By Claire Torchiana | January 25, 2022
Earlier this month, a bipartisan group of 39 state attorneys general settled lawsuits and investigations against Navient, one of the nation’s largest student loan lenders and servicers. The settlement is a meaningful step forward in a years-long attempt to hold one of the most predatory and unscrupulous actors in the student loan industry accountable.
But the settlement also shows how deep the rot has historically run in student loan servicing, and how borrowers will continue to struggle under the weight of lingering system-wide breakdowns unless additional changes are made. It’s time for the Biden Administration to build on this settlement with a sweeping waiver aimed at providing relief to millions of borrowers who were harmed by student loan servicers’ illegal practices surrounding the failed implementation of one of the most important borrower protections: income-driven repayment (IDR). The administration can build on its recent Public Service Loan Forgiveness waiver by creating a one-time path toward IDR loan forgiveness for the millions of borrowers who have been denied this promised relief.
Without this follow-up step, for millions who are on track to remain trapped under insurmountable debts, last week’s settlement will prove to be a band-aid on a bullet wound.
Navient’s Settlement Points to Deep, Lingering Breakdowns in Borrower Protections
Per the terms of the settlement, Navient will cancel $1.7 billion in dangerous, high-cost private student loans for borrowers across the country. Furthermore, Navient will pay $95 million in restitution to harmed federal student loan borrowers whose loans it serviced, and $142.5 million to the states. Navient is also required to change its behavior, including advising borrowers on the benefits of income-driven repayment plans.
The settlement follows two principal allegations.
First, the states alleged that more than a decade ago Sallie Mae, the former parent company of Navient, peddled “risky and expensive subprime loans that they knew or should have known were likely to default.” In what has become an infamous reflection of the company’s loose lending practices at the time, its CEO in 2007 said that, “if a borrower can create condensation on a mirror, they need to get a loan this year.”
If not for Navient’s illegal practices, many borrowers would have enrolled in IDR plans and, as a result, would have benefitted from significantly reduced monthly payments, would be further along the path to loan cancellation, and have significantly lower loan balances.
Second, the lawsuits filed by several of the states allege that Navient broke a wide range of state and federal laws as a student loan servicer, including by pursuing a years-long scheme to steer borrowers into high-cost repayment options and away from IDR plans that borrowers are entitled to under the law. Along with other servicers in the student loan industry, Navient has consistently misadvised and duped borrowers for its own pecuniary gain while wreaking havoc on borrowers’ financial lives. If not for Navient’s illegal practices, many borrowers would have enrolled in IDR plans and, as a result, would have benefitted from significantly reduced monthly payments, would be farther along the path to loan cancellation, and have significantly lower loan balances. Instead, borrowers have been saddled with unaffordable and ballooning loan balances, often leading them to default on their debts.
As explained by the office of New York Attorney General Leticia James, who was one of the attorneys general involved in the recent settlement with Navient, “since 2009, [Navient] has been steering struggling student loan borrowers into costly, long-term forbearances instead of counseling them about the benefits of more affordable income-driven repayment plans. The interest that accrued because of Navient’s forbearance steering practices was added to the borrowers’ loan balances, pushing students further in debt. Had the company instead provided borrowers with the help it promised, income-driven repayment plans could have 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 [PSLF]).”
Although the Navient settlement will cancel the private student loans for many borrowers whom the company harmed as a lender, the settlement’s relief for borrowers whom the company harmed as a loan servicer does not begin to address these borrowers’ needs.
And while the settlement is limited to just one company, conduct along the lines of what Attorney General James described is not limited to Navient but is pervasive across the student loan servicing industry. For instance, an internal audit at the Department of Education found that student loan servicers repeatedly violated federal regulations and requirements, violations which often went unchecked by Federal Student Aid (FSA).
At Every Step of the Way, The Promise of Income-Driven Repayment and Loan Cancellation Is Denied
The Navient settlement is yet another example of how the promise of eventual debt forgiveness through income-driven repayment for student loan borrowers is elusive and how the promise of educational advancement is often instead turned into a lifetime debt sentence. The scale of the problem is staggering: only 32 borrowers have ever successfully cancelled their loans through IDR, even though 4.4 million borrowers have been in repayment for 20 years or longer, the time frame after which borrowers in IDR plans generally have their loans cancelled. More than four million student loan borrowers remain trapped in decades-old debts. And an internal analysis prepared by the largest student loan servicer, PHEAA, found that of its more than 8.5 million customers, only 48 borrowers would receive debt cancellation under IDR by 2025. Moreover, PHEAA’s internal data projects the number of IDR borrowers receiving debt cancellation will decline by 83 percent between 2022 and 2025.
One of the most devastating consequences of the student loan system failing to ensure borrowers have access to IDR, is that many of the most vulnerable borrowers (many of whom could have had a $0 IDR payment) wind up defaulting on their loans. Of the 4.4 million borrowers who have been in repayment for more than 20 years, over 2.1 million were more than 90 days delinquent or in default.
The Biden Administration Must Complete the Unfinished Work of Fixing IDR
While the Navient settlement is a powerful step forward, it will not provide relief for the millions of federal student loan borrowers who are trapped in unaffordable debts because of unlawful forbearance steering. The settlement did not give credit toward IDR forgiveness to borrowers whom Navient steered into forbearances, effectively robbing them of their time in qualifying repayment plans. Essentially, these borrowers have not been made whole from the harm they experienced.
The Department, however, has the tools at its disposal to rectify this injustice. We urge the Department to enact an IDR waiver that does the following:
- On a retroactive basis, count all months since the borrower entered repayment following their grace period as qualifying months towards forgiveness. This relief should apply regardless of which repayment plan the borrower was in, whether they were in forbearance, and whether they were in default.
- Ensure that all federal loan borrowers, regardless of loan program, have access to the IDR Waiver. While FFEL and Perkins loans borrowers could be eligible for IDR, so many borrowers were not properly advised and so have failed to benefit. The IDR waiver must apply to these borrowers who have been left behind.
- Provide relief automatically. All of the data that the Department of Education needs in order to implement the IDR Waiver is readily available through the Department’s National Student Loan Data System. Borrowers should not need to affirmatively apply for this relief.
Such an action would recognize that borrowers have too long suffered at the hands of predatory student loan servicers and broken regulatory oversight that does not check this behavior until too late.
Claire Torchiana is Counsel at the Student Borrower Protection Center. She joined the SBPC from an Equal Justice Works fellowship at Housing and Economic Rights Advocates (HERA), where she represented student loan borrowers in litigation and discharge applications.