More than a million borrowers defrauded by for-profit schools have had billions of dollars in federal student loans revoked through a federal aid program. But people with personal loans were – until recently – essentially excluded from any relief.
Navient, a large owner of private student loan debt, has launched a program that allows borrowers to apply to have their loans forgiven, but has not made it public. Some who have succeeded have cheerfully shared their stories in chat groups and other forums.
“I cried a lot,” said Danielle Maynard, who recently received notice from Navient that nearly $40,000 in personal loans she owed for her studies at the New England Institute of Art in Brookline, Massachusetts, would be canceled.
Navient, based in Wilmington, Delaware, has not disclosed the layoff program that helped Ms. Maynard. Other borrowers have complained on social media about difficulty obtaining an application form. When asked about the program and the criticisms, a company spokesman said: “Borrowers can contact us at any time and our advocates can help them.”
That’s why a nonprofit group of lawyers has stepped in to make the process easier: On Thursday, the Project on Predatory Student Lending, an advocacy group in Boston, released Navient’s application form and a guide for private loan borrowers seeking relief locally that their school lied to her.
“We want to level the playing field and inform people rather than keep it so top secret,” said Eileen Connor, the group’s director.
Sen. Elizabeth Warren, Democrat of Massachusetts, and eight Senate colleagues sent Navient a letter last month with a long list of questions about the program. Navient responded but did not directly address many of the senators’ questions.
Navient’s new program — which it calls “relief for school misconduct” — is something of a private parallel to a federal program called “borrower defense until repayment,” which allows those who have been seriously misled by their schools were asked to obtain the cancellation of their federal student loans. Under President Biden, the Education Department revived the relief program, canceling nearly $30 billion in debt for 1.6 million borrowers.
The Project on Student Predatory Lending supported a class action lawsuit against the government that resulted in a 2022 settlement in which nearly 200,000 borrowers had their federal student debt forgiven. Ms. Maynard, who is 34, saved $38,000 in federal loans through this deal.
But she, like many borrowers, got stuck in private student loans. Ms. Maynard paid $700 a month to Navient on her personal loans for more than a decade.
For nearly a decade in the early 2000s, Navient — then known as Sallie Mae — contracted with for-profit schools to provide private loans to their students. Lawsuits filed by state attorneys general later accused Navient of making those loans knowing that most would never be repaid. Many schools compensated Navient for the private loans and agreed to cover the company’s losses if the loans defaulted.
In 2022, Navient settled with 40 state attorneys general and canceled $1.7 billion in debt on these private loans – but only for borrowers who had already defaulted. Because it was unlikely that this debt would ever be repaid, the deal cost Navient only $50 million, the company said in regulatory filings. Borrowers who had continued paying their bills, like Ms. Maynard, were left stuck.
But a pressure campaign from lawmakers, federal regulators and attorneys representing borrowers led the company to adopt “school misconduct relief.”
Navient this year began sending a 12-page application form to some borrowers who had complained about their personal loans. The document lists dozens of types of improprieties on the part of schools — such as inflating job placement rates and graduate earnings or misrepresenting their educational programs — and asks borrowers to select which apply to their experience. Applicants must submit documentation supporting their claims.
After Ms. Maynard had her federal loans canceled last year, she stopped making payments on her private loans and called Navient to look for remedies.
A few months ago, Navient sent her the misconduct dismissal form. Weeks later, she received notification that her application had been approved.
The senators’ letter to Navient called the process for paying off private loans “onerous and confusing.” A legal basis has also been asserted for borrowers’ claims to have their loans canceled: the so-called holder-in-due course rule, a 1975 Federal Trade Commission regulation that allows those with certain types of loans use to dispute the debts if the goods they purchased were fraudulent.
In the response Navient sent to senators, the rule was acknowledged as a cause of action. “We are committed to canceling all loans that meet the criteria of the Holder Rule,” David Yowan, Navient’s chief executive, wrote in the letter, which was reviewed by The New York Times.
The letter said Navient has paid off “some” loans for borrowers who have filed claims under the rule and has “recently implemented an enhanced process for borrowers to apply for relief,” which the company described as “still in the initial phase”.
Mr. Yowan told investors in a conference call in January that Navient had set aside $35 million for losses from school misconduct claims. He cited “new regulatory expectations” as the reason. Navient has not disclosed how much of its $16.6 billion private student loan portfolio consists of loans that could be eligible for the debt relief program.
Senator Warren said in a written statement this week: “Navient has admitted responsibility for canceling its predatory loans, but has implemented a cancellation process that is incredibly confusing for borrowers.”
Some attempts to control the process have already failed.
Thomas Jean-Mastej had his federal loans canceled to study at American InterContinental University — a school cited by the Federal Trade Commission for deceptive recruiting tactics — through the Borrower Defense Program. In March, he filed a complaint with the Consumer Financial Protection Bureau about his personal loans.
Navient responded by sending him the School Misconduct Dismissal Request Form, which he submitted in mid-April. On May 10th he received a rejection notice. It said Navient “carefully considers a variety of factors when determining whether a personal loan should be repaid,” but did not specify why its claim was rejected.
Mr. Jean-Mastej said he had hoped Navient would “show some compassion” – especially since he had already repaid the company nearly $17,000 over the years on a loan of just under $7,000. He still owes almost $4,000.
Numerous others are in limbo awaiting an answer. Thomas Carter learned about Navient’s program on a Reddit forum. He followed the steps recommended there, filed a complaint with the consumer bureau, and then received a claim form from Navient. He sent it in three weeks ago.
“My thoughts were, ‘Why is this such a secret?'” said Mr. Carter, who attended the Art Institute of York in Pennsylvania. “You had to overcome all these hurdles to get the application.”
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2024-05-30 20:01:24
www.nytimes.com
