 resident borrowers will receive nearly $4.8 million in private loan debt cancellation.

The settlement includes 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 PSLF 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 they consolidate into the Direct Loan Program and file employment certifications by Oct. 31.

Borrowers receiving private loan debt cancellation will be notified by Navient no later than July; they will also receive a refund of any payments made on the canceled private loans after June 30, 2021.

Federal loan borrowers who are eligible for a restitution payment of approximately $260 will receive mail from the settlement administrator in the spring.

Borrowers who qualify for relief do not need to take any action except to update or create their studentaid.gov account to ensure that the Department of Education has their current address.

For more information, visit here.