The settlement will result in the cancellation of $1.7 billion in private student loan debt and $95 million in small restitution payments for certain federal borrowers.
Navient, a loan servicing company, announced on January 13, 2022 that it had reached a settlement with attorneys general from 39 states regarding alleged unfair and deceptive student loan practices.
Pennsylvania Attorney General Josh Shapiro, along with the other attorneys general involved in the lawsuit, allege that Navient made subprime loans to borrowers who were unlikely to repay the money, and misled the borrowers into abstentions which “prevented them from repaying the principal on their loan and led many to rack up more debt and endless interest payments.
Navient denies these allegations and will no longer service Department of Education loans beginning fall 2021. Navient will continue to service federal student loans made under the Federal Family Education Loans (FFEL) program which belong to private lenders and non-federal private students. loans.
The settlement will result in the cancellation of $1.7 billion in private student loans and $95 million in restitution for some federal loan borrowers.
After the announcement of the settlement, some federal student loan borrowers wondered if their debt would be cancelled.
Does the Navient Settlement Cancel Loans for Federal Student Loan Borrowers?
No, the Navient settlement does not cancel loans for federal borrowers. Some federal borrowers may qualify for a small restitution payment, but are not eligible for loan forgiveness as part of the settlement.
WHAT WE FOUND
Who Qualifies For Student Loan Debt Forgiveness
Navient said in an announcement about the settlement that it would forgive the loan balances of approximately 66,000 borrowers with certain eligible private education loans.
Here’s what borrowers need to know to determine if they qualify for loan forgiveness.
The settlement funds will primarily go to those who took out subprime private student loans, which are issued to borrowers with low credit scores, through Navient’s predecessor, Sallie Mae, between 2002 and 2014, according to the Massachusetts state government’s FAQ page on the settlement. These borrowers also had more than seven consecutive months of past due payments before June 30, 2021.
The lawsuit claimed that these practices unfairly targeted lenders who were unlikely to be able to repay the loans.
Other private student borrowers are also eligible for debt relief on loans made by Sallie Mae Bank and certain other lenders between 2002 and 2014 if they attended specific for-profit schools that were subject to “state or federal or enforcement action,” the FAQ page says. These for-profit institutions include the American Career Institute, University of Phoenix, DeVry University, Art Institute, ITT Technical Institute, and others.
To be eligible for debt relief, the borrower’s mailing address on file with Navient as of June 30, 2021 must be in one of the 39 restitution participating states. The full list of states is available online.
Delaware Attorney General Kathy Jennings, who participated in the lawsuit, wrote in a press release that Navient will notify private borrowers receiving debt forgiveness no later than July 2022. They will also receive a refund of any payments made on private loans canceled after June. 30, 2021.
Who is eligible for other payments from Navient
Restitution payments of about $260 each will be distributed to about 350,000 federal student loan borrowers who have been placed in some type of long-term forbearance, according to a website devoted to the attorneys general’s settlement with Navient.
According to the Massachusetts FAQ page, a person is generally eligible if they:
- Lived in a returning state as of January 2017;
- Repayment of a direct or federal Family Education Loan Program (FFEL) loan before January 2015;
- Had at least one federal loan eligible for income-contingent repayment;
- Had at least two years of consecutive verbal or administrative abstention between October 2009 and January 2017, where at least one of the abstentions was captured by a phone call, and where at least half of the abstention time was not used to bring an overdue loan outstanding); and
- Did not enroll in the income-based reimbursement prior to the forbearance period.
Those who are eligible for a restitution payment will receive a postcard in the mail from the settlement administrator in the spring of 2022. Some borrowers may be eligible for both private loan debt relief and a restitution payment, according to the settlement website.
Federal borrowers don’t need to take any action except to update or create their studentaid.gov account to make sure the Department of Education has their current address, Jennings said.
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